FORM 10-QSB

                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549



                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                   OF THE SECURITIES AND EXCHANGE ACT OF 1934


For the quarterly period ended February 28, 1999

Commission File Number:    1-11140

                           OPHTHALMIC IMAGING SYSTEMS
             (Exact name of registrant as specified in its charter)

          California                                       94-3035367
  (State of Incorporation)                    (IRS Employer Identification No.)

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

                                 (916) 646-2020
                           (Issuer's telephone number)

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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      XX                No               

As of April 14, 1999,  4,155,428  shares of common stock, at no par value,  were
outstanding.


<PAGE>1



                                                      
                          PART I FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


<PAGE>2

                           Ophthalmic Imaging Systems
                             Condensed Balance Sheet
                                February 28, 1999
                                   (Unaudited)
<TABLE>

<S>                                                                     <C>  
Assets
Current assets:
      Cash and equivalents                                                   $        130,939
      Accounts receivable, net                                                        678,583
      Inventories, net                                                                660,554
      Prepaid expenses and other current assets                                        67,216
                                                                          --------------------        
Total current assets                                                                1,537,292
Furniture and equipment, net of accumulated
      depreciation and amortization of $973,874                                       354,863
Other assets                                                                           18,662
                                                                          ====================          
                                                                             $      1,910,817
                                                                          ====================          

Liabilities and Stockholders' Equity
Current liabilities:
      Borrowings under line of credit                                        $        148,694
      Borrowings under note payable to, and unsecured
          advances from significant shareholder                                     1,471,769
      Accounts payable                                                                461,786
      Accrued liabilities                                                           1,523,367
      Accrued warrant appreciation right                                              280,554
      Deferred extended warranty revenue                                               89,549
      Customer deposits                                                               270,336
      Capitalized lease obligation and other notes payable                              8,939
                                                                          --------------------         
Total current liabilities                                                           4,254,994
Capitalized lease obligation and other notes payable,
      less current portion                                                             18,550
Commitments
Stockholders' deficit:
      Preferred stock, no par value, 20,000,000 shares authorized;
          none issued or outstanding                                                       --
      Common stock, no par value, 20,000,000 shares authorized;
          4,155,428 issued and outstanding                                         10,462,604
      Deferred compensation                                                          (136,060)
      Accumulated deficit                                                         (12,689,271)
                                                                          --------------------         
Total stockholders' deficit                                                        (2,362,727)
                                                                          ====================          
                                                                             $      1,910,817
                                                                          ====================        
</TABLE>

See accompanying notes.

<PAGE>3
                           Ophthalmic Imaging Systems
                       Condensed Statements of Operations
                                   (Unaudited)

<TABLE>

<S>                                      <C>                 <C>                 <C>                    <C>   


                                           Three months ended February 28,             Six months ended February 28,
                                              1999                 1998                  1999                 1998
                                        ------------------   -----------------     -----------------    -----------------

Net revenues                              $     1,860,053     $     1,468,157       $     3,350,287      $     3,370,034
Cost of sales                                   1,077,985           1,068,831             2,050,406            2,316,427
                                        ------------------   -----------------     -----------------    -----------------
Gross Profit                                      782,068             399,326             1,299,881            1,053,607
Operating expenses:
     Sales and marketing                          400,153             446,239               925,540              953,057
     General and administrative                   223,928             929,940               523,792            1,253,358
     Research and development                     262,999             189,437               470,913              401,705
                                        ------------------   -----------------     -----------------    -----------------
         Total operating expenses                 887,080           1,565,616             1,920,245            2,608,120
                                        ------------------   -----------------     -----------------    -----------------
Income (loss) from operations                    (105,012)         (1,166,290)             (620,364)          (1,554,513)
Other expense, net                                (21,926)            (19,750)              (63,936)             (28,879)
                                        ==================   =================     =================    =================
Net income (loss)                         $      (126,938)    $    (1,186,040)      $      (684,300)     $    (1,583,392)
                                        ==================   =================     =================    =================

Shares used in the calculation of basic
     net income (loss) per share                4,155,428           3,908,206             4,155,428            3,906,817
                                        ==================   =================     =================    =================
Basic net income (loss) per share         $         (0.03)    $         (0.30)      $         (0.16)     $         (0.41)
                                        ==================   =================     =================    =================

Shares used in the calculation of diluted
     net income (loss) per share                4,155,428           3,908,206             4,155,428            3,906,817
                                        ==================   =================     =================    =================
Diluted net income (loss) per share       $         (0.03)    $         (0.30)      $         (0.16)     $         (0.41)
                                        ==================   =================     =================    =================
</TABLE>

See accompanying notes.


<PAGE>4
                           Ophthalmic Imaging Systems
                       Condensed Statements of Cash Flows
                   Increase (Decrease) in Cash and Equivalents
                                   (Unaudited)

<TABLE>

<S>                                                     <C>                      <C>  
                                                               Six months ended February 28,
                                                                 1999                  1998
                                                          --------------------  -------------------

Operating activities:
Net loss                                                      $      (684,300)     $    (1,583,392)
Adjustments to reconcile net loss to net cash
     used in operating activities:
         Depreciation and amortization                                 66,192               60,540
         Stock option compensation expense                             55,240               63,028
         Net (increase) decrease in current assets
             other than cash and equivalents                         (185,996)             549,156
         Net (decrease) increase in current liabilities
             other than short-term borrowings                         327,067              931,728
                                                          --------------------  -------------------
Net cash (used in) provided by operating activities                  (421,797)              21,060
Investing activities:
Purchases of furniture and equipment                                   (9,663)             (95,963)
Net increase in other assets                                          (11,277)              (9,088)
                                                          --------------------  -------------------
Net cash used in investing activities                                 (20,940)            (105,051)
Financing activities:
Principal payments on notes payable                                      (318)              (2,048)
Net proceeds from borrowings under note payable to
     and unsecured advances from significant shareholder                9,289                   --
Net proceeds from (repayments of) line-of-credit
     borrowings                                                        50,519             (195,051)
Net proceeds from sale of common stock                                     --              213,750
                                                          --------------------  -------------------
Net cash provided by financing activities                              59,490               16,651
                                                          --------------------  -------------------
Net decrease in cash and equivalents                                 (383,247)             (67,340)
Cash and equivalents at beginning of period                           514,186              142,300
                                                          ====================  ===================
Cash and equivalents at end of period                         $       130,939      $        74,960
                                                          ====================  ===================
</TABLE>

See accompanying notes.

<PAGE>5

                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

          Three and Six Month Periods ended February 28, 1999 and 1998
                                   (Unaudited)


Note 1.         Basis of Presentation

                The  accompanying   unaudited  condensed  balance  sheet  as  of
                February 28, 1999,  condensed  statements of operations  for the
                three and six month periods ended February 28, 1999 and 1998 and
                the  condensed  statements  of cash  flows for the three and six
                month  periods  ended  February  28,  1999  and 1998  have  been
                prepared  in  accordance  with  generally  accepted   accounting
                principles  for  interim  financial  information  and  with  the
                instructions  to Form 10-QSB and Item 310(b) of Regulation  S-B.
                Accordingly,  they do not  include  all of the  information  and
                footnote  disclosures  required by generally accepted accounting
                principles for complete  financial  statements.  It is suggested
                that these condensed financial statements be read in conjunction
                with the audited financial statements and notes thereto included
                in the registrant's (the Company's) Annual Report for the Fiscal
                Year Ended  August 31,  1998 on Form  10-KSB.  In the opinion of
                management,  the  accompanying  condensed  financial  statements
                include all  adjustments,  consisting  only of normal  recurring
                adjustments,  necessary for a fair presentation of the Company's
                financial  position  and results of  operations  for the periods
                presented.  The  results  of  operations  for the  period  ended
                February  28,  1999  are  not  necessarily   indicative  of  the
                operating results for the full year.

                Certain  amounts in the fiscal 1998  financial  statements  have
                been reclassified to conform with the presentation in the fiscal
                1999 financial statements.

Note 2.         Net Income (Loss) Per Share

                In  1997,  the  Financial   Accounting  Standards  Board  issued
                Statement of Financial  Accounting  Standards No. 128, "Earnings
                per Share".  Statement  128  replaced  the  previously  reported
                primary  and fully  diluted  earnings  per share  with basic and
                diluted  earnings per share.  Unlike primary earnings per share,
                basic  earnings  per share  excludes  any  dilutive  effects  of
                options, warrants, and convertible securities.  Diluted earnings
                per  share is very  similar  to the  previously  reported  fully
                diluted  earnings  per share.  All net  income  (loss) per share
                amounts  for  all  periods  have  been   presented,   and  where
                necessary,   restated   to   conform   to  the   Statement   128
                requirements.
<PAGE>6



Note 2.         Net Income (Loss) Per Share (continued)

                The  following  table  sets forth the  computation  of basic and
diluted income (loss) per share:

<TABLE>

               <S>                                <C>             <C>              <C>            <C>    

                                                             Unaudited                       Unaudited
                                                         Three Months Ended              Six Months Ended
                                                            February 28,                   February 28,
                                                        1999            1998           1999            1998
                                                   =============== =============== ============== ===============

                Numerator for basic and diluted
                net income (loss) per share         $ (126,938)    $ (1,186,040)    $ (684,300)   $ (1,583,392)
                                                   =============== =============== ============== ===============

                Denominator for basic net income 
                 (loss) per share:
                   Weighted average shares           4,155,428       3,908,206       4,155,428      3,906,817

                Effect of dilutive securities:
                   Employee stock options                      --              --                             --
                                                                                        --
                   Warrants and other                          --              --                             --
                                                                                        --
                                                   --------------- --------------- -------------- ---------------
                Dilutive potential common shares               --              --                             --
                                                                                        --

                                                   =============== =============== ============== ===============
                Denominator for diluted net
                income (loss) per share              4,155,428       3,908,206       4,155,428      3,906,817
                                                   =============== =============== ============== ===============

                Basic net income (loss) per share     $ (.03)         $ (0.30)       $ (0.16)        $ (0.41)
                                                   =============== =============== ============== ===============

                                                   =============== =============== ============== ===============
                Diluted net income (loss) per         $ (.03)         $ (0.30)       $ (0.16)        $ (0.41)
                share
                                                   =============== =============== ============== ===============
</TABLE>

Note 3.         Short-Term Borrowings

                In April 1995,  the  Company  entered  into a revolving  line of
                credit  agreement  (the "Credit  Agreement")  with its bank (the
                "Bank")  which,  after several  amendments,  matured in November
                1997.

                In  November  1997,   the  Company   entered  into  an  accounts
                receivable credit agreement (the "Agreement") with the Bank, and
                all  amounts   outstanding   under  the  Credit  Agreement  were
                considered to be the initial  advance under the  Agreement.  The
                Agreement  allows  for up to an 80%  advance  rate  on  eligible
                accounts  receivable  balances,  and the maximum  borrowing base
                under the Agreement is $1.2 million.  The Bank has full recourse
                against  the Company  and the  Agreement  remains in effect from
                year to year unless  terminated in writing by the Company or the
                Bank. Borrowings under the Agreement bear interest at the Bank's
                prime  lending rate plus 4%. In  addition,  the Bank will charge
                monthly an  administrative  fee equal to the  greater of 1/2% of
                the average  daily  balance  for the month or $1,200.  Under the
                terms of the Agreement,  borrowings are secured by substantially
                all of the Company's assets. At February 28, 1999, approximately
                $148,694 in principal was outstanding under the Agreement.

<PAGE>7

Note 4.         Note Payable to Related Party

                On April 30, 1998, the Company  executed a promissory  note (the
                "Note") in favor of Premier  Laser  Systems,  Inc., a California
                corporation   ("Premier").   Borrowings  against  the  Note  are
                available to the Company in the form of periodic  advances.  The
                maximum  principal  amount available under the Note is $500,000,
                which principal  amount  outstanding,  together with any and all
                accrued  interest,  is payable the earlier of (i) written demand
                by Premier or (ii) April 30, 1999.  Under the terms of the Note,
                borrowings  bear  interest at the rate of 8 1/2% per annum,  are
                secured by  substantially  all of the  Company's  assets and are
                subordinate to borrowings against the accounts receivable credit
                line with the Company's Bank (see Note 3). Premier also has made
                certain unsecured  advances to the Company which are not covered
                by the Note.

                At February 28, 1999,  approximately $1,559,000 in principal and
                interest was outstanding under the Note and unsecured  advances.
                The  Company and Premier are  currently  in  discussions,  among
                other things, to establish mutually acceptable  repayment terms.
                In that  connection,  there is disagreement  between Premier and
                the  Company  as to  whether  the  Company  is  entitled  to the
                $500,000 Termination Fee and whether such Termination Fee can be
                used as an offset to the Company's debt to Premier.

Note 5.         Stock Purchase Agreement

                In August 1998, the Company was notified by Premier that Premier
                would  be  unable  to  proceed  with  its  previously   proposed
                acquisition  of the remaining  48.7%  interest in the Company by
                the  termination  date of the Stock  Purchase  Agreement,  dated
                February   25,   1998,   with  the  Company   ("Stock   Purchase
                Agreement").  As a result,  the  Stock  Purchase  Agreement  was
                terminated  and the  Company  made a  demand  for  payment  from
                Premier of $500,000 as a termination fee (the "Termination Fee")
                pursuant to the Stock Purchase  Agreement.  The Termination Fee,
                however, is the subject of a disagreement between the companies.
                Accordingly,  the Company has not recognized the Termination Fee
                in its financial statements.

Note 6.         Subsequent Events

                In  March  1999,   the  Company  and  Premier   entered  into  a
                manufacturing  agreement  ("Manufacturing   Agreement")  whereby
                Premier will manufacture the majority of the Company's products.
                The Manufacturing  Agreement will terminate upon the earlier of:
                (i) material  breach by either party,  which breach is not cured
                within thirty (30) days written notice thereof; (ii) ninety (90)
                days written notice by the Company to Premier; (iii) one hundred
                eighty (180) days written  notice by Premier to the Company;  or
                (iv) mutual written agreement of the parties.

<PAGE>8


Note 7.         Ability to Continue as a Going Concern

                The  Company  has  an  accumulated  deficit  of  $12,689,271  at
                February  28,  1999.  In addition,  current  liabilities  exceed
                current  assets by  $2,717,702 as of that date.  These  factors,
                among  others,  may suggest that the Company  could be unable to
                continue as a going concern.

                The  principal  and accrued  interest on the Note, by its terms,
                are due and  payable on April 30,  1999.  Although  Premier  has
                indicated its willingness to negotiate a repayment  schedule and
                defer any default  proceedings,  there can be no assurance  that
                such  negotiations  will be successful and that the terms of the
                Note  will  be  revised  or  that  default  proceedings  will be
                deferred. In addition,  even if the Note is renegotiated,  there
                can be no assurances that it will be on terms  acceptable to the
                Company or that the Company will  thereafter be able to generate
                sufficient  liquidity from operations to meet its obligations as
                they become due.

                In  addition,  the  Company  is seeking  sources  of  additional
                capital to meet its current cash  requirements,  including  debt
                and other  financing  arrangements.  There can be no  assurance,
                however, that any financing  arrangements will be available and,
                if available, can be obtained on terms favorable to the Company.




<PAGE>9



     ITEM 2.  MANAGEMENT'S  DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND
              RESULTS OF OPERATIONS

The statements below include  statements that are "forward  looking  statements"
within the meaning of Section 21A of the Securities Act of 1933, as amended,  in
Section 21E of the  Securities  Act of 1934,  as amended,  and is subject to the
safe harbor created thereby.  Future operating results may be adversely effected
as a result of a number of factors enumerated in the Company's public reports.

Overview

The  Company has  designed,  developed,  manufactured  and  marketed  ophthalmic
digital imaging systems and has derived  substantially  all of its revenues from
the sale of such products.  The primary target market for the Company's  digital
angiography  systems has been the retinal  specialists who number  approximately
2,000 in the United States  (approximately  12%-13% of  ophthalmologists  in the
U.S.).

OIS is currently  attempting to expand its role in the ophthalmic  imaging field
by  developing  new ocular  imaging  devices  and  applications  targeted at the
broader markets of general ophthalmology and optometry.

In this regard,  commencing in fiscal 1998, the Company has applied  significant
resources to the development of two ocular imaging  devices,  the Digital Fundus
Imager  ("DFI")  and the  Digital  Slit  Lamp  Imager  ("DSLI").  These  two new
products, which were introduced at the Annual Meeting of the American Academy of
Ophthalmology (the "AAO") in November 1998 (the "1998 AAO Meeting"), provide the
general  ophthalmology and optometry markets with affordable  diagnostic digital
imaging   devices.   The  Company  is  focusing  the  majority  of  its  current
development,  marketing  and sales  efforts  on its DFI and DSLI  products,  and
anticipates  that it will commence  delivering  these  products in the summer of
1999.

At the 1998 AAO Meeting, the DFI received  considerable interest and the Company
has received  significant  purchase  commitments for the product.  However,  the
Company   has   limited   financial   and   operational   resources,   including
manufacturing,  marketing and selling capacity to meet any increased demand that
may result from the successful introduction of this product.  Accordingly, in an
effort to address the Company's manufacturing capacity limitations,  the Company
has  recently  entered  into  a  manufacturing   agreement  ("the  Manufacturing
Agreement")  with Premier  Laser  Systems,  Inc., a California  corporation  and
holder  of  approximately  51.3%  of  the  Company's  outstanding  common  stock
("Premier"),  whereby  Premier  will  manufacture  a majority  of the  Company's
products. Management believes that this arrangement will prove beneficial to the
Company because in the near-term  Premier has agreed to provide such products at
its costs,  which the Company believes will be less than the cost to the Company
to manufacture such products in-house. There can be no assurance,  however, that
there  will be  favorable  market  acceptance  of  these  products  or that  the
Manufacturing Agreement will continue to be beneficial to the Company.

<PAGE>10

In  addition,  the Company is also  nearing  agreement  with Premier a potential
co-marketing  and selling  arrangement  which would take  advantage of Premier's
international  distribution  channels  and its  market  position  among  general
ophthalmologists  and  optometrists  through  its  EyeSys  product  line,  while
providing  the  Company's  sales force the ability to market and sell the EyeSys
products.  Management  believes that such an  arrangement  should also result in
certain cost  efficiencies to the Company.  There can be no assurance,  however,
that an acceptable agreement, if any, will be reached.

The Company  continues to  experience  a cash flow  deficit and its  liabilities
currently  exceed its assets.  In this regard,  the Company,  as of February 28,
1999, owed Premier in excess of $1.5 million.  In addition to seeking additional
sources of financing,  the Company is in current discussions with Premier, among
other  things,  to structure a repayment  schedule for its debt beyond the April
30, 1999 due date. These discussions will include, among other things, offset of
a $500,000 termination fee which the Company believes it is owed under the terms
of the Stock  Purchase  Agreement  dated  February  25,  1998 by and between the
Company and Premier ("Stock Purchase Agreement"). The Company is hopeful that it
can reach an  agreement  with  Premier  which  would  significantly  improve the
Company's liquidity.

Notwithstanding  the Company's  efforts to achieve cost savings and to make more
cash available for its operations through the Manufacturing Agreement, potential
co-marketing  and selling  arrangement and the  restructuring  of certain of its
debt with Premier, there can be no assurance that the Company will be successful
in its efforts or that such  arrangements  can be obtained on terms favorable to
the  Company.  Failure to achieve  one or more of these  objectives  may have an
adverse  effect on the  Company's  ability  to  continue  as a going  concern or
realize the full potential benefits from timely delivery of its new products.

The Company's results of operations have historically fluctuated from quarter to
quarter due to a number of factors  and are not  necessarily  indicative  of the
results to be expected  for any future  period or  expected  for the fiscal year
ending  August  31,  1998.  There can be no  assurance  that  revenue  growth or
profitability can be achieved or sustained in the future.

The  following  discussion  should  be read in  conjunction  with the  unaudited
interim financial statements and the notes thereto which are set forth elsewhere
in this Report on Form  10-QSB.  In the  opinion of  management,  the  unaudited
interim period financial statements include all adjustments, all of which are of
a normal  recurring  nature,  that are necessary for a fair  presentation of the
results of the periods.


Results of Operations

The Company  incurred a net loss of $126,938,  or $.03 per share, for the second
quarter of fiscal  1999 as  compared  to a net loss of  $1,186,040,  or $.30 per
share, for the second quarter of fiscal 1998. The Company incurred a net loss of
$684,300,  or $.16 per share, for the first six months of 1999 versus a net loss
of $1,583,392,  or $.41 per share,  for the  comparable  period of 1998. The per

<PAGE>11


share  figures  are  basic  amounts  in  accordance  with  Financial  Accounting
Standards  No.  128  (see  Note 2 of  Notes to  Condensed  Financial  Statements
included in Item 1 of this Form 10-QSB).

The 1998 amounts and, to a lesser extent, the 1999 amounts,  reflect the adverse
impact on revenues and corporate  operations  resulting from efforts  associated
with  the  terminated  Stock  Purchase  Agreement.   The  Company  has  incurred
significant  costs and professional  fees and expenses in connection  therewith,
while diverting a significant amount of the Company's resources and management's
attention and selling  efforts away from the Company's  core  operations  during
this period.

The Company's  revenues for the second  quarter of fiscal 1999 were  $1,860,053,
representing  an increase of  approximately  27% from revenues of $1,468,157 for
the second  quarter of fiscal 1998.  Revenues for the first six months of fiscal
1999 were $3,350,287,  or essentially flat versus revenues of $3,370,034 for the
comparable  period of 1998.  The increase in revenues in the 1999 second quarter
as compared to the 1998 second  quarter was due  primarily  to lower than normal
revenues during the 1998 period. The 1998 second quarter revenues were adversely
impacted by the redirection of management's  efforts from core operations to its
negotiations with Premier.  During the 1998 AAO Meeting,  the Company introduced
its low-cost digital imaging systems incorporating its recently developed ocular
imaging devices,  the DFI and the DSLI. The Company received  substantially more
purchase commitments for its products as compared to previous AAO meetings, with
significant purchase  commitments for the newly introduced products,  deliveries
of which newly introduced products are currently targeted to commence during the
fourth quarter of 1999.

Gross margins were  approximately  42% during the second  quarter ended February
28, 1999 versus  approximately  27% for the comparable  quarter of 1998. For the
six-month period ended February 28, 1999, gross margins were  approximately  39%
as compared  to  approximately  31% during the  comparable  period of 1998.  The
increase in gross  margin  percentage  during the second  quarter was  partially
attributable  to the  significantly  increased  revenue levels during the second
quarter of 1999.  In  addition,  the lower  gross  margins  for the 1998  second
quarter  reflect the adverse  impact of increased  reserves for potential  field
upgrades  recognized  for  certain  systems  delivered  during  the 1998  second
quarter. Further, the increase in such reserves for systems delivered during the
first half of 1998 was a principal  factor for the lower  gross  margins for the
six-month  period of 1998 as compared  to the same period for 1999.  The Company
continues  to evaluate  its  expenses in this area  consistent  with current and
anticipated  business  conditions.  The  Company  has  recently  entered  into a
Manufacturing  Agreement with Premier which management  anticipates will provide
certain  efficiencies,  including  personnel  cutbacks,  economies of scale from
increased unit production and other manufacturing efficiencies, which may result
in improved gross margins.  However, this is a new arrangement and its impact is
not clearly ascertainable at this time.

As a percentage of revenues,  sales and marketing and general and administrative
expenses  accounted for  approximately  34% of total revenues  during the second
quarter of fiscal 1999 versus  approximately  94% of total  revenues  during the
comparable  second  quarter of fiscal  1998.  For the first six months of fiscal

<PAGE>12

1999 and fiscal 1998, such expenses accounted for approximately 43% and 65.5% of
total  revenues  for the  respective  six-month  periods.  Expense  levels  also
decreased to $624,081 during the second quarter of 1999 versus $1,376,179 during
the second  quarter of 1998.  For the first six months of 1999,  expense  levels
decreased to $1,449,332  from $2,206,415  during the comparable  period of 1998.
The 1998 sales and  marketing  and  general  and  administrative  expenses  were
abnormally  high in  relation  to  revenues  because of  significant  investment
banking, legal and other professional costs recognized during the second quarter
of 1998  associated  with the  negotiation of the Stock Purchase  Agreement.  In
1999, such expenses returned to more normal levels due to the termination of the
Stock  Purchase  Agreement.  In  addition,  the 1999  amounts  reflect  the cost
reductions  realized  during  the first  and  second  quarters  of 1999 from the
termination of certain management  personnel during the latter half of 1998. The
Company is currently considering marketing and selling alternatives in an effort
to  reduce  costs  and/or   improve   efficiencies   in  this  area,   including
consolidating its current product offerings.

Research  and  development   expenses,   as  a  percentage  of  revenues,   were
approximately 14% in the second quarter of 1999 versus  approximately 13% in the
second quarter of 1998.  For the first six months of fiscal 1999,  such expenses
accounted for  approximately  14% of total revenues as compared to approximately
12% during the comparable  period of 1998.  Expense  levels  increased in actual
dollar  terms to  $262,999  during the second  quarter of 1999 from  $189,437 in
1998. During the first six months of fiscal 1999,  expense levels also increased
in actual dollar terms to $470,913  versus $401,705 in 1998. The Company intends
to focus its research and  development  efforts on its new digital image capture
products and reducing cost configurations for its current products.  The Company
anticipates that research and development expense will be maintained at or above
current levels in the near term.

Other  expense  was  $21,926  during the second  quarter of fiscal  1999  versus
$19,750  during the second quarter of 1998. For the first six months of 1999 and
1998,  other  expense  was  $63,936  and  $28,879,   respectively.  The  primary
contributing  factor to these increases was interest  expense during 1999 versus
1998  associated  with  borrowings  and unsecured  advances from Premier,  which
borrowings and unsecured advances were made after the first quarter of 1998 (see
Note 4 of Notes to  Condensed  Financial  Statements  included in Item 1 of this
Form 10-QSB).


Liquidity and Capital Resources

The Company's  operating  activities  used cash of $421,797 during the first six
months of fiscal 1999 and generated cash of $21,060 during the comparable period
for 1998.  The cash used in  operations  during the first six months of 1999 was
expended  principally  to fund the net loss during the  period.  This amount was
partially  offset by  increases in customer  deposits  and  increases in accrued
liabilities,  including  accrued but unpaid interest  associated with borrowings
from Premier (see Note 4 of Notes to Condensed Financial  Statements included in
Item 1 of this Form 10-QSB).  Cash generated  from  operating  activities in the
first six months of 1998 resulted  principally  from the  collection of accounts
receivable,  increased  revenue  levels and  increases in customer  deposits and
accrued liabilities, the aggregate impact of which more than offset the net loss
for the period.

<PAGE>13

Cash used in  investing  activities  was $20,940  during the first six months of
1999 as  compared to $105,051  during the same  period for 1998.  The  Company's
primary  investing  activities  consist of  equipment  and other  capital  asset
acquisitions.   The  Company  does  not  currently  have  any  pending  material
commitments for capital  expenditures  and the Company has deferred  significant
capital acquisition decisions pending improved cash flow.

The Company  generated cash in the amount of $59,490 during the first six months
of fiscal 1999 as compared to $16,651 from financing  activities during the same
period of fiscal 1998. The source of cash from financing  activities  during the
1999 period was principally  proceeds from increased borrowings under the credit
facility with Imperial Bank (the "Bank") and, to a lesser extent, an increase in
the amount of  borrowings  under the note payable to and  unsecured  advances by
Premier.  The  source  of cash  from  financing  activities  in 1998 was the net
proceeds  from the  exercise of certain  warrants  issued  pursuant to a private
placement  of the  Company's  common  stock in November  1995,  which amount was
significantly  offset by net repayments of borrowings  under the credit facility
with the Bank. Principal repayments on notes payable was negligible in both 1999
and 1998.

In  November  1997,  the Company  entered  into an  accounts  receivable  credit
agreement (the "Agreement")  with the Bank, and all amounts  outstanding under a
matured  revolving line of credit  agreement with the Bank were considered to be
the initial advance under the Agreement.  The Agreement  allows for up to an 80%
advance rate on eligible accounts receivable balances, and the maximum borrowing
base under the Agreement is $1.2 million. The Bank has full recourse against the
Company and the Agreement  remains in effect from year to year unless terminated
in  writing by the  Company or the Bank.  Borrowings  under the  Agreement  bear
interest at the Bank's prime  lending  rate plus 4%. In addition,  the Bank will
charge monthly an administrative fee equal to the greater of 1/2% of the average
daily  balance  for the  month or  $1,200.  Under  the  terms of the  Agreement,
borrowings are secured by substantially all of the Company's assets. At February
28,  1999,  approximately  $149,000  in  principal  was  outstanding  under  the
Agreement.

Additionally, on April 30, 1998, the Company executed a promissory note in favor
of Premier (the "Premier Note").  The Company has borrowed the maximum principal
amount of $500,000  available  under the Premier Note,  which  principal  amount
outstanding,  together with any and all accrued interest, is payable the earlier
of (i) written demand by Premier or (ii) April 30, 1999.  Under the terms of the
Premier  Note,  borrowings  bear  interest at the rate of 8 1/2% per annum,  are
secured by  substantially  all of the Company's  assets and are  subordinate  to
borrowings  against the Agreement with the Company's Bank. Premier also has made
certain unsecured advances to the Company which are not specifically  covered by
the Premier  Note.  Approximately  $1,559,000  in  principal  and  interest  was
outstanding under the Premier Note and unsecured  advances at February 28, 1999.
The Company and Premier are currently in  discussions,  among other  things,  to
establish  mutually  acceptable  repayment terms. In that  connection,  there is

<PAGE>14

disagreement  between  Premier  and the  Company  as to whether  the  Company is
entitled to the $500,000 Termination Fee and whether such Termination Fee can be
used as an offset to the Company's debt to Premier.  While the parties  continue
to  discuss  these  issues,  there can be no  assurance  that a final  agreement
between  the  parties  can be  reached.  In the event that no  agreement  can be
reached,  if demand for payment is made by Premier or the  obligation  under the
Premier Note becomes due and payable,  then the Company's ability to continue as
a going  concern  could be seriously  jeopardized  unless the Company is able to
obtain financing to make such payment.

At February 28, 1999,  the Company's  cash and cash  equivalents  were $130,939.
Assuming  that no demand is made for payment of amounts  owing under the Premier
Note, the Company believes that its existing cash balances together with ongoing
collections of its accounts  receivable and available  borrowing  capacity under
the Agreement  could be adequate to meet its liquidity and capital  requirements
in the near term,  except for any additional  requirements that may be necessary
for increased  development, manufacturing, and sales to support the DFI and DSLI
products. Further, demand for payment of amounts due under the alternative stock
appreciation  right with the Bank could also  result in the need for  additional
cash.  While no request for payment has yet been made,  principal  and  interest
amounts due under the alternative stock  appreciation right with the Bank, which
amounts were approximately  $281,000 as of February 28, 1999, are also currently
due. If demand for payment were to be made by the Bank,  then the Company  would
also have to seek financing to make such payment, including, but not limited to,
debt or equity financing.

Further,  although the Company has the ability to manufacture and market its DFI
and DSLI products,  without an infusion of capital or other  improvements in its
liquidity  position,  the Company may have difficulty in meeting any significant
demand for these products. In an effort to address this potential deficiency, in
March 1999, the Company and Premier entered into Manufacturing Agreement whereby
Premier will manufacture  certain of the Company's  products.  In addition,  the
Company and Premier are  currently in  discussions  regarding  co-marketing  and
selling the companies' ophthalmic products as discussed above.

The Company  will  continue to seek  sources of  additional  capital to meet its
current cash  requirements,  including  debt and other  financing  arrangements.
There can be no  assurance,  however,  that any financing  arrangements  will be
available and, if available, can be obtained on terms favorable to the Company.


<PAGE>15



                                             PART II OTHER INFORMATION

ITEM 1.             LEGAL PROCEEDINGS
                    None.

ITEM 2.             CHANGES IN SECURITIES
                    None.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES
                    None.

ITEM 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
                    The Company's  Annual  Meeting of  Shareholders  was held on
                    January 18, 1999. Matters voted upon at the meeting, and the
                    number of votes cast for and against each such  matter,  are
                    described below:


                    1.       Election of directors:

                             R. Joseph Allen (2,700,044 shares in favor; and
                             3,888 shares withheld);

                             Daniel  S.  Durrie,  M.D.  (2,700,044  shares  in 
                             favor;  and  3,888  shares  withheld);

                             Randall C. Fowler (2,700,045 shares in favor; and
                             3,888 shares withheld);

                             Steven R. Verdooner (39,235 shares in favor; and no
                             shares withheld); and

                             Walt Williams (2,700,045 shares in favor; and 3,888
                             shares withheld).

                    2.       A proposal to ratify the appointment of Perry-Smith
                             & Company  LLP as the  Company's  auditors  for the
                             1999 fiscal  year  (2,170,993  shares in favor;  no
                             shares against; and no shares abstaining).

                    At the initial meeting of the recently elected Board held in
                    January  1999,   Walt  Williams  was  elected  to  serve  as
                    Chairman.

<PAGE>16

ITEM 5.             OTHER INFORMATION
                    In  January  1999,  the  Company  granted  to  each  of  its
                    non-employee  directors  options  to  purchase  up to 50,000
                    shares (or 200,000 shares in the aggregate of all directors)
                    of the Company's common stock at an exercise price of $0.563
                    per share. These options were granted pursuant the Company's
                    1997  Nonstatutory  Stock  Option  Plan and are  subject  to
                    certain  vesting  requirements.  None of these  options have
                    been exercised as of the date hereof.

ITEM 6.             EXHIBITS AND REPORTS ON FORM 8-K
                    (a)      The exhibits  listed on the  accompanying  Index to
                             Exhibits  below are filed as a part  hereof and are
                             incorporated by reference as noted.
                    (b)      None.



<PAGE>17



                                                    SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
undersigned  has duly  caused  this  report to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                          OPHTHALMIC IMAGING SYSTEMS
                                 (Registrant)


                             By: /s/STEVEN R. VERDOONER
                                 -------------------------------------------
                                 Steven R. Verdooner,
                                 Chief Executive Officer and Chief Financial 
                                 Officer (principal executive officer
                                 and principal financial and accounting officer)



Dated:  April 14, 1999



<PAGE>18



                                                 INDEX TO EXHIBITS
<TABLE>
 <S>               <C>                                                                                        <C>   


  Exhibit Number                                                                                               Footnote
                                                     Description of Exhibit                                    Reference

       2.1           Stock  Purchase  Agreement,  dated as of February 25, 1998, by and between  Registrant       (13)
                     and Premier Laser Systems, Inc.

       3.1           Articles of Incorporation of the Registrant, as amended.                                      *

       3.1(a)        Amendment to Articles of  Incorporation  (Certificate of  Determination of Preferences       (11)
                     of Series A Junior Participating Preferred Stock of Ophthalmic Imaging Systems).

       3.2           Amended Bylaws of the Registrant.                                                             *

       3.3           Amendment to Amended Bylaws of the Registrant dated January 28, 1998.                        (16)

       4.1           See Exhibits 3.1 and 3.2 for provisions of the Articles of Incorporation,  as amended,        *
                     and the  amended  Bylaws of the  Registrant  defining  the rights of holders of common
                     stock of the Registrant.

       4.2           Specimen of Stock Certificate.                                                                *

       4.3           Rights  Agreement,  dated as of December 31,  1997,  between  Registrant  and American       (10)
                     Securities Transfer, Inc., including form of Rights Certificate attached thereto.

       4.4           Amendment to Rights Agreement,  dated as of February 25, 1998,  between Registrant and       (14)
                     American Securities Transfer, Inc.

       10.1          Lease  Agreement,  dated as of July 10, 1987,  between the  Registrant (as tenant) and        *
                     Transamerica/Emkay Income Properties I, as amended on July 23, 1990 and June 11, 1991.

       10.1(a)       Seventh Amendment to lease effective as of July 18, 1996.                                    (7)

       10.2          Employment  Agreement,  dated March 27,  1992,  between the  Registrant  and Dennis J.        *
                     Makes.

       10.2(a)       Amendment dated June 30, 1993 to the Employment  Agreement  between the Registrant and       (1)
                     Dennis J. Makes dated March 27, 1992.

       10.3          Confidentiality  Agreement,  dated March 27, 1992 between the Registrant and Dennis J.        *
                     Makes.

<PAGE>19

       10.4          Confidentiality  Agreement,  dated March 27, 1992 between the Registrant and Steven R.        *
                     Verdooner.

       10.5          Confidentiality  Agreement,  dated March 27, 1992 between the  Registrant  and Richard        *
                     Wullaert.

       10.6          Consulting  Agreement,  dated January 23, 1992,  between the  Registrant  and G. Peter        *
                     Halberg, M.D.

       10.7          Assignment dated October 23, 1990 of U.S. Patent  Application for Apparatus and Method        *
                     for  Topographical  Analysis of the Retina to the  Registrant by Steven R.  Verdooner,
                     Patricia C.  Meade,  and Dennis J. Makes (as  recorded on Reel 5490,  Frame 423 in the
                     Assignment Branch of the U.S. Patent and Trademark Office).

       10.8          Form of  International  Distribution  Agreement used by the Registrant and sample form        *
                     of End User Software License Agreement.

       10.9          Original Equipment Manufacturer  Agreement,  dated April 1, 1991,   between   the             *  
                     Registrant   and  SONY   Medical  Electronics, a division of SONY Corporation of America.

       10.10         Original Equipment  Manufacturer/Value  Added Reseller  Agreement,  dated May 7, 1991,        *
                     between the Registrant and Eastman Kodak Company.

       10.11         The Registrant's 1992  Nonstatutory  Stock Option Plan and sample form of Nonstatutory        *
                     Stock Option Agreement.

       10.12         Cross-Indemnification  Agreement, dated February 14,  1991, among Dennis Makes, Steven        *
                     Verdooner, and Richard Wullaert.

       10.13         Key Man Life Insurance Policies in the amount of $1,000,000  for each of Dennis J.            * 
                     Makes and Steven R. Verdooner, with the Registrant as the named beneficiary.

       10.14         Stock Option Plan.                                                                           (1)

       10.15         Rental  Agreement  dated May 1,  1994 by and  between  the  Registrant  and  Robert J.       (2)
                     Rossetti.

       10.16         Security and Loan Agreement  (with Credit Terms and Conditions)  dated April 12,  1995       (3)
                     by and between the Registrant and Imperial Bank.

       10.16(a)      General  Security  Agreement  dated  April 12,  1995 by and between the Registrant and       (3)
                     Imperial Bank.

<PAGE>20

       10.16(b)      Warrant dated  November 1, 1995 issued by the  Registrant to Imperial Bank to purchase       (4)
                     67,500 shares of common stock.

       10.16(c)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated November       (4)
                     1, 1995.

       10.16(d)      Registration  Rights  Agreement  dated  November 1, 1995  between the  Registrant  and       (4)
                     Imperial Bank.

       10.16(e)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated April 4,       (6)
                     1996.

       10.16(f)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated July 12,       (7)
                     1996.

       10.16(g)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated November       (7)
                     21, 1996.

       10.16(h)      Amended Loan and Security  Agreement (with Credit Terms and Conditions)  dated June 3,       (8)
                     1997.

       10.16(i)      Amended Loan and Security  Agreement (with Credit Terms and  Conditions)  dated August       (9)
                     28, 1997.

       10.16(j)      Amended Loan and Security  Agreement (with Credit Terms and Conditions)  dated October       (9)
                     24, 1997.

       10.16(k)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated November       (9)
                     3, 1997.

       10.16(l)      Amended Loan and Security  Agreement (with Credit Terms and Conditions) dated November       (9)
                     21, 1997.

       10.16(m)      Agreement of Purchase of Receivable  (Full  Recourse)  dated November 18, 1997 between       (9)
                     Registrant and Imperial Bank.

       10.17         Employment  Agreement  dated  November 20, 1995 between the  Registrant  and Steven R.       (4)
                     Verdooner.

       10.17(a)      Amendment  dated  effective July 14, 1997 to Employment  Agreement  dated November 20,       (16)
                     1995 between the Registrant and Steven R. Verdooner.

       10.18         The Registrant's 1995  Nonstatutory  Stock Option Plan and sample form of Nonstatutory       (5)
                     Stock Option Agreement.

<PAGE>21

       10.19         The Registrant's 1997  Nonstatutory  Stock Option Plan and sample form of Nonstatutory       (12)
                     Stock Option Agreement.

       10.20         Promissory  Note dated April 30, 1998 from the  Registrant to Premier  Laser  Systems,       (15)
                     Inc.  in the maximum  amount of  $500,000  due in full upon the earlier of (i) written
                     demand by Premier or (ii) April 30, 1999.

       10.21         Security  Agreement  dated April 30, 1998 by and  between the  Registrant  and Premier       (15)
                     Laser Systems, Inc.

       10.22         Form of  Indemnification  Agreement  dated January 23, 1998 between the Registrant and       (16)
                     each of its directors, officers and certain key employees.

       10.23         Manufacturing  Agreement  dated March 7, 1999 between the Registrant and Premier Laser       (17)
                     Systems, Inc.

       27            Financial Data Schedule (for SEC use only).                                                  (16)
</TABLE>



       *         Incorporated by reference to the Registrant's Registration 
                 Statement on Form S-18, number 33-46864-LA.

       (1)       Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1993 filed on
                 November 26, 1993.

       (2)       Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1994 filed on
                 November 29, 1994.

       (3)       Incorporated by reference to the Registrant's  Quarterly Report
                 on Form  10-QSB for the  quarterly  period  ended May 31,  1995
                 filed on July 14, 1995.

       (4)       Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1995 filed on
                 November 29, 1995.

       (5)       Incorporated  by  reference  to the  Registrant's  Registration
                 Statement on Form S-8 filed on May 28, 1996, number 333-0461.

       (6)       Incorporated by reference to the Registrant's  Quarterly Report
                 on Form  10-QSB for the  quarterly  period  ended May 31,  1996
                 filed on July 15, 1996.

       (7)       Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1996 filed on
                 November 29, 1996.

       (8)       Incorporated by reference to the Registrant's  Quarterly Report
                 on Form  10-QSB for the  quarterly  period  ended May 31,  1997
                 filed on July 15, 1997.

<PAGE>22

       (9)       Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1997 filed on
                 December 1, 1997.

       (10)      Incorporated by reference to Exhibit 1 of the Registrant's 
                 Form 8-K filed on January 2, 1998.

       (11)      Incorporated by reference to Exhibit A of Exhibit 1 of the 
                 Registrant's Form 8-K filed on January 2, 1998.

       (12)      Incorporated by reference to the Registrant's  Quarterly Report
                 on Form 10-QSB for the quarterly period ended November 30, 1997
                 filed on January 14, 1998.

       (13)      Incorporated by reference to Exhibit 2.1 of the Registrant's
                 Form 8-K filed on March 9, 1998.

       (14)      Incorporated by reference to Exhibit 4.1 of the Registrant's
                 Form 8-K filed on March 9, 1998.

       (15)      Incorporated by reference to the Registrant's  Quarterly Report
                 on Form  10-QSB for the  quarterly  period  ended May 31,  1998
                 filed on July 15, 1998.

       (16)      Incorporated by reference to the Registrant's  Annual Report on
                 Form 10-KSB for the fiscal year ended  August 31, 1998 filed on
                 December 15, 1998.

       (17)      Exhibit filed herewith.