Okay, let's get started. Good morning, everyone, and welcome to our 2026 third quarter results and business update. I'm Brian Stringer. I'm the Chief Financial Officer for 01 Quantum, and with me on the call today is our CEO and Founder, Andrew Cheung. The agenda today will be, I will pass it over shortly to Andrew, who will take us through an operational highlight and discussion on the results, followed by which there will be times for a Q&A. I will moderate the questions, and I think by now everybody is familiar as how to use Zoom. At the bottom, there's a raise hand.
Feel free, please, to type your questions, and we'll get to them at the end. Before I pass it over to Andrew, is our disclaimer, which forms an integral part of our presentation. Please take a few seconds to look it over. Thank you. Now I'll turn it over to Andrew for his presentation. Over to you, Andrew.
Hey. Thank you, Brian. Hello, everyone. I'm Andrew Cheung, CEO of 01 Quantum. Welcome to our Q3 corporate update. This quarter marks a very important new chapter for the company. With the new capital received last year, we have advanced our technologies and go-to-market to a whole new level. I'm very optimistic about the business for the next two, three years, but my expectation is not coming from the revenue today, as we have already collected the one-time engineering fees during our previous quarters. Instead, it is coming from our outlook, especially on the AI side. Before I tell you why I'm so optimistic, let me reiterate the market we are in. Quantum computing is advancing quickly and has the potential to drive major breakthrough in the area such as AI, drugs discovery, material science, and other computationally intensive fields.
Many knowledgeable tech executives expect quantum computing to be as widely used in a few years as AI today, but that same computing power has also created an unprecedented cybersecurity threat or AKA Q-Day, because the encryption that protects today's digital economy will be totally naked in front of a quantum computer. Our job is to make sure our customers are safe beyond Q-Day. While there's no definitive answer to when Q-Day would arrive, major tech companies and governments are already preparing for it. Quantum computing vendors like IBM, Microsoft, Google, et cetera, are predicting 2029, and this is echoed by Trump's recent executive order in June, mandating the agencies to be quantum safe by 2030. But the biggest point here is that you don't need Q-Days to arrive for quantum threat.
While 2029 is only two and a half years away, the advancement of AI, especially Claude Mythos, recently has accelerated the practical Q-Day to now because it allow hackers to easily obtain your encrypted data today. The hackers simply hold on to the encrypted data and wait until Q-Day and get them decrypted, such as your password, your crypto key, et cetera. This is the infamous HNDL attack, Harvest Now Decrypt Later. This is why government, enterprises, and technology providers are already beginning their quantum safe migration journey because the only way to protect your data or their data in the future is to protect them now. One of the differentiator is that we focus on deploying products, not simply post-quantum research or cryptographic algorithms. The end customers typically do not want to buy an encryption engine.
What they want is the application that they are currently using to become quantum safe. Therefore, we have built our technologies around practical commercial applications. Today, our core area of focus are in the areas of quantum safe AI, remote access, digital assets, and email security. Some of these solutions are already commercially deployed by our customers, while others are moving through their timelines. This differentiator allow us to sign up a lot of world-class partners such as Hitachi, CGI, Thales, PwC, and others. We have another big one to announce very soon. I'm kind of keeping you suspend a little bit here. Our role is to act as their post-quantum subject matter expert, SME. Our partners have established customer base and relationship and distribution while we provide the technology and expertise required to help making their customers quantum safe.
This partner-led approach is important because it allow us to access large customers and markets without having to build a global direct sales organization ourselves. I would boldly say that our largest single opportunity moving forward here is the crossover between AI, quantum safety, and user data privacies. We have a patent-protected technology called Quantum AI Wrappers, QAW, that we have been building since 2024. Recently, it has been publicly announced and demonstrated at the TMLS conference, Toronto Machine Learning Summit. QAW essentially unlocked the single largest obstacle that is hindering the maximum adoption of AI, which is user data privacy, because all AI operations today are operating unencrypted. QAW uses Fully Homomorphic Encryption, FHE, optimized to encrypt both the user data and AI model before performing AI inference.
In other words, the question asked by the users and the round trip answer back to the users are 100% end-to-end encrypted. In other words, the AI model operator has no way seeing the end user's confidential data as well as the answer. This is even more important now as recent debates by Palantir and others have come to a view that AI model operators can eventually create competing product and services when enterprises are using their model, asking questions, or even performing codings. To get around, the most straightforward approach is to encrypt the user data with our technology. Our objective is to protect both the user data and the IP of the model owner. Needless to say, the whole end-to-end communication session is quantum safe while using our technologies. Our value proposition is very straightforward.
In simple terms, we allow AI inference without exposing the underlying data and the AI model, as they are both encrypted. This allows compliance and national security-related usages, and this also opens for both dedicated on-premises deployment businesses as well as managed services. Our go-to-market strategy is to go through our channel partners like CGI, Hitachi, Thales, et cetera, which is very cost-effective as we are riding with them with our heavy sales and marketing investment on our dime. For example, co-marketing campaigns are being crafted with CGI as we speak, and will soon announce a marketing campaign related to the Canadian government, whereby we would demonstrate a neural network AI with the ability to distinguish drone, cats, birds, plane, et cetera, in an encrypted fashion.
In simple terms, it means feeding an encrypted gibberish picture to the AI model, but yet the AI can tell whether it is a military drone or a bird, et cetera. This is extremely crucial for the military. Here is the roadmap. We have already achieved milestone number two, as I mentioned earlier, at the TMLS event, Toronto Machine Learning Summit, where we demonstrated to the public an optimized privacy-preserved AI operation. By Q1 of next year, we expect to deliver a hybrid mechanism that would allow a large language model, LLM, to achieve privacy also. On top of that, we are also expecting to announce some co-marketing project with one or more of our partners aiming to build privacy-preserved AI marketplace with various stage of commercial partners, various stages of a commercial deliverable next year.
Essentially, our AI marketplace operates similar to Hugging Face, except that we allow AI model vendors to list their model for others to use in a completely quantum safe and privacy-preserved fashion. It is worth mentioning and pointing out that actually last week, NVIDIA spent $14 billion to acquire Hugging Face, even though they have been breached by AI model, actually from OpenAI two months ago. In our AI marketplace, both the user data, as I mentioned, and the AI models are protected, even the platform has been compromised. While our quantum safe privacy AI is currently our unfolding story for the next few years, we are also very proud of the PQC projects already delivered to our partners that they are now being marketed as we speak. Let me just quickly reiterate this achievement that we have.
Earlier last year, we helped Hitachi from Japan converted their remote access offering to become quantum safe. This project has been successfully delivered earlier this year, and Hitachi is now actively marketing the product in Japan while we sit back to support them and collect royalty. Recurring revenue started to accumulate, of course, slowly but surely. Recently in June, we have also delivered a quantum safe crypto vault to another partner called qLABS Foundation. What we have created for them is a special token called $qONE as the gas fee currency for quantum locking and unlocking digital assets against Q-Day threats. This is a very large market as the whole $4 trillion digital asset market must be protected against Q-Day threats before Q-Day arrival. We have received cash development fee + 22.5 million of the $qONE token as the compensation.
We believe there is a huge upside value for the $qONE token as the world move closer to Q-Day, and our partner is now conducting a Mythos Challenge within September. There are more details to be announced. We have also created an email product called IronCAP X-Mail, allowing existing Microsoft Outlook users to send and receive quantum safe encrypted email, as well as digital signature that guarantees the authenticity of the sender. To put into perspective the market size, there are approximately 730 million business email addresses in the world. So if only 10% are serious and wanting some kind of quantum safety for the email and paying CAD 3 a month for the quantum safety, it is a CAD 2.6 billion annual recurring revenue potential.
Since this is not a partner product, it require our own sales and marketing efforts, so we are ready to enter into this CAD 2.6 billion untapped market once marketing resources are available. Last but not least, I would like to also re-emphasize that our enviable partner list packed with big names like Hitachi, CGI, Thales, PwC and another one, as I mentioned, to be announced very soon, has accredited us a global reach to embrace our whole PQC market. Now let's take a look at our Q3. Although, again, without those one-time engineering fee as in previous quarters, recurring revenue from partner has started. Again, slowly but surely. Thanks to our prudent cash management, even while R&D and marketing have been ramped up significantly, cash usage was only CAD 450,000 in this quarter.
Therefore, we still have a very clean balance sheet with about CAD 2.5 million of cash and zero debt. We expect recurring revenue to continue building, but most importantly, we expect the PQC revenue, especially the AI side related business starting to grow exponentially as the world scramble for quantum safety before the end of 2029. So I would like to take a quick pause here, reserving more time for question and answer. I am sure that there will be a lot, although I haven't seen them. Brian will be managing, obviously. Please use the Q&A feature mentioned earlier by Brian to enter your question. As usual, Brian will moderate. Brian, over to you.
Okay, there were a couple that came in, Andrew, as you were speaking. I am sure there will be more to come. The first one has to do with the Carleton University press release we made, and the question is, can you expand upon the independent valuation of the QAW or Quantum AI Wrappers from Carleton University, and did it touch on the market opportunity?
Thank you, Brian. I do not understand why, but always the first question always is a good question. This is good because just like anything in the technology world, new technology has to be vetted, has to be, using accounting terms, is audited. This is no different. Our QAW technology, although it has been vetted by the patent office that it is unique, how effective it is, we still need some third-party arm's length companies to evaluate. This is the process. What Carleton University has done for us was evaluating the efficiency of the QAW technology because a lot of people like Fully Homomorphic Encryption is nothing really new. It is new, but it is not like something invented by us two days ago.
That encryption concept for AI has been in discussion for many years. The major concern is about the efficiency that it would be significantly slowed down. Mainly what we have done in the last two years was optimizing the technology so that it would do the AI inference in the encrypted way while retaining reasonable and acceptable efficiency. That is being vetted and proven by the project conducted by Carleton University. I think this is a very, very important endorsement for the QAW technology.
The next one, Andrew. In your presentation, you mentioned CGI as a partner. The question is, were they the Canadian global system integrator that you mentioned in an earlier press release? As a second part to this question, can you elaborate on any progress you have made with respect to, I think they are referring to the part on joint promotions you were talking about the presentation.
A short answer to your question. I think your question has two parts. First of all, are they the party we mentioned in the press release about two months ago, the Canadian global system integrator? The short answer is yes. They are a huge global system integrator. They do not want their name, especially from the PR department, does not want the name appear in press release that looks like maybe promotional whatsoever. Yes, short answer is, it is CGI. I think earlier in my presentation already kind of hinted that we are undergoing some co-marketing activities. A lot of things are happening between us, and they are very committed in the upcoming, not just post-quantum, but the crossover between quantum and AI.
Okay. I've kind of a couple of questions, so I'm going to on the same subject, so I'll try to paraphrase them here. It's with respect to revenue. Can you elaborate on the customer-funded development projects and the timing with respect to revenue going forward?
Yeah, I think this one kind of covered in my presentation, that the customer-funded development project, there were two of them in the last, about one year. One was with Hitachi, and the other one was with qLABS Foundation. They paid us one-time engineering fee, and that's why the revenue goes up in the last few quarters. Thereafter, they will be marketing the product. We don't need to spend the sales or marketing. It's their product. We just have strike a royalty percentage moving forward. All we have to do is, being the SME, support them, and collect the royalty fee. Moving forward from this project would be royalty dollars, and which we have already booked some of them this quarter. So as I said, it's slowly but surely, it is accumulating.
So if we get more of these kind of one-time engineering fee moving forward, there will be also some spike in engineering fee, one-time engineering fee. I think the most important thing for engineering fee is not really the amount of revenue. It's because even though it's CAD 1 million or so, it's not a lot of money we're talking about, but it is the commitment that is the most important thing. The partner will not commit to CAD 1 million if they are not serious about the project. So for them to commit those kind of dollars into the project, meaning that they are seriously moving forward to market it. This is the significant part that we should focus on, right? Yeah, I think that's kind of like a long-winded elaboration of what we have already mentioned during the call.
Okay. The next one, Andrew. Is the opportunity with Hitachi for DoMobile limited to Japan or is it global in nature? It's a straightforward one.
This is for Japan, for the Hitachi product. It is strictly for Japan. It is their product, their name. The product name is called DoMobile, and if you search about DoMobile Hitachi, you will find that product in Japan, and strictly for Japan. Globally, we also have our own remote access product that we can market as the PQC post-quantum remote access. That is our own product, not related to DoMobile.
The next one has to do with our cryptocurrency and qLABS. How rapidly is the market for Q-Day protection for digital assets, cryptocurrencies advancing?
I think I would like to draw attention to what I also covered earlier in the presentation, that the infamous HNDL attack, Harvest Now, Decrypt Later, it particularly applies to the crypto world because of the design of the cryptocurrencies, that the public key is published on the chain publicly. Anyone with a grade nine or better education can go to the blockchain and obtain the public key. The public key cannot be reversed to the private key until Q-Day, but they are collecting. I think the hacker is already collecting the public key, and then they just need to wait until Q-Day, and then they decrypt and empty your wallet. Simple as that.
The urgency is probably more so than any other industry, and that is one of the main reasons why qLABS Foundation spent a lot of money for our engineering to create the qVAULT and the $qONE token for them so that they today, not talking about tomorrow, so today, they can help their customer protecting the digital assets already. I think that is the essential point, and I think I also mentioned that I want to elaborate, too, that as we speak now, they are conducting, preparing for, in the cybersecurity world called the hackathon. In their terms, they are calling this the Mythos Challenge.
So in other words, what they are conducting is that they are going to load some significant amount of $qONE tokens, something like around CAD 100,000 worth or more, into the qVAULT, and then intentionally publish the private key, meaning that it is pretending to be Q-Day already, right? So they publish the private key, and then leaving the only protection being our technology, right? And then giving the world of crypto hackers 30 days. There will be a website countdown, 30, 29, 28, 27, away, and the amount still left in the qVAULT, and challenging them. So it is an all-in move. I think we are very confident in successfully challenging the world of the Mythos, and they expect to be surviving all 30 days. They will get a lot of attention. So I think this is a very exciting thing going to happen.
Yeah. I am cognizant of time here. This is the last question, Andrew. It has to do with AI and security, and the question is more of a statement here he has. "AI and security is in the news every day. I see you have a better, a SaaS-type product being developed in AI." That is the marketplace. "And can you comment a bit more on when it will be available and exactly how you tend to bring it to market?" Another part to the question, "Also, in the interim, is there any potential for development fee plus royalty agreements like we have had in the past?
I would say the short answer is that all of the above. We expect all of these things to happen. In terms of timeline, I think I showed the timeline earlier in the presentation. We expect the AI marketplace to be available around Q2 of 2027, and there will be some announcement of co-development with some of the big partners that we have. This is, again, a very important product that is almost defining the future of 01 Quantum. Yes, don't get me wrong, the project with Hitachi is big, and the cryptocurrency is big, but the crossover between AI and user data privacy and quantum safety is way larger than the combination of the last two that I mentioned. Typically, because, again, one single obstacle that is preventing AI from the full adoption is user data privacy.
So we have lifted that obstacle, and we have demonstrated the abilities already, and we are putting that into that AI marketplace whereby, as I mentioned, it is operating like the Hugging Face, where user AI model can list and store their models there for other people to use, and only that. The single difference is that we are having a platform that is not only quantum safe, but all the operation, the AI inference are performing encrypted. The example I used during my presentation was that we are going to demonstrate, announce very soon, a government-related demonstration very soon that we are going to demonstrate how we can have an AI model, like a neural network AI model that can distinguish the gibberish picture.
Like, for example, you have an encrypted gibberish picture that is a military drone. You feed that into the neural network, the AI that we created, encrypted, and we can still distinguish that it is a drone. It is not a plane, it is not a bird, it is not a cat or whatsoever. This is very, very important moving forward for not just the military, but for the whole AI industry.
Well, thank you, Andrew, and thank you, everybody. The AI is really exciting, and it is in the news every day. Now I will turn it over to Andrew for some closing comments. Again, thank you all for attending.
Yeah. Thanks again, Brian. I would say that, in closing, timing is everything. The quantum market is like AI, three years ago, with an extremely large total addressable market. We are way ahead of our competitors, with hands-on experience building multi-segment, commercially ready quantum-safe product. Also backed by a strong IP portfolio, plus a list of global Fortune 500 customers. I believe we are very well-positioned to come out as a unicorn in the PQC market. Again, thank you for attending, and see you again in our next meeting.