Q3 2022 01 Communique Laboratory Inc Earnings Call Mississauga Sep 15, 2022 (Thomson StreetEvents) -- Edited Transcript of 01 Communique Laboratory Inc earnings conference call or presentation Thursday, September 15, 2022 at 2:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Cheung 01 Communique Laboratory Inc. - CEO, President & Director * Brian Stringer 01 Communique Laboratory Inc. - CFO ================================================================================ Presentation -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [1] -------------------------------------------------------------------------------- Okay. Time to get started. Good morning, everyone, and welcome to our third quarter 2022 results and business update. I'm Brian Stringer. I'm the Chief Financial Officer for 01 Communique. And with me today is Andrew Cheung, our Chief Executive Officer. The agenda today will be a presentation by Andrew, who will give you an update on our business development as well as our financial results for the third quarter, followed by Q&A. Now I think we're all well versed in Zoom these days. If you've got any questions you would like answered at the bottom in the Q&A, just click it, type your questions. And we'll answer (inaudible). Now before I turn it over to Andrew, I just draw attention to our disclaimer, which forms an integral part of Andrew's presentation. Now I'll turn it over to Andrew, and then at the end, as I say, we'll open it up for questions and answer. Over to you, Andrew. -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [2] -------------------------------------------------------------------------------- Well, thank you, Brian. Welcome, everyone. My name is Andrew Cheung, President and CEO of 01 Communique. Welcome to our 2022 third quarter financial results and corporate update. Now first of all, let me begin by saying that quantum computing development is moving at faster than [light speed]. Only 3 months ago, when I said during our second quarter presentation that the world has already advanced to a stage where it understood quantum computing will strengthen the security layer of just about anything in the modern world of economy. Now people were basically asking when [QD] would arise. Now today, only 3 months later, I'm going to tell you that QD has arrived. While we have not heard the first open quantum hacking report, it is already too late to run when that happened. Quantum threats are already written on the wall. The question is, can we see them? First of all, only 4 months ago in May this year, IBM has announced the latest road map of quantum computers. They will release the first 1,100 qubit version in 2023. That is only a few months away from today. And they expect to release a 1,400 qubit version in 2024. And followed by 4,000 qubit in 2025. I guess the most gearing part is the expectation of 100,000 qubit by 2026. So you might see the relation here. This proves that we have been saying for years that the development of quantum computer doesn't follow the most (inaudible) that we know about doubling every few years or something like that. This is actually indeed a double exponential trajectory. And don't forget, this is just IBM. And they are just at the commercial level also. And Amazon, their competitors like Honeywell, D-Wave or whoever Google are all striving to beat IBM. And more importantly, the national level usually is 5 to 10 years ahead of the commercial level. So logically, they already have what we will see in 2026 3 years ago. Now if this is still not clear enough, please take a look at missed announcement in July only 2 months ago. Originally, this expected to announce its post-quantum cybersecurity or cryptographic recommendations in 2024. Now all of a sudden, 2 months ago, they rushed out a few preliminary recommendations and we'll continue to add more by 2024. This is clearly indicating an urgency that this has been saying and therefore, rush out to enhance something for the world to use rather than standing vacant when the quantum spread Tsunami, I keep saying this, suddenly arise. So after all, the half is now and correct later means all data that meant to be there for use must be protected not just now but yesterday. I'll repeat again, QD has already arrived regardless of how you want to believe. And people who are burning the heads in the stands are just hoping that it would take longer for quantum computer to fall into the hands of a regular hacker. In other words, the world must prepare for quantum safety now, and I cannot be more specific about that. Now other than the [uplead] market, I cannot be happier about the progress of the company. Our achievement in this third quarter mainly come from the following. First of all, number one, our R&D development for Thales the global leader in the military grade, the HSM cybersecurity machine has completed. We are now preparing for the preparation of the co-marketing stage. And secondly, our pilot project, POC, we called it the proof-of-concept project, for Talent Summit has also been completed with a quantum safe wallet ready for demonstration. And thirdly, as a result, we are going into filing a new patent application related to the inventions discovered during this project. And last but not least, the business version of high end CapEx that we are going to charge with recurring revenue model will be launched shortly. Now going into the details. First of all, Thales. Thales is a French company, they pronounce is Thales rather than Thales. This is a new partner we signed up in March this year. They may not be a household name to you. But every day, everything we use in our everyday life depends on their military grade product for cybersecurity. Their customers are those of major enterprises, banks, central banks, government, our national defense, et cetera, et cetera. They have more than 80,000 staff around the world with EUR 20 billion in revenue. So for a company of that size, they won't even answer our call if we don't -- if they don't -- if we don't have what they need. This partnership requires us to create an Iron CAP functional module for their LUNA HSM machine. This way, the clients can easily purchase an Iron CAP FM to upgrade their infrastructure to become quantum (inaudible). Since Thales Luna HSM has already been approved by virtually all the security sensitive organization in the world, this is basically a shortcut for us to reach the highly security-sensitive end-user customers. The R&D development has been completed, as I said before, and we have now entered into the preparation stage for co-marketing activities. A joint press release on our core marketing activities can be expected to see. Now another great milestone is our -- the proof-of-concept development for the Talent Summit. In July, about 2 months ago, we announced the completion of the technical side of this project. And today, I am very pleased to say that we have successfully completed a practical demonstration of a quantum safe wallet having Q&T is a short form of quantum native tokens, floating on a Solana blockchain. Our method is so flexible that our -- you can be operating as a second layer or some people call L2, Layer 2 technology on top of the original Layer 1 Solana, so that modification requirement is minimal. Alternatively, we can also operate as a completely new layer chain. In addition, the most groundbreaking is that the mechanism we have built can be applied to just about any private or public blockchains such as bitcoin, Ethereum, et cetera, et cetera. So this really puts us in the global leading position to help just about any blockchain private or public to become quantum-safe. A new patent application, again, related to this new technology is in the preparation right now. And as you can see from the screenshot, this is a QMT demo-wallet, which is the world's first practically demonstratable quantum safe water that can be used to send and receive a Q&T token. It is similar to bitcoin actually in 2009, except that this is quantum same. So I believe this really marks the beginning of a whole new generation of quantum safe token. Now when I say generation, you can reel from the angle like Generation 1 is bitcoin where they are serving as kind of like a store venue. And then Generation 2 is ethereum when they are having some utility as a smart contract. And then number 3 is this Solana when they have the proof of stake instead of the energy exhaustive proof of work kind of system. So now generation 4 is a quantum safe proof of stake token. So I cannot show -- like today, I cannot do a live demonstration until after we have made the public announcement, which we haven't made yet, but that will be coming very, very soon. Now if there is any kind of like positive problem of whatsoever during the last quarter, the positive problem is coming from a stage where we have all these kind of projects going on. And really cutting in the stealing R&D resources from the team and delaying our Iron CAP X project. So I'm glad to announce today that we are really coming into the final ramp-up stage, whereby the business version of the Iron CAP X, the product will be launched in the coming weeks. Iron CAP X is the world's first quantum-safe, end-to-end e-mail security product. There's a centralized management utility for IT to manage the private key of their users. So this is all inclusive totally managed under the control of the IT of enterprise. And the business version will be charging a very competitive $995 per month per user. And the biggest value of Iron CAP X is that users can send end-to-end encrypted e-mail that only their recipients can open. No one in the middle who can intercept the e-mail can read the e-mail, whether it is is the central authority, FBI or whoever, they just cannot read because they don't have the private key of the intended recipient. In addition, its digital signature ability that you can sign your e-mail so that your recipient know that it is really from you and can comfortably open them, this is effectively a very, very powerful way to stop and prevent ransomware from happening because I keep saying that statistically, 91% of ransomware are really beginning with just a simple phishing e-mail. And this digital signature is a real killer for phishing e-mails. Now in the IP intellectual -- the property side, we have a very strong fleet of protecting our quantum safe cryptographic technologies. With using the (inaudible) patent-protected technology that we received only a few months ago, we have 4 related patent pending technology covering the area of e-mail security, post-quantum cryptographic, the blockchain and digital warrants. As -- and also as mentioned a little earlier, there is an additional fifth member to join the fleet. And therefore, I have to say that I cannot be happier about our intellectual property protection. Now looking forward to the remaining of 2022 and beyond, we expect our long-time partner, Hitachi, continues to grow. Their mobile business in Japan and generate additional recurring revenue for us as the norm of working from home really -- the norm now booms in Japan. We will also continue to support our existing partners as well as looking to sign up more. And as mentioned earlier, while we expect to launch our long due Iron CAP X business version, whereby charging $9.95 per user per month of recurring revenue. And the market size is huge, sitting at [$7 billion] per year and represents a huge opportunity for us. And even more exciting, as also indicated a little earlier, that we will be entering into the co-marketing stage with Thales once they have completed the certification of our Iron CAP FM for the military grade Luna HSM machine. I guess the most staggering expectation is the ability to demonstrate Q&T, the Quantum native token and the potential to enter into Q&T commercial lending development project with our partner. Commercial lending really means the development of user-friendly software and wallet -- software wallet and hardware wallet for Q&T as well as some DeFi application that based on Q&T estimated token. This is exciting because besides talent summit, our Quantum state blockchain technology, which I mentioned just a little earlier that we will be filing patent protection about that can be applied to just about any existing token such as bitcoin, ethereum, et cetera, et cetera. So I guess, all these good development that happens in the last few months are somewhat reflected in our third quarter results, okay? And besides revenue are coming up, I guess, very important to mention is that we have only spent -- from last year to today, we have only spent a little more than $300,000 in the last 12 months despite all the additional R&D achievements we have done. So our operating loss remained at around $135,000. And so with this kind of a strategy [3], as zero debt, we are very comfortable with our current cash position of almost [900,000]. So let me summarize here that I am very happy with our achievement in 2022 so far. It continues to exceed our plan. Q&A again has already arrived quietly rather. We expect to continue our technological leadership, which allow us to embrace the Q&A multibillion dollar opportunity. And the strategy, therefore, we have made 5 years ago continue to be proven and is beginning to bear fruit. This also does tail into our expectation of massive revenue and profitability growth between now and the next few years. So I guess, I will say -- I got to say thank you for your support, all the way from being just a quantum story several years ago to this critical inflection point. And in the near future, when really, I believe you will witness the utility of our quantum safe cryptographic technology. So I would take a pause here to allow more time for question-and-answer because I believe it is important to give you more time. I'm sure you have a lot of questions that you would like to ask. So now I will turn it back to Brian. I think Brian earlier in the presentation has given you some instructions about how to post a question. If you have some using the Q&A function of the Zoom platform. So over to you, Brian. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [1] -------------------------------------------------------------------------------- Okay. Thank you, Andrew. Well, this first question came in when you were talking about Thales. So you answered the first part of his question, which is how big is Thales? It's a very large international company. And the second part of the question was how important is this partnership to 01? -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [2] -------------------------------------------------------------------------------- Thank you for this question. I think let me just turn back to the slide about Thales. This partnership is extremely important to us, not only because Thales is big. And more importantly is the vision is very, very close. Thales is a global leader in providing military grade security product for all these banks, central banks, national defense or whatsoever. And Thales is also very serious in providing quantum safe upgrade for their users. So this partnership basically is in line with the vision that they see the coming of a (inaudible) and therefore, started the partnership with us. And also, they are very focused in the blockchain development of providing -- they try to provide some technology for the blockchain users in the world to upgrade their system. And because our experience with the Talent Summit, we are really the world's first group of people who really got their hands dirty and dig deep into the technical side of providing technology and proven to the world that we can create and convert existing blockchain into becoming quantum safe. So this is really aligning with the interest and we are going to partner together to explore this very big opportunity for the world of blockchain. So a short answer to your question is, yes, this is a very important partnership that the division are very, very much in line together. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [3] -------------------------------------------------------------------------------- Okay. The next one has to do with the quantum safe wallet demo. Can you elaborate when you would expect revenue to come from this? And if possible, the magnitude of the potential revenue that you're expecting? -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [4] -------------------------------------------------------------------------------- Well, I think this is a very loaded question, thank you. Now let me turn to this Q&T. Quantum state token, our quantum -- the quantum native token demo. As I said a little earlier that this is -- I haven't made the public announcement yet, and therefore, I cannot give a live demo today, but it is actually coming very, very soon. So for the partnership, you might have read out earlier public announcement in, I would say, March, earlier this year, that there is an agreement that when we are launching this Q&T, the new token, 01 will be rewarded 10% of all the coins being awarded to the (inaudible). So this is the biggest potential for the revenue in addition to some development fee, but those are -- development fee are really not much, onetime fees only. And the recurring share of 10% of the tokens are the most important things that we're looking forward to. So I would say once the commercial lending has been in place and people start trading in the Q&T -- operating using Q&T, we would then be able to book revenue from those sharing. And the potential is it's very hard to quantify because it's so big even though cryptocurrency has come down from like using bitcoin as an index come down to probably 1/3 of the value of what they have is still a huge value over there. So if this quantum safe token marks the next generation of cryptocurrency. And essentially, we will have 10%. We will own 10% of the value of this generation of token, is staggering -- huge. You can really -- it's not difficult to measuring the kind of magnitude, but it's hard for me to quantify at this point, without crossing the line into becoming speculative. So anyway, so I guess it's up to you after you on how to quantify that. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [5] -------------------------------------------------------------------------------- Okay. And the next thing -- next question pertains to the quantum safe wallet as well. And he wants to know, will he be able to try out the new safe wallet? -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [6] -------------------------------------------------------------------------------- Absolutely. Absolutely. I have to say after we have made the public announcement and we have demonstrated to our partners, the wallet can be tried by anyone. It's actually pretty simple of a demonstration, the POC, proof-of-concept, wallet. It is nothing fancy. The wallet, as you can see here on this screen has only 3 functions, 3 buttons, create wallet, track balance and transfer Q&T. So anyone coming here can click the button to create their own wallet and then check the balance. And if they know someone who has Q&T, which is like from us and our partners, we have a group of people who already has it we can transfer some Q&T to you, it's exactly like how bitcoin started in 2009. Only, as I said, this is quantum safe. And I have to say, by that time, I would strongly recommend people just don't use those Q&T to buy pizzas, that joke I'm sure everyone heard about. Anyhow, so yes, short answer is yes. It is publicly accessible. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [7] -------------------------------------------------------------------------------- Okay. And now the next question, can you elaborate a bit on the timing and what you're going to do with respect to the Iron CAP X business products to launch? -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [8] -------------------------------------------------------------------------------- Yes, I can do that. As I said, the Iron CAP X project has been delayed for more than 6 months. And that was a result of all these great projects we had with Thales and Talent Summits, they're kind of like pushing this a little bit behind. But finally, we have reached the stage where it is in the re-leasing mode. So the timing is that this will be announced, I would say, within the next few weeks. We're talking just weeks. And the product is a -- we have 2 [flavor], a free version for anyone to use without a centralized user management tool and an enterprise version, which has a central management tool for IT and the business version is charging $9.95 per user per month as a recurring revenue model. So we will make corresponding public announcement when this is released. And I keep saying this, it's just weeks away. So please, I'm looking forward to that. And yes, it's a really good product. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [9] -------------------------------------------------------------------------------- So safe to say, stay tuned. It's coming shortly. -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [10] -------------------------------------------------------------------------------- I would say, yes, this is very accurate. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [11] -------------------------------------------------------------------------------- Okay, accurate. And the very -- the last question because I'm sensitive to time here, Andrew. How does Iron CAP compare to its competitors? -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [12] -------------------------------------------------------------------------------- I would say that we are a little bit different from our competitors. When we say a little bit, we're quite a bit different from our competitor in a way that we are not just providing an (inaudible). Our competitors, most of them are providing a very good product, encryption engine. But we come from the software like solution development, the company. We have remote access, we have e-mail, we have blockchain development. So we are not just providing engine but also providing know-how in creating end-user product using engines, such as remote -- quantum-safe remote access, quantum-safe e-mail, security product, quantum-safe blockchain, quantum-safe VPN, et cetera, et cetera. So the analogy I've been using before was that we are kind of like a Tesla in the post-quantum world, that we not only just providing the motor but we also provide the end-user product using our engine as a whole solution. -------------------------------------------------------------------------------- Brian Stringer, 01 Communique Laboratory Inc. - CFO [13] -------------------------------------------------------------------------------- Okay. That wraps up the questions, Andrew. -------------------------------------------------------------------------------- Andrew Cheung, 01 Communique Laboratory Inc. - CEO, President & Director [14] -------------------------------------------------------------------------------- Okay. All right. So thank you very much for moderating the question, Brian. You always do a great job on that. As a wrapping, I would say thank you again for joining our 2022 Q3 business update and we are completely prepared to capitalize on QD. So stay tuned and have a good ride with us, and see you in 3 months about. Thank you again.

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