01 Quantum Inc. (ONE) Earnings Call Transcript & Summary

Let's get started. Good morning, and welcome to our Q4 conference call. I'm Brian Stringer. I'm Chief Financial Officer of 01. And with me today is Andrew Cheung, our President and CEO. The format for today's call will be a brief presentation by Andrew Cheung, followed by Q&A. I'll be moderating the questions. So please, throughout the presentation, everybody knows how to use Zoom now. If you could just click on the Q&A button at the bottom, submit your -- type your questions and submit them to me. Now before we get started, if you would take a minute to read our disclaimer on forward-looking statements as these are an important part of the presentation. And now I'll turn it over to Andrew and -- for his presentation. Over to you, Andrew.

Thank you, Brian. Welcome, everyone. Again, my name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2023 fourth quarter financial result and corporate update. First of all, activities in the post-quantum cryptographic market continued to move in light speed. I think the most notable happening, since the last quarter was the breaking of the 1,000 cubic barrier by IBM. In December, just about a month ago, IBM announced their latest quantum computer, condor with 1,121 qubits. This is a -- not only it's a major milestone, but also because it has fulfilled their road map they post a few years ago. So the road map becomes a reliable item for the quantum computer the industry by itself. And according to their road map, they are going to deliver 1,400 qubit later this year, followed by 4,000 qubit next year and then 100,000-plus a year after. It cannot be more obvious that the Tsunami is already within invisible distance. The reasons are very simple. It takes time, first of all, to convert application to become quantum safe. This can take a minimum of like 6 months to an upward of 3 years to fulfill the conversion. And number two, even more importantly, is that hackers can conduct something called a handle attack. Harvest Now, Decrypt Later or some people called it HNDL attacks. This essentially has fast tracked the effective Q date for those industry with better with long-life spend such as financial, healthcare, et cetera, et cetera. I always fall back to this famous formula, X being number of years your encrypted data needs to be secured. And Y being the number of years that it will take for you to implement quantum safety. And Z being the time they would take for their hackers to get hold of a powerful quantum computer. So any where X plus Y is greater is Z then you are toasted. Now X and Y are different for each industry. And as mentioned earlier, it doesn't rocket scientist to figure that X plus Y is indeed a big number already. And with the announcement from IBM, which I just talk about, Z is about 1 to 2 years away. In other words, we are already crossing the red line that X plus Y is almost guaranteed to be larger than Z as of today. Now this doesn't even include the competitors of IBM, who are all striving to beat them in their quantum computer deliveries. And on top of that, -- it is always a known fact that technologies from the national level such as U.S., Russia, China, are at least 5 years ahead of the commercial level. What does it mean? It means that logically, the national level already had or we will have 2 to 3 years from now. So no wonder why the White House is also not sitting still as they know too well about what's going on. In late 2022, the Executive Office of the President had already issued a memorandum directing all federal agencies to adhere to the NSM10, National Security Memorandum #10 and they set a deadline of October 18, 2023, which is only a few months ago, to assess funding requirement to achieve quantum safety. The memorandum also mentioned about the HNDL attack, which I talked about earlier, Harvest Now, Decrypt Later. This is jointly overseen by the National Institute of Standards and Technology or short form NIST in the U.S. They have started the PQC standardization process in 2016, a few months ago. That was almost in line with when we started the IronCap, the decision or regionally list proposed to have the standard finalized in 2024, but due to the faster-than-expected development of quantum computers. They had the first draft of standard [indiscernible] 203, 204 and 205 just about 5 months ago in August. They expect to add 1 more standard later this year to wrap up the process. Our in-depth knowledge in PQC post-quantum cryptography allowed us to study the Original 82 NIST submissions and try to predict the 5 final winners, so that we can built out crypto engine ahead of the curve. So far 4 out of 5 predictions have been correct. If the last one we have predicted, which we have already included in our IronCap engine, we will be the later -- which -- and this will come out later this year, 2024. If that has also come out to be the winner, we are 5 out of 5. Now because of our ability to predict the standard, this actually allowed us to be a few years ahead of the world in creating end-user quantum-safe applications. While our competitors are busy creating their quantum-safe cryptographic engine according to the NIST standard, we have already created the world-first quantum-safe end-to-end e-mail security product that everyone can download and use it as of today, actually as of like almost a year ago. And while the whole quantum-safe industry was still largely in this pre-money stage, we believe the tipping point is imminent. We also believe real revenues will be coming from end-user application rather than the encryption engine for a simple reason. We all know that we are paying for the car, not the engine itself. So as a result, our go-to-markets plan is to generate revenue from both end-user applications and quantum-safe professional services, while our competitors are only doing the latter. We all know that business 101 sets, you don't need to do or be everything at the same time to begin with as long as you are doing just one thing and doing it better than all your competitors. And the reason why we picked e-mail to be the first quantum safe end-user solution is not only because the market of e-mail is huge, but also because e-mail is indeed the most insecure, but yet a globally adopted business tool. Since its inception, all e-mail are virtually sent unencrypted. And even though there is a small percentage of e-mails being sent encrypted, the encryption is not end-to-end. This means it is really not secure because people other than the recipient can also decrypt your messages. We took this opportunity to leave Rock an e-mail encryption product that is not only quantum safe, but also end-to-end encrypted. Now end-to-end really means no one can decrypt your messages other than the targeted recipient. In other words, this is 100% guaranteed privacy that even government authority are unable to tap into your message. And even more important than the encryption is the authenticity of the center. So authenticity is also built into our e-mail post-quantum e-mail applications. We all -- knowing that like virtually e-mail centers are unauthenticated. And that's why 91% statistically of all ransomware attacks in the world are initiated by simple phishing e-mail. And the end-to-end e-mail signature in IronCap X product is not only quantum safe, but also allow the center to digitally sign the message. What does it mean? It means that recipient can determine, if this is the real person, who send the e-mail. In other words, this alone can pluck 91% of the source of ransomware. To capture the mass market, we have a free version for personal usage and a business version at $9.95 per user per month. Another huge market that we are tapped into is cryptocurrency. While this is not our core product, we have conducted a proof-of-concept PoC project for a partner in 2022. The project was to use an existing blockchain called Solana as the same box to plug quantum safety into the chain just like anything in technology, the concept is a link-out elliptic curve and replace with quantum safe signature for the payers and validated to sign and endorse the transactions. Very simple, right? Maybe not. After digging deep into the code, we found that the Solana smart contract has been hardcoded to elliptic curve and cannot be expanded. We have invented at the end, a special technique to perform the quantum safe validation outside the chain. And this invention has eventually successfully obtained a U.S. patent protection and it can be applied to create a quantum save version of just about any token in the world, such as we can create a QBTC for bitcoin and QETH for Ethereum or QSOL for Solana, et cetera, et cetera, and public demonstration is available at Q&T deskdemo.ironcap.ca just -- clearly written on this slide. The good thing never happens easily crypto winter actually hit at a time when this project was completed at the end of 2022. But now with the cryptocurrency market seems showing signs of coming back. This project has been rejuvenated because plus theoretically, all coins will be victim of the upcoming quantum threat. This potentially is a multibillion dollar market that we can tap into with our partners. And now we all know that Remote Access is our existing revenue-generating business. So it is essentially a 0 trust remote access solution. So naturally, coming soon, we will integrate IronCAP into Remote Access and VPN solution to become the first in the world in this quantum safe category. Even though Remote Access market is not as big as e-mail or cryptocurrencies, it is still a sizable market of $200 million a year. So it's really good that we can tap into this, too. Last but not least, we came up with a technology using the soon to be standardized code-based cryptographic technology by NIST to effectively hide their sensitive data into unsuspicious media. I'm sure many of you have watched the movie Da Vinci Code. And really, that's the idea only that in the 18th century, steganography was basically watermarked. But in the post-quantum world of 21st century, we are using coal-based technology to randomly insert the sensitive data to be hidden as error syndrome into unsuspicious me such as a simple family picture, a JPEG file, or a simple Taylor Swift, music MP3 file or a Oppenheimer video MP4 file, et cetera, et cetera, that only with the perfect key that the hidden data can be retrieved. This can be widely applied such as the private key retrieval process in cryptocurrency replacing the current way that they're using, which is an 18-century paper with a 24 english word. If anyone want use the hardware wallet you know what I'm talking about. And a patent application has also being submitted for this technology. And the fact that we can -- we are leading the world in the creation of quantum-safe end user products also gave us the knowledge to help other organizations to convert their existing applications to become quantum-safe. Typically, we are charging $250 to $400 an hour, which equates to about $35,000 to $56,000 per main month as a PQC consulting. Our strategy is to act as the SMB subject matter expert behind our partners such as CGI, PricewaterhouseCooper, [indiscernible], Hitachi, et cetera, et cetera, to help their customers doing PQC conversion. So, why I'm referring new potential is not as big as that of PQC product we can be very profitable with minimal marketing cost. Finally, the execution of our business plan was clearly reflected in our financials. While revenue was less than a year ago without a onetime project at that time. The adjusted loss has actually been reduced to $125,000, down from $161,000 of last year. The more notable item is that we have reduced cash usage to only $17,000 in this quarter from $65,000 of the last quarter. I guess most importantly, we have invested over $6 million hard cash into the development of IronCAP. And since majority of the R&D work has been completed in this quarter and were 100% expensed from our balance sheet, we managed to continue our plan to reduce operating loss quarter-after-quarter. The goal is to hover around breakeven and cross into profitability as soon as PQC money is pitching. So as a summary, looking forward to 2024 and beyond, I guess timing is everything. We believe 2024 will be the historic reflection point for the PQC market. I will take a pause from here to a lot more time for question-and-answer. As mentioned earlier by Brian, please use the Q&A feature of Zoom and Brian will moderate your questions accordingly. So there you go. Back to you Brian.

Andrew, we already have a couple of questions that came in through the presentation. So I'll get started on those. The first one had to do -- has to do the background is in regards to our investment in Talent Summit and development of a crypto project involving quantum-safe coin and secured wallet. And the question is with bitcoin and other cryptocurrencies coming back, is this project a go? And what is the future with respect to this project?

It's long, but it's a very simple and good question. I think, I mentioned briefly during the presentation, this kind of answered a half already that, as I said, we had a PoC project for Solana -- using Solana as the sandbox and just there was a very interesting timing just about at the time when the project was finished in late-2022, the crypto winter hits. That was the famous implosion of FTX and that was hitting everywhere in the crypto industry and now it seems like everyone, also know if you follow crypto in the last few months, it actually seems showing signs of coming back. So as I said, the project was done and patent application has been successfully completed with the U.S. patent protection already. So this project seems to be rejuvenated at the same time. So when I said we can use the technology to create like a quantum version of just any coin. The concept is very simple. The concept is that today, we have -- let's use bitcoin as an example. Bitcoin today is trading at USD 40,000. And if there's a Q version of bitcoin, the QBTC starting trading at $1 today, there's a gap of $40,000 between the BTC and the QBTC. But as time goes on day after day, the gap is supposed to be, in theory, narrowing. And then on Q day, when people can crack the original bitcoin, the original BTC is supposed to go down to 0 and the QBTC is supposed to be to be the $40,000 or whatever price is supposed to be there. So it's going to be moving in opposite direction and eventually replacing each other. So that is the concept we believe, is survival. So yes, that's a long winded answer. To your question that the -- because we said as every coin in the crypto world is supposed to be affected by quantum safety, this is a really lucrative project in my point of view.

The next question has to do with our partnerships. And the question is you set up a number of partnerships in the PQC and we just happen to have them on this particular screen. Andrew, the question is, when will they pay off?

And that's a billion dollar question. As I said at the end of the presentation, we are setting ourselves up at a point, where we were waiting, that we're minimizing our operating cost, okay? So that we can extend the runway indefinitely to wait for the PQC money to kick in. And this question is actually asked by each one of those name by their investors, saying, like when would it pay off? When would end user really opening their wallets and start paying for either PQC conversion or PQC product, and we're setting up here. Once they are opening up -- the wallet doing that, it will start the payoff. And I -- my personal belief is 2024, as I said, will be an interesting year that is very likely that if you're looking back, say, 10 years from now, this is likely the year of the inflection point where people are beginning to open the wallet, seeing the Tsunami. Like last year or the year before, we're hearing the siren of Tsunami and now they are beginning to see visually visible seeing the Tsunami. And I keep using that analogies because it's very same. If it has arrived, you just cannot run. There's no time to run, not to mention about the harvest now and the decrypt later a [ 10 ], which is really fast forwarding the real threat or the effective date of quantum threat.