Okay, 10 o'clock, let's get started. Good morning, everyone, and welcome to 01's Q1 2024 Results and a Business Update. I'm Brian Stringer, I'm CFO for 01, and with me today on the call is Andrew Cheung, our President and Chief Executive Officer. The format today I'll act as the moderator. Andrew will provide a presentation on our progress during the Q1, and that'll be followed by a Q&A.
I think by now all of us are well-versed in the use of Zoom, and if you could click on the Q&A at the bottom, I'll simulate the questions at the end and Andrew will answer them. Now, prior to getting started, if you just take a look here at our forward-looking statements, which form an integral part of this presentation, just take a second to take a look at them.
I'll pass it over to Andrew, who will give you the presentation, and remember, if you've got any questions along the way, you can type them in and I'll simulate them at the end of the presentation. Now over to you, Andrew.
Yeah, thank you, Brian. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2024 Q1 financial Result and Corporate Update. I guess, I want to emphasize nothing but the fact that activities in the post-quantum cybersecurity market continue to move in light speed and is accelerating.
After the announcement from IBM just three months ago in December that they had broken the 1,000-qubit barrier, in February, Apple announced the first milestone of their quantum safety journey, which is to upgrade their iMessage service in iOS 17.4 to achieve quantum safety. This is an important industry wake-up call for all the complacent, because Apple is the first major player to announce a real landing of a quantum-safe upgrade of their own product.
Now, while the ink is still wet, last week Vitalik Buterin, the founder of Ethereum, has also proposed a method to hard fork the Ethereum chain to save most Ethereum users' fund in the quantum emergency diagram. Now, while this is likely to take a long time to achieve a consensus in the widely spread community of open-source developers, it is actually the second alarm clock within a month that indicates more and more people are expecting Q-Day will arrive soon.
These above-two news are definitely not a coincidence. I kept reiterating that quantum computer development is progressing faster than most people want to believe. After breaking the 1,000-qubit barrier by IBM, their next stop is 1,400-qubit later this year, and followed by 4,000-qubit next year, with 100,000+ the year 2026. This is a double-exponential growth, as I always keep emphasizing.
It cannot be more obvious that the tsunami is already within visible distance. The reasons are simple. Number one, it takes time to convert their application, any application, to become quantum-safe. And I bet you that Apple started their conversion at least two years ago in order to achieve their iMessage quantum safety today. And number two, hackers can always conduct the famous HNDL attack, harvest now and decrypt later.
This essentially has fast-tracked the effective Q-Day for those industries that data has a long lifespan, such as financial, healthcare, etc. Now, believe it or not, there are still a lot of people burying their heads in the sand by saying that quantum threat or quantum problem is decades away or it will never happen, but the writing is on the wall very clearly. In fact, like, ChatGPT is really amazing.
Only a few months ago, when I tested them by asking the question, "How many qubits are required to crack RSA-2K?" they had no answer to that question. But I tested it again last week with the same question, and guess what? Now they said the answer is 4,000 qubits. Think about it, 4,000 qubits, what is it? Like, that line is actually 4,000 qubits by IBM later in 2025, okay?
So, I always fall back to, this famous formula, that X being the number of years for your encrypted data that needs to be secure, and Y is the number of years that it will take you to implement quantum safety, in Apple's case, like, we believe it's two years or more, and Z being the time it takes for hackers to get hold of a quantum computer.
So if X plus Y greater than Z, then you are toasted. X and Y are different, obviously, for each industry. For the industry, for example, for the industry of cryptocurrencies, X is forever, and the larger the open-source community, the longer is Y. So no wonder the founder of Ethereum tried to propose some emergency paper last week. So I would say, "Hello, Satoshi, where are you?"
And obviously the White House, you know, is not sitting still, of course, and just they know full well, you know, what is happening. And the White House, as I keep saying, has - oh, let's see if I can flip the chart. Yeah. And the White House is not sitting still because they know full well about what's going on.
In late 2022, the Executive Office of the President has already issued a memorandum directing all federal agencies to adhere to the NSM, National Security Memorandum number 10. They had a deadline of October 18th of last year, for the agencies to assess the funding requirement to achieve quantum safety. This memorandum reiterated the famous HNDL attack also. This is also quarterbacked by the NIST, the National Institute of Standards and Technology in the U.S.
It is probably not a coincidence that NIST has started their PQC, post-quantum cryptography standardization process in 2016, almost in line with the inception of our IronCAP business unit. Originally, they proposed to have the standard start finalized in 2024, but due to the faster-than-expected development in quantum computers, they had the first draft of standard, the FIPS 203, FIPS 204, and 205 in August last year.
They expected to add one more standard or recommendation later this year to wrap up the process. And our in-depth knowledge in PQC allowed us to study the original 82 NIST submissions and predicted the five final winners so that we can build our crypto engine ahead of the curve. So after the four rounds, four out of five predictions of our predictions have been correct.
We believe the last one is also within the IronCAP engine already. We will know, I guess, when the fifth recommendation comes out, later this year. And our ability of predicting the standard allowed - actually allowed us to be a few years ahead of the world in creating end-user quantum-safe applications.
So while our competitors are busy creating their quantum-safe encryption engine according to the NIST standard, we are already conducting some POCs, proof-of-concept projects, for our partners using the predicted recommendation of, NIST. While the whole quantum-safe industry is still largely in this pre-money stage, we believe the tipping point is imminent for all the reasons I mentioned, a couple of minutes earlier.
We also believe real revenue will be coming from the end-user application rather than the end-the encryption engine. So as a result, the go-to-market plan is to generate revenue from both end-user applications and quantum-safe professional services while our competitors are only doing the latter. Latest verticals that we are exploring with potential partners are in the areas of AI and cryptocurrencies.
Now, AI is a very interesting industry because it developed very fast, but it actually has been there for, like, at least, 30 years, because actually when I was in university, like, a long time ago, my graduation paper was actually in AI. The AI today is like the early stage of the Internet when everything is basically unencrypted.
The machine language process, the machine learning process is, like, kind of feeding with unencrypted knowledge, and therefore the final trained knowledge database are also unencrypted. The same as a query that I'm performing at the unencrypted format. So it seems okay, you know, it doesn't affect the AI process, you know, it still works, right? But the problem is, for the unencrypted data, it is actually raising a huge privacy and security issue.
Imagine an online retailer spending huge money to train the AI about the customer behavior. This knowledge is essentially the crown jewel of the retailer. It would be a disaster if a hacker managed to steal this trained knowledge and sell it to a competitor. This problem is way bigger when applying to other AI applications, such as fraud detection, medical image analysis, etc, etc.
So we are actually in discussion with some potential partners in applying end-to-end privacy for machine learning processes. Essentially, this means feeding the machine learning process with encrypted data. As a result, the trained knowledge is also encrypted, as well as the query process and the query result, they are end-to-end encrypted. So in other words, what does it mean?
You know, this actually means no damage if the trained knowledge is being stolen by a hacker because the query won't work without the private key, okay? And we have a special way of encryption, not only that it is quantum-safe, but also allows the trained knowledge to be shared among competitors without disclosing anything.
So it is actually something very deep in technology, but I can kind of simplify it in plain English to explain a little bit how it works. It's like, you know, you train a baby. You know, when you have a baby, the baby has no knowledge, and if you train the baby 1 + 1 = 2, then the baby will say 1+ 1= 2.
But then if you - this is unencrypted - but if you are since day one, if you're feeding the baby encrypted data, the 1 that you're feeding to the baby is actually the letter A, and the 2 that you're feeding to the baby is actually the letter Z, and then the 2 that you're feeding to the baby is actually the letter I, all right?
So the baby learns from no knowledge, is that A plus Z equals I, okay? So this is the kind of, like, encrypted data feeding, and then the trained knowledge is also encrypted, right? So that is how quantum-safe AI will work, and we are actively working in this area with some potential partners, right?
As I said, you know, this is actually can be offered, you know, as a - we call it a SaaS platform, you know, like a quantum-safe AI machine learning platform with typical users like a large retailer, as an example I made a couple of minutes ago, or secure multi-party computation, machine learning outsourcing, privacy-preserved machine language, medical record learning, financial modeling, image recognition, fraud detection, supply chain, or even smart contract in the blockchain.
In other words, it will kind of like ride the wave, you know, of the AI wave. It's like I use the concept like the early day of the Internet was totally unencrypted, and the next stage has to be encrypted, the Internet traffic. So the same thing that the second generation of AI, we believe, it must be encrypted, and it has to be also quantum-safe, encrypted.
So, many people, or in addition to AI, many people say the cryptocurrency is indeed traveling along a different space-time. And, who can imagine the value of a Bitcoin can come back or roar back in such a fast and furious fashion? So very recently, there is a renewed interest in our quantum-safe coin, technology.
And although we can't comment too much on things that are still in discussion, but I believe this represents a huge business opportunity for us. And if anything happens, as usual, we will make a timely announcement to the public. And the fact I keep saying, the fact that we are leading the world in essentially in the creation of real end-user product, quantum-safe end-user product, that gave us the knowledge on how to, like, help other organizations to convert their existing applications to become quantum-safe.
Like large, really large organizations like Apple, you know, they probably have their own knowledge. They won't need us, but there are tons of other organizations who are not tech-based, that, you know, we can help them convert their application to become quantum-safe. And our strategy is to act as the SME subject matter expert behind our partners like CGI, PricewaterhouseCoopers, Thales, Hitachi, etc., to help their customers doing PQC conversion.
And while this revenue potential is probably not as big as those AI or the cryptocurrency project, you know, that we, you know, we just talked about, but it can be very profitable with minimum marketing cost. And, as a result, I am, I'm actually very happy also to report that the business plan execution, started, like, about two quarters ago, has been progressing well.
Even though revenue was less than a year ago without a one-time project, the adjusted loss, or we call investment, has been reduced to CAD 56,000 from CAD 125,000 in the last quarter. After clearing up some of the long-time accounts payable, such as the COVID loan from the government, etc., we have about CAD 200,000 in the bank with zero debt.
From the conservative point of view, we expect the reduction to continue without assuming any increase in revenue stream. In other words, any momentum picks up on the revenue side may cross the break-even line into profitability. I kept reiterating that we have invested over CAD 6 million cash into the development of IronCAP, and that 100% of that investment is bgeing expensed in the accounting book.
So currently, we are in transition from the R&D stage to revenue generation stage, and I strongly believe 2024 will be, will be the pivotal year for the PQC market. So as a summary, looking forward to the remainder of 2024 and beyond, timing is everything. Things are changing very quickly, and the world is now white-hot in the area of, or the field of AI, and the also cryptocurrency market has also got out of the woods.
As both of these two white-hot fields require quantum safety, our technology basically is squarely fit into the current trend. I will take a pause from here to allow some time for question and answer. As mentioned at the beginning by Brian, I guess the people are quite familiar with how to use the Q&A function of Zoom, so please proceed with that, and Brian will moderate your answer, well, your, your question accordingly.
Okay. Thank you, Andrew. Well, we have one that came in at the beginning, and, Andrew, it talks about the partnerships we've developed over the past period of time, and they're not generating revenue yet. And specific with Thales and Keyfactor, can you give us an update as to how you're progressing?
Yes. In fact, you know, I have kind of crossed about this thing already. Like, make no mistake that at this particular point in time, the post-quantum cybersecurity market is still largely in the pre-money stage. And we all know about that, and so do our partners like PricewaterhouseCoopers, CGI, Thales, Hitachi. They large or small, they all know about it. And the end users have not really opened the checkbook to do the things yet. However, it is beginning.
As I pointed out, what you know, the announcement of Apple just last month about their iMessage service is actually a wake-up call to not just the tech industry but also the bank, you know, all those kind of, of the people that will be affected by quantum safety. Vitalik Buterin's proposal for Ethereum, he stated that this is an urgent matter and hoping that their huge community can come to a consensus soon.
So these are real wake-up calls, you know, for other to happen. I think it is, as I said, while we're still in the pre-money stage, I'm strongly believing that 2024 sometimes will be the tipping gear for this money transitioning from pre-money to the to a money producer.
Okay. The next one, Andrew, when do you expect NIST will complete their final recommendation?
As mentioned a little earlier, too, that NIST has originally proposed that they will make the final recommendation in 2024, and they already jumped the gun, made a few recommendations for the FIPS 203, 204, 205, August of last year. And they expect to make the final, one more recommendation later this year, to complete or wrap up their process. So I believe it's likely that they never exactly announced the date, but it usually is around the early to mid-summer when they made any progress. So it would likely be. I would bet, say, between May and September, my wild guess would be the final process of NIST.
Okay. And now, can you elaborate a bit? You talk quite a bit about, or a bit about cryptocurrencies and how IronCAP can help with making them quantum-safe. And so the question here is, what will happen to the world of cryptocurrencies the day after Q-Day?
I think this is - it is a trillion-dollar question, Brian. More than a good question. It's a trillion-dollar question. To be frank, I'm not trying to, to kind of, like, exaggerate anything or, or not. Like, the day after, okay, Q-Day, I believe the value of cryptocurrency, if they are not quantum-safe, would virtually be zero because, because the private key can be forged, and any people, any hackers potentially can spend your money and, or validate a double-spending transaction. So, so the fact is that people will be running to the exit, and everyone would know what would happen when this particular asset class would, would do, you know, to the value when people are running to the exit, and that would happen.
So the whole world of the digital asset has to be converted to become quantum-safe, after, well, I would say before Q-Day. I shouldn't say after Q-Day. And the funny thing about the Ethereum proposal was that they are proposing to change after Q-Day, and I don't think that will work, to be frank. And it has to be before Q-Day because it takes time to move assets from pre-quantum to post-quantum. This doesn't happen overnight. That's my humble opinion.
Okay. Thank you. And, Andrew, that wraps up the questions. So I'll turn it back to you now for final comments. Oh, no, I'm sorry. No, there were no more questions. So back to you, Andrew.
Okay. Yep. Thank you again for joining our 2024 Q1 business update. I guess I am very happy about the continuation of the new phase of operation, and I really can't wait to see what the rest of 2024 brings us. I really like the line from Forrest Gump. It's like, you know, in business, it's like a box of chocolate. You never know what the next one that you pick is. So, I think that the next one is going to be quite tasty. And please stay tuned, and see you again next quarter.