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

Okay. I think we're good to go now. Everybody, we apologize for the short delay, but we had a power outage in the office today, and everything is back up and running properly so we're good to go. And welcome to our third quarter results and business update. My name is Brian Stringer, I'm the Chief Financial Officer; and with me on the call today is Andrew Cheung, our Founder and CEO. The agenda today will be Andrew will -- I will turn it over to Andrew shortly. Andrew will give us an update on the results and business prospects going forward. Now before I turn it over to Andrew, I'd like you to take a quick look through at the forward-looking statements disclaimer we have here, which forms an integral part of this presentation. Okay. And now I'll turn it over to Andrew. Andrew? Before I do turn it over, I missed one housekeeping thing is, everybody now is well familiar with Zoom. And if you notice at the bottom, there's a Q&A. So I'll be acting as a moderator for questions at the end. Throughout the presentation, if you've got any questions, please click on the icon, send them to me and they'll be submitted at the end of this presentation. Thank you, and over to you, Andrew.

Thank you, Brian. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2024 Third Quarter Financial Results and Corporate Update. Now there are actually more and more evidence from major players showing the attention on post-quantum cybersecurity are gathering momentums. First of all, we are now only 3 months away from the end of 2024, where IBM is calling for their 1,400 qubits version. So we will know within 3 months if they are, once again fulfilling their promise. If they do, the next stop of 4,000 qubit in 2025 is very achievable. Earlier this month, I have to say that Microsoft has announced that their SymCrypt will be equipped with NIST approved cryptographic algorithms available for Windows and following the early announcement in April, also that Google yesterday confirmed that their Chrome version 131 to be released around November will have post-quantum encryption built in as a default security also. And frankly, I am so surprised that a lot of people are still burying their heads in the sand while Google and Microsoft are quietly moving ahead for the QD preparations. The other mostly watched QD preparation activities is the development by the National Institute of Standards and Technology, NIST in the U.S. To those who don't know them, NIST is a semi-government agency in the U.S. who independently standardize different technologies for the U.S., which most of other countries will follow suit including Canada, of course. It is not a coincidence that NIST has started their PQC standardization process in 2016, almost in line with the inception of our IronCAP business unit. Just about a month ago on August 13, NIST had announced their official PQC, post-quantum cryptographic standards of FIPS 203, 204, and 205. They are expected to give one more recommendation from the code-based PQC categories in the next few months to kind of wrap up the process. Our accurate prediction in 2017 for the future PQC standards means that FIPS 203, 204 and 205 have already been incorporated in our IronCAP cryptographic engine since 2021, 3 years ago. In other words, the proof-of-concept projects we performed for our customers 3 years ago had already been using NIST standard approved today. Of the 3 remaining candidates, our prediction since the inception of IronCAP has been calling for Classic McEliece, and therefore, we have jumped the gun by also having that included in the IronCAP engine since 2021. In other words, if NIST turns out picking Classic McEliece for the code-based category, we asked spot on. And our ability to predict the standard actually allows us to be a few years ahead of the world in creating end-user post-quantum the applications. While our competitors are busy creating their quantum safe cryptographic engine according to the NIST standard, we are already conducting POC for our partners using NIST standard announced last month. We had a lot of hands-on experience in creating post-quantum end-user applications such as end-to-end e-mail security, quantum safe cryptocurrencies and quantum-safe remote access, et cetera. Our business model is to provide our encryption engine for free while making money in end user post-quantum application as well as helping our customer/partners in converting their application to become quantum safe. Latest vertical exploring with potential partners are in the areas of AI, crypto-currencies, remote access, file sharing, which we believe are the mostly like lower hanging fruit in the post-quantum conversion area. So let me explain to you a little bit why these fields needs to be kind of like quantum safe without any kind of delay. For example, e-mail. Since its inception, e-mail has been mostly unencrypted. And even for the tiny fraction that is encrypted, they are not truly end-to-end encrypted. This means the service provider has the ability to read your confidential messages. So it is just a matter of time when a disaster will happen to an enterprise such as an accounting firm or major law firm with the confidential data being leaked out from a centralized e-mail encryption system, it's a ticking time bomb. I don't need to emphasize why remote access needs to be quantum safe. And this is kind of like a textbook case of Harvest Now and Decrypt Later, HNDL attack. Regardless of whether you are a commercial or national hackers, eavesdropping -- the eavesdroppers are recording your communication data stream. They can simply using a quantum computer later to decrypt your communication data stream and then all the long-term secret such as password, government/commercial classified documents, confidential medical data, et cetera, will totally be exposed. So I bet the lowest hanging fruit for commercial quantum hackers will be cryptocurrencies. Obviously, because there are lots of money there. This is a $2 trillion market. And this market is all protected by the digital signatures, which were -- they were assumed to be safe when Satoshi, whether is a he, she or they, invented Bitcoin in 2009. That was then -- this is now -- the bad news is that digital signature is an integral portion of each and every cryptocurrencies blockchain. This cannot be changed easily without several years of work. So obviously, AI is not immune as a machine-learned database are unencrypted, which will certainly create a huge privacy issue because the world is, again, more and more dependent on AI. And I have already described about how AI encryption, how it works in my last 2 presentations, so I don't think I would need to repeat that again. Today, I also like to bring your attention to an incident that happened less than a month ago. On August 26, if not all, you might know about the CEO of a popular messaging platform, Telegram, was arrested in France. He was arrested because Telegram's noncooperation gesture with authorities in censoring the messages on the platform. Some people said that the rest was a pure political move. And I'm not a politician nor do I care. I am a cybersecurity person and from the cybersecurity point of view, the balance between privacy and security is a very controversial topic. A truly zero trust system should have no technical backdoor to the encryption but this may facilitate communication of illegal activities by the traffic -- the drug trafficker, the money launderer, things like that. However, from the flip side, a nonzero trust system with a back door of having a master key may facilitate breaking of National Security. This is like taking the less of a devil. And frankly, being a cybersecurity person, obviously, the less of a devil to me is a truly zero trust system because the consequence of breaking national security is way worse than the risk of being misused by the bad guys. I guess the bottom line here is that Telegram is not a truly zero trust system. In other words, they possessed the master key and maybe this is one of the main reasons, if not all, for the CEO's arrest because someone is trying to gain access to that master key for something that they really wants to know. The real motive is really outside the scope of this discussion here and we may never know, and I don't even want to know. While our IronCAP X e-mail system is truly end-to-end, whereby there's no master key to share even under the gun, if someone caught me and say, "Hey, you got to do this." There's no -- there's really no master key here to be shared with you. And this also actually intrigued me that there's a huge market needs for a truly end-to-end messaging platform, which really doesn't exist today. And we are in an early stage of discussion now. So please stay tuned for more discussion in this topic in the upcoming quarters. As I mentioned during our last meeting, cryptocurrencies have exited, actually exited they called the crypto winter, okay? And because of that, the renewed interest of the quantum safe coin is being very strong. Although we cannot comment on anything that is a work in progress, I can only comfortably talk about the technology we have that is patent protected. The technology actually allows us to apply quantum safety on top of just about any existing blockchain, whether it is private, public, permissioned or permissionless. I believe this represents a huge business opportunity. And if and when anything happens, we will make timely announcement to the public. And another opportunity in discussion involved file sharing on the cloud, it is very common to share files, as we all know, with colleagues over a cloud storage such as iCloud, Google Box -- or Google or Box. Some of them have API, if not all, having API available for integrators. So a customized file sharing applications can be created by integrating with these cloud service provider by encrypting the files before uploading to the server while decrypting after downloading. And this essentially allows people to share very confidential files with colleagues over the cloud service because only the intended recipient has the private key to decrypt them after downloading, not anyone in between or even the authorities. Okay. So I think I can sum up by saying that I'm very happy to report that the business plan executed since a few quarters ago, continues to progressing well and is proven to -- is proven in the financial figures. Last quarter, we were very close to the break-even line and we missed one step further this quarter. As you can see, our financial operating loss in Q3 was down to just about $5,000, which is essentially a breakeven position. Revenue was more or less in line with a small uptick and more importantly, we still continue to operate in a debt-free mode. In other words, I expect to cross into profitability with any momentum picking up on the revenue side. I kept reiterating that we have invested over $6 million cash into the development of IronCAP and 100% of that investment are being expensed in the accounting book. The company is now safely in a position to begin reaping return in our investment when the quantum safety market continues to gain momentum for the rest of the year 2024 and into 2025. So as a summary, I am looking forward to the remainder of 2024 and beyond. Timing, again, is everything. Most importantly, your patience is greatly appreciated. Before Q-Day, human nature has really divided the world squarely into 2 camps. Those who believe Q-Day is a decade away and those who believe Q-Day has already arrived quietly. There's really no one in between. We are definitely in the later camp and the world now is quite hot in the field of cryptocurrencies and AI. We are -- our technology is basically squarely fit into these trends. So I think I would -- this is the time for me to take a pause from here, allowing more questions and answers. As mentioned by Brian at the beginning of this meeting, I bet you guys are very familiar with Zoom already. Please use the Q&A feature of Zoom at the bottom of the screen and Brian will moderate your questions accordingly. So over to you, Brian.

Thank you, Andrew. There were a few questions that came in throughout the presentation. The first one has to do with messaging platforms, that slide, where you're talking about messaging platforms like Telegram, which claim to be end-to-end encryption. Why do you think they aren't?

Yes. This is actually very good technical questions. Without going too deep into it, which a lot of people will yawn, probably. Let me just explain a little bit. In fact, if not all, most majority, majority, most of the people who claim to be end-to-end encrypted in the world, whether it's an e-mail or it is a messaging platform, they are really not end-to-end encrypted, okay? A truly end-to-end encrypted product is not only that it is encrypting from one side and standing on to the other side, but also, even the more important aspect is the service provider does not possess any master key or any way, any means to decrypt your message, right? That is a true end-to-end system. So touching a little bit to the technical side, it means the message has to be encrypted using the public key of the recipient so that only the recipient having the private key can decrypt the message. The service provider doesn't have the master key and given the authority, whether you are the CIA, you are the MI6, you are the KGB, you are the whoever, cannot force this service provider to provide any means to decrypt the message because they had -- there is none. There's no way to do it. So that is a truly zero trust end-to-end encryption product. And sorry to say that Telegram is not, and that's why they possess the master key and maybe that's one of the main reason he was caught and someone trying to possess the things to decrypt and wanting to know something.

The next one is also on the technology. It involves AI. And can you explain a bit on the security measures with respect to AI for professional industries like the legal and accounting?

Yes, absolutely. So as we all know, AI is a hot trend these days. So most of the industries, almost everyone, can be migrated to AI, whether you're writing a thesis or you're writing an agreement or something that you can ask AI to give you a lot of hands into the things. Now say ChatGPT, they are giving out the free version and their business model is actually, they're trying to license the database for other industry to use for their purpose, right? And for example, say, using legal as an example. You can license the AI database from ChatGPT, and then you use it for your business. But then the problem is anything that you are asking, you're querying the AI database unencrypted. And then the answer back to you are also unencrypted. So that means they know, they would know or someone -- even you license it into your own system, someone eavesdropping into your session will be able to figure what you are asking the database. And therefore, they can figure out all the trade secret or information about your clients. So if this is being encrypted, so in other words, if a law firm has licensed the ChatGPT database but then there's a system that can encrypt the query before sending to the database and then decrypt query after -- before they present back to the lawyer who asked the question, then the privacy issue would be -- will be resolved. So that is why AI is very important to many industries, especially the professional industry. And those are just the tip of an iceberg. It applies to almost just about anything.

Okay. Andrew, we got time for these last two questions, and they're more financial. And the first one is with respect to our cost was very breakeven in the last quarter, okay. When do you think revenue will start to materialize?

Short answer, I really don't know. I don't have a crystal ball here. And that's exactly the reason why the several quarters ago, my goal was to put the company into a breakeven position so that we can extend the runway to embrace these business opportunities. But practically, I really see that 2024 has -- is kind of making the turn because as you see that even Microsoft and Google are integrating PQC technology into their products. So they're not doing that lightly when they are integrating -- when they have integrated technology this year means they actually have started to act maybe 2, 3 years ago, at least, right? So we are definitely not alone in our own camp, as I can see. Three years ago, we didn't even know that they were doing this. So a lot of people said, Andrew, you're crazy, you're getting -- well, now, I think that we are not. Microsoft and Google are doing that too. So I think it is very close but although I don't -- I cannot put a date or something to it but I feel very comfortable because we are now hovering around the breakeven position. So anything comes in, whether big, small, huge or whatever opportunity from the PQC market, we can just capitalize on the result.

Okay. And the last question kind of is an offshoot of that, pretty much the same. But the question is, Andrew, you seem positive on the outlook for the company. And we've got a number of global partners, et cetera. Why do you think the stock is trading so low at $0.04?

Yes, I am positive. And again, but I don't have a crystal ball and I don't control the stock price. I guess investors are really waiting to see the result. And we have, again, as I mentioned, we have invested hard cash of over $6 million into the development of IronCAP, plus we have cash flow. So basically, I'm seeing that the market is giving us value of 0 of the $6 million we have created for IronCAP. So I can't wait to prove that they are wrong. But as I said, I don't have a crystal ball but yes, I am positive. So let's see. I think time will tell.

Yes. So basically, that's a wait-to-see prospect. Okay. Andrew, that about wraps up the Q&A. So I'm going to turn it over to Andrew now for closing comments. Andrew, over to you.

Okay. Yes. Again, thank you, Brian. Also thank you for joining our 2024 Q3 business update. I am very proud to have successfully putting the company in a breakeven position with a runway to embrace all the upcoming opportunities. Again, I don't have a crystal ball but I can't wait to see what the next 12 months will bring to us. So please stay tuned and see you again in our next meeting.