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

Good morning, everyone, and thank you for attending our investor meeting for 01 Communique. Joining me today are Andrew Cheung, President and CEO; and Brian Stringer, our CFO. Today, we're going to go over our road map for our quantum strategy. As you know, quantum computing has been very much in the forefront of the news recently with the announcement that Google had a major breakthrough with its Willow chip. This has ignited tremendous interest because it is heralding in the day when quantum computing will surpass that of classical computing. It already does that in different benchmarks. So Q day is either here or very near. And we are hoping to exploit from our technology that promise for quantum computing. Quantum computing can be used for good and evil. We're excited for the future that quantum computing will herald in with drug discovery and all kinds of positive things. But along with that comes some malevolent actors which will no doubt try to exploit quantum computing for breaking encryption and disrupting the banking industry, financial industry, et cetera, et cetera. So we have some solutions for that. And Andrew will be going through that. So without further ado -- first, I'd like to draw your attention to our disclaimer slide. Please take a moment and review that. And without further ado, we would like to introduce Andrew Cheung to go through our presentation. By the way, at the end of the presentation, there will be a session for questions and answers, and Brian will be handling that. So please take the opportunity to click on the bottom of your Zoom page and submit questions, which Brian will take care of at the end. Thank you. Here's Andrew.

Thank you, Bill. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. So welcome to our special meeting today in response to the recent announcement from Google that triggered a global heat around quantum computing and related businesses. Just like any new technology, it takes years to receive attention. Our post-quantum cybersecurity focus was like the best kept secret in the market in the last 5 years. This was being revealed by the latest announcement from Google about the groundbreaking achievement in quantum computing. So let's jump right into what we do. I can't wait to talk about that. Our focus is in post-quantum cybersecurity. And frankly, we don't do quantum computers, so I won't spend too much time talking about that other than how they can crack modern encryptions. All we need to know about quantum computer in this meeting is that they are using the concept of super positioning and entanglement in quantum mechanics where 0 and 1 can coexist, so that they can essentially having millions of classical computers all working together in parallel to solve a problem altogether. And as a result, modern encryptions like RSA or elliptic curve become vulnerable when a quantum computer with enough power reaches the hand of malicious users. This is the infamous Q day that the world is calling it. The red line is the 4,000 qubits which crypto analysis experts believe is the power required to crack modern encryption. Please don't be panic. We're not there yet, at least not on the commercial level, but we are awfully close. I'm not sure about the national level because they are usually about 5 years ahead of the commercial level. I will be surprised if the U.S., Russia or China do not already have contracted their quantum computer vendors to create a special purpose quantum computer doing nothing but just cracking RSA and elliptic curve. This is more or less the same story when the U.K. had broken the Enigma code years before the public knew about it. Now luckily, the commercial level is a lot more transparent. For example, IBM's quantum computer road map is publicly available on their website. They had released their first commercially available quantum computer in 2019, which was just a $15 million quantum toy with the only 27 qubits, which was not even enough as powerful as a classical computer or even your iPhone. But that was then, this is now after a few years. IBM had already surpassed the mark of 1,000 qubits last year and is now calling for 4,000 qubits in 2025. Obviously, IBM has a lot of competitors and more notable ones are the likes of Honeywell and Google. Earlier this year, Quantinuum, which is Honeywell's quantum computer arm, announced they [ track ] eye on quantum computer with 1 million quantum volume, which is different measurement scale compared to qubits. And then Google last week has stolen the spotlight by announcing their latest quantum chip with superb error correction rather than high number of qubits. But in my opinion, advancement in error correction is even more important than the advancement in the number of qubits because the quiet qubits, having that, a lot less quiet qubit will be required to surpass the red line, way less than 4,000. This is kind of similar to the invention of turbo engine that gives higher power to a much smaller engine. So frankly, I am so surprised that I still see many people pitching the idea that Q day is 10, 20 years away. In my opinion, these people are either paid by professional hacker to spread false information or they don't know what they are talking about. Obviously, the true experts are not standing still. We are definitely not the only people seeing the looming threat. First of all, the National Institute of Standard and Technology, 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. NIST has started their PQC standardization process, PQC stand for post-quantum cryptography, in 2016, almost in line with the inception of our PQC focus. Now after almost 8 years of study, in August, just a few months ago, NIST had announced the official PQC standards of the FIPS 203, 204 and 205 with more to come. Our accurate prediction in 2017 for the future PQC standards means these standards have already been incorporated into our IronCAP cryptographic engine since 2021. In other words, we have jumped the gun by almost 3 years compared to our competitors. Now since PQC involve encryptions, which is really the bottom layer of many applications, changing this requires years of incrementation. So obviously, global leaders have quietly started the PQC preparation process since 2022. First of all, in November 2022, the U.S. President office had an announcement asking U.S. agencies to comply to the new NSM-10 National Security Memorandum to submit their PQC budgets before October 18, 2023, which was already more than a year ago. Then there were a series of announcements in the last 12 months by many large organizations such as -- it began with February when Apple announced their PQC compliant iMessage. And then Buterin from Ethereum posted an emergency, how they call it was an emergency discussion in March, hoping Ethereum to become quantum resistant by 2029. And in my opinion, that's a little too late anyway. Microsoft has announced in September that the SymCrypt in Windows was quantum-resistant. Obviously, it is not surprised that last month, Google also announced their Chrome 131 was quantum resistant. That was about 1 month before the groundbreaking announcement of the latest quantum Willow chip about a week ago. So if there's anyone who still think that Q day is that case away, I will recommend him or her moving to an island with no Internet connection. Now back to our business, we hate complex strategy. So our strategy in post-quantum cybersecurity is very simple. We believe encryption engine must be open source and free of charge. And the money resides in the application that end users are touching, using and most importantly, paying. So while everything under the sun must be quantum resistant in order to survive beyond Q day, we cannot be everything at the same time. So we have strategically chosen 4 fields to set our focus on. I will list them out now and then go into details. They are end-to-end e-mail security, cryptocurrency, AI machine learning and the messaging platform. Now first of all, the reason we picked e-mail to be the first quantum-resistant end-user solution is not because e-mail is a huge market, but also because e-mail is probably the most insecure globally adopted business tool on our planet. Since its inception, all e-mails are virtually sent unencrypted. And even though there's a small percentage of e-mail being sent encrypted, those encryptions are not end-to-end. This means it is really not secure because people other than the recipient, say, the service provider, right, can also decrypt the message that was being stored in the server. So we took this opportunity to leapfrog an e-mail encryption product that is not only quantum-resistant but also truly end-to-end encrypted. Now end-to-end means no one other than your recipient will have the private key to decrypt the message. In other words, it is 100% guaranteed privacy and even the government authority or even the service provider like ourselves doesn't have a master key to be able to tap into it. And basically, even more important than encryption is the authenticity of the sender. You probably know that virtually all e-mail centers are unauthenticated, and that's why 91% of all ransomware attacks in the world are initiated by a very simple phishing e-mail. So the end-to-end e-mail signature in our IronCAP X product is not only quantum resistant but also allow the sender to digitally sign the message. This means the recipient can determine easily if this is a real person who send an e-mail. In other words, they can determine whether they're open or not, right? In other words, this alone can plug 91% of the source of ransomware and IronCAP X is already available for public usage. I guess the lowest hanging fruit for commercial quantum hackers will be cryptocurrencies because they have lots of money associated with it and it is protected by digital signature, which was safe, okay. It was assumed to be safe when Satoshi, whether it's a he, she or they, invented Bitcoin in 2009. Now that was then this is now. The bad news is that the digital signature is an integral portion of each and every transaction in the blockchain. So this cannot be changed easily without several years of work. So 2 years ago, we had completed a proof-of-concept project with a partner using Solana as the sandbox to integrate our IronCAP post-quantum technology to become quantum-resistant. The project was completed so successfully that not only that we can create a quantum-resistant Solana Layer-1 chain but also retain this high ultrafast TPS, transaction per second and the smart contract capability. The method we used was subsequently granted by -- granted a U.S. patent in June 2023. So our plan is to complete commercialization in 2025 either with a partner or whatever mean. This includes, but not including -- but not limited to kind of building the staking mechanism, commercial wallets, liquidity pool, swap mechanism, et cetera, et cetera. So we also -- besides this, we also decided to focus on the AI machine learning. So are you surprised if I tell you that all AI machine learning process today are unencrypted? No, they are not. The problem is not big for generative AI like ChatGPT because it is open knowledge anyway. However, it is a huge problem for all the non-generative AI alike, such as secure multiparty computation, private step intersection, outsourcing machine language or privacy-preserve machine learning, medical record learning, financial model learning, image recognition, facial recognition, anomaly detection or supply chain optimization, et cetera. So list just goes on. In this non-generative AI, the knowledge learned in the process is the crown jewel of the enterprise who spend a lot of financial resources to create them. So it will be a disaster if the database is stolen by a hacker, and we're selling to a competitor. And similarly, imagine what would happen if a medical knowledge database of a hospital or the government is being hacked. This means AI machine learning must be evolved to become quantum resistant. This means the knowledge database will appear as [indiscernible] without the private key. And we are planning to create a quantum-resistant AI machine learning platform. And last but not least, you might remember several months ago, the CEO of a popular messaging platform, Telegram, was arrested in France. He was arrested for Telegram's non-cooperation with authorities in censoring the message on the platform. Some people said the arrest was a pure political move. I'm not a politician nor do I care. I'm just a cybersecurity guy. So from a cybersecurity point of view, the balance between privacy and security is a very controversial topic. A true zero trust system should have no technical backdoor to the encryption. But this may facilitate communication of illegal activities such as drug trafficking, money laundering, et cetera. However, from the flip side, a non-zero trust system with a backdoor to -- with the master key may facilitate breaking of national security. So this is like picking the less of a devil. And frankly, being a cybersecurity person, obviously, I believe 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. So bottom line is that Telegram is not truly zero trust. In other words, they possess the master key and maybe that's the reason for the arrest that someone is trying to gain access to something, okay? So the real motive is outside the scope of this discussion here, but we may never know, and I don't even want to know. And all we're going to build is a dream messaging platform that is not only end-to-end encrypted, I mean, truly end-to-end encrypted, but also quantum-resistant, whereby there is no master key to share. So as a summary, timing is everything. We are at the inflection point here to capitalize on this massive market trend with patent-protected technologies and commercially ready products. We are simply a world leader in the creation of practical PQC compliant end-user applications. So I'm going to take a quick pause here to reserve more time for question and answers. As mentioned at the beginning by Mr. Bill Train, our Chairman, please use the Q&A feature of Zoom and then Brian, our CFO, will moderate your questions accordingly. So over to you, Brian.

Okay. Thank you, Andrew. Let's try to gather these together into -- so I'm asking them questions on the same topic. And the first one, Andrew, and I do believe you covered this quite well, but it has to do with quantum computers. And since the quantum Willow announcement, investor interest in quantum has really accelerated. I think that's an understatement. Now the question is about your opinion. You gave a lot of authoritative type quotes. But in your opinion, how close is quantum and how real is the quantum threat?

This is actually a very good question. I think in my opinion, as I kind of mentioned during my presentation, it all depends whether you are talking about national level or commercial level. And I can only focus on commercial level because I have no idea what the national level has already achieved because, as I said, usually, the national levels are 5 years ahead of the commercial level. So I have no proof or anything. My personal belief is national level has already reached Q day, not even today, but maybe even 1 or 2 years ago already. But on a commercial level, as I said, it's very transparent. We look at what IBM had delivered or they will deliver, Honeywell or Google, they are very transparent. And the latest announcement from Google is kind of like -- it's like an alarm clock to the world simply because as a lot of people thought, hey, if you have a lot of qubit and they are noisy qubit, it means nothing. You can have millions of noisy qubit, but it's less powerful than 100 quiet qubits, which is correct. And that's why the market has been very, very noisy with a lot of white noise in the last 5 years. And then until now, when Google made this announcement that they have the superb error correction that can turn -- successfully turn noisy qubit becoming quiet qubit is a huge advancement. So the experts like crypto analysis experts believe like even 372 quiet qubits is enough to crack some levels of RSA already. And 4,000 would be able to crack the advanced RSA. So in my opinion, I think the most notable happening would be the advancement of number of qubits together with what Google has announced that can error correct the qubit. So I -- my personal belief is, say, IBM will deliver 4,000 qubit in 2025. So my belief is somehow sometimes in 2026 or 2027, the commercial Q day will be knocking on the door, maybe before that. It all depends on the advancement on this technology, which is -- I wish I have a crystal ball, which I don't. And that's why the market has to get themselves ready. And the famous talking from the post-quantum cybersecurity industry was, your solution is 2 years too early preparing compared to 2 years too late is everything, right? That's a huge difference. So you have to be quantum-resistant before Q day. It's only that no one knows exactly when Q day will be there. And the hackers won't give you a call before they do anything.

Okay. The next question, and I group these has to do with cryptocurrencies. And Andrew, you mentioned in our press release that we have successfully implemented a quantum-safe Solana proof of concept. And the question revolves around how far away are you from commercialization? Is an initial coin offering in the cards? And then can this project be adapted to cover all coins? And then the real question is, what's the go-to-market strategy?

This is a pretty loaded question. So I would like to answer them like in part. First of all, the proof-of-concept project we completed with a partner about 2 years ago was very successful. The problem with cryptocurrencies against, I mean, the coming of Q day is very noisy. A lot of people talk about that, but really, many of them don't even know what they're talking about, but they were talking about the hash and the hash is not really the problem where the problem is. Hash is still considered to be kind of quantum-safe, okay? And the real problem is in the digital signature because the cryptocurrency is basically when it was invented by Satoshi in 2009 was assuming that the elliptic curve or whatever RSA at that time, too, the digital signature is safe that you cannot -- no one can forge the private key to sign the transaction. So in other words, if you want to spend your money in your wallet, you have to sign, you have to digitally sign the transaction. So the immediate problem is from the digital signature because once you have your public key, which is your wallet address, public in the blockchain, everyone knows about it. And then they can grab your public key and then use a quantum computer to reverse back into the private key. This is exactly like they got the signature to sign a check and simple as that. So then the project we did was we applied a quantum-safe signature and using Solana as the sandbox and that's what we did. So then the next step would be to commercialize these things because we have the proof-of-concept, we have the chain, we have the demo wallet, but we still have to have -- we still need to create the commercial wallet, things like staking mechanism, as I mentioned before, some liquidity pool mechanism so that it can become the -- like the commercial coin. So likely, we have all the technologies available, but likely we will partner with someone experienced in the industry as a marketing partner to do that rather than doing it by ourselves because this would go into like in the question, a successful ICO and things like that. So we believe the time that needs to complete these components will be within 2025 or thereabout.

Okay. The next one has to do with our plans. So all our technology development will require money. How do you plan to fund that work?

To be frank, we already have spent millions of dollars in the last few years with our -- basically our current cash flow to develop all the things that we have developed. So we don't need a lot of extra development costs moving in the future. Of course, we still need some more. And -- but most importantly, it is that the strategy -- the marketing strategy we have taken is to work with a partner. We have already got many global partners under our belt, and we are planning to add more, so this would be actually greatly reducing the financial resources required in the marketing stage. So yes, I don't foresee requiring a lot of additional R&D and marketing capital to fulfill the plan.

Okay. Now the next is a bit about the competitive landscape. 01 has patents on their technology and they see that we've developed some products on it, which you've covered. And that's great. Now as far as you know, is there anybody out there that is ahead of us -- that's in your opinion -- from what we know.

Yes. Thank you. Definitely, we are not the only smart person on the planet. So I bet there are a lot of people doing or trying to do what we did. But I got to say that our advantage is our in-depth knowledge in the area. We are not a start-up company. We are a company there on the TSX for many, many years. And the ability that we had, as I mentioned earlier, during 2017, almost in line with the NIST PQC study was the ability to predict the final standard way before they become a public knowledge. So we had already implemented those standards into our encryption engine way before they become standard. So that is the ability that set us apart for about 3 years with our competitors, okay, which they are now busy working with the new standard being announced a few months ago, but we already had that integrated and started doing proof-of-concept project, working on the IronCAP X, the e-mail product since 2021 already. So yes, we believe there are a lot of people today working on this project, but we have a good lead time that we have -- we are now enjoying.

The next one has to do with AI. And there's 2 parts to this question. The first is, do you mean you're going to create a quantum-safe ChatGPT alike? And the second is, how long will it take to implement a quantum-safe AI machine learning platform?

Yes. Well, definitely not. The short answer is definitely not a ChatGPT alike. As I mentioned, ChatGPT is generative AI. It doesn't have the privacy problem because it's open knowledge. The privacy problem exists for non-generative AI, which is everything else but ChatGPT, like many people associate AI with ChatGPT because that's the only thing they know, AI is ChatGPT. But then there are tons of other aspect in AI, as I mentioned on the list, like machine -- privacy-preserved machine learning, outsourcing machine learning, medical record learning, financial model learning, image recognition, facial recognition, anomaly detection, supply chain, et cetera, the list just goes on. I mean ChatGPT is really just a small portion of the whole AI perspective. So again, the long-winded answer is that no, we are not planning to implement a quantum-resistant ChatGPT alike, but we are going to implement a quantum-resistant AI machine learning platform that would allow those non-generative AI projects to use, to learn and create a knowledge database for their businesses. So yes, we believe this would be probably taking about a year to implement, and we already have done some kind of PoC in the last like 1 year. Just we haven't announced anything as of yet.

Okay. And I think we've got time for one more question, and it was a follow-on one about crypto again. Crypto companies keep promising that they can be hacked -- can't be hacked, sorry. Can you reiterate and maybe simplify your explanation on where their weaknesses are and why 01 can overcome these weaknesses?

Yes, I think -- you're right. This is kind of like a follow-up question and a lot of the aspect has already been kind of answered. So maybe the person asking that question is just trying to further clarify with that -- really, the weakness is coming from the digital signature, as I said. And a lot of people thought, yes, I mean, cryptocurrency is blockchain. Blockchain means it is hash. Hash cannot be cracked by quantum computer as of yet, which is true. I totally agree. But the problem, again, is not about the hash. The problem is this is kind of like the problem with a safe, you can have the safe, which is unhackable, okay? But then if you put your key under the mat, sorry, this safe become totally non -- unsafe, right? So that's exactly the problem with cryptocurrencies today is that the key -- the private key to the digital signature is not safe because anyone [ cracking ] your public key can reverse back into the private key and sign the transaction for you and pay and spend your money in your wallet. That's where the problem is. So what we have done was inserting quantum-safe digital signature into the sandbox, which was Solana. And essentially, this allow us to -- this same technology allow us to apply that to any blockchain, whether it's Ethereum or the Bitcoin or anything. It's the same, is applicable. So yes, that's -- I think that would further clarify this question.

Okay. Well, that's it for questions. I'm cognizant of time. There are some questions we didn't get to. Please feel free to e-mail us at 01, and we can either arrange a follow-up call or we will respond to your questions. Thank you all. And now I'll turn it back to Andrew for any closing comments or Andrew or Bill for closing comments.

Well, thank you very much again. I think all I want to say is that we have entered a very exciting moment, and it would only become more exciting for the years to come. So thank you again for joining, and please stay tuned.

I agree. Exciting times. Thanks very much for your attendance today. Stay tuned.