UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 1)

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended DECEMBER 31, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _____________

Commission File No. 1-11140

OPHTHALMIC IMAGING SYSTEMS

(Exact name of registrant as specified issuer in its charter)

California		94-3035367
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

221 Lathrop Way, Suite I, Sacramento, CA		95815
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (916) 646-2020

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Act: Common Stock, no par value

Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1934. Yes o No x

Indicate by checkmark whether the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act. Yes o No x

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. o

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

The aggregate market value of voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant based upon the closing price of $1.00 on June 30, 2010, the last business day of our most recently completed second fiscal quarter was $19,790,656.

As of April 8, 2011, there were 30,304,151 shares of common stock issued and outstanding.

OPHTHALMIC IMAGING SYSTEMS

FORM 10-K ANNUAL REPORT

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

TABLE OF CONTENTS

Explanatory Note		3
Part II
Item 8.	Financial Statements and Supplementary Data	4
Item 9A.	Controls and Procedures	5
Item 15.	Exhibits, Financial Statement Schedules	7

Explanatory Note

Ophthalmic Imaging Systems (“we,” “us,” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) to amend our Annual Report on Form 10-K, for the fiscal year ended December 31, 2010, as filed with the Securities and Exchange Commission (the “SEC”) on April 15, 2011 (the “Original Filing”). This Amendment No. 1 is being filed solely to (1) amend and restate in its entirety Item 8. Financial Statements and Supplementary Data, Note 2. Restatement of Consolidated Financial Statements and Item 9A Controls and Procedures and to reflect that our restatements for the fiscal years ended December 31, 2007 and 2008 relate solely to our valuation and accounting for the relative fair value of warrants and the beneficial conversion feature of the debt issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. on October 27, 2007 and (2) amend and restate in its entirety Item 9A, Controls and Procedures, to clearly state that management concluded that internal control over financial reporting were not effective at December 31, 2010.

This Amendment No. 1 does not reflect events occurring after the filing of the Original Filing or modify or update any disclosures affected by subsequent events. Except as noted above, this Amendment No. 1 continues to speak as of the date of the Original Filing, and does not modify, amend or update in any way the financial statements or any other item or disclosures in the Original Filing. Accordingly, this Amendment No. 1 should be read in conjunction with the Original Filing and the Company’s other filings made with the SEC.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements for the year ended December 31, 2010 and 2009 are attached hereto.

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2010 and 2009 and

For the Years Ended December 31, 2010 and 2009

Table of Contents

		Page

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-5
Consolidated Statement of Stockholders’ Equity		F-7
Consolidated Statement of Cash Flows		F-8
Notes to Consolidated Financial Statements		F-9

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Ophthalmic Imaging Systems

We have audited the accompanying consolidated balance sheets of Ophthalmic Imaging Systems and subsidiaries (the "Company") as of December 31, 2010, 2009, 2008 and 2007, and the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Ophthalmic Imaging Systems and subsidiaries as of December 31, 2010, 2009, 2008 and 2007, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements, the Company restated its consolidated financial statements for the years ended December 31, 2009, 2008 and 2007.

As discussed in Note 1 to the accompanying consolidated financial statements, effective January 1, 2009, the Company changed its method of accounting for business combinations with the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations.

/s/ Perry-Smith, LLP

Sacramento, California

April 15, 2011

F-2

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED BALANCE SHEETS

	December 31,
	2010		2009
ASSETS			Restated

Current assets:
Cash and cash equivalents	$	3,905,910	$	5,406,239
Accounts receivable, net		4,088,269		2,710,987
Inventories, net		1,757,873		991,325
Prepaid expenses and other current assets		357,380		179,451
Total current assets		10,109,432		9,288,002

Restricted cash		-		158,213
Furniture and equipment, net		470,717		481,394
Capitalized imaging software, net		168,239		336,475
Capitalized software development, net		383,607		767,220
AcerMed asset purchase, net		190,029		380,053
Goodwill		807,000		807,000
Customer relationship intangible assets, net		411,863		481,364
Other intangible assets, net		66,075		298,111
Prepaid financing		-		22,195
Other assets		12,524		17,350
Total assets	$	12,619,486	$	13,037,377

(Continued)

F-3

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED BALANCE SHEETS

(Continued)

	December 31,
LIABILITIES AND STOCKHOLDERS’ EQUITY	2010			2009
					As Restated

Current liabilities:
Accounts payable	$	1,256,515		$	867,672
Accounts payable related party		-			41,847
Accrued liabilities		1,709,616			1,115,902
Derivative liability financial instruments		1,698,416			1,863,976
Deferred extended warranty revenue – current portion		1,722,235			1,632,491
Customer deposits		312,731			561,244
Notes payable - current portion		1,518,099			34,048
Total current liabilities		8,217,612			6,117,180

Deferred extended warranty revenue, less current portion		251,785			247,231
Line of credit		-			150,000
Notes payable, less current portion		1,301,523			2,886,698
Total liabilities		9,770,920			9,401,109

Commitments and contingencies Equity:
Ophthalmic Imaging Systems stockholders’ equity:
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2010 and 2009, respectively. Common stock, no par value, 100,000,000 shares authorized; 30,304,151 and 26,500,059 shares issued and outstanding at December 31, 2010 and 2009, respectively		21,708,743			19,981,977
Additional paid in capital		65,544			47,044
Accumulated deficit		(19,284,427	)		(16,859,483	)
Cumulative translation adjustment		(58,368	)		2,241
Total Ophthalmic Imaging Systems stockholders’ equity		2,431,492			3,171,779

Noncontrolling Interest		417,074			464,489
Total equity		2,848,566			3,636,268
Total liabilities and stockholders’ equity	$	12,619,486		$	13,037,377

The accompanying notes are an integral

part of these consolidated financial statements.

F-4

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2010 and 2009

	2010			2009 As Restated
Sales – products	$	14,418,870		$	9,530,555
Cost of sales – products		5,388,383			3,799,236
Cost of sales – amortization		741,871			741,871
Gross profit – products		8,288,616			4,989,448

Sales – products to related parties		-			338,492
Cost of sales – products to related parties		-			201,093
Gross profit –products to related parties		-			137,399

Sales – service		4,213,042			3,700,253
Cost of sales – service		2,198,160			1,500,079
Gross profit – service		2,014,882			2,200,174

Net revenues		18,631,912			13,569,300
Cost of sales		8,328,414			6,242,279
Gross profit		10,303,498			7,327,021

Operating expenses:
Sales and marketing		6,908,325			4,124,480
General and administrative		2,433,619			2,255,389
Impairment related to the debt of MediVision		-			4,436,187
Research and development		3,880,593			2,559,478
Research and development-related parties		-			294,014

Total operating expenses		13,222,537			13,669,548

Loss from operations		(2,919,039	)		(6,342,527	)
Other income (expense), net:
Change in fair value of derivative financial liabilities		683,742			(1,466,805	)
Interest expense		(248,138	)		(275,584	)
Other expense		(97,799	)		(186,592	)
Interest income		32,605			63,239
Legal settlement		-			1,200,000

Total other income (expense)		370,410			(665,742)

Net loss before provision for income tax expense		(2,548,629	)		(7,008,269	)

Benefit from (provision) for income taxes		76,270			(3,787	)

Net loss		(2,472,359	)		(7,012,056	)

Less: Noncontrolling interest’s share		(47,415	)		(8,511)

Net loss attributable to Ophthalmic Imaging Systems	$	(2,424,944	)	$	(7,003,545	)

Basic loss per share attributable to Ophthalmic Imaging Systems’ Stockholders	$	(0.08	)	$	(0.32	)

Shares used in the calculation of basic loss per share		28,805,067			21,842,234

The amount of anti-dilutive shares for the twelve months ended December 31, 2010 and 2009 are 1,625,021 and 520,748, respectively.

The accompanying notes are an integral

part of these consolidated financial statements.

F-5

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED STATEMENTS OF OPERATIONS

As of and For the Years Ended December 31, 2010 and 2009

	2010			2009
					As Restated

Net loss attributable for Ophthalmic Imaging Systems	$	(2,424,944	)	$	(7,003,545	)

Other comprehensive (loss) income
Foreign currency translation		(60,609	)		2,241

Comprehensive net loss	$	(2,485,553	)	$	(7,001,304	)

The accompanying notes are an integral

part of these consolidated financial statements.

F-6

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2010 and 2009

	Ophthalmic Imaging Systems’ Stockholders’ Equity
	Common Stock				Additional Paid in		Accumulated			Cumulative			Non-Controlling			Total Stockholders’
	Shares		Amount		Capital		Deficit			Translation			Interest			Equity
Balance as previously stated, January 1, 2009		16,866,831	$	16,504,773	$	966	$	(10,059,285	)		—			—		$	6,446,454
Restated Balance, January 1, 2009		16,866,831		16,504,773		762,580		(10,576,615	)		—			—			6,690,738

Cumulative effect of change of accounting for warrants and loan conversion option		—		—		(762,580)		720,676									(41,904)
Net loss, restated		—		—		—		(7,003,545	)		—		$	(8,511	)		(7,012,056	)
Stock based compensation		—		32,220		—		—			—			—			32,220
Stock issuance, net of $158,899 issuance cost		9,633,228		3,444,984		47,044		—			—			—			3,492,029
Noncontrolling interest		—		—		—		—			—			473,000			473,000
Cumulative translation		—		—		—		—			2,241			—			2,241
Balance, December 31, 2009		26,500,059		19,981,977		47,044		(16,859,483	)		2,241			464,489			3,636,268

Net loss		—		—		—		(2,424,944	)		—			(47,415	)		(2,472,359	)
Stock based compensation				34,667													34,667
Debt conversion at $1.14 per share		219,780		250,000		—		—			—			—			250,000
Stock issuance, net of $22,960 issuance cost		3,581,089		1,440,326		18,500		—			—			—			1,458,826
Stock option conversion		3,223		1,773													1,773
Cumulative translation		—		—		—		—			(60,609	)		—			(60,609	)
Balance, December 31, 2010		30,304,151	$	21,708,743	$	65,544	$	(19,284,427	)	$	(58,368	)	$	417,074		$	2,848,566

The accompanying notes are an integral

part of these consolidated financial statements.

F-7

OPHTHALMIC IMAGING SYSTEMS

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Years Ended December 31, 2010 and 2009

	2010			2009 As Restated
Cash flows from operating activities:
Net loss	$	(2,472,359	)	$	(7,012,056	)

Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		260,420			225,588
Amortization		102,538			11,636
Loss on disposal of assets		18,143			207
Impairment of intangible asset		199,000			-
Stock based compensation expense		34,677			32,220
Warranty expense		239,550			202,249
Discount related to note payable		66,427			191,026
Change in accounts receivable		(1,315,895	)		(1,244,171	)
Provision for bad debt		(62,651)			425,598
Write-off of MediVision assets		-			3,152,042
Change in related party receivable		-			500,365
Change in fair value of derivative liability financial instruments		(683,742)			1,466,805
Change in prepaid products		-			560,000
Change in inventories		(774,961)			307,939
Change in prepaid expenses and other current assets		(177,930)			53,967
Amortization of prepaid financing related to note payable		22,195			66,585
Amortization of Symphony Web software		168,236			168,236
AcerMed software license amortization		573,635			573,635
Change in other assets		3,668			49,317
Change in accounts payable		389,513			(13,968	)
Change in accounts payable – related parties		(58,883)			41,847
Change in accrued liabilities		351,358			(253,749	)
Change in deferred extended warranty revenue		94,285			(31,102	)
Change in customer deposits		(246,375)			463,781

Net cash used in operating activities		(3,269,151	)		(62,003)

Cash flows from investing activities:
APA acquisition, net of cash acquired		-			(1,235,523	)
Acquisition of furniture and equipment		(267,885	)		(132,951	)
Net cash used in investing activities		(267,885	)		(1,368,474	)

Cash flows from financing activities:
Principal payments on notes payable		(13,287	)		(732,984	)
Proceeds from note payable		113,314			1,500,000
Proceeds from sale of stock and warrants		1,999,967			3,999,971
Stock issuance costs		(22,960	)		(158,899	)
Net cash provided by financing activities		2,077,034			4,608,088

Effect of exchange rate changes on cash and cash equivalents		(40,327	)		4,003

Net (decrease) increase in cash and cash equivalents		(1,500,329	)		3,181,614
Cash and cash equivalents, beginning of the year		5,406,239			2,224,625
Cash and cash equivalents, end of the year	$	3,905,910		$	5,406,239

Supplemental schedule of cash flow information:
Cash (received) paid for taxes	$	(108,921	)	$	12,405
Cash paid for interest	$	79,460		$	19,987

The accompanying notes are an integral

part of these consolidated financial statements.

F-8

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Ophthalmic Imaging Systems (the “Company,” “OIS,” “we,” “us” or “our”) was incorporated under the laws of the State of California on July 14, 1986. We are headquartered in Sacramento, California and are engaged in the business of designing, developing, manufacturing and marketing digital imaging systems, image enhancement and analysis software and informatics solutions for use by practitioners in the ocular health field. Our products are used for a variety of standard diagnostic test procedures performed in most eye care practices.

Principals of Consolidation

In January 2008, the Company, through Abraxas Medical Solutions, Inc., a wholly-owned subsidiary (“Abraxas”), purchased substantially all of the assets of AcerMed, Inc., a leading software developer for Electronic Medical Records (EMR) and Practice Management (PM) software.

On October 21, 2009, the Company completed its Asset Purchase transaction with MediVision to purchase substantially all the assets of MediVision, which was completed on October 21, 2009. Such assets include the European operations which consisted of MediVision’s business as conducted by CCS Pawlowski GmbH (“CCS”) and its branch office in Belgium (the “OIS Europe”). Accordingly, the Company began consolidating the results of operations of CCS and OIS Europe as of October 21, 2009.

The consolidated financial statements include the accounts of OIS, Abraxas, the 63% investment in CCS, OIS Europe, and OIS Global. All significant intercompany balances and transactions have been eliminated in consolidation.

Foreign currencies

The consolidated financial statements are presented in the reporting currency of Ophthalmic Imaging Systems, U.S. Dollars (“USD”). The functional currency for the Company’s wholly-owned subsidiary, OIS Europe and its 63% investment in CCS, is the European Union Euro (€). Accordingly, the balance sheet of OIS Europe and CCS is translated into USD using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated using the average exchange rates in effect during the period. Translation differences are recorded directly in shareholders’ equity as “Foreign currency translation adjustment.” Gains or losses on transactions denominated in a currency other than the subsidiaries’ functional currency which arise as a result of changes in foreign exchange rates are recorded in the statement of operations. The statement of cash flows reflects the reporting currency equivalent of foreign currency cash flows using the exchange rates in effect at the time of the cash flow.

Segment Reporting

Our business consists of two operating segments: OIS and Abraxas, our wholly-owned subsidiary. Our management reviews Abraxas’ results of operation separately from that of OIS. Our operating results for Abraxas exclude income taxes. The provision for income taxes is calculated on a consolidated basis, and accordingly, is not presented by segment. It is excluded from the measure of segment profitability as reviewed by our management. CCS does not meet the materiality requirements for segment reporting, and accordingly, CCS’ financial information is reported as Other in the following table.

F-9

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

We evaluate our reporting segments in accordance with FASB Accounting Standards Codification Topic 280, Segment Reporting (“Topic 280”). Our Chief Financial Officer (“CFO”) has been determined as the Chief Operating Decision Maker as defined by Topic 280. The CFO allocates resources to Abraxas based on its business prospects, competitive factors, net sales and operating results.

All significant intercompany balances and transactions have been eliminated in consolidation.

The following presents our financial information by segment for the years ended December 31, 2010 and 2009:

2010	OIS	Abraxas	Other	Total
Statement of Operations:
Net revenues	$14,665,362	$3,171,740	$794,810	$18,631,912
Gross profit	8,843,429	1,127,709	332,360	10,303,498
Operating loss	(874,601)	(1,958,785)	(85,653)	(2,919,039)
Net loss (consolidated)				(2,472,359)

Balance Sheet:
Assets	10,897,744	1,259,072	462,670	12,619,486
Liabilities	9,080,718	554,515	135,688	9,770,921
Stockholders’ equity	$5,262,922	($2,741,339)	$326,982	$2,848,565

2009	OIS	Abraxas	Other	Total
Statement of Operations:	As Restated	As Restated	As Restated	As Restated
Net revenues	$11,666,981	$1,752,474	$149,845	$13,569,300
Gross profit	6,812,957	401,459	112,605	7,327,021
Operating loss	(4,445,823)	(1,879,061)	(17,643)	(6,342,527)
Net loss (consolidated)				(7,012,056)

Balance Sheet:
Assets	10,848,803	1,592,057	596,517	13,037,377
Liabilities	8,764,659	511,580	124,870	9,401,109
Stockholders’ equity	$5,538,687	($2,361,507)	$459,088	$3,636,268

F-10

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers highly liquid investments with original maturities of three months or less as cash equivalents.

At December 31, 2010, the Company had deposits with carrying amounts of $3,905,910 including bank balances of $3,843,573, Federally insured balances totaled $1,799,143 and uninsured balances totaled $2,044,430 at December 31, 2010.

Concentrations of Credit Risk and Export Sales

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high quality financial institutions. Concentrations of credit risk with respect to trade receivables are limited due to the Company’s policy of requiring deposits from customers, the number of customers we have and their geographic dispersion. The Company maintains reserves for potential credit losses and such losses have historically been within management’s expectations. No single customer comprised 10% or more of net sales during the years ended December 31, 2010 or 2009.

Revenues from sales to customers located outside of the United States accounted for approximately 18% and 9% of net sales during the years ended December 31, 2010 and 2009, respectively.

Inventories

Inventories, which consist primarily of purchased system parts, subassemblies and assembled systems, are stated at the lower of cost (determined using the first-in, first-out method) or market.

Allowance for Doubtful Accounts

The Company generally offers customer terms of 50% deposit paid up-front, remaining 50%, less installation portion, net 15 days after shipment of product, and the installation portion after installation is complete. The allowance for doubtful accounts balance is estimated based on historical experience and any specific customer/installation issues that have been identified. The Company periodically assesses the adequacy of its recorded allowance for doubtful accounts, and adjusts the balance as necessary.

Changes in the allowance for doubtful accounts were as follows:

Allowance at January 1, 2009	$	210,146
Provision		425,598
Bad debt		(200,795	)

Allowance at December 31, 2009		434,949
Provision		(62,651)
Bad debt		(19,344)

Allowance at December 31, 2010	$	352,954

F-11

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Change in Rebate Estimates

Our rebate program provides customers with an incentive to purchase system upgrades. When purchasing an upgrade, we provide the customer with a discount upon receipt of the old system. Typically, customers pay for the upgrade net of the discount and the old system is returned to us.

The quote/purchase order the customer signs includes a line item for the rebate discount, which is then calculated into the net total. The quote specifically states that the old system must be received within 30 days from the completion of the installation of the upgrade for the customer to receive the discount. We then bill the customer for the full amount. At this point we record the gross sale amount and reserve for the rebate portion of the sale. If a customer pays the full amount and the old system has not been returned yet, we assume that the customer will return the old system and record the rebate portion of the payment in a deposit liability account. If the customer pays the net amount and the old system has not been returned, we continue to bill the customer for the rebate portion until the old system is returned or the rest of the amount due is paid.

When 30 days have elapsed from the date the upgrade has been installed and the old system has not been received, we contact the customer and ask what the customer intends to do with the old system. If the customer intends to return the system, we continue to record the reserve. If the customer disposed of the system or intends to keep the system or contact cannot be made, we bill the customer for the full price of the upgrade system and stop reserving for the rebate credit. Until then, we continue to reserve for the rebate until we receive payment for the full price of the upgrade or the old system. These arrangements are not pervasive with our customers. If the old system is not returned, we stop reserving for the rebate portion. If the old system is not returned and we have received the full invoice amount, we remove the rebate portion of the payment out of the deposit liability account and apply it to the sale. At this point we stop reserving for the rebate.

If the old system is returned, we remove the rebate portion from the reserve account and reduce the accounts receivable.

Furniture and Equipment

Furniture and equipment are stated at cost and depreciated or amortized on a straight-line basis over the estimated useful lives of the assets. The estimated useful lives generally range from three to seven years. The Company evaluates furniture and equipment for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.

Acquisitions

The Company accounts for acquisitions using the purchase method. The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair values. Any excess purchase price over the net assets acquired is recorded as goodwill. For all acquisitions, operating results are included in the Consolidated Statement of Operations since the date of the acquisitions.

F-12

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill and Other Intangible Assets

The Company tests goodwill and other intangible assets for impairment on an annual basis and between annual tests if current events or circumstances require an interim impairment assessment. Goodwill is allocated to various reporting units, which are generally an operating segment or one reporting level below the operating segment. The Company compares the fair value of each reporting unit to its carrying amount to determine if there is potential goodwill impairment. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that the fair value of the goodwill within the reporting unit is less than the carrying value of its goodwill. The Company compares the fair values of other intangible assets to their carrying amounts. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of goodwill and other intangible assets are determined based on discounted cash flows or appraised values, as appropriate.

The Company has not recorded an impairment loss related to goodwill during the years ended December 31, 2010 and 2009, respectively. During the year ended December 31, 2010 the Company considered intangible assets related to the Electro-optical Unit, purchased from MediVision on October 21, 2009, to be impaired. The Company recorded an impairment loss equal to the total value of Electro-optical Unit intangible assets of $199,000 during the year ended December 31, 2010. The Company did not record an impairment loss related to other intangible assets during the year ended December 31, 2009.

Software Capitalization

The cost of software developed internally is expensed until technological feasibility of the software product has been established. Thereafter, software development costs are capitalized through the general release of the software products and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized software development costs are amortized on a straight-line basis over the products’ respective estimated economic lives, which are typically three years. The amortization of capitalized software development costs is included in cost of product sales in the consolidated statements of operation.

In 2008, the Company capitalized our EMR and PM software that we acquired from AcerMed through the bankruptcy court. This software was purchased with the intention that it would be sold, leased or marketed upon modification by our research and development team to our customers. The amount that we capitalized for this software was $570,077. During the first three months of 2009, the Company began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to these assets was $190,024 for the years ended December 31, 2010 and 2009.

The Company also capitalized the development costs incurred to prepare this software for sale. Development costs were capitalized once technological feasibility was established. We believe that the software was technologically feasible when we began to capitalize the costs because we had worked with a model/prototype that had been in the market before our acquisition. The amount of development that we capitalized in connection with this software is $1,150,831. During the first three months of 2009, we began to sell this software, and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to this asset was $383,612 for the years ended December 31, 2010, and 2009.

In 2008, the Company also capitalized $504,711 of costs associated with the development of a web-based software once technological feasibility was established. During the first three months of 2009, we began to sell this software and we began to amortize this asset using the straight-line method of amortization over the economic life of the asset, which we concluded to be three years. Amortization expense related to this asset was $168,236 for the yeas ended December 31, 2010 and 2009.

F-13

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Revenue Recognition

The Company’s revenue recognition policies comply with applicable accounting rules and regulations including FASB Accounting Standards Codification Topic 985, Software, and Topic 605, Revenue, and Subtopic 25, Multiple-Element Arrangements. Under Topic 605, Subtopic 25, the multiple components of our revenue are considered separate units of accounting in that revenue recognition occurs at different points of time for (1) product shipment, (2) installation and training services, and (3) service contracts based on performance or over the contract term as we incur expenses related to the contract revenue.

Revenue for products is recognized when title passes to the customer, which is upon shipment, provided there are no conditions to acceptance, including specific acceptance rights. If we make an arrangement that includes specific acceptance rights, revenue is recognized when the specific acceptance rights are met. In addition, consideration received from our customer agreements are reliably measurable because the amount of the consideration is fixed and no specific refund rights are included in the arrangement and, thus, such consideration is reliably measurable. We defer 100% of the revenue from sales shipped during the period that we believe may be uncollectible.

Installation revenue is recognized when the installation is complete. Separate amounts are charged and assigned in the customer quote, sales order and invoice, for installation and training services. These amounts are determined based on fair value, which is calculated in accordance with industry and competitor pricing of similar services and adjustments according to market acceptance. There is no price reduction in the product price if the customer chooses not to have us complete the installation.

Extended product service contracts are offered to our customers and are generally entered into prior to the expiration of our one year product warranty. The revenue generated from these transactions is recognized over the contract period, normally one to four years.

We do not have a general policy for cancellation, termination, or refunds associated with the sale of our products and services. All items are on one quote/purchase order with payment terms specified for the whole order.

Warranty Reserve

The Company’s warranty reserve contains two components, a general product reserve recorded on a per product basis and specific reserves recorded as we become aware of system performance issues. The product reserve is calculated based on a fixed dollar amount per product shipped each quarter. Specific reserves usually arise from the introduction of new products. When a new product is introduced, we reserve for specific problems arising from potential issues, if any. As issues are resolved, we reduce the specific reserve. These types of issues can cause our warranty reserve to fluctuate outside of sales fluctuations.

The Company estimates the cost of the various warranty services by taking into account the estimated cost of servicing routine warranty claims in the first year, including parts, labor and travel costs for service technicians. We analyze the gross profit margin of our service department, the price of our extended warranty contracts, factor in the hardware costs of the various systems, and use a percentage to calculate the cost per system to use for the first year manufacturer’s warranty.

Shipping and Handling Costs

Shipping and handling costs are included with cost of sales.

Advertising Costs

Advertising expenditures totaled $292,946 and $114,301, for the years ended December 31, 2010 and 2009, respectively.

F-14

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Derivative Liability Financial Instruments

Derivative liability financial instruments are comprised of warrants to purchase shares of our common stock and embedded conversion options issued in connection with a convertible note. Anti-dilution provisions present in these instruments adjust the exercise price of the warrants and conversion price of the convertible debt if the Company sells any equity securities or securities convertible into equity, options or rights to purchase equity securities, at a per share selling price less than the exercise price pursuant to a weighted-average formula. The Company records all derivative liability financial instruments in the balance sheet within the Derivative Financial Instruments Liabilities financial statement caption at fair value. Changes in the fair values of these instruments are reported in the results of operations for the period. The Company does not hold any derivative liability financial instruments that reduce risk associated with hedging exposure accordingly the Company has not designated any of its derivatives liability financial instruments as hedge instruments.

Income Taxes

Deferred taxes are calculated using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

FASB Accounting Standards Codification Topic No. 740, Taxes, provides the accounting for uncertainty in income taxes recognized in a company’s financial statements. Topic No. 740 also prescribes a recognition threshold and measurement standard for the financial statement recognition and measurement of an income tax position taken or expected to be taken in a tax return. In addition, Topic No. 740 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We apply Topic No. 740 to all of our tax positions.

Pursuant to Topic No. 740, interest and penalties related to unrecognized tax positions are recorded in tax expense.

Loss Per Share

Basic earnings (loss) per share which excludes dilution, is computed by dividing income (loss) available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options, result in the issuance of common stock, which shares in the earnings of the Company. The treasury stock method is applied to determine the dilutive effect of stock options in computing diluted earnings per share. The Company currently is in a loss position and does not calculate diluted earnings per share.

Stock-based Compensation

The Company uses a Black-Scholes-Merton option valuation model to determine the fair value of stock-based compensation. The Black-Scholes-Merton model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield. The expected term of an award is generally no less than the option vesting period and is based on the Company’s historical experience. Expected volatility is based upon the historical volatility of the Company’s stock price. The risk-free interest rate is approximated using rates available on U.S. Treasury securities with a remaining term equal to the option’s expected life. The Company uses a dividend yield of zero in the Black-Scholes-Merton option valuation model as it does not anticipate paying cash dividends in the foreseeable future.

F-15

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

There were 6,205,129 warrants outstanding and exercisable as of December 31, 2010 with a weighted average remaining contractual life of 1.57 years, a weighted average exercise price of $1.03. There is no intrinsic value of warrants outstanding at December 31, 2010. (For additional details, see Note. 12. Warrants)

Impact of New Financial Accounting Statements

Financial Accounting Statements issued and not yet adopted.

FASB Accounting Standards Update No. 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts

In December 2010, the FASB issued Accounting Update No. 2010-28, Intangibles—Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, to modify step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. The effect of the update will eliminate an entity’s ability to assert that a reporting unit is not required to perform step 2 of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative despite qualitative factors that indicate the goodwill is more likely than not impaired. As a result, goodwill impairment may be reported sooner than under current factors. Accounting Standards Update No. 2010-28 will be effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. The Company does not expect the adoption of Accounting Standards Update No. 2010-28 to have a material impact on the consolidated financial statements.

FASB Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force.

In October 2009, the FASB issued Accounting Standards Update No. 2009-14, Certain Revenue Arrangements That Include Software Elements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance used to allocate and measure revenues by an enterprise that sells or leases tangible products in an arrangement that contains software that is more than incidental to the tangible product as a whole. The amendments in the Update require that hardware components of a tangible product containing software elements always be excluded from the software revenue guidance. The Update provides additional guidance on how to determine which software, if any, related to the tangible products also would be excluded from the scope of the software revenue guidance. Update No. 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of Accounting Standards Update No. 2009-14 to have a material impact on the consolidated financial statements.

FASB Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.

In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Multiple-Deliverable Revenue Arrangements, a Consensus of the FASB Emerging Issues Task Force, to amend guidance which establishes a selling price hierarchy for determining the selling price of a deliverable in a multiple-deliverable revenue arrangement. The amendments in this Update also will replace the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenues is based on entity-specific assumptions rather than assumptions of marketplace participation. In addition, the amendment revises certain disclosure requirements. Update No. 2009-13 will become effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the adoption of Accounting Standards Update No. 2009-13 to have a material impact on the consolidated financial statements.

Financial Accounting Statements Issued and Adopted

FASB Accounting Standards Update No. 2010-8, Technical Corrections to Various Topics.

In February 2010, the FASB issued Accounting Update No. 2010-8, Technical Corrections to Various Topics, to eliminate inconsistencies and to clarify guidance on various Codification Topics. Except for certain amendments to Topic 815 and the nullification of paragraph 852-740-45-2, Update No. 2010-08 was effective for the first reporting period beginning after issuance. The adoption of Accounting Standards Update No. 2010-8 did not have a material impact on our consolidated financial statements.

F-16

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FASB Accounting Standards Update No. 2010-06, Fair Value Measurement and Disclosures.

In January 2010, the FASB issued Accounting Update No. 2010-06, Fair Value Measurement and Disclosures, to improve disclosures about Fair Value Measurements. The amendments in this Update will require new disclosures related to the transfer in and out of Level 1 and 2, and require that a reporting company present Level 3 activity on a gross basis rather than one net number. In addition, the amendments in this Update clarify existing disclosures related to the level of disaggregation and disclosures about inputs and valuation techniques. Update No. 2010-06 was effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-06 did not have a material impact on the consolidated financial statements.

FASB Accounting Standards Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash.

In January 2010, the FASB issued Accounting Update No. 2010-01, Accounting for Distributions to Shareholders with Components of Stock and Cash, to clarify the accounting for a distribution to shareholders that offers the ability to elect to receive the entire distribution in cash or shares. Accounting Standards Update No. 2010-06 was effective for reporting periods beginning after December 15, 2009. The adoption of Accounting Standards Update No. 2010-01 did not have a material impact on the consolidated financial statements.

FASB Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles.

In October 2009, the FASB issued Accounting Standards Update No. 2009-01, Generally Accepted Accounting Principles, to amend the FASB Accounting Standards Codification for the issuance of the FASB Statement No. 168, the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification will become the source of authoritative U.S. generally accepted accounting principles (GAAP) recognized by the FASB. Rules and interpretive releases of the Security and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. The adoption of Update No. 2009-01 did not have a material impact on the consolidated financial statements.

FASB Accounting Standards Codification Topic 855, Subsequent Events.

On June 30, 2009, we adopted Topic 855, Subsequent Events, which is generally based on Financial Accounting Standard 165 which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, Topic 855 sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of Topic 855 did not have a material impact on the consolidated financial statements.

FASB Accounting Standards Codification Topic 810, Consolidation.

Topic 810 Consolidation, is generally based on Statement of Financial Accounting Standards No. 167, Amendments to FASB Interpretation No. 46(R), which was issued in June 2009, which among other things requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a variable interest entity; to require ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity; to eliminate the quantitative approach previously required for determining the primary beneficiary of a variable interest entity; to add an additional reconsideration event for determining whether an entity is a variable interest entity when any changes in facts and circumstances occur such that holders of the equity investment at risk, as a group, lose the power from voting rights or similar rights of those investments to direct the activities of the entity that most significantly impact the entity’s economic performance; and to require enhanced disclosures that will provide users of financial statements with more transparent information about an enterprise’s involvement in a variable interest entity. Topic 810, Consolidation, became effective on January 1, 2010. The adoption of Topic 810 did not have a material impact on the consolidated financial statements.

F-17

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements

During the year-end financial close process of fiscal 2010, the Company discovered errors in its accounting treatment for warrants to purchase shares of the Company’s common stock and embedded conversion options issued in connection with a convertible note. The warrants were issued to The Tail Wind Fund Ltd. and Solomon Strategic Holdings, Inc. (together with The Tail Wind Fund Ltd., the “Holders”) on October 27, 2007 and June 24, 2009, to United Mizrahi Bank on October 26, 2009, and to U.M. AccelMed, Limited Partnership, an Israeli limited partnership (“AccelMed”) on June 24, 2009 and May 24, 2010. The embedded conversion options were issued in connection with a convertible note issued to the Holders on October 27, 2007 (For additional details on these transactions see Note 6, Notes Payable and Note 7 Related Party Transactions).

Anti-dilution provisions present in all of these instruments adjust the exercise price of the warrants and conversion price of the convertible debt if the Company sells any equity securities or securities convertible into equity, options or rights to purchase equity securities, at a per share selling price less than the exercise price pursuant to a weighted-average formula. These anti-dilution provisions present in these instruments require liability accounting treatment rather than equity accounting treatment during fiscal year ended December 31, 2009 and 2010. The restatements for the fiscal years ended December 31, 2007 and 2008 relate solely to the Company’s valuation and accounting for the relative fair value of warrants and the beneficial conversion feature of the debt issued to the Holders on October 27, 2007. The Company evaluated the effects of these errors on prior periods’ consolidated financial statements, individually and in the aggregate, in accordance with guidance provided by SEC Staff Accounting Bulletin No. 108 codified as Topic 1.N “Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements,” and concluded that the consolidated balance sheets at December 31, 2009, 2008 and 2007 and the respective consolidated statements of operations, stockholders’ equity, and cash flows for the fiscal years ended December 31, 2009, 2008 and 2007 interim financial information for the quarters of the fiscal years ended December 31, 2010 and 2009 are materially misstated as follows.

F-18

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet

	December 31, 2009
Assets	As Reported		Adjustments		As Restated
Current assets:
Cash and cash equivalents	$	5,406,239	$	-	$	5,406,239
Accounts receivable, net		2,710,987		-		2,710,987
Inventories		991,325		-		991,325
Prepaid expenses and other current assets		179,451		-		179,451
Total current assets		9,288,002		-		9,288,002

Restricted cash		158,213		-		158,213
Furniture and equipment, net		481,394		-		481,394
Capitalized imaging software, net		336,475		-		336,475
Capitalized software development, net		767,220		-		767,220
AcerMed asset purchase, net		380,053		-		380,053
Goodwill		807,000		-		807,000
Customer relationship intangible assets, net		481,364		-		481,364
Other intangible assets, net		298,111		-		298,111
Prepaid financing		22,195		-		22,195
Other assets		17,350		-		17,350
Total assets	$	13,037,377	$	-	$	13,037,377

F-19

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.	Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet (continued)

	December 31, 2009
Liabilities and Stockholders’ Equity	As Reported		Adjustments		As Restated
Current liabilities:
Accounts payable	$	867,672	$	-	$	867,672
Accounts payable related party		41,847		-		41,847
Accrued liabilities		1,115,902		-		1,115,902
Derivative liability financial instruments		-		1,863,976		1,863,976
Deferred extended warranty revenue – current portion		1,632,491		-		1,632,491
Customer deposits		561,244		-		561,244
Notes payable - current portion		34,048		-		34,048
Total current liabilities		4,253,204		1,863,976		6,117,180

Deferred extended warranty revenue, less current portion		247,231				247,231
Line of credit		150,000				150,000
Notes payable, less current portion		2,946,179		(59,481)		2,886,698
Total liabilities		7,596,615		1,804,495		9,401,109

Commitments and contingencies
Equity:
Ophthalmic Imaging Systems stockholders’ equity:
Preferred stock 20,000,000 shares authorized ; 0 shares outstanding Common stock, no par value, 100,000,000 shares authorized; 26,500,059 shares issued and outstanding		20,089,592		(107,615)		19,981,977
Additional paid in capital		420,610		(373,566)		47,044
Accumulated deficit		(15,536,170)		(1,323,313)		(16,859,483)
Cumulative translation adjustment		2,241		-		2,241
Total Ophthalmic Imaging Systems’ stockholders’ equity		4,976,273		(1,804,494)		3,171,779
Noncontrolling Interest		464,489		-		464,489
Total equity		5,440,762		(1,804,494)		3,636,268
Total liabilities and stockholders’ equity	$	13,037,377	$	-	$	13,037,377

F-20

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Operations

	For the Year Ended December 31, 2009
	As Reported		Adjustments		As Restated
Sales – products	$	9,530,555	$	-	$	9,530,555
Cost of sales – products		3,799,236		-		3,799,236
Cost of sales – amortization		741,871		-		741,871
Gross profit – products		4,989,448				4,989,448

Sales – products to related parties		338,492		-		338,492
Cost of sales – products to related parties		201,093		-		201,093
Gross profit –products to related parties		137,399		-		137,399

Sales – service		3,700,253		-		3,700,253
Cost of sales – service		1,500,079		-		1,500,079
Gross profit – service		2,200,174		-		2,200,174

Net revenues		13,569,300		-		13,569,300
Cost of sales		6,242,279		-		6,242,279
Gross profit		7,327,021				7,327,021

Operating expenses:
Sales and marketing		4,124,480		-		4,124,480
General and administrative		2,255,389		-		2,255,389
Impairment related to the debt of MediVision		4,436,187		-		4,436,187
Research and development		2,559,478		-		2,559,478
Research and development-related parties		294,014		-		294,014
Total operating expenses		13,669,548		-		13,669,548
Loss from operations		(6,342,527)		-		(6,342,527)

Other income (expense):
Change in fair value of derivative financial liabilities		-		(1,466,805)		(1,466,805)
Interest expense		(215,729)		(59,855)		(275,584)
Other expense		(186,592)		-		(186,592)
Interest income		63,239		-		63,239
Other income-legal settlement		1,200,000		-		1,200,000
Total other income (expense)		860,918		(1,526,660)		(665,742)
Net loss before provision for income tax expense		(5,481,609)		(1,526,660)		(7,008,269)
Provision for income tax expense		(3,787)		-		(3,787)
Net loss		(5,485,396)		(1,526,660)		(7,012,056)
Less: Noncontrolling interest’s share		8,511		-		8,511
Net loss attributable to Ophthalmic Imaging Systems’ stockholders	$	(5,476,885)	$	(1,526,660)	$	(7,003,545)

Shares used in the calculation of basic loss per share		21,842,234		21,842,234		21,842,234

Basic loss per share	$	(0.25)	$	(0.07)	$	(0.32)

F-21

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Comprehensive Loss

	As of and for the Year Ended December 31, 2009
	As Reported		Adjustments		As Reported

Net loss attributable for Ophthalmic Imaging Systems	$	(5,476,885)	$	(1,526,660)	$	(7,003,545)

Other comprehensive income
Foreign currency translation		2,241		-		2,241

Comprehensive net loss	$	(5,474,644)	$	(1,526,660)	$	(7,001,304)

F-22

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Cash Flows

	For the Year Ended December 31, 2009
	As Reported		Adjustments		As Reported
Cash flows from operating activities:
Net loss	$	(5,485,396)	$	(1,526,660)	$	(7,012,056)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		237,224		-		237,224
Loss (gain) on disposal of asset		207		-		207
Stock based compensation expense		32,220		-		32,220
Warranty expense		269,249		-		269,249
Discount related to note payable		131,171		59,855		191,026
Change in accounts receivable		(1,043,376)		-		(1,043,376)
Provision for bad debt		224,803		-		224,803
Write-off of MediVision assets		3,152,042		-		3,152,042
Change in related party receivable		500,365		-		500,365
Change in fair value of derivative liability financial instruments		-		1,466,805		1,466,805
Change in prepaid products		560,000		-		560,000
Change in inventories		307,939		-		307,939
Change in prepaid expenses and other current assets		53,967		-		53,967
Amortization of prepaid financing related to note payable		66,585		-		66,585
Amortization of Symphony Web software		168,236		-		168,236
AcerMed software license amortization		573,635		-		573,635
Change in other assets		49,317		-		49,317
Change in accounts payable		(13,968)		-		(13,968)
Change in accounts payable – related parties		41,847		-		41,847
Change in accrued liabilities		(320,749)		-		(320,749)
Change in deferred extended warranty revenue		(31,102)		-		(31,102)
Change in customer deposits		463,782		-		463,782
Net cash used in operating activities		(62,003)		-		(62,003)

Cash flows from investing activities:
APA acquisition, net of cash acquired		(1,235,523)		-		(1,235,523)
Acquisition of furniture and equipment		(132,951)		-		(132,951)
Net cash used in investing activities		(1,368,474)		-		(1,368,474)
Cash flows from financing activities:
Principal payments on notes payable		(732,984)		-		(732,984)
Proceeds from note payable		1,500,000		-		1,500,000
Proceeds from sale of stock, net of expenses		3,999,971		-		3,999,971
Stock issuance costs (payment of due diligence)		(158,899)		-		(158,899)
Net cash provided by financing activities		4,608,088		-		4,608,088
Effect of exchange rate changes on cash and cash equivalents		4,003		-		4,003
Net increase cash and cash equivalents		3,181,614		-		3,181,614
Cash and cash equivalents, beginning of the year		2,224,625		-		2,224,625
Cash and cash equivalents, end of the year	$	5,406,239	$	-	$	5,406,239
Supplemental schedule of cash flow information:
Cash paid for taxes	$	12,405	$		$	12,405
Cash paid for interest	$	19,987	$		$	19,987

F-23

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet
	December 31, 2008
Assets	As Reported		Adjustments		As Restated
Current assets:
Cash and cash equivalents	$	2,224,625	$	-	$	2,224,625
Accounts receivable, net		1,698,093		-		1,698,093
Receivables from related parties		500,365		-		500,365
Notes receivable from related party		2,878,234		-		2,878,234
Inventories		1,206,733		-		1,206,733
Prepaid expenses and other current assets		233,418				233,418
Total current assets		8,741,468		-		8,741,468

Restricted cash		158,031		-		158,031
Furniture and equipment, net		409,280		-		409,280
Licensing agreement		273,808		-		273,808
Prepaid products		560,000		-		560,000
Capitalized imaging software		504,711		-		504,711
Capitalized software development		1,150,831		-		1,150,831
AcerMed asset purchase		570,077		-		570,077
Prepaid financing		88,780		-		88,780
Other assets		167,723				167,723
Total assets	$	12,624,709	$	-	$	12,624,709

F-24

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet (continued)
	December 31, 2008
Liabilities and Stockholders’ Equity	As Reported		Adjustments		As Restated
Current liabilities:
Accounts payable	$	831,980	$	-	$	831,980
Accrued liabilities		1,072,551		-		1,072,551
Deferred extended warranty revenue – current portion		1,522,308		-		1,522,308
Customer deposits		101,678		-		101,678
Notes payable - current portion		1,611,063		(244,284)		1,366,779
Total current liabilities		5,139,580		(244,284)		4,895,296

Deferred extended warranty revenue, less current portion		388,516		-		388,516
Line of credit		150,000		-		150,000
Notes payable, less current portion		500,159		-		500,159
Total liabilities		6,178,255		(244,284)		5,933,971

Commitments and contingencies

Stockholders’ equity:
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 16,866,831 shares issued and outstanding		16,504,773		-		16,504,773
Additional paid in capital		966		761,614		762,580
Accumulated deficit		(10,059,285)		(517,330)		(10,576,615)

Total Stockholders’ equity		6,446,454		244,284		6,690,738
Total liabilities and stockholders’ equity	$	12,624,709	$	-	$	12,624,709

F-25

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Operations

	For the Year Ended December 31, 2008
	As Reported		Adjustments		As Restated
Sales – products	$	7,990,300	$	-	$	7,990,300
Cost of sales – products		3,811,212		-		3,811,212
Gross profit – products		4,179,088		-		4,179,088

Sales – products to related parties		822,980		-		822,980
Cost of sales – products to related parties		444,186		-		444,186
Gross profit –products to related parties		378,794		-		378,794

Sales – service		3,677,837		-		3,677,837
Cost of sales – service		1,513,085		-		1,513,085
Gross profit – service		2,164,752		-		2,164,752

Net revenues		12,491,117		-		12,491,117
Cost of sales		5,768,483		-		5,768,483
Gross profit		6,722,634				6,722,634

Operating expenses:
Sales and marketing		4,034,816		-		4,034,816
General and administrative		2,070,212		-		2,070,212
Research and development		332,123		-		332,123
Research and development-related parties		1,887,537		-		1,887,537
Total operating expenses		8,324,688		-		8,324,688
Loss from operations		(1,602,054)		-		(1,602,054)
Other (expense) income:
Interest expense		(145,255)		(435,490)		(580,745)
Other expense		(173,890)		-		(173,890)
Interest income		234,675		-		234,675
Total other (expense), net		(84,470)		(435,490)		(519,960)
Net loss before provision for income tax expense		(1,686,524)		(435,490)		(2,122,014)
Provision for income tax expense		(1,299,000)		-		(1,299,000)
Net loss		(2,985,524)		(435,490)		(3,421,014)

Shares used in the calculation of basic loss per share		16,866,831		16,866,831		16,866,831

Basic loss per share	$	(0.18)	$	(0.02)	$	(0.20)

F-26

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.	Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Cash Flows

	For the Year Ended December 31, 2008
	As Reported		Adjustments		As Restated
Cash flows from operating activities:
Net loss	$	(2,985,524)	$	(435,490)	$	(3,421,014)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		187,796		-		187,796
Gain on disposal of asset		(2,114)		-		(2,114)
Stock based compensation expense		30,053		-		30,053
Discount related to note payable		(23,817)		435,490		411,673
Change in accounts receivable		832,268		-		832,268
Provision for bad debt		5,482		-		5,482
Change in accounts receivable – related parties		(103,059)		-		(103,059)
Change in inventories		(460,391)		-		(460,391)
Change in prepaid expenses and other current assets		274,314		-		274,314
Amortization of prepaid financing related to note payable		59,585		-		59,585
Change in other assets		10,187		-		10,187
Change in accounts payable		105,407		-		105,407
Change in accrued liabilities		(364,762)		-		(364,762)
Change in deferred extended warranty revenue		306,509		-		306,509
Change in customer deposits		46,244		-		46,244
Change in deferred tax asset		1,342,000		-		1,342,000
Net cash used in operating activities		(739,822)				(739,822)
Cash flows from investing activities:
AcerMed asset purchase		(479,262)		-		(479,262)
Advance to related parties		(1,731,362)		-		(1,731,362)
Development of imaging software		(424,244)		-		(424,244)
Software development capitalization		(1,150,831)		-		(1,150,831)
Other capitalized software investments		(88,418)		-		(88,418)
Licensing rights		(24,112)		-		(24,112)
Patents		59,483		-		59,483
Acquisition of furniture and equipment		(178,125)		-		(178,125)
Net cash used in investing activities		(4,016,871)				(4,016,871)
Cash flows from financing activities:
Principal payments on notes payable		(648,966)		-		(648,966)
Net cash used in financing activities		(648,966)		-		(648,966)
Net decrease in cash and cash equivalents		(5,405,659)		-		(5,405,659)
Cash and cash equivalents, beginning of the year		7,630,284		-		7,630,284
Cash and cash equivalents, end of the year	$	2,224,625	$	-	$	2,224,625

Supplemental schedule of cash flow information:
Cash paid for taxes	$	5,619	$	-	$	5,619
Cash paid for interest	$	120,225	$	-	$	120,225

F-27

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet
	December 31, 2007
	As Reported		Adjustments		As Restated
Assets
Current assets:
Cash and cash equivalents	$	7,630,284	$	-	$	7,630,284
Accounts receivable, net		2,535,843		-		2,535,843
Receivables from related parties		397,307		-		397,307
Notes receivable from related party		1,146,872		-		1,146,872
Inventories		746,342		-		746,342
Prepaid expenses and other current assets		507,732		-		507,732
Deferred tax assets		1,342,000		-		1,342,000
Total current assets		14,306,380		-		14,306,380

Restricted cash		168,218		-		168,218
Furniture and equipment, net		416,838		-		416,838
Licensing agreement		273,808		-		273,808
Prepaid products		460,000		-		460,000
AcerMed asset purchase		90,815		-		90,815
Prepaid financing		148,365		-		148,365
Other assets		295,144		-		295,144
Total assets	$	16,159,568	$	-	$	16,159,568

F-28

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Balance Sheet (continued)
	December 31, 2007
	As Reported		Adjustments		As Restated
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	726,573	$	-	$	726,573
Accrued liabilities		1,437,313		-		1,437,313
Deferred extended warranty revenue		1,604,315		-		1,604,315
Customer deposits		55,435		-		55,435
Notes payable - current portion		1,029,643		(489,636)		540,007
Total current liabilities		4,853,279		(489,636)		4,363,643
Line of credit		150,000		-		150,000
Notes payable, less current portion		1,564,226		-		1,564,226
Total liabilities		6,567,505		(489,636)		6,077,869

Commitments and contingencies

Stockholders' equity:
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 35,000,000 shares authorized; 16,866,831 shares issued and outstanding		16,474,720		-		16,474,720
Additional paid in capital		191,104		571,476		762,580
Accumulated deficit		(7,073,761)		(81,840)		(7,155,601)
Total stockholders' equity		9,592,063		489,636		10,081,699
Total liabilities and stockholders' equity	$	16,159,568	$	0	$	16,159,568

F-29

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Operations

	December 31, 2007
	As Reported		Adjustments		As Restated
Sales - products	$	10,679,860	$	-	$	10,679,860
Cost of sales - products		4,458,093		-		4,458,093
Gross profit -products	6,221,767				6,221,767
			-
Sales – products to related parties	777,867		-		777,867
Cost of sales – products to related parties	446,673		-		446,673
Gross profit –products to related parties	331,194				331,194

Sales - service	3,031,317		-		3,031,317
Cost of sales - service	1,360,929		-		1,360,929
Gross profit - service		1,670,388		-		1,670,388
				-
Net revenues		14,489,044				14,489,044
Cost of sales		6,265,695		-		6,265,695
Gross profit		8,223,349		-		8,223,349

Operating expenses:
Sales and marketing		3,494,926		-		3,494,926
General and administrative		2,212,078		-		2,212,078
Research and development		280,283		-		280,283
Research and development-related parties		1,350,937		-		1,350,937
Total operating expenses		7,338,224		-		7,338,224
Income from operations		885,125		-		885,125
Other income (expense):
Interest expense		(52,627)		(81,840)		(134,467)
Other expense		(139,582)		-		(139,582)
Interest income		333,313		-		333,313
Total other income, net		141,104		(81,840)		59,264
Net income before provision for income tax expense		1,026,229		(81,840)		944,389
Provision for income tax expense		(940)		-		(940)
Net income	$	1,025,289	$	(81,840)	$	943,449

Shares used in the calculation of basic earnings per share		16,682,773		16,682,773		16,682,773

Basic earnings per share	$	0.06	$	-	$	0.06

Shares used in the calculation of diluted earnings per share		18,023,500		18,023,500		18,023,500

Diluted earnings per share	$	0.09	$	-	$	0.05

F-30

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Consolidated Statement of Cash Flows

	December 31, 2007
	As Reported		Adjustments		As Restated
Cash flows from operating activities:
Net income	$	1,025,289	$	(81,840)	$	943,449
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		175,164		-		175,164
Loss on disposal of asset		(1,171)		-		(1,171)
Stock based compensation expense		33,296		-		33,296
Discount related to note payable		(170,629)		272,944		102,315
Accounts receivable		(93,779)		-		(93,779)
Accounts receivable – related parties		333,331		-		333,331
Inventories		61,896		-		61,896
Prepaid expenses and other current assets		(326,988)		-		(326,988)
Deferred tax asset		(170,000)		-		(170,000)
Prepaid products		(300,000)		-		(300,000)
Other assets		(108,704)		-		(108,704)
Accounts payable		(38,662)		-		(38,662)
Accrued liabilities		(575,474)		-		(575,474)
Deferred extended warranty revenue		353,422		-		353,422
Customer deposits		(255,333)		-		(255,333)
Net cash provided by operating activities		(58,342)		191,104		132,762
Cash flows used in investing activities:
AcerMed asset purchase		(90,815)				(90,815)
Advance to related parties		(1,050,191)		-		(1,050,191)
Licensing rights		(75,000)		-		(75,000)
Patents		(31,407)		-		(31,407)
Acquisition of furniture and equipment		(200,278)		-		(200,278)
Net cash used in investing activities		(1,447,691)		-		(1,447,691)
Cash flows from financing activities:
Principal payments on notes payable		(6,625)		-		(6,625)
Proceeds from note payable, other		2,749,999		(762,581)		1,987,418
Financing costs related to note payable, other		(148,365)		-		(148,365)
Additional paid in capital		191,104		571,477		762,581
Proceeds from sale of stock		186,347		-		186,347
Net cash provided by financing activities		2,972,460		(191,104)		2,781,356
Net increase in cash and cash equivalents		1,466,427		-		1,466,427
Cash and cash equivalents, beginning of the year		6,163,857		-		6,163,857
Cash and cash equivalents, end of the year	$	7,630,284	$	-	$	7,630,284

Supplemental schedule of cash flow information:
Cash paid for taxes	$	237,285	-		$	237,285
Cash paid for interest	$	33,048	-		$	33,048

F-31

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Condensed Consolidated Balance Sheet
(Unaudited)
	September 30, 2010
	As Reported		Adjustments		As Restated
Current assets:
Cash and cash equivalents	$	4,789,069	$	-	$	4,789,069
Accounts receivable, net		4,151,638		-		4,151,638
Inventories, net		1,831,941		-		1,831,941
Prepaid expenses and other current assets		391,664		-		391,664
Total current assets		11,164,312		-		11,164,312

Furniture and equipment, net		491,264		-		491,264
Capitalized imaging software, net		210,298		-		210,298
Capitalized software development, net		479,511		-		479,511
AcerMed asset purchase, net		237,535		-		237,535
Goodwill		807,000		-		807,000
Other intangible assets, net		632,929		-		632,929
Licensing rights intangible asset, net		74,334		-		74,334
Other assets		9,635		-		9,635
Total assets	$	14,106,818	$	-	$	14,106,818

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,360,989	$	-	$	1,360,989
Accounts payable-related party		-		-		-
Accrued liabilities		1,529,194		-		1,529,194
Derivative liability financial instruments		-		2,287,017		2,287,017
Deferred extended warranty revenue-current portion		1,782,267		-		1,782,267
Customer deposits		423,614		-		423,614
Notes payable-current portion		1,665,527		(24,144)		1,641,383
Total current liabilities		6,761,591		-		9,024,464
Deferred extended warranty revenue, less current portion		270,979		-		270,979
Line of credit		-		-		-
Notes payable, less current portion		1,202,775		-		1,202,775
Total liabilities		8,235,345		2,262,873		10,498,218
Commitments and contingencies

Equity
Ophthalmic Imaging Systems’ stockholders' equity:
Preferred stock, 20,000,000 shares authorized; 0 shares issued and outstanding Common stock, no par value, 100,000,000 shares authorized; 30,302,151 shares issued and outstanding		21,715,692		(13,618)		21,702,074
Additional paid-in-capital		1,099,684		(1,034,140)		65,544
Accumulated deficit		(17,337,027)		(1,215,115)		(18,552,142)
Cumulative translation adjustment		(39,319)		-		(39,319)
Total Ophthalmic Imaging Systems’ stockholders’ equity		5,439,030		(2,262,873)		3,176,157
Noncontrolling interest		432,443		-		432,443
Total equity		5,871,473		(2,262,873)		3,608,600
Total liabilities and stockholders' equity	$	14,106,818	$	-	$	14,106,818

F-32

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Condensed Consolidated Statement of Operations
(Unaudited)

	Three Months Ended September 30, 2010
	As Reported		Adjustments		As Restated
Sales - products	$	3,824,914	$	-	$	3,824,914
Cost of sales - products		1,492,364		-		1,492,364
Cost of sales – amortization		185,468		-		185,468
Gross profit - products		2,147,082		-		2,147,082

Sales - service		1,099,967		-		1,099,967
Cost of sales - service		547,975		-		547,975
Gross profit - service		551,992		-		551,992

Total net sales		4,924,881		-		4,924,881
Cost of sales		2,225,807		-		2,225,807
Gross profit		2,699,074		-		2,699,074
Operating expenses:
Sales and marketing		1,696,581		-		1,696,581
General and administrative		592,416		-		592,416
Research and development		956,565		-		956,565
Total operating expenses		3,245,562		-		3,245,562
Loss from operations		(546,488)		-		(546,488)
Interest and other expense, net		48,675		89,185		137,860
Loss from continuing operations before taxes		(497,813)		89,185		(408,628)
Income taxes		12,553		-		12,553
Net loss		(485,260)		89,185		(396,075)
Less: noncontrolling interest’s share		(18,472)		-		(18,472)
Net loss attributable to Ophthalmic Imaging Systems	$	(466,788)	$	89,185	$	(377,603)

Shares used in the calculation of basic and diluted net loss per share		30,301,686		30,301,686		30,301,686

Basic and diluted net loss per share	$	(0.02)	$	0.01	$	(0.01)

F-33

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Condensed Consolidated Statement of Comprehensive Loss
(Unaudited)

	Three Months Ended September 30, 2010
	As Reported		Adjustments		As Restated
Net loss attributable to Ophthalmic Imaging Systems	$	(466,788)	$	89,185	$	(377,603)
Other comprehensive loss
Foreign currency translation		59,338		-		59,338
Comprehensive net loss	$	(407,450)	$	89,185	$	(318,265)

F-34

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Condensed Consolidated Statement of Operations
(Unaudited)

	Nine Months Ended September 30, 2010
	As Reported		Adjustments		As Restated
Sales - products	$	10,694,430	$	-	$	10,694,430
Cost of sales - products		3,849,498		-		3,849,498
Cost of sales – amortization		556,404		-		556,404
Gross profit - products		6,288,528		-		6,288,528
				-
Sales - service		3,123,895		-		3,123,895
Cost of sales - service		1,600,606		-		1,600,606
Gross profit - service		1,523,289		-		1,523,289

Total net sales		13,818,325		-		13,818,325
Cost of sales		6,006,508		-		6,006,508
Gross profit		7,811,817		-		7,811,817
Operating expenses:
Sales and marketing		5,017,609		-		5,017,609
General and administrative		1,694,318		-		1,694,318
Research and development		2,663,263		-		2,663,263
Total operating expenses		9,375,190		-		9,375,190
Loss from operations		(1,563,373)		-		(1,563,373)
Interest and other expense, net		(273,549)		108,198		(165,351)
Loss from continuing operations before taxes		(1,836,922)		108,198		(1,728,724)
Income taxes		4,019		-		4,019
Net loss		(1,832,903)		108,198		(1,724,705)
Less: noncontrolling interest’s share		(32,046)		-		(32,046)
Net loss attributable to Ophthalmic Imaging Systems	$	(1,800,857)	$	108,198	$	(1,692,659)

Shares used in the calculation of basic and diluted net loss per share		28,305,828		28,305,828		28,305,828

Basic and diluted net loss per share	$	(0.06)	$	0.00	$	(0.06)

F-35

OPHTHALMIC IMAGING SYSTEMS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Restatement of Consolidated Financial Statements (continued)

Condensed Consolidated Statement of Comprehensive Loss
(Unaudited)

	Nine Months Ended September 30, 2010

	As Reported		Adjustments		As Restated
Net loss attributable to Ophthalmic Imaging Systems	$	(1,800,857)	$	108,198

OPHTHALMIC IMAGING SYSTEMS 10-K/A