Crunchfish AB (publ)

Hi everyone and welcome to Vestra Handeln Market Focus. My name is Martin Dominik and I will be moderating this session. And today we will focus on Crunchfish and its Q2 reports. And I'm happy to have a CEO Joachim Sobbelstam here. And we will also, I urge you to send in questions through a form, Q&A form. And we will start discussing the Q2 report some topics. So let's start. Yes, absolutely. Okay, a main theme in the report was to deal with Tata Consulting Services. Could you just explain what TCS is doing?

Well, yeah, TCS, an Indian company, it's the largest IT company in the world. We met with them in, well, in Cape Town last year at the conference, that's when the contact started. And then we met them again in KL and we were just laughing that in my hometown, Helsingborg, we are 150,000 and there are four times more people in their company. They have one campus in Chennai, which is 40,000 people, just in one sort of one office. And they are expanding that because it's not big enough. So it's a huge IT company and they do IT services all over the world. They have, I think they have operations in 55 countries. So main thing for them is IT consulting, but they have also out of that created products. And they have products for CBDC, central bank, little currency. What they really have built is a platform called distributed ledger technology. It is that instead of having a single point of failure, you could have several nodes which are all interconnected. So your data is distributed on several nodes. And how do you get that system up and running? They can sell that to stock exchanges that needs it's mission critical, it can never go down, but also for central banks or the payment system you may wanna distribute your ledger technology. So if one node goes down, it's still up and running. So they have that technology, that sort of what they do. What do

you purchase from them?

Well, this is the backend part. And they have a system that connects them, say for a central bank, they can build that backend part. They've built a system using that, the product called TCS Quartz for CBDC, but they don't have offline payments. They have built that system. What they have out of the box is online payments. So you can pay online just like payment services are today. But most central banks that are looking into CBDC just because of physical cash, it's offline. They want their digital currency also to be offline. So we, with our digital cash offering is complimenting TCS Quartz with the offline. And why it's sort of good for us because we are a small company, very small sort of in terms of sales, but they have representation in 55 countries and they are operating in, I think over a hundred countries. We had a meeting this week, actually, with their global head of sales and how we now, we will understand more their technology and they will understand more ours. But for us, it's the reach into the worldwide market. We certainly couldn't touch as many dialogues as they can. And for us, this is the main benefit for us to be part of such a strong player with our offline components.

So could you tell us more about how the deal is structured? I mean, you're part of the offering, but where does your income come from? But we

have actually, it's right now, in the initial setup, there is a loose arrangement in the sense that we bid ourselves with our offline components, complimenting their solution. So it's not like we have already decided on that they buy our technology and then they sell the total solution. No, they would find opportunities and we would bid ourselves. So we haven't...

So they find the opportunity and they call you in?

Well, for the offline part, we would be their partner offering the offline parts, yes.

So what do you expect from this, Steve? Midterm, longterm?

I think in the short term now, it's been a lot of buzz because of that. This was one news that broke that. It was sort of end of June. And I think a lot of people have looked at that. I've been contacted. There is a magazine which has been around for many, many years called the Nielsen Report. And they called me and did an interview. We're gonna release that interview soon, which is, it came out of this. So a lot of people have seen that we are their partner. So that's created, I would say, some branding value for us. Then it is the revenue opportunities to get into those deals where they would sort of be prime and go in and find opportunities and identify opportunities and invite us in, really.

We will talk about more topics from the future report. You read about the US patent and for digital cash. What kind of opportunities is open for you?

Yeah, well, this was a grant from the US Patent Office for our, we have many patent applications, but this was our very first regional patent application for digital cash filed in 2020. And we have already been, it's been examined by an international examination when we go through an international process. And we've got the green light and we communicated that probably two years ago that this looks very promising because they just say that they recommend this for patenting. But the US Patent Office is the first patent office that has actually then granted us a patent because what happens after the international process, we have to choose what jurisdictions, what nation, what regions really are we going into. And for us that we got the US one, it means that we have both an international examination which is favorable and we have one major jurisdiction, the US favorable. And now this patent, we have it in Europe, we have it in India, we have it in China. And yeah, I think these are the ones where we have it as well. But so if we, since we have this in the US as well, I think it bodes well for getting it protected in those other markets. And that's important because we do protect some very fundamental aspects of offline payments, which is used today in how offline payments is set up both in India and in Europe. And I think we have a position to argue that, yeah, we don't have the right yet, but that's hopefully soon to come in those major markets.

I wonder, do you have any concrete plans on partnerships and market entry in the US?

Not really on our own anything. US is a very card centric market. And in a way, a standalone card is also, if you have a standalone card, you are also offline as a user. There is a credit risk because who knows if you have money, if that transaction happens offline, but that the card industry is taking that risk, that that's how it happens. But so any very card centric market is say less interested in offline payments, where offline payments more plays out is in emerging markets, where the card networks are not that strong. And also for CBDC, where it's sort of built on that, you wanna have a person to person payment and not just person to a card terminal payments. And so this is where our main focus is for offline payments.

Few questions regarding what we talked about last time. And could you update us on the IDFC first bank deal in India? Yeah, well, this is our

first commercial deal and they've implemented it. And it is for the digital rupee in India. It is for something RBI in India, the central bank in India would call offline payments non proximity, because what it is that's you from your phone, you connect to the backend using an SMS instead of sending it over an internet connection. That's been implemented and they have rolled it out on iOS. They've got actually problems, which I think it's solvable because in the examination from Google, they are saying that they have to make it a little bit obvious for the user that an SMS is going out. So it's going through the process. This has actually delayed it more than we had hoped, but that's what it is. And it is part of this pilot that is happening in India for the digital rupee. This is sort of a piloting for non-opening. So you would say

that it's ongoing. Yeah, it's ongoing,

but it's... Well, the delay right now is for them rolling out on Android. It is right now was stopping IDFC bank.

How big is Android versus iOS? In

India, Android dominates. So we definitely need the Android side as well. iOS is small or iPhones is not as old as, I think if you look at Sweden, it's probably 60% iPhones or something. In India, it's probably, it's less than 10%. Yeah, it's an Android market in India for sure.

Yeah. Is there any news regarding the HDFC bank here?

Yeah, HDFC, this is the main bank and the one we did the pilot with together with IDFC first bank under guidance of RBI for full offline payments. And we keep in the dialogue, but I would say HDFC are, as they are the main bank, one of the main banks, the biggest commercial bank in India, they are close to what's called NPCI, the National Payment Corporation of India, because they are one of the main stakeholders there. So with them, our feeling is that we need to work with or work through NPCI, because they would like to see what happens with NPCI and they follow.

And how are these discussions going?

Well, we have an ongoing discussion with NPCI. That I would say is going well. I think they like our approach that we have a device agnostic, not hardware-based solution for the market. Okay.

And also this year you launched the Digital Protector. How has that been received? Yeah, well,

the Digital Cash Protector was in a way a product concept that we developed for NPCI that we felt that they have already developed an offline solution, but if they want to have it device agnostic in terms of protecting it, we can help them with that. And we're still in these discussions with... Part of the discussions with... Yeah, yeah, with NPCI, yes, yes.

And also a big theme last time was the ECB and regarding the CBDC project. Yeah. Could you tell us anything about that?

Well, that's one of the problems that... ECB, I think we felt that we needed to say that we had submitted something, but after that, ECB is very strict in terms of confidentiality. I don't think anyone... There are five open tenders at the moment, offline payments being one. I don't think anyone could find anyone saying anything in the market because ECB have put a strict embargo on information. I think the way to follow what's happening with ECB is to follow what ECB says, but they're not allowing any contenders to speak publicly on their participation or the content of the tender either. So we are a bit... Yeah, we can't say much.

But the time plan is communicated.

Yeah, I think ECB communicates that also officially. And that is, I think, what is to be adhered to. I don't think there is any... We're not allowed to... I don't think anyone is allowed to sort of say anything more than what ECB communicates themselves.

And please keep sending in questions. I will address them as they come in. We have here, regarding the ECB, CBDC offline tender, will TCS be your partner for you working on other partners in that area?

Well, I can say TCS is not our partner. That's officially that you can only have partners or you have to work with European companies. They've been very strict on that. So TCS would never be... They are not allowed to enter into this tender process because being non-European, only entities that are fully owned and fully... Not fully owned, but they need to be majority owned within Europe and they have to be European operations. That's the strict requirements. So TCS wouldn't apply.

Reading the Q2 report, another topic was the vulnerability... security and vulnerability assessment you performed, which you have suggested to take into a proof of concept.

Yeah, no, this is for a major payment service. And there we have this problem also that we're not allowed to tell which one this is, but it is one major payment service, as we have said. We did a first phase with that payment service and the outcome was that we pointed to some opportunity for improvement, say that, and they have acknowledged that and asked us to do a proof of concept as a next step. This has been proposed and it's now in their purchasing department. We have... The time, it's sort of just... I think we have said it's six man weeks to do this proof of concept. Six weeks to do... Man weeks. So we probably would put two people on it, so this would probably just take a month or so to get... Yeah, it would be a quick process to do the proof of concept after they release a purchase order for that one. But what they want as well, which we're working with in parallel, is that this is a proof of concept, but they want us also to propose more of a full-fledged solution for this major payment service of them using our products or our technology.

So if the proof of concept is successful, then it could lead to more of a...

Well, yeah, the proof of concept is not for commercial rollout. It's only to prove within their environment. But then the next step would be to... They want a proposal for a full-fledged rollout as well, for all their products, all their markets.

I see. And in the indicator report, you included a white paper as well. Function before form. Yes. And I'm not going to ask you to go into all the technical details, but maybe you can describe how this fit into your business proposal or offering.

Well, we've been active writing. I am personally also very much involved. I think in the last four months, we've written four white papers. And sorry for burdening the market with that. But it's important for us to position our technology. And this latest white paper, which was also published by the Central Bank Payment News, is stressing really that... Don't start with making a decision on that... One would be, it has to be hardware. Don't start there. What you should start with is the function, not the form. Start with that, all right, say on a mobile phone, we need to protect the value that the user is having there. So you can't double spend. That is what's important to protect. We've already proven that that can be done. We got the Central Bank of India to approve our solution for the Indian market. So it's already proven that we can do it without hardware. But if you start with saying it has to be hardware, I think you have already limited your options quite severely. So this white paper is trying to position that... Don't decide on decision on form, like hardware is a particular form that needs to be protected by hardware. Think of the function. So that is one. The other thing I'm trying to position in this paper is also that... How should you think about digital currency? A lot of central banks, they think about... They have their banknotes, that's what they issue. This is from the central bank, our hundred dollar bill or hundred krona bill. This is from the central bank. And there is a conception that also digital currency, it is like a digital banknote that they issue and then people have these banknotes. I also think this is a decision on form, which is premature. The problem if you have it this way, if I have say a hundred notes for me, and I pay that to you, Martin, but I'm only supposed to pay 59. There is a change problem here if I have to pay that hundred. So you really would like to pay in exact numeration, that is sort of one. And then it's, I think, premature to think of it as sort of denominated digital banknotes. And that's what they've done actually in India, they've been thinking of it that it should be like a digital rupee, just like they're... It looks like they have something, but that is a form decision that makes things very complicated thereafter. So start with that, people want to pay, just like you pay today, you have an exact amount, you just send that over. And I think let's build it around that payment function instead of starting with the form decision. People have been following us for a long time, I've been talking about, I had one picture with a red pill and blue pill. This was exactly what I was trying to say, don't assume that you have to do just this one implementation with a digital banknote. You don't have to, you can do it in another way. And then the other thing I've had, it was sort of that what the competition does in hardware, we can do in software, that's another theme. And this, in a way, this paper is again, stressing these things that don't take decision on form, think of what you're trying to achieve, do that first. And yeah, that's what this white paper is all about.

So read the white paper in the Q2 report.

Yeah, we actually put it in there in full, but it's also been... We published it and it was in the Central Bank Payment News, and but it's... Yeah, it's a good background in order to in a way understand technology and our where we're coming from.

Just another question regarding the last question we had regarding the proof of concept with the payment company. When would the full-fledged proposal be offered? It should be offered now as well. So simultaneously with the... Well,

we've already submitted the proof of concept proposal that went last week, but they are asking us for the full-fledged proposal as well in parallel. That would obviously take a little bit longer time for them to evaluate and decide on, but we have told them that it takes a little bit longer time for us also to prepare it. So that's why, but they have asked for both. So they're

dependent on the proof of concept?

No, they want this to be sent in as soon as possible as well, and we are working on that also.

This year you have a new board member, Mr. Sahoo from India. Is that correct?

Yeah, Birrenda or Biran is his short name. Biran Sahoo, yes.

How is he? How will he contribute to the Hunch?

Well, it was part of yesterday's board meeting. It was a good board meeting yesterday, and he does contribute at the board with a really strong knowledge of the Indian market and what considerations and insights to how India is sort of reasoning. And he is very, he's been a sort of senior vice president of HDFC Bank. He was also a founding partner of IDFC First Bank as well. So he's been very seasoned sort of banking person. And being in that context, I think he helps us to understand a little bit of how we can go ahead in India and how to propose things in India. I think that's, it's very helpful to have him on the board. He will be at the Global Fintech Fest next week. We'll meet him there sort of in person.

And we have a question regarding the TCS collaboration. Does TCS offer offline payments through different solutions or through other companies as well? Or is CrushFest the only partner doing just the offline payments? As

far as I'm aware, we are their offline partner. I don't think they have signed up with anyone else. And we intend to sort of deepen this sort of relationship as well with them. So I, but there is right now, it's a loose arrangement and there is nothing exclusive that we can work with other and we are working with other online partners, if you say. We have online partners. We have actually done two integrations additionally that in Q2 that is working in the market. So we are not exclusive to them, but also they haven't then also been exclusive to us either, really, but we are quite happy to be their sort of offline partner. It's not many people who can do offline. This is sort of a bit of a niche area that not many have developed solutions for, really.

Okay, I see. Let's turn to the financials. We have had some questions about it, but let's start with the net sales. Very close to our estimates, about 400,000 per Q2. And the other operating income, could you just describe what that is?

Oh, the other operating income. Well, that's what we have had for years. Yes, other operating income on our income statement is our rental income. We rent in Malmö. Our headquarters is on the fourth floor of Media Evolution in Malmö. And we occupy, yeah, it's what is it? 1100 square meters. We have about 300. We have 300 shared. And then we have the rest is rented out. So we get income from those rentals because we have that shared rent. We have the entire leasing agreement with our landlord, but we sublet parts of that to other companies. So that's our other income.

Thank you for commenting. I mean, net sales is driving the value. Are you happy with the level?

Our net sales right now? No, well, obviously, I don't think we have. This is not taken off yet. We haven't proven ourselves with our... We don't have the income right now. I think we're having small income, which is related to sort of that. We do sort of projects like we have done for this vulnerability assessment. And we're having, yeah, this is not. So if you ask me if I'm happy with the net sales, no, I'm not. So I think it's we have yet to prove ourselves with our licensing revenue. Yeah, I see.

Turning to the cost side, are you happy with that cost base in the company? Well,

yeah, well, of course, we're keeping our cost to a level where, yeah, it's hard to be, I think, small. You could argue the cost side right now is that we have two operations. We have digital cash that we've been talking about here in this dialogue, but we also have gesture. And there is sort of that... It's not a million, but it's almost like it's up to a million on that side as well with the cost and the personnel. And there, I think we have said we're going to sell that unit. And I think this is where we need to start reducing costs by acting on that decision. I

know it's difficult to say anything about the sale of gesture, but... Well, we have a

few options left. But I think right now we need to put our foot down and pursue and try to focus then the company on the digital cash. I think that's what we really want to do.

And I mean, reading the report, it's obvious that the cash flow is negative. And how will you... In the report, you outlined a new sort of financing scheme. Could you elaborate? Yeah.

Well, it is an order scheme. I think one thing we could do, which we have done a few times before, is to go to the stock market and do what's called a rights issue, företrädersemission. We basically ask all our shareholders that we need more money. This is something we, if we can, want to avoid. We have worked hard with, well, trying to get sales. So far, it hasn't really happened. We're working with opportunities for getting potential investments that is also potentially taking longer time, even if we have ongoing sort of dialogues there also.

With that, you mean with the owners? Well,

EY process. As we've said, we have one process of divesting for the gesture. And then we are looking into if it's possible to get possibly strategic investors from the industry. But that is also affected by that we haven't proven ourselves sales-wise. And then it's speculative for them too. I think that's sort of the main, that's an often feedback. And then we are at the option of, all right, should we go back to the stock exchange? We would like to avoid it. We're working hard to do that. And a new way of, which is an odd way of doing financing, is to pledge some of your percentage of your future revenues as a revenue sharing model that we're getting financing into the company in return for pledging a percentage of our revenue. And this could be done for a subsidiary of Crunchfish like Diderot Cash. But it could also potentially be used for us doing an acquisition. That is actually quite an aggressive move that we would, because there are companies who are for sale, and we could take them on with this kind of revenue-based, or revenue share type of financing as well. So we're looking at these options and have had for a couple of months active dialogues with the financier for that and expecting back some sort of term sheet on that in the near future really. So this is where...

So we would expect a decision by the end of QT?

Well, we hope to have a term sheet very soon, much sooner than... Yeah, we are... Yes, I think we may have a term sheet already by next week. So it's that near term. But I think what we're trying to do with this is that because of the situation we need to sustain ourselves. We think we have a great product, but it takes longer to get this out in the market. That's for sure. And this is a way to get the financing problem out of the way long term. Because we have been going to the stock market and asking for money that sustain ourselves for maybe a year. Here we're looking at doing something in one go, a larger type of financing. So

that will be a long term...

Much more of a long term type of financing arrangement. That's what we hope to. But nothing is sort of done and nothing is set before we have it. But I hope to get a proposal back sort of... Soon. Very soon. Yes, exactly.

We have a question saying that lots of things you do is cutting edge research. Are there any possibilities for government grants or stuff money?

There are funds, EU funds, that we haven't been active in applying for them. But there are such funds that it's possible to get maybe a million euro, which would have been great, or two million euros. We haven't taken the time to pursue those grants. But EU has infrastructural programs for cutting edge type of research.

Could be perhaps a thing to pursue.

Could be.

It's time consuming though. It is

a bit time consuming. We haven't gone by that route sort of previously.

So please keep sending in questions. See if there's any new coming in. Should we talk about... The IDFC First Bank, is that the project that is close... That's generating cash flow for you right now?

Well, not really. The delay in their rollout. It's a model where they could grow their subscriber base in that, but that won't happen until it's allowed to be rolled out. But then the other thing we were hoping is that this is a model that we've done with IDFC First Bank that other banks could take after as well. But IDFC hasn't yet proven it. RBI will not put their rubber stamp on that because it hasn't been rolled out and proven. So the delay is causing us that IDFC is not building up their volumes and the pilot itself is not getting to an approved state for RBI to say, okay, let's roll it to other banks. So the delay is costing us for these two aspects.

The deal was structured in a sort of seven layer period. And they're still

in the first one.

So they're still in the first one. Yeah, they are.

IDFC.

Are there any penalties for delaying?

No, no, no. This is all up to... We haven't said that. IDFC wouldn't sign up for that because things could happen. Right now it's a new product and they want to roll it out as fast as they can. Right now they've been stopped at the moment with Google and their approval process for getting an Android app out basically. That was unforeseen. The latest I heard from IDFC is that they think it will be resolved soon. It's a little bit that users should be more aware of what's happening in the app.

We have a question regarding what level of revenue would be sufficient to make the company financially self-sufficient? This

is what we're waiting for in return from this financing company. What will they ask for? We already have, in a way, revenue sharing. The fact that we have a revenue sharing system, that we are working with Viki, that is a revenue sharing we have on the level of... When a contract goes up to a reasonable volume, it's 10%. That is a revenue sharing. Using the technology of Viki, their virtual secure element, which is the security arrangement on the phone where we have written our application. This is in a way that we would pledge. I would think in a similar way that we will have another, up to 10%, I would think, for the future revenues. They're doing a model over 50 years. So you are committing yourself that this company will give revenue over 50 years. That's why with such a long horizon and a projection of future revenues, this is how you could get a substantial amount of money up front for pledging this for a 50-year term. There is revenue sharing already that I don't think anyone has reacted to. That we have a revenue sharing... Basically, if we get revenue, we have to share a little bit with Viki because they're giving us the security arrangement. We probably have to do that as well for financing. That's the model we're looking at.

Have you had any broader discussions with potential clients or partnerships outside of the digital cash in terms of trusted applications in virtual secure environments?

Yes, this is a little bit the wider concept of trusting clients, not just for offline payments that we have talked about in our Q1 report. It's a good question. The answer is yes. I'm having one of the major big companies in the world meeting next week where they're interested in this. This is linked to not offline payments but what we call ACE, App Integrated Card Emulation. That is one dialogue. It's been... I don't think it's been a massive interest because it's new and it's conceptual, but it has stroked some interest. Where we have our substance is in offline payments. This is where we have the whole solution and most to show for us.

Before you mentioned the company has offered to take over the gesture side, Orangefish, isn't it better to follow through on that deal being that gesture is costing money?

Well, that is one of the remaining options that also we have. That is a possibility to reduce the cost of the company.

Do you have a backstop? When you have to decide?

We don't have to. But I think we felt we discussed it at the board yesterday. We always have a board meeting before this when we approve of every quarterly report. I think the board's message was that we need to get on now and move on. I think we have explored. We've really done our best to do that. But as this question was, we have to look at basically making a move. That's what we should do.

In terms of financing, do you see any probability of not needing to go through the revenue sharing scheme or rights issue to secure a partnership with, for example, a major payment platform provider?

That is also a possibility, which is certainly also being looked at and pursued. But conscious that these companies don't move that quickly. So we're certainly pursuing that as well. As we have this opportunity with this major payment platform that is interested in our technology and they now want to take the next step and looking into proof of concept and they want a full-fledged solution. And that could also definitely solve things. The revenue sharing model is trying to solve it in a much more bigger way than just getting. I really think that revenue from the market will be of enormous value for us. So we're definitely trying to get that. But we may also want to solve the financing in a big way once and for all. That's what we're looking at. Really. So we're not having to have this constant fear of running out of cash.

So you could potentially structure the financing to just be a part of your offering? Or is it for the whole company? I mean, for maybe CBDC projects? It's

possible to do. What they do is project-based financing. One project could be to acquire a company. That could be one project and we only pledge the revenues from the acquisition. It could be a part that we pledge this or we pledge that as part of our... It's up to us in a way. We have to ring-fence very clearly those revenues in order to basically have the commitment to honor the financing that we get really. But it's project-based financing. We wouldn't go in with Crunchfish as a whole. It would be a part of that. And it could be, as I said, an acquisition. It could be the whole subsidiary of Digital Cash. Or it could be, as you said, maybe just a part of that. But we are in discussions right now.

Great. And I think maybe we should wrap up. We've been going for 45 minutes. And the final question is, for the rest of 2024, what are the three main things you look forward to most?

If we start here from the financing, this is in focus. As everybody understands, it would be good to solve financing. We've always been financing for just a little bit of the next step all the time and hoping that now the sale will take off and then we don't need financing. What we do is it takes longer than we had hoped. And then we're looking for the financing solution. We need to solve. The other thing we're looking forward to is to break through with a major payment platform. It's on the network level. If we do that, they commit. That would be a breakthrough of great scale. Because then that is an endorsement in a way of our technology and a rollout of the technology in a broad way. I think that is of extremely high importance. And that could come from anything that happens on the network level, not on a single bank level, but it's actually for the whole network, like a central bank doing it for all banks or all payment providers of that region, or this would be done by a network provider in some other capacity. If we get to that level, which we are closing in on, that is, I think, a major thing if we can get that. But if we go down to the deals that we want to do with individual, say, banks or individual payment providers, it is to get more of those to get that going. Because I think at the end of the day, it's the revenues we need in order to prove that we have leading technology and the markets is willing to pay for it. I think that is what we need to do. Financing network-based deals and then doing deals on an individual level,

really. Okay, looking forward to follow the news flow.

Yeah.

Thank you for all the viewers and all the questions. And great to have you here, Joakim. And this video will be uploaded to Vesterhamnen's YouTube channel shortly. So please look there and subscribe. And this is it for now. Thank you.

Thank you, Martin. Thank you.