BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements include the accounts of Kopin Corporation, its wholly-owned subsidiaries, Kowon Technology Co., Ltd. (Kowon), a majority owned (93%) subsidiary located in Korea, and Ikanos Consulting Ltd. (Ikanos) a (51%) owned subsidiary located in the United Kingdom (collectively the “Company”). Ownership interests of Kowon and Ikanos not attributable to the Company are referred to as noncontrolling interests. All intercompany transactions and balances have been eliminated. The condensed consolidated financial statements for the three months ended March 30, 2013 and March 31, 2012 are unaudited and include all adjustments which, in the opinion of management, are necessary to present fairly the results of operations for the periods then ended. These condensed consolidated financial statements should be read in conjunction with the Company’s financial statements and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 29, 2012. On January 16, 2013, the Company sold its investment in Kopin Taiwan Corp (KTC). See Note 2.

During the first quarter of 2013, the Company paid approximately $3.7 million to acquire an additional 15% ownership in its Kowon subsidiary. The Company closed its Kowon facility during the quarter ended March 30, 2013. The closure of this facility does not meet the criteria for assets held for sale based on the Company's anticipated duration to sell the facility. The Company will continue to assess its presentation of the Kowon facility.

The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. ASU No. 2013-02 requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under United States Generally Accepted Accounting Principles (U.S. GAAP) to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU No. 2013-02 is effective for reporting periods beginning after December 15, 2012. The Company adopted this ASU on December 30, 2012 with no impact on its financial statements.

During the three months ended March 30, 2013, the change in the Company's accumulated other comprehensive income was the net of ($0.4) million cumulative translation adjustment, $0.2 million unrealized holding gains on marketable securities and ($1.5) million related to the sale of its III-V product line and $0.4 million related to its acquisition of additional noncontrolling interest in Kowon.

Immaterial Restatement

During the second quarter of 2012, the Company identified an error in the calculation of intercompany profit elimination in inventory for prior periods. While the Company believes the correction of this error is not material to its previously issued historical consolidated financial statements, the Company has restated certain balances within the condensed consolidated statements of operations and comprehensive income and the condensed consolidated statements of cash flows for the three months ended March 31, 2012.

The effects of this restatement and the reclassification of certain amounts into discontinued operations on the consolidated statements of operations for the three months ended March 31, 2012 are as follows (in thousands):



	Three months ended March 31, 2012
	As previously reported			Corrections			Reclassifications from Discontinued Operations			As reclassified and restated
Cost of product revenues	$	17,398		$	562		$	(10,811	)	$	7,149
Loss from operations	(2,377		)	(562		)	(555		)	(3,494		)
Loss before provision for income taxes, and equity losses in unconsolidated affiliate and net (income) loss of noncontrolling interest	(1,432		)	(562		)	(464		)	(2,458		)
Tax provision	(468		)	152			219			(97		)
Loss before equity losses in unconsolidated affiliate and net (income) loss of noncontrolling interest	(1,900		)	(410		)	(246		)	(2,556		)
Net loss from continuing operations *	(2,056		)	(410		)	(246		)	(2,712		)
Net income from discontinued operations	—			—			246			246
Net (income) loss attributable to the noncontrolling interest	(152		)	40			—			(111		)
Net loss attributable to the controlling interest	(2,208		)	(370		)	—			(2,578		)
Net loss per share:
Basic
Loss from continuing operations	$	(0.03	)	$	(0.01	)	$	—		$	(0.04	)
Income from discontinued operations	$	—		$	—		$	—		$	—
Diluted
Loss from continuing operations	$	(0.03	)	$	(0.01	)	$	—		$	(0.04	)
Income from discontinued operations	$	—		$	—		$	—		$	—
Weighted average number of common shares:
Basic	64,225									64,225
Diluted	64,225									64,225

* In the prior year financial statement presentation, this line was titled net income (loss) as there were no discontinued operations.

This error resulted in an increase to net loss of ($0.4) million, and changes in inventory of $0.6 million and prepaid expenses and other current assets of ($0.2) million within condensed consolidated statement of cash flow for the three months ended March 31, 2012. The error did not result in any changes to net cash flows from operating, investing or financing activities.

This error resulted in a ($0.4) million increase in comprehensive loss and comprehensive loss attributable to the controlling interest for the three months ended March 31, 2012.