Good day. Welcome to the Kopin Corporation third quarter 2020 earnings call. As a reminder, today's conference is being recorded. At this time, I would like to turn the conference over to Richard Sneider, Chief Financial Officer. Please go ahead.
Thank you operator. Welcome everyone, and thank you for joining us this morning. John will begin today's call with a discussion about the market environment that we see and our progress in executing our strategy, including the sales activity and technology developments. I will go through the third quarter results at a high level. John will conclude our prepared remarks, and then we'll be happy to take your questions. I would like to remind everyone that during today's call taking place on Tuesday, November 3rd, 2020, we'll be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, projections, beliefs, and estimates, and are subject to a number of risks and uncertainties that could cause actual results to materially differ from those forward-looking statements.
Potential risks include, but are not limited to, demand of our products, operating results of our subsidiaries, market conditions, and other factors discussed in our most recent annual report on Form 10-K and other documents filed with the Securities and Exchange Commission. The company undertakes no obligation to update the forward-looking statements made during today's call. With that, I'll turn it over to John.
Good morning and thank you for joining us to discuss our third quarter results. I want to start by expressing our hope that you and your families continue to stay well and safe during these unprecedented times. Looking into our third quarter, we're very pleased with many aspects of our business. Our current product sales are increasing. Our funded development program, DLR has never been stronger, and we continue to make major improvements in our product costs and use while maintaining tight expense control. In addition, we're making great strides in our next-generation display development. Our total revenue increased 55% compared to the third quarter of 2019, which represents the sixth straight quarter with double-digit year-on-year top-line growth, excluding a one-time asset sale in quarter three 2019.
It has been a very good year for us so far, and we look forward to continuing strong momentum through the fourth quarter and into 2021. Leading our third quarter revenue growth was our strength in defense product revenues, which grew 140% year-over-year. Our two primary production programs are the F-35 fighter jet helmet and the FWS-I program. In September, we announced that we were awarded a $22.9 million follow-on task order for the FWS-I Thermal Weapon Sight program, with deliveries through the third quarter of 2021. Including this recent order, we have received total orders to date of approximately $33 million for this program. As discussed in the news release announcing that contract win, the FWS-I program is a clip-on Thermal Weapon Sight that provides users with the ability to identify targets in the most extreme circumstances.
Kopin is the sole source on that contract, as it is in F-35. We expect both programs to continue for many years into the future. Our funded development program revenues grew over 100% year-over-year, which is a clear indication of the strength of our future growth potential. These programs fund our customers, including both product-specific development as well as new advanced microdisplay technology development. In fact, much of the new funded R&D growth is for advanced microdisplay development. We expect these development programs will further fuel our current production business in the coming years. We currently have over 10 defense programs in various stages of development, which is the strongest lineup in our history. These defense programs include the use of our product in armored vehicle targeting systems, Rotary winged aircraft helmets, soldier weapon day scopes, and other programs.
Three of these defense development programs are expected to start the production next year, adding to our two current production programs. We are also very excited to see growth coming from our enterprise customers who have incorporated our displays and modules into their AR products. The forced remote and social distance approach to work driven by COVID-19 has shown the power of wearable technology, and we're seeing accelerated adoption and roll-out of AR devices to enterprise workforces. We expect the enterprise market AR to continue to gain traction, and the ecosystem infrastructure elements necessary for the enterprise market, such as 5G, will help to accelerate the mass market for consumer AR and VR products. Kopin is already benefiting from the defense and enterprise adoption.
We are ideally positioned to meet those demands of those markets with our broad lineup of microdisplay products and module solutions, including both LCD and OLED microdisplays. In fact, it is important to emphasize here the importance of our module solutions. For microdisplay to be used in practice, they must be offered in dust seal-free modules, which consist of sophisticated optics and electronics within a sealed housing. Kopin has deep experience in this area, and that's why many customers turn to Kopin for their microdisplay solutions. We're also excited about the technical advances in our double-stack organic light-emitting diode or OLED microdisplays. We had the opportunity to highlight these OLED technical advances in a recent webinar sponsored by Insight Media, where we shared results of our patent efforts to achieve industry-leading high brightness OLED microdisplays, especially in the second quarter.
Achieving high brightness with low power consumption while maintaining color fidelity has been an obstacle to create AR/VR headsets that meet users requirements. In the webinar, we describe our color 720p OLED microdisplays that emit 7,000 nits of brightness using much lower power than was previously needed to achieve this level of brightness. We also outlined our technical path to achieve even greater brightness, as high as 30,000 nits, for color OLED microdisplay in the coming years. It is important to note that double-stack OLED microdisplays normally result in poor color performance due to color mixing of the individual OLED subpixels, rendering double-stack structures not practical for color displays. We took on this challenge and introduced our ColorMax technology, which controls the color mixing among the subpixels in a double-stack OLED architecture.
The ColorMax technology now enables a much wider color gamut of up to 115% sRGB, which is recognized as a very significant breakthrough. We believe our innovative approach is more manufacturable and cost competitive. It's a huge achievement for the OLED microdisplay field, as an important step in opening up the market for expanded use of AR and VR. Our view of the market is that the long-awaited adoption of AR and VR systems is finally beginning to grow.
As we expected, these systems are being adopted first in defense, followed by industrial, enterprise, and consumer applications. Almost all our defense programs are related to AR and VR applications. As VR and AR continue to gain traction in this new remote world, we feel we are very well positioned to meet this growing demand. Our technology and products have been aiming for these AR/VR applications and solutions. In short, we are making great progress in executing our strategy.
Is showing in our performance. The market conditions are favorable, and we are well-positioned to capitalize in our Q4 and beyond. We are very excited about our future. Finally, I would like to once again thank our Kopin employees that continue working through these unprecedented times. They are the reason of Kopin's growing success. Now I turn this call to Richard.
Thank you John. Turning to our financial results. Product revenues for the third quarter ended September 26, 2020, were $6.5 million, compared with $5 million for the third quarter, September 28, 2019. A 31% increase year-over-year. Funded research development and all other types of revenue were $3 million for the third quarter, September 26, 2020, compared with $1.2 million for the third quarter ended September 28, 2019. An increase of over 100%. Total revenues for Q3 2020 were $9.5 million versus $6.1 million the prior year. Cost of goods sold for the third quarter of 2020 was $4.8 million, or 74% of product revenues, compared with $4.7 million or 95% for the third quarter of last year.
The significant decrease in cost of product revenues as a percent of net product revenues for the three months ended September 26, 2020, as compared to three months ended September 28, 2019, was primarily due to lower material costs, along with improved manufacturing yields and efficiencies gained due to higher sales, which reduced fixed costs per unit at our U.S. plants. We are commencing production of certain products in which there is higher than normal scrap for the first three and nine months of 2019 as compared to the same periods of 2020. Combined internal and externally funded R&D expenses in the third quarter of 2020 were $2.7 million, compared with $2.4 million for the third quarter of 2019.
The higher R&D costs for the third quarter of 2020 as compared to the prior year, was a result of an increase in customer-funded R&D expense of approximately $500,000 in support of several development programs. SG&A expenses were $3.1 million in the third quarter of 2020, compared to $5.1 million in the third quarter of 2019. The decrease was primarily due to lower compensation expenses, including stock-based compensation, bad debt expenses, professional fees, information technology, and travel expenses. Other income expense was income of approximately $168,000 for the third quarter of 2020, compared with a loss of $78,000 for the third quarter of 2019. During the three months ending September 26, 2020, we recorded $184,000 of foreign currency gains as compared to $88,000 of foreign currency losses for the three months ending September 28, 2019.
Turning to the bottom line, our net loss attributable to controlling interest for the quarter was approximately $1 million or $0.01 per share, compared with a loss of $6.6 million, or $0.08 per share in the third quarter of 2019, an 87% increase. Kopin's cash and marketable securities were approximately $15.6 million at September 26, 2020, as compared to $21.8 million at December 28, 2019. Net cash provided by operating activities for the third quarter ended September 26, 2020, was approximately $500,000, which was a result of improving operations and managing working capital. During the third quarter, we had four patents granted. Third quarter amounts of depreciation and stock compensation are attached in the tables to the Q3 press release. The amounts discussed above are based on current estimates and listeners should review our Form 10-Q for the third quarter 2020 for any possible changes and additional disclosures.
Operator we'll now take questions.
Thank you. If you would like to ask questions, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that's star one to ask a question. We will now take our first question from Glenn Mattson from Ladenburg Thalmann. Please go ahead. Your line is now open.
Hi. Thanks for taking the question and congrats on a great quarter. First on the military side, I'm curious, John, you mentioned the potential for three systems in production next year in addition to the two you have going now. Can you give us a sense of what you think? I recognize that these programs will build over time, what do you think the revenue opportunity on the military side is next year on a quarterly basis or annual basis when these things have begun to kick in a little bit?
I'm not sure we want to give out guidance today on 2021 revenues, but I can tell you over the next several years, we expect these to go into the $80 million-$100 million range of annual revenues.
Yeah, I think, Glenn this is John Fan speaking. Those programs are all quite sizable programs. As you well know, when these are ramping up in the beginning it goes slow and then you ramp, just like the other two programs we have now. They are sizable programs.
Great. Being that it's election day, and obviously no one knows the outcome, but what's your confidence that under either administration, that these programs would continue to advance the way they've been going?
Well, all I can tell you, right now and for the next three, four months, everything we're doing is for the 2022 budget. 2021 for all intents and purposes is locked. Not much is going to change. Literally by January, most of the 2022 budget is kind of locked.
I think it is a very good question, Glenn. The defense budget especially are decided a long time before this election. Okay? Secondly is our 10 programs for military defense systems are determined long time ago, and we are sole sourced now, and those systems are decided years ago. If there is brand new programs, which may be coming down maybe 5, 10 years from now, those are programs can be affected. Weapon systems are decided many years ago and we're sole sourced. They're going through a very elaborate selection process and testing, those are programs are usually not affected.
Great. Helpful. Moving on to the enterprise side, the industrial side. For a lot of reasons, this pandemic should accelerate demand there, right? Because people can't travel as much, so that was one of the key drivers for on the industrial side is kind of like that see what I see remote maintenance type thing. On the consumer side, obviously consumers can no longer go to live events any longer, so maybe there's a lot of brainstorming going on around how to bring a better experience into the home and things like that, and obviously the AR/VR application would do well for that. Maybe John, can you just talk about the progress you're seeing, if there's a big period of innovation going on now that maybe will help spur that segment in the next 12 - 18 months?
Yeah. It's a very interesting phenomenon going on, all this remote learning and remote working from home. We see a lot of traffic. In fact, I think inquiries to us have never been higher. It comes from all sectors, enterprise sectors as well as the consumer sectors. I must caution, when those things get designed into the product, it will take at least a year. Even consumer products will take a year from today to go into product. Those are a little bit further out, but we have never seen as high traffic as before. This is very encouraging. All these things happened in defense. In the defense world, as we talk about the defense area, we have more than 10 programs going on and a lot of funded programs coming in from all sectors; enterprise sectors, consumer sectors, defense sectors.
We're seeing a lot of traffic, and we're here because we provide displays, we provide the optics, we provide the electronics, we provide the assembly, we provide the whole solution. People want it right away because of the pull-in. They have no time to shop around. They went to the top guy, which is us.
On the industrial side in particular, 2019 seemed to be a big year where a lot of people adopted some products and tried to maybe work them into their workflow and things. 2020 maybe has been a little quieter. Has that period of digestion kind of played itself out, and do you expect that to pick back up a little bit in the medium term?
Yeah. I think what happened is that you still have to, whatever it is, you have to provide values and benefits to users. There's a lot of software being built, and our customers are testing in fields. I think, Rich probably mentioned it last time, many of our customers' customers are making testimonials how well they're coming out. The ROI is so much bigger than they expected. I think those pull-ins is happening. I think in one of your release also mentioned, we're seeing actually a significant increase in orders for our customers in the enterprise world. This is all leading to the whole idea, these things are designing, people are using it, and people find the benefits are really significant.
Great. Thanks for that color. The last thing for me, Rich, just on the gross margin, it's two quarters in a row where it's been better than unexpected. Perhaps that's a function of the products getting a little more mature and the processes getting a little more advanced. Is that something we should expect, kind of these high forties or so in the total gross margin line?
35%-40%, that's our goal. Obviously, as we go through the experience curve, we're getting smarter. Now that we've got one solid unit being built, we're now being able to go out to multiple vendors and qualifying more vendors, which allows you more pricing power. All those things are happening, which are driving gross margin improvements, and we expect that to continue on these programs off to next year.
Yeah, good. It's actually an important thing. We tried to say it in the text today, but it's not as clear. I would like to say one more thing, is as we go to productions, and the larger the productions, we found out that, especially in the case like gun sights in the car, that those assembly had to be really dust-free. Because you are taking a display and magnifier, with the lens optics. All those are know-hows that we learn now. Once we know how to do it, we can get a high yield, and you see a very rapid improvement in yield and a reduce in cost of goods, like better gross margin. All those are know-how that we learned, which become very useful for enterprise and consumer world, too.
Great. Okay thanks. I'll pass it along. Thank you very much.
Thank you. We'll now take our next question from Kevin Dede from H.C. Wainwright.
Thanks. Hi John, Rich. Thanks for taking my questions.
Hi Kevin.
Hey good morning.
I know that Glenn touched on a lot of these things, but I guess maybe I'd look for a little more color. The research and development, and obviously you both. Well, Rich has specifically talked about it in his prepared remarks, but it was up pretty strongly sequentially. And you talked about the 10 programs that you're working on next year. Are there any of them specifically that are key drivers of that? And how much of that can you say was on the commercial side versus defense?
I assume you're talking about the funded R&D revenue, not expense.
Correct, yes.
In any given quarter, who drives, it changes by program. Some programs, we do a lot of development, then we send it off to the customer, and we're kind of dormant for a while as they run through their tests. Of course, then we allocate resources to another program. There's no one particular program that's a significantly bigger driver per se than all the rest right now. It just changes month to month, really based upon where they are in the program and where various resources are coming through. No, there's no one particular one big guy driver.
Kevin, I like to make a comment, is that this funded R&D activities really increased now what, year-over-year, is over 100%. It's continuing increasing right now. A lot of this increase comes from activities from very different sectors, defense and other sectors, to develop new advanced microdisplay technologies for AR and VR. Those activities, which in later years, will be very useful for us for production. These are very interesting activities. I already mentioned in the text. For the defense part, I think as I said, we have also funded activities and those are usually designing into production, better production, better yields, and all these activities right now.
Okay. The enterprise industrial revenue was still about a third of the defense revenue John, but your commentary speaks to growth that's there, and I think it was up, I don't know, a couple hundred thousand dollars sequentially. Can we just hear a little bit more about the specific products and their use? That drove the increase?
Yeah. As you well know, Kevin, we've been waiting for this wearable, hands-free transformation for years. What we've noticed is that actually, like we thought, but we never see the waves that way, that the first wave is actually in the defense world. When you start it's not one and not two, but all of a sudden, 10 programs and more. We begin to understand when the transformation occurs, it'll be like a hockey stick. In the enterprise world, we're seeing some, and we see especially one or two companies are doing very well. I think their value and benefits are still to be fully recognized. Once they occur, I think it's going to be just like defense world, be another hockey stick. The consumer world, I'm still looking at it.
I think, the case for AR in consumer world, I still think that people are still looking for the whole where the benefits are and how we're going to provide it to the consumers.
Okay. I guess so not a hockey stick yet, but a mix of.
No, not consumer world. It will be a stick. Not right now. Maybe a couple years from now.
Okay. I guess it's a mix of wearables, really, I guess is what you're pointing to, in terms of what you're seeing driving the revenues now?
Well, I think it's very interesting. It's not like the revenue growth in defense, which is very interesting indeed, and is very surprising to us.
Okay. John, you referenced ColorMax in your press release, and I was wondering if that references the double-stack or the fact that you're just able to keep colors from mixing and decreasing that fidelity. What specifically does that refer to in your OLED design?
Yes. See, in the OLED situation, especially in AR applications, people would like to have the OLED pretty much brighter than what they have today. There are two ways to solve it, and one, of course, in the webinar, we described it. One is using direct patterning, which is actually for very small display and very small pixels, is very difficult to manufacture. What we did is say, "Okay, why don't we do double-stack?" Instead of one junction, we put two junctions on it. Now, we were not the first one to try that. People tried it, they all failed, because in a small microdisplay, the pixels are so small that they begin to talk to each other and cross talk, and the colors fade away.
What we did is we put a wafer in the backplane, some structures in there to control the spreading of current between different pixels. We did it, and voila, the color goes back and very good. Now a lot of people go double-stack. Once it's double-stack, it can get much brighter. In fact, it's not just a factor of two, like you say, "Oh, okay, double-stack." No, it's already over five times brighter than single-stack, and we think can even go better than that. This is really, I think, a shocking thing, and I say, when we first released it, we were shocked, the world was shocked, and then we actually had a webinar to explain what it is. I think it's lots of things to explain how it works.
How can you get double-stack, instead of getting double, we got more than 5x better. It's a very significant improvement, and it's true, and that's how we explain to people. It's not fluke. We explain it, and people say, "I understand it now." With that, we can go even higher. We think we can go to 30,000 nits. The whole world of micro OLED is different now.
John, is your 30,000-nit brightness target for year-end next year, or do you think it might take longer?
Well, that development, we just say takes a few years. As you well know, it's not something that has ever been achieved. In fact, three months ago, nobody would even say that. If you said it, people would think you're crazy. We're not saying some day it's possible, but we're saying it will take a few years.
Okay. I know you spoke a little bit, both gentlemen, to the 22.9 Family of Weapon Sight-Individual follow-on order. How much of that do you think you recognize the balance of this year and next?
I don't think we're going to go into details on a particular program. Our production rates are increasing, but by end of this year, we should probably reach a steady state and should be ratable for the remainder of the period. We'll increase a little bit in Q4, and then by end of this year, we'll probably hit a steady state run rate, and it'll be ratable over the next three quarters.
But the contract-
Okay
for 12 months. The contract is for 12 months.
Okay. Do you think there's more beyond that, or do you think the Army switches to something else?
Oh, no. The TWS program that this is replacing went 10 years. We think this has a long life to it.
If I understand correctly. I'm sorry, John go ahead.
Go ahead and finish your question before I make a comment. Yeah, go ahead.
Okay. Yeah. 10-year life program, if you were to comp it against what it's replacing, and if I remember correctly, it went into production about this time last year. Is that true?
Yeah. I think of course, we can learn from what happened last time. Last time, TWS program, our total shipment to the customer is around 200,000 units. Okay. This order, of course, we will not say exactly how many units are, is still a very small part of the 200,000 units that we shipped for TWS.
Okay. Am I right in assuming that FWS-I started about a year ago, at production? Is that right?
Yeah.
Okay, I know Glenn asked about gross margin already, Rich, I guess what I'm wondering is where you think it can go if product revenues nudge a little bit higher, which is sort of where my estimates have it going, given your commentary. Do you start getting pushback from your customers? I'm wondering if they pretty much are stuck with, you'll see the yield improvement, and you'll be able to recognize that as production levels increase. Do you start getting some pushback from some of your customers at all?
Well, as John said, we're full sourced in these programs. These are competitively bid programs. We bid it, and in most cases, neither the government nor the customer has any right to ask us about our costs or anything like that. Assuming that it's competitively bid and the government agrees to the price, what we can make on it, we can make on it.
Yeah. In those programs Kevin, as military defense programs, and maybe in some cases, enterprise programs same way, the customer knows that you're not making any money when you first start it, because your yield is low, your learning curve is so big. It's an investment. Once the investment goes, later on, it turn into some harvesting. If they actually want it, they'll be able to do some harvesting so it can support the next program. Everybody understood is that even now, at the beginning, you lose money, and later on, you'll try to recover some of them. We're going through this harvesting period on this program right now.
Okay. I guess it's a good way to look at it. Thank you for the color, John. I really appreciate it. Rich, last question from me. You mentioned currency gains. I'm just kind of wondering, I know it's inconsequential, but I'm just sort of wondering how that happened.
For us?
In your other income.
Yeah. It's Europe. U.S. dollar against the British pound in our FDD subsidiary.
Oh, okay. All right. Listen, you didn't speak too much about this, and I guess it would be interesting just to get my arm sort of around how you're handling your employees. I know that you're really careful in manufacturing location in Massachusetts. I'm just sort of wondering how you're handling safety for some of your other manufacturing sites in the pandemic.
Well, yeah. In all our sites, we've implemented CDC-required procedures. We've also implemented our own common sense. Knock on wood, we've had no issues at all. In FDD in Scotland, the government's a little bit more heavy-handed. They, as we mentioned in Q2, they were shut down for some time, I believe it was in April. They were allowed to come back online. Otherwise, really has not been an issue. Just common sense approaches. If you came to Kopin today, we've gone a lot as far as we've made the environment as best as possible non-touch. Employees used to walk in and log in, and now everything's done on apps using their smartphone. That's how they check in and out. We changed the flow of the building.
We socially distanced all of the tables in the cafeteria, so everyone's 6 ft apart, no more than one person at a table. On and on, all the things the other folks have done. Certain elevators are up, other stairwells are up, other stairwells are down, so on and so forth. Then, of course, you get to our clean room, and we have the benefit of that we have a Class 100 clean room that we run at Class 10. Everyone's fully gowned, gloves, masks, and the air has its positive pressure, letting it flow out of the floor through the ceiling and make it there, so on and so forth. Our clean room is a big benefit compared to most companies. Our Scottish facility also is done in a clean room environment.
All of that has really contributed to our success so far. Knock on wood again.
Are you considering taking employees' temperatures, kind of the way they do in restaurants here in San Francisco?
No, we did look into it. Obviously, we tell employees, if you don't feel well, if there's any issue, don't come to work. We had somewhat of a couple people that were nervous last week. We sent them off to get tested. They were fine. No, we haven't gone through the temperature-taking step. We've looked at it. Again, even in the clean room, we separate workers, similar to what they're doing at the schools as far as having them in cohorts. If someone did get ill, the case would be confined to a certain number of people and so on.
Okay. Well, thank you gentlemen. Congratulations on the results. Thanks again for taking my call.
Thank you very much Kevin.
Thank you. We'll now take our next question in the queue. This comes from Jeff Bernstein from Cowen. Please go ahead.
Hi good morning. Congratulations first off on the positive cash flow from operations. It seems like you're on a positive track here. Do we think we're going to be free cash flow positive for 2021?
We expect to break exit 2021 breakeven cash flow positive. I don't want to say for the whole year right now.
Okay, great. I apologize, I don't have the best connection, so I think I might have missed a couple of things. I wanted to just make sure, you said the FWS-I, it's all on order $22.9 million. Was that on top of $33 million already awarded, or did that total $33 million with what was already awarded?
$33 million is the total, includes the $22 million.
Got you. Okay. That's what that's at. All right. I want to make sure, you were talking about the externally funded R&D, and that it's not just military. You have some commercial customers who are actually paying some money for you to do R&D?
Yes.
Great. Then, I wanted you to touch on Forth Dimension and what's going on with 3D machine vision. I think Chinese economy seems to be down, and that's a big end market. What are we looking forward to here in the next 12 months?
With 4D, they're closely aligned with the capital equipment market, and that has been down. Looking at our portfolio of products, it's showing weakness particularly until the automobile industry rebounds. The other issue is that the customers are being very tight on their forecast. Backlog is not as big as it normally is, because I think there was concern about a possible second spike in COVID. Sitting here today, our backlog is not as big as it was this time last year, and the forecasts we're getting are more conservative. It's really tied to the capital equipment market, and it's following the same trends. The other place that there's some COVID impact is on public safety, because of municipal budgets, and where those are. Offsetting those are increases in the wearables and in defense and some of the other programs.
Got you. Okay. Can you just remind us who are the current customers for AR in the commercial space?
You know that we're working with the three big Chinese foundries. We really can't talk about who their customers are.
Yeah. I think it's also clear for the enterprise world. As you well know, RealWear definitely announced one, Google Glass announced one. That's the usual suspects, and they're obviously a lot of traffic right now. We're going to find out pretty soon.
You're saying you have some additional customers that are customers of the Chinese foundries?
Yeah. The Chinese is a very interesting world. Rich touched upon that. They definitely has recovered a lot more than here, and there are a lot of activities. let's face it, we cannot go there. I've not gone there for almost a year.
Yeah.
A lot of things we're trying to not say too much about it because I don't have the face-to-face. Our people haven't gone there for a year. They seem to recover. There's quite a lot of activities, and how they're going to sell through and everything, we are more cautious about until we go there ourselves.
Okay. ColorMax, is that in those foundries now? Is that being produced on a spare basis, or is it just a prototype, or where are we on the anode technology?
ColorMax is manufacturable. In fact, we are manufacturing them, and people are using it, and displays are coming off on them, and customers are sampling them right now.
That's terrific. That's just great guys. Just to beat you up one more time on the gross margins. The incremental gross margins have been crazy. They're 90% this quarter. Are you telling us that new military programs will come in with lower margins that kind of tamp that down? There's some reversals from some prior written-off inventory or something that's helping that incremental gross margin right now?
Yeah. I think it's a combination of everything that you mentioned. The first couple of quarters of 2019 were artificially low because the FWS-I was just really getting going, and we had a lot of scrap associated with design changes and so on and so forth. Now it's hitting its stride, and we're continuing to make improvements both in how we manufacture, so our yields are going up, and being able to get lower pricing for materials by having multiple vendors and so on. Knock on wood, FWS-I is in a nice groove right now and doing well. F-35 is in a nice steady state, and we continue to make improvements on the yield. F-35 is really just a display sale, so it's really just manufacturing efficiency.
Next year as John indicated, some of these new products will come on, and they will have lower gross margins than their ultimate steady state, but the sheer volume of having these additional programs is going to suck up more fixed costs per unit over the whole broad base. We think that'll ultimately increase the margins on everything, and help us continue to grow towards our goal of 35%-40%.
That's great. Okay. Rich, did you say that for some of the new programs, it was a total of $80 million of potential revenues or something next year? I missed that.
No, I was talking 3,4 years out.
Okay. Great. Thanks so much guys.
Thank you. We'll now take our next question from Patrick Metcalf from I-Bankers Direct. Please go ahead.
Good morning, guys. Congratulations, not only on a great quarter, cash flow positive, but the military contract you guys announced last quarter, that went unrecognized, unappreciated. Very thankful for that and, I'm just very excited. Secondly, I wanted to ask you about double-stack. John, last quarter, you told, I believe Jeffrey, last quarter on the conference call, that no one will be doing double-stack in a year. That being said, I've always viewed you as a competitor to other OLED players. To me today, after the white paper and the webinar teaching, you're almost agnostic to me, where you can supply the wafers to as many fabs as you want. Is your architecture similar in nature to Sony, to BOE, to LG, to Samsung?
Can you give me some color on how you see yourself being agnostic or someone as a competitor to these type of players in the marketplace? I have a follow-up question after that.
I try to understand, what you want. I think it's very, Pat, obviously, you're very smart, so I'm trying to understand the meaning of your call, the question. Our wafers, we have two business model. One is providing the back plane, the silicon wafer, which already has a lot of design inside, a lot of modules, and then we now put in a ColorMax structure on the wafer. The way we do our wafer is such that we can provide to any foundry, who does all the deposition. They can deposit on it, and with very little difficulty, you should be able to benefit from the ColorMax structure and get very good results on double-stack. By doing that, we're obviously working with foundries, and if you say Sony and other people, if they use our ColorMax wafer, they will benefit if they do double-stack.
Remember, nobody in the world right now really come out with double-stack yet. Now our foundry and us are beginning to sample our samples now for designing. Actually, yeah, it is getting into early sampling right now, yeah, with ColorMax. I think people will soon find out this is really a shocking result, actually. Yeah.
Okay. Yeah. The reason why I ask that is because COVID has come unexpectedly. We've had AR/VR tier 1 players in our hopper, in our pipeline. I'm thinking if you have now found double stack where numerous parties have not reached double stack after failing, maybe these fabs will come to us quicker because the tier 1s in COVID want to push these products out the door faster. Kopin now has a display double stack, five times brighter, more power efficient, and I believe you should be able to win business that people don't even think that you could be in. Is that possible?
It's possible. It's also what we wish for. Another thing very interesting, for the VR case, you might not need such a high brightness. It doesn't matter because you can certainly turn the power down, and then people have much lower power consumption and much longer lifetime. Either way, when you make the display efficient, it's always good. Yeah, people begin to recognize it, and then in the wearable, you don't want to carry too much battery on your body. All these are all benefits. We shall see. Remember, things take time to go to full production. People go to China, and by the time you see a product out, it's a year later. We're not going to see an immediate large revenue growth from these activities for at least some time out.
Right now, current growth is going to be for our defense project, which has been around. We've been working with them for years. Now they're going to production. Those are the revenue growth. The rest of them will come one year, two years from now.
Okay, great. Lastly, John, I'll just go to Rich, I guess. You guys have four equity stakes in Lenovo New Vision, RealWear, Solos, and HMDm d the way I see it. They all contain licensing agreements. I'd like to know, are there any new developments or updates on these investments? The analysts initiate coverage on us, but they never talk about our off-balance-sheet assets for these things that I think represent a lot more value than some of our competitors. I'd like to know if you guys can just add a little bit more color on these equity stakes, how you see them, anything you can add that could bring some value out in our stock, because the equity, I think, doesn't represent these off-balance-sheet assets, if you will.
Yeah, just one correction. HMDmd, we do not have an equity stake in it. We are working with them. Lenovo continues to make progress. We get their financial statements and we mark-to-market the investment as needed. Solos is a new company launching a new product. Obviously, they're dealing with COVID over in China. I think you'd really have to talk to RealWear about how they're doing. I think they put out in a press they indicate that they're being pretty bullish right now.
Okay. All right. Thank you, guys. Good luck. Great quarter. Look forward to talking to you down the road.
Thank you Pat.
There are no more questions in the queue at this time. I'd like to pass back to the room.
Thank you very much for joining us this morning, and we look forward to talking to you again in the next quarter. Stay safe. Thank you.
Ladies and gentlemen this concludes today's call. Thank you for your participation. You may now disconnect.