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

For those of you that are on the call, it's now approximately 4:15. I'm going to wait another 2 minutes to begin to allow some tardy people to sign in. So we'll start in 2 minutes. I think it's now time to begin it. Ladies and gentlemen, my name is William Train, and I am the Chairman of 01 Communique Laboratory Inc., I am acting as the Chair of this meeting unless there is an objection from those present. I welcome you to the Annual Meeting of Shareholders. I would now like to introduce you to our proposed Board of Directors. Andrew Cheung, Chief Executive Officer and Director; myself, William Train, Director and Chair of the Board; Gary Kissack, Director; Tyson Macaulay, Director and our Corporate Secretary and Controller is Ms. Gigi Loo. I ask Ms. Loo to act as Secretary of the meeting; and Rosa Garofalo of TSX Trust to act as scrutineer. Ladies and gentlemen, notice and proxy materials for this meeting were duly mailed to shareholders. Additional copies are available on SEDAR. I have been advised by the scrutineers that prior to the meeting, proxies were received from the holders of more than $22,297,745 common shares or approximately 23.14% of all shares entitled to be voted. As a result, we have a quorum for this meeting and the meeting is properly constituted for the transaction of business. In view of the need to attend to a number of formal corporate matters, certain shareholders have volunteered to move and second resolutions where required. While this procedure will facilitate the handling of the formal matters, any shareholder or proxy holder may speak on a matter when that matter is before the meeting. When I recognize you, please give your name and state whether you are a shareholder or a proxy holder. The minutes of the last Annual Meeting of Shareholders held on April 24, 2023, and are available for inspection from the company via e-mail from Gigi Loo at [email protected]. I am also tabling a copy of the 2023 audited financial statements. You will have received them with the proxy materials. Additional copies are also available on SEDAR. After the formal portion of the meeting, there will be a presentation by management, which will then be followed by an opportunity for questions. The first item of business for which this meeting has been called is to affix the number of directors. It is intended to determine the number of directors at 4 and to elect 4 directors for the ensuing year. May I have a motion that the number of directors be fixed at 4.

I so move. It's Brian Stringer, and I'm a shareholder.

Is there a seconder?

I second. [ Bernie Cooke ].

I'm sorry? Was there a second?

I'm a shareholder.

Gigi, did you catch that gentleman's name?

Yes.

Okay. I'll move on. Is there any discussion on the motion? I hear none. Based on proxies received in favor of management, if a ballot were conducted on this matter, more than 95% of the votes eligible to be cast at this meeting would be voted in favor of setting the number of directors to be elected at 4. Therefore, I declare that the number of directors to be elected is set at 4 in accordance with the motion. We're moving on to election of directors. We turn now to the election of directors for the term expiring in 2025. Four directors are to be elected and 4 nominees are named in the proxy circular for this meeting. The secretary will now read their names.

The names of the nominees are Andrew Cheung, William Train, Gary Kissack and Tyson Macaulay.

Thank you, Gigi. I would like to note that the company has adopted a policy whereby any nominee for election as a director from -- for whom the number of votes was held exceeds the number of votes cast in his or her favor will be deemed not to have received the support of shareholders. Even if he or she is elected a director elected in such circumstances must immediately offer his or her resignation to the Chairman of the Board. Within 90 days of receiving the final voting results, the Board will issue a press release announcing the resignation of the director or explaining the reasons justifying its decision not to accept such resignation. This policy only applies in the context of an uncontested election of directors. May I have the nominations, please?

My name is Brian Stringer and I am a shareholder. I nominate the 4 persons whose names have been read in this meeting by the Secretary for election as directors of the company to serve until the Annual Meeting of Shareholders to be held in 2025.

Thank you, Brian. Does any shareholder or proxy holder wish to make a further nomination? I hear none. Since there are no further nominations, I declare the nominations closed. Four persons have been nominated as directors, and there are 4 directors to be elected. Accordingly, I declare that the 4 nominees whose names have been read by the Secretary have been elected directors of the company to hold office until the close of the next Annual General Meeting of Shareholders or until his or her successor is duly elected or he or she otherwise ceases to hold his office. We're moving on to the next item on the agenda, which is the appointment of the auditors of the company. I will now entertain a motion in this regard.

My name is Brian Stringer and I am a shareholder. I move that the McGovern Hurley LLP, Chartered Professional Accountants be appointed auditors of the company to serve until the Annual Meeting of Shareholders to be held in the year 2025 and a remuneration to be approved by the Board of Directors of the company.

Is there a seconder?

I, [ Bernie Cooke ], second.

Thank you. A motion has been made and seconded to appoint McGovern Hurley LLP as the company's auditors. Based on proxies received in favor of management, if a ballot vote were conducted on this matter, more than 95% of the votes eligible to be casted at this meeting would be voted in favor of the reappointment of the auditors at a remuneration to be fixed by the Board of Directors of the company. Therefore, the motion is carried, and I declare that McGovern Hurley LLP have been reappointed auditors of the company in accordance with the motion. The next item of business for which this meeting has been called is to consider, and if thought appropriate, to approve a resolution ratifying the stock option plan of the company, as more particularly described in the management information circular. The full text of the proposed resolution is set out in the management information circular. In order to be approved, the resolution must be approved by at least the majority of the votes cast thereon. May I have a motion for the approval of this resolution?

Mr. Chairman, I hereby move that the resolution approving the ratification of the company's stock option plan in the form set out in the management circular -- information circular be passed without variation.

Is there a seconder?

I, [ Bernie Cooke ], second.

Thank you. The meeting will now vote by ballot on the motion. If you are entitled to receive a ballot, the scrutineer will have provided you with one upon entering the meeting. If you did not receive a ballot and feel you should receive a ballot, please raise your hand. Gigi?

Yes. Only proxy holders and shareholders who have not returned the proxy or who wish to change their previous instructions need to complete a ballot. All proxies in favor of management will be voted as instructed by the shareholders. Therefore, you do not need to complete the form or ballot unless you are going to change the voting instructions or you have not yet voted in respect to this matter. Anyone wishing to complete the ballot should mark it with an x, either for or against the motion indicated. When you have completed the ballot, including signing it and printing your name, it needs to be in the space provided. Please raise your hand and the ballot will be our will be collected and given to the scrutineer for counting.

Gigi, are there many people in the room that are to receive ballots?

They have signed the ballots already.

I'm sorry?

They all have signed the ballots.

Everyone who's eligible has signed a ballot?

Yes.

Is that what I heard?

Yes.

Okay. I declare the polls closed, and we will now wait for the scrutineer to tabulate the ballots.

That's already done. Gigi has the results.

Yes. I've got the results already.

Okay. The scrutineer reports that the resolution has been duly carried by a majority of the votes cast at this meeting. And accordingly, I declare the resolution carried. If any shareholder is interested in the exact number of votes cast in favor of or against the resolution, which has been voted on by ballot, he or she may obtain particulars from the Secretary after the meeting. That's the formal part of the meeting I think it is appropriate to terminate the meeting now. May I have a motion to terminate this meeting.

My name is Brian Stringer, and I'm a shareholder. Mr. Chairman, I move that the meeting be terminated.

May I have a seconder?

I, [ Bernie Cooke ], second.

Thank you. A motion has been received and seconded to terminate this meeting. The formal portion of the meeting is now concluded. Management will now make a short presentation about the company. After which there will be an opportunity for questions. Thank you for attending.

Thank you, Bill. Welcome, everyone, online and in person. My name is Andrew Cheung, President and CEO of 01 Communique. Again, welcome to our 2024 Annual General Meeting. Judging by the number of people attending in person, I believe the majority of the people are still preferring attending AGM online these days, although it's a little better than last year. First of all, I would say that it has only been a few weeks since I presented the quarter -- first quarter result, so there's really not a lot of news to be reported. So I'd like to take this opportunity to kind of reiterate or reemphasize our focus as well as answering a lot of the common queries from shareholders. I guess, listening to a lot of shareholders' phone call or question or whatever indirectly, the single most asked question I heard is still likely when are you guys going to expect booking revenue for this post-quantum market, or maybe some people are asking, examining, how come, why your people, how they are not spending money in post-quantum, if the quantum threat is so obvious. I even heard some kind of extreme comment saying are these Q-day things a hoax or would ever happen or something. All I have to say is that this so-called like Q-day event, it's more like going to be a Grey Rhino event than a Black Swan. As the writing is already on the wall, just that people are not paying attention to it. Now first of all, I got to admit that this post-quantum market is largely still in the pre -- like, a pre-money stage. And we are not the only one or the only player got frustrated. Even the larger partners like the global partners, such as Hitachi, CGI, the Thales, Hitachi, et cetera, they are also scratching the head as to why. The mindset is still being controlled by the complacent, okay? However -- but the happening in the last few months are actually giving us reasons to believe the market is probably turning, likely maybe 2024 or 2025. And again, I keep saying that resilient and perseverance are the winning formula. So over here, our perseverance come from the fact that we are running the company in a very lean and mean fashion. And the lower-hanging fruit here, in my belief, is the quantum-safe cryptocurrencies and quantum-safe AI. And all we need to do basically is to sit tight for a little longer to see the light. And here are the reasons why we think that way. Now first of all, only a few months ago, after IBM released the news that they have broken the 1,000 cubic barrier, releasing the latest quantum computer, Apple announced that they have the iMessage upgraded to become quantum-safe in the iOS, I would say, started from the iOS 17.4. This is a big news because when Apple is doing that, that means like they didn't do it overnight. They have adopted to it probably 2 years ago already. So Apple is probably the first major player in the tech world who has adopted to quantum-safety. And this is basically an alarm clock to the rest of the world. And the other thing is while the ink was still wet. In, I would say, about 3 weeks ago, the founder of Ethereum that -- the Canadian Russian guy called Vitalik Buterin, he has announced a paper or a discussion at the Ethereum forum, saying that it is an urgent issue for the Ethereum community to collectively think of something that can protect the Ethereum blockchain against quantum threat. So these 2 incidents are not coincidence. They happen for a reason. And then looking back to the IBM roadmap, after 1,000 qubits, the next stop is going to be 1,400 qubits later this year, followed by 4,000 qubits some time in 2025 and then 100,000 qubits beyond, that level. So I guess this is a -- like, these 2 events happened within 1 month of time. It's basically 2 alarm clock went off at the same time. Another interesting thing was ChatGPT is really amazing. I kept kind of like testing them and on and off, asking them questions like how many qubit would it require to crack RSA, and they don't have an answer. About a month ago when I asked them the same question and now guess what, they said 4,000 qubits. And you add up these things one to one, and you will know where the world is heading. Now the dangerous things about -- I keep using this formula is the X plus Y greater than Z, then you're checkmate. X is being then the time that your order duration that your data needs to be kept secret. So I use an example, the cryptocurrency, for example, if anyone knows about cryptocurrency, the public key is your address and your address is open to the world since day 1. So for this particular industry, X is infinite because they should be -- that means, like, they should be quantum-safe since day 1 already in 2009. But unfortunately, Satoshi never thought about quantum-safety at that point. So what does it mean? It means that the whole $3 trillion industry was, in fact, built on the wrong footing since day 1. And making it worse is the fact that the larger the blockchain, the more impossible it is to rebuild. You have to really start from scratch again. So our success and patent protected technology was exactly invented to fix and help fixing this industry. And with the fast and furious comeback of cryptocurrency since December ending, after they exited from the crypto winter, this presented us a huge opportunity, and we are really ahead of our -- the curve as compared to our competitors. Now from another angle, knowing too well what's happening. We all know that the executive officers of the U.S. President has issued a national safety memorandum (sic) [ National Security Memorandum ], NSM-10 in 2022, and they have a roadmap. And one of the goals in the roadmap was to asking all the federal agencies to submit the quantum-safe budget approval by some time October of 2023. So this kind of -- the movement are all under the radar of a lot of things, but you know what's coming. And this action of the U.S. government is kind of a quarterback by NIST, the National Institute of Standards and Technology, that they had indeed started the study of post-quantum cryptography the year of 2016, around the same time when we have started the IronCAP division. And they had the last, I would say, the last or latest annual conference just about 2 weeks ago. And our crypto scientist was definitely there. And NIST is expecting to announce the latest round of recommendation a few months from now, maybe around summer of '04 (sic) [ '24 ] of this year. So as expected, as I keep reiterating again, we have been anticipating the 5 winners that NIST will take. And so far, 4 out of 5 have been correct and is already in the IronCAP stack. So if the announcement later this year, given the result that the fifth one was also inside the IronCAP stack, we have 5 out of 5. And we have very good confidence that this will be the case. So I guess -- I keep saying that the ability to predict the standard by NIST is giving us a huge, I would say, a huge lead time compared to our competitors, because usually, people are waiting for the NIST standard before they do anything. So that means, like, at the end of 2024, when they have the standard announced, they would begin creating their library, going around to the customers with the NIST recommendation. But we have already correctly predicted these things a few years back, and we have already started doing a proof of concept and creating product, while they were still waiting for NIST result. So this gives us really good lead time into the market. So I have to say that because of that, the -- our go-to-market strategy would be to, not only create end-user applications, but also being a consultant to other people, helping them, converting the application to become quantum-safe. As I mentioned earlier today, that quantum-safe cryptocurrency is one of the low-hanging fruit. And now I'm going to tell you that quantum-safe AI is another one, and here's the reason why. AI, as we all know, it's kind of like the '90s when the Internet first came to the world. They are unencrypted, totally unencrypted. From the way that the knowledge that is being learned are unencrypted, and therefore, the trained knowledge is also unencrypted. And therefore, the query, end-to-end, the query is also unencrypted. So what does it mean? So it means if a retailer, for example, Loblaw, are spending a lot of money using the AI, machine learning to study their customer behavior and having a trained knowledge so that they can better target their customer, that trained knowledge is unencrypted. What if that is being stolen or being sold to competitors and the competitor would have the crown jewel right off the bat. And this is crazy, in my opinion. And it will be very dangerous if AI machine learning continue their way in an unencrypted fashion. So what is needed to be solved by the AI industry will be turning everything into -- from unencrypted to encrypted like how the Internet did in the evolution, was like from the knowledge that you're training the AI, the robot ,is encrypted so that the knowledge being trained is encrypted. And then the query of the knowledge is encrypted. It means that if this database is being stolen and sold to a competitor, your competitors still won't be able to understand the database because they won't understand anything without a private team. As simple as that. And we have the technology that can safeguard the AI machine learning so that, not only that they are quantum-safe, but they also can even share the secret with a competitor without disclosing anything. So at the end of the day, this kind of like AI service as Software-as-a-Service kind of industry can be having typical customer like the large retailers, secure multiparty computation, private set intersection, outsourcing machine language, privately preserve machine language -- machine learning, medical record learning, fraud detection, image recognition, supply chain optimization or even the smart contract within a blockchain can be applied, okay? So in other words, like, I keep saying that timing is everything. 2022, in closing, I would say, not only just 2020, but 2022 and 2023 has been a very tough year for small public companies like 01, because the public finance funding market has totally dried up, okay? But our resilience and perseverance let us stay and embrace the market, which we believe will take a break in -- would have the breakout in 2024 and 2025. So again, timing is everything. We have spent $7 million, bringing IronCAP from scratch to where we are today with, not only end-user applications, the post-quantum engine, but also U.S. patent approval and a list of global partners. So looking forward to the rest of 2024 and 2025, I believe things can quickly turn to the positive if things are moving in a way that we believe. So I'd like to take a pause from here to allow some more time for question-and-answer. [Operator Instructions] And Brian, as usual, will moderate the questions accordingly, and I will try my best to answer as detailed as I can. Over to you, Brian.

Okay. Thank you, Andrew. One of the questions came in, Andrew, during your discussion. It has to do with artificial intelligence. And the question is, is 01 close to having any partnerships in this area? And how does artificial intelligence, I know we're not an artificial intelligence company. [ He ] understands that, but how does IronCAP enable artificial intelligence in the security aspect?

Yes, that's a very good question. We are not an AI company, but we can help AI companies, or to be more precise, the machine learning, the company, to quantum-safe their process. As I mentioned earlier, the process today is totally unencrypted, resulting in a very dangerous way that everything that is being created, spending a lot of money to create is being dangerous to privacy and theft. So the kind of technology that we have is allowing what we call the linear regression, the process, to be able -- to be encrypted, but while it can also be queried, okay? I don't plan to go detail into the into the technical, otherwise, a lot of people will fall sleep, if they haven't yet, talking about the technical. But the way is to allow encrypted data to be able to process rather than un-processable. So that's our technology. And a quick answer to the first part of the question about how long are we going to gain some deals or something, I really cannot comment too much except to the point that if we -- once we have gained something, we always immediately make a press release telling the public about any deals like that.

And the second question, there are several questions in respect to cryptocurrencies. Again, we're not cryptocurrency, but security is a big aspect of that market. And I felt you covered as well, but there's a question about it. Can you be a little bit more specific on how we can help cryptocurrency to be more secure?

Yes, absolutely. I actually have been facing these similar questions from different angles over the years. A lot of people are asking, I think I can rephrase your question in a way that how are we going to help cryptocurrency becoming quantum-safe. There's a myth that blockchain is totally secure. So why then do you think the quantum computer is putting a threat on the blockchain? I have to answer that one first because it is totally correct that blockchain is still safe in the post-quantum era, okay? Because the way that they are distributing the ledger or the so-called 51% hacking, quantum computer really does not make that easier. So I have to say that the -- in the post-quantum where blockchain is still safe. However, there's a problem. As I mentioned, when Satoshi invented the blockchain, they were under -- he or she or whoever that is, was under the impression that the PKI digital signature is safe, which it was in 2009, and that is being not the case anymore in the post-quantum era. So he was using the public key as the public information, assuming that the public key can never be reverse engineered back to the private key, okay, as the very foundation of the cryptocurrency security. And in the post-quantum world, this is totally shattered. And the technology that IronCAP has is exactly left, right and center solving that problem so that the post-quantum address can never be reverse engineered back to the private key. So this original expectation of safety still can be retained in the post-quantum world for the for the cryptocurrency, but you have to use post-quantum digital signature in order to retain that. So that's basically how we would help secure the cryptocurrency market in the post-quantum world.

Thanks, Andrew. There are no more questions. I turn it back to you.

All right. Yes. Thank you very much, Brian. So hearing no more question, I would -- kind of like closing up, saying that, again, welcome to our 2024 our Annual General Meeting, and thank you for all the online and in-person attending. And I cannot wait to see what 2024 and early 2025 will bring to us, so stay tuned and see you again next year.