Earnings Call: Q4 2024

Jan 23, 2025

Earnings release

Good morning, everyone, welcome to our 2024 fourth quarter results and business update conference call. I'm Brian Stringer. For those of you who don't know me, I'm the Chief Financial Officer for 01 Quantum Inc. With me on the call today is Andrew Cheung, our President and Chief Executive Officer. Before I get started, I'd like you to just pay brief attention to our disclaimer here, our forward-looking statements, which form an integral part of this presentation. The agenda today will be Andrew Cheung will take us through our business update and our financials. After which, there will be time set aside for Q&A. I think by now we're all familiar with the Q&A process using Zoom. At the bottom, there's a button there, Q&A. Click it, you can ask a question, I'll table the questions after Andrew's presentation. Now I'll pass it over to Andrew. Andrew, over to you. Thank you, Brian. Well, I see that we have a pretty large audience today, a lot more than our previous quarters. Welcome everyone. My name is Andrew Cheung, President and CEO of 01 Quantum Inc. Over the last few weeks, I have talked to a number of longtime shareholders and would like to take this opportunity to extend my appreciation to all of you who have been supporting us over the years. I have also talked to a number of new shareholders and would like to also welcome you to the 01 Quantum community. Let's get started. It is almost a golden rule that an overnight success has many invisible years behind it. I have been preaching for many years about the fact that there is an urgent need for enterprises and governments to become quantum safe before Q-Day. The day when hackers are using quantum computers to crack current encryption that is protecting virtually everything under the sun in today's world. This has to be done immediately, not only because it takes years to implement the transition, but also because there is no set date for Q-Day. It can come any day. I can guarantee you that the hackers won't give you a call before they attack. 01 Quantum received little attention until recently when Google announced their groundbreaking achievement in quantum computing. Let's look at some of the chain of event happened over the last few months that heightened awareness of quantum safety. They are all large enterprise talking, by the way. There is the, as I said, Google announcement in December that they have achieved a breakthrough in quantum computing, more in the terms of error corrections. This is huge because it means that they can achieve efficient qubits. Technically, 372 qubits, quiet qubits or, 4,000 somewhat quiet qubits can cross the line of Q-Day already. You don't need millions of qubits to cross the Q-Day if you have good qubits. No wonder why Microsoft said in 2025 that this they said late in 2024 that 2025 is the year that you should get moving on your quantum strategy and heighten awareness regarding the risk of data being compromised by hackers using quantum computers. In addition, Gartner also stated that 2025 is the year business need to have quantum strategy. The CEO of SandboxAQ also stated last week in an interview urging companies to transition to PQC compliance protocol supported by NIST. For the semi-government agencies in the U.S. that scrutinize and standardize encryption algorithms that the rest of the world will follow. Of course, everyone also remember the CEO of NVIDIA have said that he believes using quantum computers to run critical applications are a decade or so away. While I agree with him, this is also sending a serious misunderstanding message to the world that they don't need to worry about Q-Day as of yet. The truth always lies in the fine print. All he said was that quantum computers won't be replacing classical computers for a while. This is correct. I think he's also wanting to convey a message of, that it is still a long way before AI modeling will be using quantum computer instead of his NVIDIA chips. Realistically, let's not forgetting that, using quantum computers to crack encryption is not a critical application. It is just hacking. The best comparison is the machine that used to crack the Enigma code during World War II, created by the Allies. That machine was clumsy, not a general-purpose computer, and was unstable. The industry nickname of such kind of machine is Rubber Band Chewing Gum version, but it did the job. The same thing applies to Q-Day. We're not there yet, at least not on a commercial level, but it's awfully close. I personally hold a strong belief that Q-Day has arrived at least 2, 3 years ago on the national level because they are usually about 5 years ahead of the commercial world. I'm sure you will be surprised if the U.S., Russia, and the China National Security have not already contracted the quantum computing vendors to create such a rubber band chewing gum, a special purpose quantum computers that does nothing but cracking RSA and Elliptic Curve. I guess the bottom line is that we believe the huge demand on quantum-safe end user application will come many years before the demand of general purpose quantum computers. We are ready to capture that market now, not tomorrow. Let's jump into exactly what we do. Our focus is post-quantum cybersecurity or quantum safe cybersecurity. Our expertise is encryption, cybersecurity, and end user product development. After spending millions of dollars over the last five years, I would like to tell you what we have today to take full advantage of our expertise and how we are going to capitalize on it. We don't talk strategy today, we talk logistics. We don't talk scientific theory now, let's talk revenue. First of all, we built our quantum safe cryptographic engine based on our spot on correct prediction of NIST final recommendations in order to jump the gun gaining three years of lead time. For example, the proof of concept projects we did for our partners two, three years ago were already using algorithms we predicted will be in the NIST. We are bang on when NIST published their recommendation five months ago in 2024. We don't plan to sell our cryptographic engine, instead we believe revenue reside in applications that end users are touching, using, and most importantly, paying. While everything under the sun must be quantum safe in order to survive beyond Q-Day, we cannot be everything at the same time. Besides helping PQC projects of our partners and revenue share with them, we are strategically choosing and have chosen four verticals to set our focus. These 4 verticals are quantum-safe email security, quantum safe cryptocurrencies, quantum safe AI platform, quantum safe mobile messaging. The physical reason for these 4 verticals is because they are mass market ready without the need of end user education. In other words, once marketing dollar are pouring in, revenue will start to roll. The reason we pick email to be the first quantum safe end user solution is not only because it has a huge market with 700 million business email accounts worldwide, but also email is the most insecure but globally adopted business tool. Since its inception, we all know that emails are virtually sent unencrypted, all of them. Even though there's a small percentage of email being sent encrypted, the encryption is not truly end-to-end. This means it is not secure because not being not end-to-end, meaning people other than the recipient can also decrypt your message, like the man in the middle. Let alone being quantum safe. We took this opportunity to lift off an email security product that is not only quantum safe, but also truly end-to-end encrypted. This means no one other than your recipient will have the key to decrypt your message. In other words, it is 100% guaranteed privacy that even government authority are unable to tap into it. Even more important than encryption for email is the authenticity of the senders. Virtually all email senders today are unauthenticated. That's why 91% of all ransomware attacks in the world are initiated by a simple phishing email. The end-to-end email signature in our IronCAP X product is not only quantum safe, but also allowing sender to digitally sign the message, proving the sender's authenticity. In other words, this alone can plug 91% of the source of ransomware. IronCAP X is already available on our website for public usage, and the first version is limited to Windows Microsoft Outlook users, and we are expanding as we speak to provide an email client for Windows, macOS, iOS, and Android for cross-platform users and expecting commercial availability within 2025. I bet the lowest hanging fruit for commercial quantum hacking will be cryptocurrencies because they are CAD trillions, not CAD billions, but CAD trillions protected by a digital signature, which was assumed to be safe when Satoshi, whether he, she or they, invented Bitcoin in 2009. The bad news is that digital signature is an integral portion of each and every transaction, this cannot be changed easily without several years of work. Two years ago, we had completed a proof of concept with the partners using Solana as the sandbox to integrate our IronCAP quantum safe technologies. The project was completed so successfully that not only we can create a quantum safe Solana layer-one chain, but also retain its ultra-fast TPS, transaction per second, and a smart contract capability. The method we used was subsequently granted a US patent in June 2023, and we are planning to complete commercialization in 2025 with a partner. We have also decided to focus on AI security AI platform. Okay. Similar to internet, I think, virtually all new technology started off with no cybersecurity built in. AI is no different. There are huge need for secure AI platform. At this point, we have a couple of potential invention that we are proceeding with patent applications, so obviously I cannot disclose beyond that line, at least until after the application has been filed. Practical applications of secure AI platforms include the likes of secure multi-party computation, Private Set Intersection, outsourcing machine language, privacy preserved machine language, medical record learning, financial model learning, image recognition, anomaly detection, or supply chain optimization, et cetera, et cetera. We're planning to have a public demonstration before the end of this fiscal year and a full commercialization thereafter. Last but not least, we might remember several months ago that the CEO of a popular messaging, mobile messaging platform, Telegram, was arrested in France. He was arrested because people are accusing him or accusing Telegram of being non-cooperation with authorities in censoring the message on the platform. Some people said the arrest was a pure political move, and I'm not a politician, nor do I care. I'm a cybersecurity guy, and from the cybersecurity point of view, the balance between privacy and security is a very controversial topic. Like a true zero trust, zero trust system will have no technical backdoor to the encryption, but this may facilitate communication of illegal activities such as drug trafficking, money laundering, et cetera, et cetera. From the flip side, a non-zero trust system with a backdoor or with a master key may facilitate breaking of national security. It is kind of like picking the lesser of the devil. Frankly, being a cybersecurity person, obviously I personally believe the lesser of the devil to me is a true zero trust system because the consequence of breaking national security is way worse than the risk of being misused by the bad guys. The bottom line is that most techies believe Telegram is not a truly zero trust system and they possess the master key, and maybe this is one of the reasons for the CEO's arrest. Someone is trying to gain access to those messages. The real motive is outside the scope of this discussion here. We may never know. I don't even want to know. All I know is that the world is strongly in need of a mobile messaging platform that is not only quantum safe, but also truly end-to-end encrypted whereby there's no master key to share. We are committed to build this product. I guess 2024 was an important pivotal year to 01 Quantum. With a number of project reaching critical milestone, essentially the operation was breakeven in 2024 using only a little more than CAD 130,000 of cash flow for the full year. Most importantly, we expend all R&D expenses as well as always operating in a debt-free mode. This uptick into a great start for 2025 when we completed a strategic equity financing two weeks ago, allowing us to accelerate on a few strategic milestones. We continue to receive reliable recurring revenue from our legacy product, although suffering slightly by the unfavorable exchange rate. It has never been, it has nevertheless, provided us with good cash flow, and it did the job of funding our R&D development in the last 5, 6 years. Our focus from 2025 onward will be towards building quantum safe related revenue, which is most important to us. In summary, 2025 is expecting to be the reflection point to capitalize on this massive quantum trend. We have patent-protected technology and a mass market-ready product line that we have already signed up a number of world-class partners that you can see the name here. I guess, you know, 01 Quantum is poised to be the world leader in the creation of practical PQC compliant end user applications. We expect 2025 to be a massive year in achieving the more major product milestone while revenue will begin to accelerate. I'm gonna take a quick pause here. I'm sure that you have a lot of questions, so I'm going to allow more time for question and answers. I've mentioned at the beginning, I guess everyone is familiar with Zoom these days, using their Q&A feature. Brian will moderate your questions accordingly. Over to you, Brian. Thank you, Andrew. I've had several questions come in. I'll group them by the topics, Andrew. The first has to do with revenue. The question centered around where, and I think you just covered it, where is your existing revenue coming from? That question had come in earlier. When do you expect to see revenue start to build? Yes. You know, I fully expecting a question coming from this because the quantum safe market, you know, over the last few years has been in the pre-money stage. It is no different from the AI market, you know, a few years ago. Okay? Currently our revenue are coming from a recurring revenue of the legacy product. Okay? Recurring means it is well predictable and also help paying the bills, so to speak. However, as we all expected, our revenue future is from the quantum safe technology and quantum safe product. This is the IronCAP related revenue. With respect to your question of when, well, it is hard to answer because as I said, it's an emerging market, but when it starts, watch out. I'm fully convinced that it will be explosive. We're now at the stage of preparing for that and setting up and expanding our partnerships and getting our name out there in the market, and most importantly, not waiting for others because we have developed more than the engine. We have end user application. This is where, you know, as I said, those market are ready, are mass market ready, and once marketing dollar are pouring in, revenue will just start rolling in. Now I have covered, like mostly our current opportunity, and believe me, there are more to come. I do expect to start seeing revenue commence in like the second half of this year and possibly sooner. We'll see. It is going to happen. Thanks, Andrew. The next one, I'll stick in the financial area. Do you feel like your balance sheet is strong enough to support your development plans? Yes, absolutely. The balance sheet as of now after the recent financing is more than enough to allow us to complete and accelerate a few more milestones I have indicated in my presentation. Just repeating a little bit here with the number 1, to expand the IronCAP X to a cross-platform support and working with the partner in the cryptocurrency market and kickstarting a secure AI platform, which actually we have started not just now, but started, you know, some earlier in 2024 already. We're just accelerating what we have been doing many months ago. Also kickstarting the quantum safe mobile messaging platform. I am very comfortable that the current financial resources, the balance sheet, the size of the balance sheet is enough to more than enough to support those developments. Okay. Thank you. A couple of questions have come in on development, Andrew. The first one has to do with the crypto Solana blockchain. The question is, what exactly do you have as a product today? What are the milestones we can expect to see as you get to commercialization? Fundamentally, it is public knowledge that we actually made a press release about a little more than 2 years ago already. We had completed a proof of concept, POC, with a partner. Basically, proving that we can insert quantum safety into any blockchain. The sandbox we used in the POC was Solana. The reason why we picked Solana was we like the technology. It is fast and the fee is low, and it is also a proof of stake, the mechanism which we like a lot, we believe it's the future. Our technology can be applied to more than Solana, just about any existing blockchain. The proof of concept again was completed so successfully that not only that we proved the success, but also we went ahead and applied for patent approval, and we got a patent granted in June of 2023. This allow us to, you know, put together. It's kind of like we have the engine and all you need to do is put in the chassis, the chair, and the stereo to become a car. We just need to build all those things around it, like the end user user-friendly wallet and the staking mechanism. You know, those kind of things putting around and there would be a commercial available tokens available. We are working very closely with a potential partners in that commercialization process. Okay. Here's one that just came in. I'll take your jump on this one. Have you considered offering CAD 100K to anyone who can hack the IronCAP product like contests in the past? We have done that 2 times already in the past. If there's a need for us to do that. Yeah, there's no, you know, we have no trouble, you know, offering that. We are 100% confident in achieving, you know. I don't remember exactly the number of hackers who have participated in our last hackathon. I think it was like probably 850 or something in, plus or minus, in that range. We are very comfortable. No one, you know, let alone cracking, no one even can provide a theory, you know, of cracking. We are very comfortable doing that if we need to. Okay. I'm conscious of time here. The last question, AI learning, can you give us a use case for an end user product? Well, as much as I like to expand on that one, as I mentioned, we are in the middle of filing some patent protection. We cannot disclose anything until the patent application is done. At a very high level, you know, AI platforms are unencrypted. The world really needs something that is encrypted and with privacy. Say if someone is asking a AI model, whether it's a ChatGPT or some special purpose model, chances are the question and answer are going to be very controversial, and you don't want to disclose them. Anyway, I cannot cross the line at this point, but I'm hoping that maybe the next meeting, I am already in a position to disclose what we will be doing. Okay. Thank you. I'm conscious of time. There are several questions that we didn't have time to get to. Please feel free to give Andrew or myself a call. You have our contact information on our website. Thank you very much for attending. I'll pass it over to Andrew for closing comments. Thanks again, Brian. We have entered a very exciting moment, it's going to be more exciting for the years to come. Once again, thank you for attending, I cannot wait to see you again in the next meeting. Please stay tuned.