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 May 31, 2000

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.)

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

                                 (916) 646-2020
                (Issuer's telephone number, including area code)

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 July 19, 2000,  4,305,428  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
                                  May 31, 2000
                                   (Unaudited)

<TABLE>
<CAPTION>


<S>                                                                             <C>
                                     Assets
Current assets:
  Cash and equivalents                                                          $      117,341
  Accounts receivable, net                                                             276,377
  Inventories, net                                                                     232,323
  Prepaid expenses and other current assets                                             35,058
                                                                                --------------
Total current assets                                                                   661,099
Furniture and equipment, net of accumulated
  depreciation and amortization of $1,094,197                                          222,274
Other assets                                                                             8,302
                                                                                --------------
                                                                                $      891,675
                                                                                ==============

                      Liabilities and Stockholders' Equity
Current liabilities:
  Borrowings under line of credit                                                            -
  Borrowings under note payable to, and unsecured
    advances from significant shareholder                                            1,875,658
  Accounts payable                                                                     725,514
  Accrued liabilities                                                                1,170,056
  Accrued warrant appreciation right                                                   314,357
  Deferred extended warranty revenue                                                   118,344
  Customer deposits                                                                    458,120
  Capitalized lease obligation and other notes payable                                   8,939
                                                                                --------------
Total current liabilities                                                            4,670,988
Capitalized lease obligation and other notes payable,
  less current portion                                                                  14,264
Commitments
Stockholders' deficit:
  Preferred stock, without par value, 20,000,000
    shares authorized:
      Series A Junior Participating Preferred Stock, without par value,
        100,000 shares authorized;  none issued or outstanding Series B
      Preferred Stock, $.01 par value, 2,000 shares
        authorized; 150 issued and outstanding                                           3,750
      Common stock, no par value, 20,000,000 shares authorized;
        4,305,428 issued and outstanding                                            10,518,854
       Deferred compensation                                                           (34,967)
       Accumulated deficit                                                         (14,281,214)
                                                                                --------------
Total stockholders' deficit                                                         (3,793,577)
                                                                                --------------
                                                                                $      891,675
                                                                                ==============
</TABLE>

See accompanying notes.


<PAGE>3


                           Ophthalmic Imaging Systems
                       Condensed Statements of Operations
                                   (Unaudited)


<TABLE>
<CAPTION>

                                              Three months ended May 31,          Nine months ended May 31,
                                                2000               1999            2000              1999
                                            -----------        -----------     ------------       -----------

<S>                                         <C>                <C>             <C>                <C>
Net revenues                                $ 1,109,278        $ 1,655,610     $  4,130,274       $ 5,005,897
Cost of sales                                   766,428            869,533        2,732,509         2,919,939
                                            -----------        -----------     ------------       -----------
Gross Profit                                    342,850            786,077        1,397,765         2,085,958
Operating expenses:
  Sales and marketing                           270,045            459,353        1,216,376         1,384,893
  General and administrative                    323,025            209,568          848,647           733,360
  Research and development                       60,377            241,527          257,113           712,440
                                            -----------        -----------     ------------       -----------
    Total operating expenses                    653,447            910,448        2,322,136         2,830,693
                                            -----------        -----------     ------------       -----------
Loss from operations                           (310,597)          (124,371)        (924,371)         (744,735)
Other expense, net                              (53,397)           (42,502)        (109,032)         (106,438)
                                            -----------        -----------     ------------       -----------
Loss before extraordinary item                 (363,994)           (166,873)     (1,033,403)         (851,173)
Extraordinary item                                    -             350,000               -           350,000
                                            -----------        ------------    ------------       -----------
Net income (loss)                           $  (363,994)       $    183,127    $ (1,033,403)      $  (501,173)
                                            ===========        ============    ============       ===========
Shares used in the calculation of basic
  net income (loss) per share                 4,305,428           4,155,428       4,277,406         4,155,428
                                            ===========        ============    ============       ===========
Basic loss per share before
  extraordinary item                              (0.08)       $      (0.04)   $      (0.24)      $     (0.20)
Extraordinary item                                    -                0.08               -              0.08
                                            -----------        ------------    ------------       -----------
Basic net income (loss) per share           $     (0.08)       $       0.04    $      (0.24)      $     (0.12)
                                            ===========        ============    ============       ===========

Shares used in the calculation of diluted
  net income (loss) per share                 4,305,428           4,155,428       4,277,406         4,155,428
                                            ===========        ============    ============       ===========
Diluted loss per share before
  extraordinary item                              (0.08)       $      (0.04)   $      (0.24)      $     (0.20)
Extraordinary item                                    -                0.08               -              0.08
                                            -----------        ------------    ------------       -----------
Diluted net income (loss) per share         $     (0.08)       $       0.04    $      (0.24)      $     (0.12)
                                            ===========        ============    ============       ===========

</TABLE>


See accompanying notes.

<PAGE>3

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


<TABLE>
<CAPTION>

                                                              Nine months ended May 31,
                                                              2000                1999
                                                           ------------        ----------

<S>                                                     <C>                  <C>
Operating activities:
Net loss                                                   $ (1,033,403)       $ (501,173)
Adjustments to reconcile net loss to net cash
  used in operating activities:
    Depreciation and amortization                                94,850            85,277
    Stock option compensation expense                            59,166            78,115
    Net decrease (increase) in current assets other
      than cash and equivalents                                 296,487          (399,292)
    Net increase in current liabilities other than
      short-term borrowings                                     750,895           245,842
                                                           ------------        ----------
Net cash provided by (used in) operating activities             167,995          (491,231)

Investing activities:
Purchases of furniture and equipment                            (13,994)            1,607
Net (increase) decrease in other assets                            (917)           (7,284)
                                                           ------------        ----------
Net cash used in investing activities                           (14,911)           (5,677)

Financing activities:
Principal payments on notes payable                                   -              (318)
Net (repayments of) proceeds from borrowings under
   note payable to and other advances from
   significant shareholder                                     (273,750)            9,289
Net proceeds from (repayments of) line-of-credit
   borrowings                                                         -           120,977
Net proceeds from sale of common stock                           56,250                 -
Net proceeds from sale of preferred stock                         3,750                 -
                                                           ------------        ----------
Net cash used in financing activities                          (213,750)          129,948
                                                           ------------        ----------
Net decrease in cash and equivalents                            (60,666)         (366,960)
Cash and equivalents at beginning of period                     178,007           514,186
                                                           ------------        ----------
Cash and equivalents at end of period                      $    117,341        $  147,226
                                                           ============        ==========

Supplemental schedule of noncash financing activities:
Increase in (reduction of) borrowings under note payable
   to and other advances from significant shareholder,
   net of reductions in exchange for inventory                  678,556        $ (182,778)
                                                           ============        ==========

</TABLE>

See accompanying notes.

<PAGE>5

                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

            Three and Nine Month Periods ended May 31, 2000 and 1999

                                   (Unaudited)


Note 1.   Basis of Presentation

          The accompanying unaudited condensed balance sheet as of May 31, 2000,
          condensed  statements  of  operations  for the  three  and nine  month
          periods  ended May 31, 2000 and 1999 and the  condensed  statements of
          cash flows for the nine month periods ended May 31, 2000 and 1999 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, 1999 on Form 10-KSB/A. 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  May 31,  2000 are not  necessarily
          indicative of the operating results for the full year.

          Certain  amounts in the fiscal  1999  financial  statements  have been
          reclassified  to conform  with the  presentation  in the  fiscal  2000
          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>
<CAPTION>


                                                 Unaudited                     Unaudited
                                         Three Months Ended May 31,     Nine Months Ended May 31,
                                            2000           1999           2000            1999
                                        ============   ============   ============    ============

<S>                                  <C>             <C>            <C>             <C>
Numerator for basic and
diluted net income (loss)               $   (363,994)  $    183,127   $ (1,033,403)   $   (501,173)
                                        ============   ============   ============    ============
Denominator for basic net
income (loss) per share:
  Weighted average shares                  4,305,428      4,155,428      4,277,406       4,155,428

Effect of dilutive securities:
  Employee stock options                          --             --             --              --
  Warrants and other                              --             --             --              --
                                        ------------   ------------   ------------    ------------
Dilutive potential common shares                  --             --             --              --
                                        ============   ============   ============    ============
Denominator for diluted
net income (loss) per share                4,305,428      4,155,428      4,277,406       4,155,428
                                        ============   ============   ============    ============
Basic net income (loss) per share       $      (0.08)  $       0.04   $      (0.24)   $      (0.12)
                                        ============   ============   ============    ============
Diluted net income (loss) per share     $      (0.08)  $       0.04   $      (0.24)   $      (0.12)
                                        ============   ============   ============    ============
</TABLE>

Note 3.   Short-Term Borrowings

          The Company entered into an accounts  receivable credit agreement (the
          "Credit  Agreement")  with a bank  (the  "Bank")  in  July  1999.  The
          Agreement allowed for up to an 80% advance rate on eligible receivable
          balances.  Borrowings were secured by substantially  all assets of the
          Company and bore  interest at the Bank's prime  lending rate plus 10%.
          The  minimum  monthly  amount  charged by the Bank was the  greater of
          interest  calculated  in  accordance  with the  immediately  preceding
          sentence or $1,200.  The Credit Agreement remained in effect from year
          to year unless  terminated  in writing by the Company or the Bank.  At
          May 31,  2000,  no principal  borrowings  were  outstanding  under the
          Credit  Agreement.  By letter to the Bank  dated  June 23,  2000,  the
          Company  confirmed the termination of the Credit  Agreement  effective
          upon earlier verbal  notification  to the Company by the Bank that the
          Bank was no longer willing to make advances under the Credit Agreement
          (see Note 9).

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").   Under  the  Note,  borrowings  against  the  Note  were
          available to the Company in the form of periodic advances. The maximum
          principal  amount  available  under  the  Note  was  $500,000,   which
          principal  amount  outstanding,  together  with  any and  all  accrued
          interest,  was payable the earlier of (i) written demand by Premier or
          (ii)  April 30,  1999.  Under the terms of the Note,  borrowings  bear

<PAGE>7

          interest  at the rate of 8 1/2% per annum,  are  secured by certain 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 other  substantial  advances to the Company that
          are not covered by the Note.

          In February 2000, Premier made demand for repayment of gross amount of
          intercompany debt calculated by Premier to be in excess of $2 million.

          At May 31, 2000, the Company had recorded approximately  $2,122,000 in
          principal and interest  outstanding under the Note and other advances,
          of which  approximately  $247,000 of accrued  interest was included in
          other accrued liabilities. The principal amount is net of, among other
          things,  an offset for inventory  transferred to Premier pursuant to a
          Manufacturing  Agreement  entered into between the Company and Premier
          (see  Note  5).  The  principal  amount  is  not  net  of  a  $500,000
          termination  fee in  connection  with the  terminated  Stock  Purchase
          Agreement in 1998 ("Termination Fee") over which there is disagreement
          between  Premier and the Company as to whether the Company is entitled
          to the Termination Fee and whether such Termination Fee can be used as
          an offset to the  Company's  debt to  Premier,  nor is it net of other
          offsets  in  presently  undetermined  amounts  to  which  the  Company
          believes it is entitled.

          In July 2000,  the Company,  Premier and  MediVision  Medical  Imaging
          Ltd., an Israeli corporation ("MediVision"),  entered into a series of
          definitive  agreements whereupon,  among other things,  MediVision has
          agreed to purchase from Premier the Note and all  outstanding  debt of
          the Company currently owed to Premier.  The debt will be converted per
          the agreements into shares of the Company's common stock. The purchase
          of the Note  and  other  debt  from  Premier  is  contingent  upon the
          satisfaction of certain preconditions and closing conditions set forth
          in the  agreements.  In connection  with the closing of the agreements
          with MediVision,  Premier and the Company will execute a mutual waiver
          and release of claims,  thereby  releasing each other from any and all
          claims,  whether  known  or  unknown  between  them,  other  than  the
          Termination Fee claimed by the Company against Premier (see Note 9).

<PAGE>8

Note 5.   Manufacturing Agreement

          In March 1999,  the Company and Premier  entered into a  manufacturing
          agreement   ("Manufacturing   Agreement")   whereby   Premier  was  to
          manufacture the majority of the Company's products.

          Under the terms of the  Manufacturing  Agreement,  among other things,
          the  Company  charged  Premier for certain  inventory  transferred  to
          Premier and Premier  charged  the  Company for  products  manufactured
          pursuant to the Manufacturing Agreement.

          In February  2000,  Premier  discontinued  production of the Company's
          products under the Manufacturing  Agreement.  Premier alleged that the
          Company  breached  the  Manufacturing   Agreement  and  therefore  was
          entitled  to  terminate  the  Manufacturing  Agreement  and  force the
          Company to purchase inventory in an amount in excess of $850,000.  The
          amount of the claim has since been reduced to $625,000 and the Company
          has agreed to purchase  inventory  from  Premier up to such value with
          proceeds  from the loan from  MediVision  subject  to  closing  of the
          agreements with  MediVision.  In any event,  the Company believes that
          Premier was not entitled to terminate the Manufacturing  Agreement for
          breach and the claim for recovery of termination  damages is therefore
          not valid (see Note 9).

Note 6.   Merger Agreement

          On October 21, 1999, the Company and Premier entered into an agreement
          and plan of reorganization  (the "Merger  Agreement"),  whereby,  upon
          requisite  shareholder  approval and the satisfaction of certain other
          preconditions,  the Company would become a wholly-owned  subsidiary of
          Premier.

          In February 2000, Premier notified the Company that it was considering
          seeking  protection  under the U.S.  Bankruptcy  Code and the  Company
          thereupon  terminated  the Merger  Agreement on February 17, 2000.  In
          March 2000,  Premier  filed a voluntary  petition for  protection  and
          reorganization under Chapter 11 of the U.S. Bankruptcy Code.

<PAGE>9


Note 7.   Series B Preferred Stock and Related Agreements

          The Company and Premier  executed a Series B Preferred  Stock Purchase
          Agreement on October 21, 1999 whereby, among other things, the Company
          agreed to sell to Premier,  upon the issuance by the Company of shares
          of its common stock pursuant to the exercise of stock options,  shares
          of the Company's  Series B Preferred Stock at a price of $25 per share
          with each  share  carrying  the  voting  power of 1,000  shares of the
          Company's common stock.

          Also on  October  21,  1999,  the  Company,  Premier  and three of the
          Company's outside directors (the "exercising  Directors") entered into
          a stock purchase agreement (the "Agreement")  pursuant to which, among
          other things,  the  Exercising  Directors  each  exercised  options to
          purchase  50,000 shares of common stock at an exercise price of $0.375
          per share resulting in net proceeds to the Company of $56,250.

          Also under the terms of the Agreement, Premier purchased 150 shares of
          the Company's  Series B Preferred Stock at a per share price of $25 in
          exchange for Premier's  cancellation  of certain of the Company's debt
          in the aggregate amount of $3,750.

          As a result of the foregoing transactions,  Premier owns approximately
          49  1/2%  of the  Company's  outstanding  common  stock  and  all  150
          outstanding shares of the Company's Series B Preferred Stock,  thereby
          giving Premier majority voting control.

Note 8.   Ability to Continue as a Going Concern

          The Company has an accumulated deficit of $14,281,214 at May 31, 2000.
          In addition,  current  liabilities exceed current assets by $4,009,889
          as of that date.  These factors,  among others,  may indicate that the
          Company will be unable to continue as a going concern for a reasonable
          period of time.

          As a consequence  of Premier's  repayment  demands,  together with the
          impact of the  termination of the Merger  Agreement and  Manufacturing
          Agreement,  the Company is having  difficulty in meeting its near-term
          cash  requirements,  and,  without  an  infusion  of  capital or other
          improvements in its liquidity  position,  its ability to continue as a
          going concern is doubtful.

          In July 2000,  to secure  outside  funding,  the Company  entered into
          definitive  agreements with  MediVision and Premier,  certain of which
          are contingent  upon the  satisfaction  of  preconditions  and closing
          conditions set forth in the  agreements  (see Note 9). There can be no
          assurance,  however,  that the  transactions  contemplated  under  the
          agreements will be consummated,  resulting in the anticipated funding.
          If the parties fail to consummate  the funding for any reasons,  there
          can be no  assurance  that the  Company  will be able to obtain  other
          third party funding or be able to continue as an ongoing concern.

<PAGE>10

Note 9.   Subsequent Events

          By letter to the Bank dated June 23, 2000,  the Company  confirmed the
          termination  of the  Credit  Agreement  with the Bank  effective  upon
          earlier verbal  notification  to the Company by the Bank that the Bank
          was no longer willing to make advances under the Credit Agreement (see
          Note 3).

          On July 13, 2000, the Company,  Premier and MediVision  entered into a
          series of definitive  agreements relating to the transfer of Premier's
          ownership  interests in the Company to MediVision in exchange for $3.2
          million in cash and stock (the "MediVision Investments").  In separate
          but related transactions, MediVision has agreed to loan the Company up
          to $260,000 as short-term  funding to purchase inventory for continued
          manufacturing  operations  and,  upon the closing of the  transactions
          contemplated  under the agreements  (the  "Closing"),  MediVision will
          also loan $1.5 million to the Company,  which shall be  convertible at
          MediVision's  option  into  shares  of  the  Company's  common  stock.
          Pursuant to the  agreements  relating to the  MediVision  Investments,
          MediVision  will  purchase  all of the stock  and debt of the  Company
          currently held by Premier, and the debt, calculated at its approximate
          book value of $2.1 million,  will be converted per the agreements into
          shares of the  Company's  common stock at a conversion  price of $0.55
          per share.

          At the Closing,  Premier and the Company will execute a mutual  waiver
          and release of claims,  thereby  releasing each other from any and all
          claims, whether known or unknown between them, other than the $500,000
          Termination  Fee claimed by the Company  against Premier (see Note 4).
          The  Company  intends to submit the  Termination  Fee as an  unsecured
          claim  against  Premier  as  part  of  the  bankruptcy  reorganization
          process,  although  there can be no  assurance  that the claim will be
          confirmed by the bankruptcy court or otherwise paid by Premier.

          Until the Closing, there can be no assurance that the bankruptcy court
          will  approve the  MediVision  Investments  or that the  parties  will
          consummate the  transactions  or that any party will not seek to avoid
          its  obligations  under the definitive  agreements.  The  contemplated
          transactions  are  still  subject  to  customary  closing  conditions,
          including, among other things, absence of material adverse events.

<PAGE>11


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

     This report contains  forward-looking  statements within the meaning of the
federal securities laws. The Company intends such forward-looking  statements to
be  covered  by the safe  harbor  provisions  contained  in  Section  27A of the
Securities  Act of 1933,  as amended,  and in Section 21E of the Exchange Act of
1934,  as  amended.  Forward-looking  statements,  which  are  based on  certain
assumptions  and describe  future  plans,  strategies  and  expectations  of the
Company,  are generally  identifiable by use of the words  "believe,"  "expect,"
"intend,"  "anticipate,"  "estimate,"  "project,"  or similar  expressions.  The
Company's  ability to predict  results or the actual  effect of future  plans or
strategies is inherently uncertain.  Factors which could have a material adverse
effect on its operations and future prospects  include,  but are not limited to,
changes in: economic  conditions  generally and the medical  instruments  market
specifically, legislative or regulatory changes affecting OIS, including changes
in healthcare regulation,  the availability of working capital, the introduction
of competing products,  and other risk factors described herein. These risks and
uncertainties,  together  with the other  risks  described  from time to time in
reports  and  documents  filed by OIS  with  the SEC  should  be  considered  in
evaluating  forward-looking  statements, and undue reliance should not be placed
on such statements.  Indeed, it is likely that some of the Company's assumptions
will prove to be incorrect.  The Company's actual results and financial position
will vary from those projected or implied in the forward-looking statements, and
the variances may be material.

Overview

To  date,  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 retinal specialists.

In an effort to expand its role in the  ophthalmic  imaging  field by developing
products  and   applications   targeted  at  the  broader   markets  of  general
ophthalmology and optometry, OIS has applied significant resources over the past
two years to the development of two ocular imaging  devices,  the Digital Fundus
Imager the ("DFI") and the Digital Slit Lamp Imager (the "DSLI").

At the 1998 Annual Meeting of the American Academy of  Ophthalmology  (the "1998
AAO  Meeting")  held during the first  quarter of fiscal 1999,  the DFI received
considerable   interest  and  the  Company  has  received  significant  purchase
commitments for that product.

The Company,  however,  has had limited  financial and operational  resources to
meet the demand resulting from the introduction of this product. In that regard,
during  the  third  quarter  of  fiscal  1999,  the  Company  entered  into  the
Manufacturing   Agreement  with  Premier  Laser   Systems,   Inc.  a  California
corporation ("Premier"),  whereby Premier began assembling and manufacturing the
Company's products, including the DFI and DSLI.

In  addition,  the  Company  agreed  with  Premier on  co-marketing  and selling
arrangements  whereby,  among other things:  (a) the Company would distribute in

<PAGE>12


the United  States and Canada  certain of  Premier's  EyeSys  products;  and (b)
Premier  would  distribute  the  Company's  products  in  certain  international
markets. In anticipation of these arrangements, the Company and Premier had been
selling their ophthalmic products through a jointly managed EyeSys Vision Group,
which made its debut at the American Society of Cataract and Refractive  Surgery
meeting in April 1999.

The  Company  entered  into these  arrangements  in  anticipation  of the Merger
Agreement,   discussed  in  further  detail  below,   and  consummation  of  the
transactions contemplated thereby.

In February  2000,  however,  Premier  informed the Company of its  inability to
pursue  acquisition of the Company under the Merger Agreement and its intentions
to seek voluntary bankruptcy  protection under Chapter 11. The Company responded
by terminating the Merger Agreement.

As a consequence of the termination of the Merger Agreement in February 2000 and
Premier's filing for protection under the U.S. Bankruptcy Code in March 2000 and
the related furlough of the preponderance of its workforce, the co-marketing and
selling  arrangements  are no longer  in effect  and  Premier  has  discontinued
producing the Company's products under the Manufacturing  Agreement. The Company
has resumed  manufacture  and  assembly of its  products  in its  facilities  in
Sacramento,  California but has incurred  increased costs and significant delays
in production and product deliveries as a result of these failed arrangements.

The Company's results of operations have historically fluctuated from quarter to
quarter and from year to year and management  anticipates that such fluctuations
will continue in the future.  The Company has experienced  operating  losses for
each fiscal year since its initial public offering in 1992. At May 31, 2000, the
Company  had an  accumulated  deficit in excess of $14  million  and its current
liabilities  exceeded  its current  assets by more than $4 million.  The Company
continues to experience  cash flow  deficits and there can be no assurance  that
the Company will be able to achieve or sustain significant  positive cash flows,
revenues or profitability in the future.

Premier Transactions

On February 25,  1998,  the Company and Premier  entered  into a Stock  Purchase
Agreement (the "Stock Purchase  Agreement"),  whereby Premier would offer to buy
those shares of the  Company's  common stock not already  owned by it. In August
1998, however,  Premier notified that Company that, due to a variety of factors,
Premier would not be able to close the transactions contemplated under the Stock
Purchase  Agreement  and the Company  thereupon  terminated  the Stock  Purchase
Agreement.  As a result of such termination,  the Company made demand to Premier
for payment of a $500,000  termination fee (the  "Termination  Fee") as provided
for in the Stock  Purchase  Agreement.  The demand  was not  pursued at the time
because of a revival of plans for merger of the companies.

<PAGE>13


On October 21, 1999, the Company and Premier  entered into an Agreement and Plan
of Reorganization (the "Merger Agreement") whereby,  upon requisite  shareholder
approval, the Company would have become a wholly-owned subsidiary of Premier.

Also on October  21,  1999,  the  Company  and  Premier  entered  into two stock
purchase  agreements  with  respect to the  Company's  Series B Preferred  Stock
whereby,  among other  things,  Premier  purchased  150 shares of the  Company's
Series B  Preferred  Stock with each share  carrying  the voting  power of 1,000
shares of the Company's  common  stock,  at a per share price of $25 in exchange
for Premier's  cancellation  of certain of the  Company's  debt in the aggregate
amount of $3,750.

In February 2000,  Premier notified the Company that it was considering  seeking
protection under the U.S.  Bankruptcy Code and the Company thereupon  terminated
the Merger  Agreement  on February  17,  2000.  In March 2000,  Premier  filed a
voluntary  petition for  protection and  reorganization  under Chapter 11 of the
U.S. Bankruptcy Code.

As a result of the foregoing transactions, Premier currently owns 49 1/2% of the
Company's  outstanding  common  stock  and all  150  outstanding  shares  of the
Company's  Series B Preferred  Stock,  thereby  giving Premier  majority  voting
control.

By letter dated February 17, 2000,  Premier made demand for the repayment by the
Company of certain  intercompany  debt allegedly owed to Premier,  which Premier
claims  exceeds $2 million.  Premier also alleged that the Company  breached the
Manufacturing   Agreement   and   therefore   was  entitled  to  terminate   the
Manufacturing Agreement and force the Company to purchase inventory in an amount
in excess of  $850,000.  The  amount of the  claim  has since  been  reduced  to
$625,000  and the Company has agreed to purchase  inventory  from  Premier up to
such value with proceeds from the loan from MediVision  Medical Imaging Ltd., an
Israeli corporation  ("MediVision"),  subject to the Closing described below. In
any event,  the Company  believes that Premier was not entitled to terminate the
Manufacturing  Agreement  for breach and the claim for  recovery of  termination
damages is therefore not valid

On July 13, 2000, the Company,  Premier and MediVision  entered into a series of
definitive  agreements relating to the transfer of Premier's ownership interests
in the Company to MediVision in exchange for $3.2 million in cash and stock (the
"MediVision Investments"). In separate but related transactions,  MediVision has
agreed to loan the  Company up to  $260,000  as  short-term  funding to purchase
inventory for continued  manufacturing  operations  and, upon the closing of the
transactions contemplated under the agreements (the "Closing"),  MediVision will
also  loan  $1.5  million  to  the  Company,   which  shall  be  convertible  at
MediVision's  option into shares of the Company's common stock.  Pursuant to the
agreements relating to the MediVision Investments,  MediVision will purchase all
of the stock and debt of the Company  currently  held by Premier,  and the debt,
calculated at its approximate book value of $2.1 million,  will be converted per
the agreements into shares of the Company's  common stock at a conversion  price
of $0.55 per share.

At the Closing, Premier and the Company will execute a mutual waiver and release
of claims,  thereby releasing each other from any and all claims,  whether known

<PAGE>14


or unknown between them, other than the $500,000  Termination Fee claimed by the
Company  against  Premier  (see  Note  4 of the  Notes  to  Condensed  Financial
Statements  included  in Item 1 of this Form  10-QSB).  The  Company  intends to
submit the  Termination Fee as an unsecured claim against Premier as part of the
bankruptcy  reorganization process,  although there can be no assurance that the
claim will be confirmed by the bankruptcy court or otherwise paid by Premier.

Until the Closing,  there can be no  assurance  that the  bankruptcy  court will
approve the  MediVision  Investments  or that the parties  will  consummate  the
transactions or that any party will not seek to avoid its obligations  under the
definitive  agreements.  The  contemplated  transactions  are still  subject  to
customary closing conditions, including, among other things, absence of material
adverse events.

If the parties are unable or unwilling to consummate the contemplated investment
transactions,  there can be no assurance that the Company will be able to secure
alternative  funding  upon terms and  conditions  that are  satisfactory  to the
Company,  if at all, and there will be no assurance  that the Company could meet
its short-term liquidity commitments.

Results of Operations

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,  2000.  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.

The Company  incurred a net loss of $363,994,  or $.08 per share,  for the third
quarter of fiscal 2000 as compared to generating net income of $183,127, or $.04
per share, for the third quarter of fiscal 1999. The Company incurred a net loss
of $1,033,403, or $.24 per share, for the first nine months of 2000 versus a net
loss of  $501,173,  or $.12 per share per share,  for the  comparable  period of
1999.  The 1999  figures for both the third  quarter and the  nine-month  period
include an extraordinary gain of $350,000, or $.08 per share, resulting from the
negotiated  reduction  of  certain  professional  fees and  expenses  previously
recorded  in  connection  with the  terminated  Stock  Purchase  Agreement  with
Premier.

The per 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).

<PAGE>15

Notwithstanding  the positive  impact of the  extraordinary  item, some negative
impact on earnings was  attributable  to  continuing  diversion of the Company's
resources and management's attention to acquisition matters in 1999. The results
of  operations  for the first nine months of 2000 reflect the adverse  impact on
revenues  and  corporate  operations  resulting  from  delays in delivery of the
Company's  products  associated  with the  outsourcing  of the  manufacture  and
assembly  of the  Company's  products  under the  Manufacturing  Agreement  with
Premier during the first two quarters,  as well as the disruption resulting from
termination  of the  Manufacturing  Agreement  and return of  production  to the
Company's  facilities in Sacramento,  California.  In addition,  the Company has
incurred  higher  than  normal  costs  and  professional  fees and  expenses  in
connection with the contemplated  transactions  with Premier,  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.
Further,  the Company has noted a reduction in its new order bookings  following
the  termination  of the Merger  Agreement and Premier's  subsequent  filing for
bankruptcy  protection,  which could impact the  Company's  future  results from
operations.  It is believed  that much of this order  pattern  reflects  concern
about the Company's financial stability.

The results of operations do not include any amounts with respect to a potential
contingent  liability in connection  with the collection of sales taxes from the
Company's  customers,  which amount has been  estimated on the basis of numerous
factors and assumptions  that might, in the least favorable  combination,  reach
$1.5 million.  Management believes that the probability of such an assessment is
remote  and  accordingly,   has  not  recorded  a  liability  in  its  financial
statements.  However,  there can be no  assurance  that the  amount  that  might
ultimately  be  assessed  for prior  periods  would not  materially  affect  the
Company's results of operations or cash flows in any given reporting period.

The  results of  operations  also do not include  any  amounts  with  respect to
Premier's  allegation  that  the  Company  is in  breach  of  the  Manufacturing
Agreement and therefore  owes to Premier an amount in excess of $850,000 for the
purchase  of certain  inventory.  The  Company  believes  that  Premier  was not
entitled to terminate the  Manufacturing  Agreement for breach and the claim for
recovery of termination damages is therefore not valid and accordingly,  has not
recorded a liability in its  financial  statements.  Further,  the amount of the
claim has been reduced to $625,000 and it would be eliminated by purchase of the
inventory by the Company from Premier in connection  with the Closing  described
above.  However,  if the  parties to the  MediVision  Investments  are unable or
unwilling to consummate the contemplated investment  transactions,  there can be
no  assurance   that  the  amount  of  termination   damages   relating  to  the
Manufacturing  Agreement,  if any,  would not  materially  affect the  Company's
results of operations or cash flows in any given reporting period. Subsequent to
the claim,  the  Company  has  purchased  and would be willing  to  continue  to
purchase  inventory  from  Premier as and when needed to meet future  production
schedules.

The  Company's  revenues  for the third  quarter of fiscal 2000 were  $1,109,278
representing a decrease of approximately 33% from revenues of $1,655,610 for the
third quarter of fiscal 1999.  Revenues for the first nine months of fiscal 2000
were $4,130,274  representing a decrease of  approximately  18% from revenues of
$5,005,897 for the comparable  period of fiscal 1999. The reduced revenue levels

<PAGE>16

during the first nine months of fiscal 2000 resulted, in large part, from delays
in delivery of the Company's  products  associated  with the  outsourcing of the
manufacture  and assembly of the Company's  products during the first six months
of the year  under  the  Manufacturing  Agreement  with  Premier  as well as the
disruptive impact on production  efforts during the third quarter resulting from
the  termination of the  Manufacturing  Agreement.  In addition,  this reduction
reflects,  to some extent,  the adverse  impact of  management's  efforts  being
directed to the negotiation of the failed Merger  Agreement with Premier as well
as subsequent acquisition matters during the period and less time devoted to the
generation of sales.  Lastly,  the fiscal 2000  nine-month  revenue  levels were
negatively  affected by the allocation of the Company's  selling  resources away
from its core WinStation products.  Some selling resources were allocated during
the  period to  EyeSys  products  in  support  of  co-marketing  and  co-selling
arrangements  with Premier which have been terminated,  as well as the Company's
low-cost  digital imaging systems  incorporating  its recently  developed ocular
imaging  devices,  the DFI and the DSLI. These low-cost digital imaging products
were introduced at the 1998 AAO Meeting and the Company has received significant
purchase  commitments  for these  products.  While the Company  made its initial
commercial  deliveries  of these  products  during the fourth  quarter of fiscal
1999,  revenues  from  the  sales  of  these  units  to  date  have  been  below
management's  initial  expectations  for a variety of reasons,  including  those
noted  above  as  well  as  certain  delays   inherent  in  the  launch  of  new
technology-based  products.  While,  as a result of the  foregoing,  the Company
currently has a significant backlog of orders, the Company has noted a reduction
in its new order bookings  following the termination of the Merger Agreement and
Premier's subsequent filing for bankruptcy protection.  In addition,  certain of
the Company's sales,  marketing and executive management personnel have resigned
their positions during 2000, which could further  adversely impact the Company's
ability to generate new order  bookings in the future.  Certain of the executive
management  personnel are  currently  working  with,  and  providing  consulting
services for, the Company as independent contractors.  The Company's Chairman of
the Board of Directors is presently  acting as the Company's  President until it
is able to recruit and hire new management pending the results of its efforts to
secure additional funding.  Reference is made to the Company's Form 8-K filed on
March 17, 2000 summarizing the executive management resignations.

Gross margins were approximately 31% during the third quarter ended May 31, 2000
versus  approximately 48% for the comparable quarter of 1999. For the nine-month
period ended May 31, 2000, gross margins were  approximately  34% as compared to
approximately  42% during the comparable  period of 1999. The lower gross margin
percentages  during the fiscal 2000 third quarter and nine-month periods are due
in  large  measure  to  product  and  other  direct  costs  comprising  a higher
percentage  of  revenues  during the  periods as  compared  with the  comparable
periods of fiscal  1999 as well as the  impact of fixed  costs  absorption  over
substantially  lower revenue  levels during fiscal 2000 versus 1999. The Company
has  expended   considerable   resources  in  connection  with  the  outsourcing
arrangements under the terminated Manufacturing Agreement,  including efforts to
resume manufacture and assembly of its products in its facilities in Sacramento,
California commencing at the end of the second quarter of 2000. Costs associated
with these  efforts,  together with delays in the timely  delivery of certain of
its products under and subsequent to termination of the Manufacturing  Agreement

<PAGE>17


also have  adversely  impacted  gross  margins.  Continued  delays in delivering
products, if significant, would adversely impact the Company.

Sales and  marketing  and  general and  administrative  expenses  accounted  for
approximately  53% of total  revenues  during the third  quarter of fiscal  2000
versus  approximately  40% of total  revenues  during the same  period of fiscal
1999.  For the first nine months of fiscal  2000 and fiscal  1999 such  expenses
accounted for  approximately  50% and 42% of total  revenues for the  respective
nine-month periods,  with the increased  percentage  resulting  principally as a
function of the reduced  revenue  levels during the  nine-month  period of 2000.
Expense  levels  decreased to $593,070  during the third  quarter of 2000 versus
$668,921  during the third  quarter of 1999.  For the first nine months of 2000,
expense levels  decreased to $2,065,023  from  $2,118,253  during the comparable
period of 1999.  As previously  noted,  certain  sales,  marketing and executive
management  personnel have recently  resigned their  positions and the Company's
ability to recruit and hire new  management is largely  dependent on the results
of its efforts to secure additional funding.

Research and development  expenses decreased by approximately 75% to $60,377, or
approximately  5% of revenues in the third quarter of fiscal 2000 from $241,527,
or  approximately  15% of revenues in the third quarter of fiscal 1999.  For the
first nine months of fiscal 2000, such expenses  accounted for  approximately 6%
of total revenues as compared to approximately  14% during the comparable period
of 1999.  While the  Company  intends  to  continue  to focus its  research  and
development  efforts on its new digital image capture products and reducing cost
configurations for its current products, the extent and focus of future research
and development  efforts will be extremely limited and depend, in large measure,
on the Company's ability to secure additional funding.

Other expense was $53,397 during the third quarter of fiscal 2000 versus $42,502
during the same period of 1999.  For the nine-month  periods,  other expense was
$109,032  and  $106,438  in fiscal  2000 and fiscal  1999,  respectively.  Other
expense in both years was comprised  principally of interest expense  associated
with  borrowings  and other advances from Premier,  as well as borrowings  under
credit  facilities  with the  Company's  bank.  The fiscal  2000  expenses  were
partially offset by an insurance claim settlement during the second quarter.

Liquidity and Capital Resources

The Company's operating  activities generated cash of $167,995 in the first nine
months of fiscal  2000 and used cash of  $491,231  in the first  nine  months of
fiscal 1999. The cash generated from operations  during the first nine months of
fiscal 2000 was  principally  from  increased  liability in connection  with the
Manufacturing Agreement with Premier,  increased accounts payable and collection
of accounts receivable, which amounts more than offset cash expended to fund the
net  loss  during  the  period  (see  Note 4 of  Notes  to  Condensed  Financial
Statements included in Item 1 of this Form 10-QSB).  The cash used in operations
during the first nine months of 1999 was  expended  principally  to fund the net
loss during the period and the increase in accounts  receivable  associated with

<PAGE>18

timing of product  deliveries  toward  the end of the  period.  This  amount was
partially offset by increases in customer deposits.

Cash used in investing  activities  was $14,911  during the first nine months of
2000 as  compared  to $5,677  during  the same  period for 1999.  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 used cash for financing activities of $213,750 during the first nine
months of fiscal 2000 as compared to generating cash of $129,948 during the same
period of fiscal 1999. The cash generated from financing  activities  during the
first nine months of fiscal 2000  resulted from the exercise of stock options by
the Exercising Directors during the period as well as the purchase by Premier of
shares of the Company's Series B Preferred  Stock.  These amounts only partially
offset  amounts paid to Premier  during the second  quarter in  connection  with
inventory purchases under the Manufacturing  Agreement.  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 other advances by Premier.

As  discussed in further  detail in Note 3 of the Notes to  Condensed  Financial
Statements included in Item 1 of this Form 10-QSB, an accounts receivable credit
agreement (the "Credit  Agreement") entered into by the Company with the Bank on
July 13, 1999 has recently been terminated. There were no outstanding borrowings
under the Credit Agreement at May 31, 2000.

Additionally, as discussed further in Note 4 of the Notes to Condensed Financial
Statements  included  in Item 1 of this  Form  10-QSB,  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,  was payable the earlier of written demand by Premier or April
30, 1999.  Premier also has made other substantial  advances to the Company that
are not  specifically  covered by the Premier Note. At May 31, 2000, the Company
had recorded  approximately  $2.1 million of indebtedness to Premier,  including
principal and interest outstanding under the Premier Note and other advances, as
well  as  charges  and  credits  pursuant  to the  terms  of  the  Manufacturing
Agreement.  The amount is not net of the $500,000  Termination Fee in connection
with the terminated  Stock Purchase  Agreement in 1998, nor is it net of certain
other offsets in a presently  undetermined  amount to which the Company believes
it is entitled.  Premier has made demand for the repayment of gross intercompany
debt owed to Premier as well as certain  amounts in  connection  with  Premier's
allegation that the Company  breached the  Manufacturing  Agreement as discussed
above.  Also as  described  above,  the  debt  will be  sold to  MediVision  and
ultimately retired in connection with the transactions  contemplated pursuant to
the agreements with Premier and MediVision.

<PAGE>19

At May 31, 2000, the Company's  cash and cash  equivalents  were  $117,341.  The
Company is having difficulty in meeting its near-term cash requirements, and, in
light of the termination of the Credit Agreement and Premier's  repayment demand
notwithstanding,  the Company's  existing  cash  balances  together with ongoing
collections of its accounts  receivable  will likely not be adequate to meet its
other  liquidity and capital  requirements  in the immediate  term.  Substantial
delays in the  delivery  of the  Company's  products  would  result  in  reduced
anticipated cash flow from sales of such products as well as potential increased
costs associated therewith.  Additionally, such delays could prompt customers to
request return deposits which would further  adversely impact the Company's cash
position. Further, demand for payment by the Bank of amounts claimed pursuant to
a stock  appreciation  right  granted  to the Bank in  connection  with a Credit
Agreement  could also result in the immediate need for  additional  cash. At May
31, 2000, the Company had accrued approximately $314,000 in contingent liability
under the stock appreciation right.

While  the  Company  has  recently  entered  into  definitive   agreements  with
MediVision and Premier to secure outside funding,  certain of the agreements are
contingent upon the  satisfaction of  preconditions  and closing  conditions set
forth in the agreements.  Although the Company anticipates that these conditions
will be satisfied,  there can be no assurance that the transactions contemplated
under the agreements will be consummated,  resulting in the anticipated funding.
If the parties fail to consummate  the funding for any reasons,  there can be no
assurance  that the Company will be able to obtain other third party  funding or
be able to continue as a going concern.

<PAGE>20

                            PART II OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS
          None.

ITEM 2.   CHANGES IN SECURITIES

          On October 18, 1999, the Company filed with the  California  Secretary
          of State a certificate of  determination  establishing  the rights and
          privileges  of the  Company's  convertible  Series B Preferred  Stock.
          Reference is made to the Company's Form 8-K filed on November 24, 1999
          summarizing those rights and privileges.

          On October 21,  1999,  the  Company  and  Premier  executed a Series B
          Preferred Stock Purchase  Agreement  whereby,  among other things, the
          Company agreed to sell to Premier, upon the issuance by the Company of
          shares of its common stock  pursuant to the exercise of stock options,
          shares of the Company's Series B Preferred Stock at a price of $25 per
          share with each share carrying the voting power of 1,000 shares of the
          Company's common stock.

          Also on  October  21,  1999,  the  Company,  Premier  and three of the
          Company's outside directors (the "exercising  Directors") entered into
          a stock purchase agreement (the "Agreement")  pursuant to which, among
          other things,  the  Exercising  Directors  each  exercised  options to
          purchase  50,000 shares of common stock at an exercise price of $0.375
          per share resulting in net proceeds to the Company of $56,250.

          The stock  purchased by the  Exercising  Directors is  restricted  and
          subject to  repurchase by the Company until the earlier of May 9, 2000
          or the Effective  date of the  Company's  acquisition  by Premier,  as
          defined  in  the  Merger  Agreement.  Also  under  the  terms  of  the
          Agreement,  Premier  purchased  150 shares of the  Company's  Series B
          Preferred  Stock at a per share price of $25 in exchange for Premier's
          cancellation of certain of the Company's debt in the aggregate  amount
          of  $3,750.  These 150  shares of  Series B  Preferred  Stock are also
          restricted  and  subject to  repurchase  by the Company if the Company
          repurchases  any of  the  common  stock  purchased  by the  Exercising
          Directors.

          As a result of the foregoing transactions,  Premier owns approximately
          49  1/2%  of the  Company's  outstanding  common  stock  and  all  150
          outstanding   shares  of  the  Company's  Series  B  Preferred  Stock,
          resulting in sole voting power of approximately 53%.

          The sale of Series B Preferred  Stock to Premier was exempt  under the
          federal  securities  laws by virtue of  Regulation  D.  Premier  was a
          corporation  with  total  assets in excess  of $5  million,  the total
          purchase  price was of the  transaction  was less than $1 million  and
          there was no general solicitation with respect to the transaction.

<PAGE>21

          Under the transactions contemplated pursuant to the agreements entered
          into by the Company with Premier and  MediVision  in July 2000,  among
          other  things,  all of the Company's  debt owed to Premier,  including
          amounts under the Premier Note,  will be converted  into shares of the
          Company's  common  stock  and  the  direct  loan of  $1.5  million  by
          MediVision  into the  Company  shall be  convertible  at  MediVision's
          option into shares of the Company's common stock.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

          As indicated in Note 4 of the Notes to Condensed Financial Statements,
          and  addressed   further  in  the  Liquidity  and  Capital   Resources
          discussion  of Item 2 of  Part I of this  report,  the  Company  is in
          default of its principal and interest  payment  obligations  under the
          Note with Premier.

          In addition,  the Company  also has recorded  liability to Premier for
          other advances made to the Company by Premier.

          The aggregate  amount  recorded as liability at May 31, 2000 under the
          Note  and  other  advances,  including  principal  and  interest,  was
          approximately  $2,122,000,  which  amount  was net of  certain  offset
          charges pursuant to the terms of the Manufacturing Agreement described
          in Note 5 of the Notes to Condensed Financial Statements.  This amount
          is not  net of a  $500,000  termination  fee in  connection  with  the
          terminated  Stock  Purchase  Agreement  in 1998  over  which  there is
          disagreement between Premier and the Company as to whether the Company
          is entitled to said  termination fee and whether such  termination fee
          can be used as an offset to the Company's  debt to Premier,  nor is it
          net of other  offsets in an  undetermined  amount to which the Company
          believes it is entitled.

          By letter  dated  February  17,  2000,  Premier  made  demand  for the
          repayment of gross intercompany debt allegedly owed to Premier,  which
          Premier  claims  exceeds $2 million.  Premier  also  alleged  that the
          Company is in breach of the Manufacturing Agreement and therefore owes
          Premier in excess of $850,000 for the  purchase of certain  inventory.
          This amount has since been reduced to $625,000.

          Under the transactions contemplated pursuant to the agreements entered
          into by the Company with Premier and  MediVision  in July 2000,  among
          other  things,  all of the Company's  debt owed to Premier,  including
          amounts  under the Premier  Note,  will be purchased by  MediVision as
          part of the  MediVision  Investment  transactions.  The Note and other
          debt so purchased will be  automatically  converted into shares of the
          Company's common stock.

<PAGE>22

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITIES
          None.

ITEM 5.   OTHER INFORMATION
          None.

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)  On March 17,  2000,  Issuer  filed a Form 8-K to  report  (a) the
               resignation  on  January  29,  2000 of  Issuer's  President/Chief
               Executive  Officer;  (b) the  resignation on February 14, 2000 of
               Issuer's Chief Financial  Officer/Secretary;  (c) the termination
               on February 17, 2000 of the Merger Agreement; and (d) the receipt
               by Issuer of letter dated February 17, 2000 in which Premier made
               a demand for the repayment by Issuer of certain intercompany debt
               allegedly  owed to Premier  and also  alleging  that Issuer is in
               breach of the Manufacturing Agreement.

<PAGE>23

                                   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/    WALT WILLIAMS
                                               --------------------------------
                                               Walt Williams
                                               Chief Executive Officer


Dated:  July 19, 2000

<PAGE>24
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>

                                                                                          Footnote
Exhibit Number                       Description of Exhibit                               Reference
--------------                       ----------------------                               ---------

<S>            <C>                                                                        <C>
      2.1         Stock  Purchase  Agreement,  dated as of  February  25,  1998,  by and     (13)
                  between OIS and Premier.

      2.2         Agreement  and Plan of  Reorganization  By and Among  Premier,
                  Ophthalmic (18)  Acquisition  Corporation and OIS, dated as of
                  October 21, 1999.

      2.3         Series B Preferred  Stock Purchase  Agreement  dated as of October 21,     (19)
                  1999 by and among OIS and Premier.

      2.4         Agreement  dated as of October  21,  1999 by and among  OIS,  Premier,     (20)
                  Walt Williams, Daniel S. Durrie and Randall C. Fowler.

      3.1         Articles of Incorporation of OIS, as amended.                                *

      3.2         Amendment to Articles of  Incorporation  (Certificate of Determination     (11)
                  of Preferences  of Series A Junior  Participating  Preferred  Stock of
                  OIS).

      3.3         Amendment  to  Articles  of   Incorporation   (Certificate  of
                  Determination  (21) of Preferences of Series B Preferred Stock
                  of OIS).

      3.4         Amended Bylaws of OIS.                                                       *

      3.5         Amendment to Amended Bylaws of OIS dated January 28, 1998.                 (16)

      4.1         Specimen of Stock Certificate.                                               *

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

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

      4.4         Second  Amendment  to Rights  Agreement,  effective  as of October 20,     (22)
                  1999, between OIS and American Securities Transfer, Inc.

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

      10.2        Seventh Amendment to Lease Agreement, effective as of July 18, 1996.        (7)

<PAGE>25


      10.3        Confidentiality  Agreement,  dated  March  27,  1992  between  OIS and       *
                  Steven R. Verdooner.

      10.4        Assignment  dated October 23, 1990 of U.S. Patent  Application               *
                  for Apparatus   and Method for  Topographical  Analysis of the
                  Retina to the Issuer 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).

      10.5        Form of International  Distribution  Agreement used by OIS and               *
                  sample form of End User Software License Agreement.

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

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

      10.8        The Company's 1992  Nonstatutory  Stock Option Plan and sample form of       *
                  Nonstatutory Stock Option Agreement.

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

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

      10.11       Stock Option Plan.                                                          (1)

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

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

      10.14       General  Security  Agreement dated  April 12,  1995 by and between the      (3)
                  Issuer and Imperial Bank.

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

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

      10.17       Registration  Rights  Agreement  dated  November  1, 1995  between the      (4)
                  Issuer and Imperial Bank.

<PAGE>26

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

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

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

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

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

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

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

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

      10.26       Agreement  of Purchase of  Receivable  (Full  Recourse)  dated              (9)
                  November 18, 1997 between the Issuer and Imperial Bank.

      10.27       Agreement  of Purchase of  Receivable  dated July 13, 1999 between the     (23)
                  Issuer and Imperial Bank.

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

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

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

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

      10.32       Promissory  Note dated April 30, 1998 from the Issuer to Premier Laser     (15)
                  Systems,  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.

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

<PAGE>27


      10.34       Form of  Indemnification  Agreement between the Issuer and each of its     (16)
                  directors, officers and certain key employees.

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

      27          Financial Data Schedule (for SEC use only).                                (24)


</TABLE>


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

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

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

(9)  Incorporated by reference to the Company'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 Company's Form 8-K, filed on
     January 2, 1998.

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

<PAGE>28

(12) Incorporated by reference to the Company'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 Company's  Form 8-K, filed
     on March 9, 1998.

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

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

(17) Incorporated by reference to the Company's  Quarterly Report on Form 10-QSB
     for the quarterly period ended February 28, 1999, filed on April 14, 1999.

(18) Incorporated  by reference to Exhibit 2.1 of the Company's  Form 8-K, filed
     on November 24, 1999.

(19) Incorporated  by reference to Exhibit 4.2 of the Company's  Form 8-K, filed
     on November 24, 1999.

(20) Incorporated  by reference to Exhibit 4.3 of the Company's  Form 8-K, filed
     on November 24, 1999.

(21) Incorporated  by reference to Exhibit 3.1 of the Company's  Form 8-K, filed
     on November 24, 1999.

(22) Incorporated  by reference to Exhibit 4.1 of the Company's  Form 8-K, filed
     on November 24, 1999.

(23) Incorporated by reference to the Company's Annual Report on Form 10-KSB for
     the fiscal year ended August 31, 1999, filed on November 29, 1999.

(24) Exhibit filed herewith.