Please stand by. We are about to begin. Good day and welcome to the Kopin Fourth Quarter and Full Year 2021 Earnings Conference Call. Today's conference is being recorded. At this time, I'd like to hand the call over to Mr. Richard Sneider. 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 of the market environment that we see and our progress in executing our strategy, including our sales activity and technology developments. I will go through the fourth quarter and 2021 results at a high level. John will conclude our prepared remarks and we'll be happy to take your questions. I'd like to remind everyone that during today's call taking place on Tuesday, March 8, 2022, we'll be making forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on the company's current expectations, projections, beliefs and estimates, and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those forward-looking statements.
Potential risks include, but are not limited to, demand for 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 the call over to John.
Thank you, Richard. Good morning, and thank you all for joining us to discuss our fourth quarter and full year fiscal 2021 financial results. 2021 was an exciting and productive year for Kopin. Despite the challenges of the pandemic, parts shortages and FWS-I production retooling in the mid-year, we still had a 14% revenue growth in 2021. This growth represents our fourth consecutive year of growth, and we expect this growth trend to continue this year. The demand for our product is excellent, and our 2022 bookings are very strong. However, our optimism must be balanced with the issues around the global supply chain, which many industries are continuously facing. During fiscal 2021, through hard work and use of our industry contacts, we have managed to largely maintain supplies of our necessary components.
However, like many other companies, we continue to face the challenges, and the situation remains quite dynamic. As I've stressed, we continue to see growing demand across all our key product lines. Our industrial and enterprise products drove growth in 2021, with a revenue of $9.7 million, an increase of 41% over 2020. Demand for our spatial light modulators using our ferroelectric LCOS was particularly strong as contract manufacturers continued the trend of converting their production lines to use 3D automatic optical inspection, referred to as AOI machines for quality controls. The manufacturer of these 3D AOI machines are choosing our solutions in higher numbers than ever before. Our consumer product revenues increased up from approximately $900,000 in fiscal year 2020 to $1.9 million in 2021.
100% increase on the strength of sales of our organic light-emitting diode display, our OLED products. While the absolute dollar amount of our OLED revenues is still modest, the increase represent continued market traction and progress in developing this new product line, which we believe has strong competitive advantages and significant market opportunity ahead. Our defense product line continued to have strong demands in 2021, with revenue of $18.2 million. We achieved the goal which we had stated at the beginning of 2021, with four development programs entering the Low Rate Initial Production phase. Furthermore, we continue to maintain a growing and robust pipeline of defense programs in development, which we believe will continue to drive our defense revenue growth in the coming years.
I'm delighted that during 2021 we have achieved the process enhancements to our FWS-I thermal weapon sight program, which should have positive long-term effects on our revenue and margin. These process enhancement activities are now completed. Our shipments in Q2 and Q3 and our yield in Q4 were adversely affected. However, I'm pleased to say that the FWS-I production rate and yield are now recovering well. In Q4, we achieved the highest shipping rate of this product in 2021. During the fourth quarter, we received a follow-up $19.8 million order for these eyepieces sub-assembly, a critical component in the U.S. Army's family of weapon sights, individual thermal sight system. The majority of this order is scheduled to ship in this year.
Other progress in the fourth quarter, including additional $2.8 million follow-up order for our high brightness and super rugged liquid crystal display for the F-35 Joint Strike Fighter program. The F-35 is the world's most advanced jet fighter combat aircraft, with much of the functionality enabled through an advanced AR or augmented reality helmet, which provides the pilot with critical flight, tactical, and sensor information for advanced situation awareness and precision and safety. This new order extends our backlog of scheduled deliveries into the third quarter of 2022 and is a true testimonial to the quality of our display technology. As a reminder, we are sole source to this incredible AR helmet. Finally, we announced that we'd received $1.1 million order to provide eyepieces for the Joint Effects Targeting System, JETS, with a scheduled delivery through this year.
While the orders I just discussed are a testimony to our advanced display technology, one area of corporate excellence that may not be well understood is our optical capability. We provide display and optics in modules and advanced assemblies. In many ways, optics are just as critical as displays in achieving a great AR/VR experience. To this end, we announced in the fourth quarter our patent-pending all-plastic Pancake optics with excellent performance that enables smaller, lighter weight VR and metaverse headsets. We believe our all-plastic Pancake optics are the first in the world. Providing critical components for VR headsets that are thin, lightweight, comfortable, and easy to use has been a critical objective of ours. Pancake optics are excellent choices for VR headsets. However, previous Pancake optics needed at least one spherical glass lens to avoid image artifacts caused by the birefringence of plastic materials.
Such spherical glass lenses add weight, cost, production issues, and reduce optical design flexibilities compared to aspherical plastic lenses. I'm glad to say we have solved the plastic birefringence issue. Our new P95 and P80 all-plastic Pancake optics provide better image quality, smaller size, lighter weight, and lower cost than anything previously available. We believe that will translate directly to a better metaverse experience for the user. P95 provides a field of view of 95 degrees. P80 provides a field of view of 80 degrees with a 1.3-inch diagonal microdisplay. Our all-plastic Pancake optics provide not only the clear advantages mentioned above, but most importantly, provide a very sharp image with very good eye relief and eye box, especially with our novel P80 optics.
We believe our all-plastic Pancake optics, combined with our microdisplay, represent the perfect match, providing a magnification of 30,000x-50,000x while maintaining a very sharp image. Our goals always remain the same, which is to lead in two critical areas that are needed for AR/VR, optics and microdisplays. I also wanted to highlight our recent in-person participation in CES this January. We demonstrated our second generation 2.6K by 2.6K OLED display, combined with our new all-plastic optics. Shiftall, the wholly owned subsidiary of Panasonic, demonstrated at CES their VR glasses incorporating Kopin's 2.6K by 2.6K OLED display and our all-plastic Pancake optics. We also had a fireside chat at CES focused on our views and approaches to the exciting metaverse world.
The discussion was chaired by Chris Chinnock, president of Insight Media and 8K Association. The fireside chat was live-streamed and can now be seen on YouTube. In summary, customer demands are strong in all our core product lines. We're actively managing our supply chain challenges. We will continue our momentum on innovating and advancing our technology in AR/VR/MR applications. We believe interest in the metaverse is strong. We believe, and we feel very well-positioned to capitalize on the opportunities it present. We enter 2022 with a very strong backlog of orders. We believe this year will be another year of good growth. We are excited by the growth of Kopin, and we see a wave of increasing interest in our AR/VR and MR products. Our technology advances have been excellent. The current market conditions are very favorable. We believe we are very well-positioned.
Now I will turn the call to Rich to discuss the financial details of the quarter and the full year.
Thank you, John. Starting with the results of the fourth quarter of 2021. Total revenues were $13.2 million compared to $13.9 million in the fourth quarter of 2020, a 5% decrease year-over-year. Comparing the fourth quarter of 2021 with the fourth quarter of 2020, our product and royalty revenues were down $648,000 and $552,000 , respectively. These were partially offset by an increase in funded R&D revenues of $476,000 . Let me take a second to reconcile our statements that we had the highest unit ship rate of FWS-I units in 2021 in the fourth quarter with a slight decline in defense revenues.
As we said, under the revenue recognition standard ASC 606, we record most of our defense revenues based on percentage of completion. Accordingly, our revenues are based on both the units we ship in the quarter, plus the amount of work in process and finished goods inventory we have at the end of the quarter. As we discussed, the units shipped in the fourth quarter of 2021 were the highest in the year. However, the impact of the ASC 606 Q4 2021 adjustment was a - $308,000 as compared to a positive adjustment of $1.3 million in Q4 of 2020. Essentially, this means our WIP and finished goods inventory levels were lower at the end of the fourth quarter of 2021 as compared to the third quarter of 2021.
Cost of product revenues as a percent of net product revenues for the fourth quarter of 2021 and 2020, 84.9% and 65.1% respectively. Cost of product revenues increased as a percentage of net product revenues in the fourth quarter of 2021 as compared to the fourth quarter of 2020, primarily due to lower yields as process changes we implemented in the second and third quarters affected productivity and scrap amounts in the fourth quarter of 2021. R&D expense in the fourth quarter of 2021 was $5.2 million, compared with $4.4 million in the fourth quarter of 2020, a 19% increase.
The increase in R&D expense for the fourth quarter of 2021 compared to the fourth quarter of 2020 was primarily due to an increase in internal OLED development costs and to a lesser extent, an increase in funded R&D expense for more customer activities. SG&A expenses were $4.1 million in the fourth quarter of 2021 compared to $2.4 million in the fourth quarter of 2020, a 71% increase year-over-year. SG&A for the fourth quarter of 2021 increased as compared to the fourth quarter of 2020, primarily due to an increase of approximately $400,000 for professional fees, $300,000 in non-cash stock-based compensation, and $400,000 in compensation and other benefits.
We had other income in the fourth quarter of 2021 and 2020 of $46,000 and $286,000 respectively. Other income for the fourth quarter of fiscal 2021 included $38,000 foreign currency gains compared to $273,000 of foreign currency gains in the fourth quarter of fiscal 2020. Turning to the bottom line, net loss attributable to controlling interest for the fourth quarter of 2021 was $3.6 million or $0.04 per share, compared with net income of $1.3 million or $0.02 per share for the fourth quarter of 2020. Turning to the full year results. Total revenues for 2021 were $45.7 million compared to $40.1 million for 2020, a 14% increase.
The 2021 revenue increase as compared to 2020 was driven by partially offset by a decrease in defense product revenues of 10%. Cost of product revenues as a percentage of net product revenues for 2021 and 2020 were 83.8% and 75% respectively. Cost of product revenues increases as a percent of revenues in 2021 as compared to 2020, primarily due to lower production volumes in the second and third quarter of fiscal 2021. In the second and third quarters of fiscal 2021, we reduced production of our products for the FWS-I but as we made process changes to the product. Also affected were our production yields during 2021 as implementing the process changes affected productivity and scrap amounts.
R&D expense in 2021 was $16.3 million, a 39% increase compared with $11.7 million in 2020. Funded R&D expenses were $10 million for 2021 as compared to $7.7 million for 2020, a 29% increase. Funded R&D expense for 2021 increased as compared to 2020, primarily due to an increase in number of defense-related contracts we have been awarded, and therefore it was driven by increased revenue associated with those contracts. Internal R&D expense was $6.3 million for 2021 as compared to $3.9 million for 2020, a 61% increase. Internal R&D expense for 2021 increased as compared to prior year, primarily due to an increase in OLED development costs.
SG&A expenses were $18.1 million for 2021, a 53% increase compared with $11.8 million for 2020. SG&A for 2021 increased as compared to 2020, primarily due to an increase of approximately $3.1 million in non-cash stock-based compensation, $1.4 million in compensation and benefits, $300,000 in insurance, and $900,000 in bad debt expense, partially offset by $600,000 of lower professional fees. Other income for fiscal 2021 and 2020 were income of $100,000 and $400,000 respectively. Other income for fiscal 2021 included $100,000 of foreign currency gains compared to $300,000 of foreign currency gains recorded in fiscal 2020. Turning to our bottom line.
Net loss for controlling interest for fiscal year- end December 25th, 2021 was $13.7 million or $0.15 per share versus a net loss of $4.4 million or $0.05 per share for 2020. 10% customers for 2021 were DRS Network & Imaging Systems at 31% and Collins Aerospace at 29%. Quarter and year-end amounts for depreciation and stock compensation are attached in the table to the press release. Kopin's cash equivalents and marketable securities were approximately $29.3 million at December 25th, 2021, compared to $20.7 million at December 26th, 2020, and we continue to have no long-term debt. The amounts discussed above are our current estimates, and listeners should review our Form 10-K for the year ended December 25th for any possible changes and of course, any additional filings.
With that, operator, we'll be happy to take questions.
Of course. Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please pick up your handset and make sure mute function is turned off so that your signal reaches our equipment. Again, it is star one if you would like to ask a question. We'll pause just for a moment to allow everyone an opportunity to signal for questions. We'll go ahead and take our first question from Glenn Mattson with Ladenburg Thalmann. Please go ahead.
Yeah, thanks for taking the questions. I'm curious first on the optical inspection market, is that you know solid growth in that space this year really helped in the industrial enterprise space. Is that, you know, I think there's a long tailwind to that growth, but can you give us more color as to how you expect that to play out in 2022?
Yeah, I mean, this is a momentum that's been building for a period of time. We'll see what happens in 2022. You know, it's an interesting situation in that the supply chain shortage is affecting everybody. Forecasts that we're getting from customers are not as firm as we've gotten in the past. You know, frankly, if there continues to be a shortage of chips, that's gonna cause a headwind in the demand for 3D automation equipment, because what's the purpose of doing quality control on chips you don't have? We've really got to see how this whole supply chain works its way out.
This is John Fan. Hi, Glenn. This is a very good question. At the short term, of course, supply chain questions is affecting our customers too. However, the long-term trend to move from 2D to 3D is continued. As you well know, electric cars and everything are getting very complicated, so their PCB boards are very complicated. The trend going to 3D is not gonna be stopped. In fact, it's going to continue increasing. The short-term effect of shorter part shortage is going to be very just short-term. Even that, we're overcoming it most of the time.
Right. Great. Thanks for that color. Then just quickly moving on to defense, congrats on the big order, the $19.8 million order that you received, I think it was in December. When you add that plus the, you know, you say the majority of that should ship this year, plus the Joint Strike Fighter revenue through the third quarter, the combination of those two factors would at least put you to somewhat flat for defense in 2022, flat to up perhaps. Then you have these other low-rate initial production orders to provide some upside to that number. Is that basically the good way to think about it? Maybe just some color around how that plays out through the year would be great.
Yeah, no, I think that is the correct way to think about it, plus we have a very healthy backlog of R&D contracts that we'll be working on during the course of the year. You know, the timing of those four programs that are in LRIP, Low Rate Initial Production, you know, when they go into full production, you know, that depends on how well the LRIPs go. They should provide us, if things go according to plan, with additional revenues during the course of this year. Probably more in the second half of the year.
Okay. Lastly for me, can you just remind us or maybe just give everyone an update as to, you know, assuming, you know, taking out the caveat that there could be supply chain disruption or something like that. In the normal circumstances, if the defense orders come through on time and you're able to ship against them and then, you know, you have a standard breakdown of, you know, component revenue versus R&D revenue of kind of like two-thirds to one-third or slightly better than that, you know, the target model for what kind of gross margins would be when you get to certain volumes and where break even is. Just some, you know, color around that to remind us all will be great.
Sure. Break even, basically getting to the mix question that you were asking about, can be anywhere from $50 million-$60 million. We're fast approaching that number. I think your ratios of product revenues to contract revenues is pretty close to what we've historically been running at.
In light of that, I would have just like as a final follow on would be the with the balance sheet having almost $30 million in cash and no debt and you know you guys getting into the ballpark of break even this year would I assume that there's not really much need for cash capital raise activity?
We have sufficient cash to execute our strategy where we are right now.
Okay, great. That's it for me. Thanks.
As a reminder, it is star one if you would like to ask a question. We'll go ahead and move on to our next question from Kevin Dede with HCW. Please go ahead.
Good morning, gentlemen. Thanks for taking our call. John, it sounds like you're doing great with the Pancake optics, lightening the weight. I was hoping you could just sort of offer some color on that advancement vis-à-vis, you know, Solos, RealWear, Scott, some of the enterprise and consumer applications that you're working on. How are your customers looking at that? How do you see, especially in light of the doubling in consumer revenue this year, how are you seeing that grow this year?
Yeah, I thank you, Kevin. It's a very interesting question. In the earlier days, I think the last earnings call, I mentioned that we actually use Pancake in our defense products in several places. In fact, FWS-I, our biggest production program, is using Pancake optics. Except in that case, one of the lenses is a glass lens. Now, we always believe the Pancake is the way to go for VR headsets. However, in consumer world, we think the glass lens must go away because of their weight and lightweight and also the shape. The all plastic optics, we've been working on for several years to develop a special material and a process that allow it to do that. Now, fast forward, we have P95 and P80.
We introduced the CES. I must say, the response from the field is very strong. Not only that they would like to have our Pancake optics to couple with our OLED display. In fact, people who have their own displays want our optics. We're now actively planning how to get the Pancake optics, all-plastic Pancake optics, to satisfy our customers' need. We're very optimistic about Pancake optics. This is really a separate product line for us.
Okay. Can you talk a little bit about, I guess, the cost that you're gonna offer them at volume? I'm wondering if you can give us any read at all, in terms of their use this year. Do you think you'll deliver them to the market this year and at a lower price point than the previous Pancake? I'm just, I guess the big takeaway, John, for me is how you see VR developing versus Oculus, right? You've got the Oculus Quest 2 headset out there. It's used in a clunky cellphone display. You're developing technology that's clearly, a light year ahead, and I just was hoping you'd give us a better read on its track to market.
Yeah. My feeling is that Oculus 2 is actually a very interesting system. They use LCD there, and they use a large LCD, like 2.5 inches LCD. They use Fresnel lens. It's a plastic lens, but a Fresnel lens, which actually gives it a bulky and a thick effect. Ultimately, I think the Fresnel lens will go to Pancake, and you will go to all plastic Pancake. I think this one is pretty much, I must say, in the field is pretty much now acknowledged it will be Pancake. That's very important. As you well know, our Pancake is our trademark. We trademark the Pancake many years ago because we've been working on it in defense area.
We believe this is the best way to give you thinnest, lightest optics and magnify the display for you. On the display side, I think that we're working on this 2.6K, which we hope to get into production this year. Then, the ultimate display for VR is around 3.5, maybe 4K. We definitely start planning with our partners, think about that, to go to this incredible goal. Just as a reminder, 2.6K by 2.6K OLED 1.3-inch display, we are in generation two. Nobody else in the world has that yet, and we're already in generation two and getting ready for production. We're very optimistic.
We think the future is very bright for VR, but possibly not this year. I think the product will be coming more like at the end of the year or maybe next year, and our revenue will ramp next year.
Oh, okay. Thanks, John. I appreciate that. I appreciate that.
Our defense and other programs are going well, so we still anticipate a good growth year this year.
Can you... Yeah, that's where I was going next. Can we talk a little bit about the programs that could go from LRIP to full production this year? Could you give us just maybe a little more depth on the unit size? I mean, I know FWS-I is a huge number of units, and I'm wondering if you can compare some of these other LRIP programs on sort of a unit basis just to maybe help us understand how large they could be.
Yeah, I mean, something like FWS-I is a very rare program because it goes into, you know, most of the soldiers get it in one form or another. You know, the rest of the programs, you know, tend to be more specialized with much lower volumes, but commensurately much higher prices. The margins on those programs are very good. And they range from, you know, additional scopes to rotary aircraft, pilot helmets, and, you know, tripod rocket launchers. You know, how they roll out, particularly given what's happening around the world today, we know we'll see how that goes. They are, as I said, lower units, but higher prices.
Yeah. I think just to give you some more light to the situation, one of the programs is the HS for international gun sights. With the current situation going on, we don't know how fast that will grow.
All right, gentlemen. I can't think of anything at the moment, but I might hop back in. Yeah, no, I'm sorry. I'm sorry. Yeah, just on the enterprise side, John, could you offer some insight, maybe, you know, from a Scott perspective or a Vuzix perspective on the adoption of Pancake? Understand consumer is a little way out, but I know that your enterprise business is growing. Is there a chance that Pancake gets adopted there and is the price point lower? How does that translate?
Yeah. The Pancake, one of the Pancake has many advantages, but the one area they have a disadvantage, the optical efficiency is quite low. It's around 10%. So for some of the AR enterprise applications where you're outdoors, that means that the 10% efficiency means you have a very bright display. So that part, usually people don't lean towards Pancake. In the VR case, people really decide as a Pancake. It is a very different case how you wanna use it. We have other optics which has very high optical efficiency that allow to use it for an enterprise world, and that is what's being used right now. When we ship to our customers, we'd normally ship a display with optics packaging to a module.
It depends which application. Remember, we have whole range of it. We have all the range of display, LCD, LCOS, OLED, and of course, we're working on LED. In optics, we have glass optics, special optics, Pancake optics, all plastic optics. We also provide whatever optics people need to give for the application.
Thank you, John. I appreciate it. Thanks, Rich. Thanks for taking our questions. All right.
With that does conclude our question and answer session. I would like to hand the call back over to our speakers for any additional or closing remarks.
Thank you very much, joining us, and hope to see you in the next meeting. Thank you. Bye-bye.
With that concludes today's call. Thank you for your participation. You may now disconnect.