RE:RE:OTF Unfortnuately I can't answers all these question because I don't know. The only cusotmer that I know of is the Asian customer on the 5 year development contract. As far as banknotes are concerned. There's about a year or so left on that one before they decide what they're doing. Assuming there's no delays. That was mentioned
Everything is confidential as they don't want counterfieters to know what's being done to thwart all their non-sense. When Doug Blakeway was CEO he stated in a press release that details will remain confidential, and public will know of who and what the features are when it's out to market. So example, the Asian customer is still in the development contract phase and when they decide on what they're doing with one note and one denomination..and that gets released, we should find out who it is, what bill & demonination, and the security features they put on. There' may also be a chance they will be a repeat customer - more denominations..?
There was an edited script to the May conference call, and I am sure you know about it, but I am going to provide the Q&A Sessions as it is very informative of what's going on. Investors were asking some great questions. I enourage anyone to read it or re-read it. the cliche phrase of "Rome wasn't built in a day" definitely applies to this company. It has taken longer than I thought to get the ball rollling, and they didn't expect that either.
Questions and Answers:
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Operator [1]
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(Operator Instructions). Gianluca Tucci, Echelon Wealth Partners.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [2]
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So, you signed or had your first sale in the commercial [product] markets there, so congratulations. Of the CAD1.9 million that you did in the quarter, how much came from the development contract?
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Troy Bullock, Nanotech Security Corp. - President & CEO [3]
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Oh, you switched it on the end for me. Should have asked it the other way around. You are correct. So, we did have our first sale in the commercial market and -- or commercial sale in the branding market. And first let me just provide a little bit of color around that because we are quite excited about that sale.
That's something -- a customer that we've been working on for the better part of I would say six to nine months leading into that. And in that process we had a pretty good sense from them as to what they were looking for in a product. And a lot of the discussions we had with that initial customer went into the design characteristics of our product launch, particularly LiveLogo.
And so, we were using that initial lead customer to develop a great product that we launched and that came out in April. So, we did successfully get that product launched but we were working on that customer opportunity beforehand. And that particular customer opportunity was about a CAD50,000 sale.
In regards to the product contract, development contract work, we actually fully disclosed that now in our financial statement. So, we did CAD1.5 million in development contracts, which is on note 11 of our financial statement.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [4]
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Okay, thanks for that color there. So, into Q3 and Q4 of your fiscal year, do you have any visibility on if that development work is going to be increasing or hovering around the same? What kind of color can you give us there?
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Troy Bullock, Nanotech Security Corp. - President & CEO [5]
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Yes, it's a difficult one for me to answer and that's why we've held back on revising any of our guidance going forward. We're making really good progress on that development contract. We've had a number of great meetings with the customer. As we go through Q3 we do anticipate that revenue staying at or above where it is now.
As we enter Q4, that's the next stage for us where we are still in the process of finalizing the size of what that contract will be with this customer, which will be typically a 12-month contract. And obviously that will impact my fourth-quarter revenue. There's risk that it could be delayed in signing and it may not get signed until September timeframe, which would mean an impact on my Q4. However, there's also upside risk -- or opportunity for us that is significantly higher than what we did last year.
So I'm really left with a bit of an uncertainty there. I know we are progressing well and I do expect us to move to the next level, but I just don't know the timing yet of the execution of that contract and whether it's going to have growth or significant growth to it. So, our Q3 we've got pretty good visibility, but our Q4 is a little bit up in the air for us right now. And that's why our guidance is at that lower end where we are conservatively looking at what would happen.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [6]
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I understand. Okay, thanks. So, you mentioned previously that your development customer there -- they're going to be making a decision in fiscal 2020 about if you're going to be added to the banknote or not and -- or delivering at scale volume. So, do they tell you if you're going to be added to that banknote in December or in the fourth quarter of this year?
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Troy Bullock, Nanotech Security Corp. - President & CEO [7]
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No, I would put the milestones more like this, Gianluca. The first stage is this summer through to September we would like to see ourselves transition into a production proof of concept phase which would last for about 12 months. And that phase, as I just described, could see us with a lift in revenue, it could see us -- depending on the timing, whether it closes in August, September or October, it could be a reduction just depending on when that happens.
The overall scope of work should be significantly larger than what we've seen to this point. That project should last for about a year, at which stage we would move into integrating into their production facility, I guess, if you will. That's when we would start to see a real lift in our revenue as we would start to be producing fairly significant volumes for them.
Wouldn't necessarily be at a stage where we are announcing we are on the banknote or anything like that, but we would be generating and benefiting from some pretty significant revenue at that point, because effectively and we would be producing full volumes for them.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [8]
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Okay, I appreciate the color. Thanks, Troy. And you didn't mention tax (inaudible) at all. Is it safe to assume that NTS is forgoing that opportunity in India?
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Troy Bullock, Nanotech Security Corp. - President & CEO [9]
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I wouldn't go quite that far. I think we do have a couple good partners in India. We've also got some good opportunities with other banknote OEMs that also sell into the tax stamp market. So, we are pretty well-positioned with the respective partners that have existing business in tax stamps.
As it relates to India though, I have had an opportunity to review the progress of where they are at. And at this point I can't say there that far along. They've invested quite a bit in their sales and marketing activity, but I haven't seen them get a lot of traction yet. So as it relates to 2019, I don't have anything in my -- in our forecast or in our funnel that relates to that. I think it's still early for them there.
But that said, they are coming out here in June and we plan to do a workshop with them to maybe provide a little bit more education, perhaps solve a couple of issues that they may have and like to see them get back on track. Because they are very excited and still prepared and are spending money behind our product to their customers.
But when I review their progress to this point, I still think there's some help we need to give them before they get over the line where I can start forecasting and counting on revenue there. So, I haven't given up on it by any means, but I think we have some work to do there yet.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [10]
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Okay. And if I could just focus on the commercial markets for a minute. So, you launched your two new products in April, and you signed a brand protection customer thereafter. Can you add some more color on like what types of customers you're targeting for the commercial space and the types of opportunities with that are -- if not in your funnel now, soon to be in your funnel?
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Troy Bullock, Nanotech Security Corp. - President & CEO [11]
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No, good question. We are just early into that space. And so, when we look at the brand protection market, we are seeing, again, the same partners that are selling into the banknote space that are also partners -- that are also selling into this space. And typical customers there -- and so, when I think of those sorts of OEM, some of the bigger players in this space are companies like [Opsak] or De La Rue or [Kurs], a lot of -- CCL is a big player.
And so, when I look at those sorts of OEMs that have significant customer bases, there's opportunity for us to partner with them to help provide a different solution for their customers. At the same time we're also looking at going directly to end customers to find solutions -- or provide solutions.
And when we look at some of the types of customer sales, they are everything from customers that would put a security feature on a printer cartridge or on some software to demonstrate that it's an authentic product. And those volumes can be quite ranging. They can be customer opportunities where the volumes might be 5 million to 10 million units a year, they might even be less than 1 million units a year. Upwards of -- we've seen opportunities where they are upwards of 800 million to 1 billion units.
And so, it's a pretty ranging scope of different opportunities. And so, our approach to market is really to go after the OEMs as well as to sell direct. And one of the things that I hope we'll be announcing in short order, likely towards some point next week towards the end of the week, is that we are in the process of bringing on a sales executive that has been selling in that market for 15-plus years, specifically selling into the commercial market selling security features to customers like this.
And so, we are pretty excited about having this fellow join us. I don't want to say too much because, once we get all the details finalize things, we will put that out in a news release and announce the individual's name and you will have much more color around it. But it's a pretty big opportunity and I think the amount of go-to-market work that we need to do is to a large extent going to be leveraging our existing relationships.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [12]
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Okay, no, that's great color. Thanks, I will re-queue.
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Operator [13]
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Anthony Prost, GMP Securities.
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Anthony Prost, GMP Securities - Analyst [14]
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Good afternoon. So, just following up on some of Gianluca's questions, are you at liberty to divulge not necessarily the name of the customer, but maybe what market they are in, this new commercial customer?
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Troy Bullock, Nanotech Security Corp. - President & CEO [15]
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I can't say the name yet. I still hope to. We are -- at some point in the next probably month I would like to have it written up as a case study and have it up on our website. And I'm just working through some of that with the customer right now as to making sure they are comfortable putting that up as well.
What I would characterize it as is a company that's a leading-edge company that's kind of in the insurance/blockchain market that was using this as a differentiator to identify products that were unique and have a specific security label on it that they could verify. And would have a QR code, a unique QR code for each product that would in turn be able for them to identify and track the product.
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Anthony Prost, GMP Securities - Analyst [16]
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Great, thank you. And taking one step back, I assume that you're getting some good feedback and positive reception from other commercial leads on these new products be -- what is it -- LiveLogo and the Dynamic Portrait?
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Troy Bullock, Nanotech Security Corp. - President & CEO [17]
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Yes, we are. And I don't to get too far ahead of ourselves. We've had these out now for about four weeks. We have done a few email campaigns and we've done a few -- obviously we've done some news releases. And we were fortunate that we got picked up in three or four different magazine articles. So, we're getting some good press around them.
The feedback we are getting is quite positive and we're just now starting to get in front of these people and work the sales opportunities, if you will. I think this next -- having this new individual join the team, that frankly comes with a very thick Rolodex full of people that he's worked with over the last 15-20 years, that's going to be a good next step for us.
So, I think the feedback we've been receiving has been quite good. But we are four weeks in, and so it's time now to begin to have the sales guys do what they do and start to work on building out our pipeline.
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Anthony Prost, GMP Securities - Analyst [18]
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All right, I can appreciate that. And with this new individual joining your sales team, will that be effectively -- will your sales force be built out at that point? Or are you thinking of making further additions as we move further into fiscal 2019?
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Troy Bullock, Nanotech Security Corp. - President & CEO [19]
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Yes, so what the sales team would look like at that stage is -- Brian Donnelly kind of being our lead and sort of overseeing both banknote and commercial. And Igi LeRoux who's got a tremendous amount of experience in the banknote space and is -- we're extremely lucky to have him. He would continue to focus and allow him to focus more just on the banknote space and, with a new individual coming in, focusing on the commercial space.
I think over the next three or four months, certainly as I look to fiscal 2019, that probably positions us pretty well at this stage. I think as we go beyond that we are going to start to look at agents and we're going to -- perhaps not agents but other partners. If we can start to partner with some of these OEMs I think our ability to get to a broader reach of customers easier is going to be the next wave of activity.
But depending on the market segments and the pickup that we are seeing, we may still look to add more salespeople. I don't want to get too far ahead of ourselves. I want to make sure that we're getting the traction, we're servicing the customers that we are targeting now well before we start bringing too many opportunities to the table and maybe underperforming for them. So, it's a rollout. We are into week four, if you will, and we'll see how that progress as before we start committing to adding more sales resources.
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Anthony Prost, GMP Securities - Analyst [20]
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Okay, perfect. And so, over the last year we've seen quite a few initiatives to sort of bring yourselves up to speed as far as having infrastructure in place for you to see higher volumes. You've launched these new commercial products, you're expanding your sales force, your production capacity is being improved as well.
Are you at a stage now where you feel comfortable with that -- any new contracts you're able to handle them? Or is there anything else that you'd like to -- like any other things that you'd like to shore up before these real volumes pick up in the coming years?
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Troy Bullock, Nanotech Security Corp. - President & CEO [21]
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Yes, it's a great question, Anthony. I think when I look at the goals we set out at the beginning of the year, what the first thing for me and the biggest priority was really focused around largely putting a sales team in place and having something to sell.
Previously we were in a position where we had some great technology. We were able to show great samples to customers and we were searching out partners that would have interest in purchasing this, selling this for us and together we would figure out how to make it in the right level of volumes and that strategy still is sound with these OEMs.
However, we also need the ability to go in and make a sale, show a product, have a manufacturing solution in place whether it's internally or externally with a partner so that we can take orders and commit to deliveries within weeks and not quarters.
And so, I am comfortable that -- and I think we've done a lot of work in three or four very short months to launch a product and put a supply chain in place in particular around that product and the sales resources now started so they can go out and begin to sell.
So, very comfortable that we can produce this particular product in volumes ranging from 5,000 or 10,000 up to 10s of millions. I think that solution is in place now. But I still think we've got a lot of work to do. What I'd like to see us have more capability is different application types.
So, right now we are selling products that are easily sold as a PSA label. And in the future having the ability to expand that into something -- either can be a hot stamp application or a stripe application. We proved that out that we know how to do it in more of a lab setting, but finding the right partner that can put that in place.
And so, when I look at the next wave of commercialization, if you will, I think we can broaden our capabilities to have more product offerings based on widening out our manufacturing capability. By working with partners that can manufacture product for us in volumes in different application types so that our salespeople can take a single product and sell it in different formats to different customers.
And I think once we have that in place we will have way more opportunities in front of us that can provide a better wider ranging solution for our customers. So, in two parts, I'm pleased and excited where we got to in four short months. We do have something now that we can do in volume. As it relates to this particular product, I think our next phase for us is going to be -- to have a wider product offering that has more applications and we are going to do that with partners.
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Anthony Prost, GMP Securities - Analyst [22]
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Very insightful, thank you. My last question is a bit more of a nitty-gritty one. It appears based on disclosures in your financials that you have not applied IFRS 16 as of yet. But -- is that the case? And what impact do you think it may have when you finally roll it out?
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Monika Russell, Nanotech Security Corp. - Acting CFO [23]
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Sure, Anthony, this is Monika. So, IFRS 16 is actually not applicable for us until our next fiscal year. And at this point we haven't done the full analysis to see what all the impacts are on us. That should be completed within the next quarter or so and we'll have more information in the financial statement notes as we get that information.
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Anthony Prost, GMP Securities - Analyst [24]
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All right, that's all for me. Thank you so much.
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Monika Russell, Nanotech Security Corp. - Acting CFO [25]
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Yes, sorry, just to clarify, that was the lease accounting.
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Anthony Prost, GMP Securities - Analyst [26]
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That's correct, yes.
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Operator [27]
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Gianluca Tucci, Echelon Wealth Partners.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [28]
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Just to follow-up on the commercial side. So, the first part is are these generally one-time in nature or are there any recurring elements to a commercial sale? And the second part is -- what are the typical gross margins that can be expected on a commercial sale versus a development contract gross margin?
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Troy Bullock, Nanotech Security Corp. - President & CEO [29]
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Yes, thanks. In general terms what I can say in the marketplace for the commercial brand protection market is very much they are recurring. And so, once you get selected to be put on a piece of software box or a printer cartridge, you go into their production cycle and as they sell printer cartridges for the next four, five, six, seven years, that's the security label that's going to be on that cartridge, and so it would be very much recurring.
At this stage I don't want to talk specifically about gross margins on a new customer segment on a new product that we're just launching today. I think there's a number of competitive reasons around that. As we start to develop and see broader revenue streams there, I'd be more comfortable talking about it as a collective group. But, as you can imagine, that's not going to help my sales team out very much if I'm announcing what our margins are when they are trying to close on sales.
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Gianluca Tucci, Echelon Wealth Partners - Analyst [30]
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Okay, no, great and just lastly here and I'll hop off -- is how far along the transformation or pivot of your sales force are you today and how much more work is there to do and how soon do you think it will be done?
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Troy Bullock, Nanotech Security Corp. - President & CEO [31]
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Yes, I think as of bringing on this new commercial person, again, we'll be describing some more details in our news release coming out. I think that's a big milestone for us. I think now having a team of three people as opposed to in years past we had really one person that was tasked with running around chasing a lot of different opportunities, so now we are up to three. I think they are highly focused, they have the processes and systems in place and now we have some product offerings in their hands.
So, I like where we sit right now as far as the team and I like where we sit as far as the strategy around it. I think we can further build that out with more developed product offering, better and wider manufacturing solutions, and to start to engage with and find deeper, stronger partnerships with OEMs that we can partner with to get into their customer channels.
Certainly selling direct is great and it gets us some good initial accounts. But we also need to, and it's a very important part of our strategy, to find partnerships and develop those with some significant OEMs so we can get more people selling our offering. And that's a big part and we are in the early stages of that.
So, over the next year we're going to continue to focus on all of those areas to build that out so we have much more opportunity to grow our sales funnel as opposed to just one or two people doing it on their own.
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Operator [32]
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That will conclude today's question-and-answer session.