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, 1997

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)

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  June 30, 1997, 3,732,999 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, 1997
                                  (Unaudited)


Assets
Current assets:
   Cash and equivalents                                           $    170,145
   Accounts receivable, net                                          1,971,638
   Inventories, net                                                  1,340,847
   Prepaid expenses and other current assets                           131,753
                                                                  ------------
Total current assets                                                 3,614,383

Furniture and equipment, net of accumulated
   depreciation and amortization of $737,725                           410,273

Other assets                                                            68,087
                                                                  ------------
                                                                  $  4,092,743
                                                                  ============

Liabilities and Stockholders' Equity
Current liabilities:
    Borrowings under line of credit                               $    500,000
    Accounts payable                                                   597,481
    Accrued liabilities                                                891,723
    Accrued warrant appreciation right                                 245,857
    Deferred extended warranty revenue                                 101,067
    Customer deposits                                                   21,386
    Current portion of notes payable                                     3,733
                                                                  ------------
Total current liabilities                                            2,361,247

Notes payable, less current portion                                         --

Commitments

Stockholders' equity:
   Preferred stock, no par value, 20,000,000 shares 
      authorized; none issued or outstanding                                --
   Common stock, no par value, 20,000,000 shares 
      authorized; 3,732,999 issued and outstanding                   9,581,542
   Accumulated deficit                                              (7,850,046)
                                                                   ----------- 
Total stockholders' equity                                           1,731,496
                                                                   ----------- 
                                                                   $ 4,092,743
                                                                   ===========
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,
 
<S>                            <C>                   <C>               <C>                <C>
                                      1997                   1996           1997               1996

Net revenues                     $ 1,975,085            $ 1,808,632      $ 5,144,738       $ 5,888,311

Cost of sales                      1,195,359              1,190,646        3,179,099         3,913,858
                                 -----------------------------------     ------------------------------ 
Gross Profit                         779,726                617,986        1,965,639         1,974,453

Operating expenses:
  Sales and marketing                371,878                403,742        1,194,726         1,257,492 
  General and administrative         132,176                179,490          664,852           542,351
  Research and development           256,808                217,899          754,234           585,747
                                 ------------------------------------    ------------------------------ 
    Total operating expenses         760,862                801,131        2,613,812         2,385,590
                                 ------------------------------------    ------------------------------ 
Income (loss) from operations         18,864               (183,145)        (648,173)         (411,137)

Other expense, net                   (15,196)              (166,321)         (42,475)         (234,762) 
                                 ------------------------------------     -----------------------------
Net income (loss)                $     3,668            $  (349,466)      $ (690,648)      $  (645,899)  
                                 ====================================     =============================
Shares used in the calculation 
of net income (loss) per share     4,692,333              2,243,533         3,729,433        1,836,953
                                 ====================================     =============================
Net income (loss) per share      $      0.00            $     (0.16)      $     (0.19)           (0.35)
                                 ====================================     =============================



See accompanying notes.

<PAGE>4

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

                                                   Nine months ended May 31,

                                                   1997                1996

Operating activities:

Net loss                                         $  (690,648)      $  (645,899)
Adjustments to reconcile net loss to 
  net cash used in operating activities:
    Depreciation and amortization                    103,964            74,327
    Net increase in current assets
      other than cash and equivalents               (726,751)         (613,160)
    Net (decrease) increase in current 
      liabilities other than short-term 
      borrowings                                     (19,846)          397,686
                                                 ------------------------------
Net cash used in operating activities             (1,333,281)         (787,046)

Investing activities:

Purchases of furniture and equipment                (152,526)         (102,257)
Net decrease (increase) in other assets               18,032            (2,152)
                                                 ------------------------------
Net cash used in investing activities               (134,494)         (104,409)

Financing activities:

Principal payments on notes payable                   (4,751)           (5,295)
Net (repayments of) proceeds from line-of-credit
   borrowings                                        (50,000)          150,000
Net proceeds from sale of common stock               641,346         2,269,261
                                                 ------------------------------
Net cash (used) provided by financing activities     586,595         2,413,966
                                                 ------------------------------
Net increase (decrease) in cash and equivalents     (881,180)        1,522,511

Cash and equivalents at beginning of period        1,051,325           317,205
                                                 ------------------------------
Cash and equivalents at end of period            $   170,145       $ 1,839,716
                                                 ==============================


See accompanying notes.

<PAGE>5

                       Ophthalmic Imaging Systems

                 Notes to Condensed Financial Statements

        Three and Nine Month Periods ended May 31, 1997 and 1996

                               (Unaudited)


Note 1.  Basis of Presentation

The  accompanying unaudited condensed balance sheet as of May 31, 1997,  
condensed  statements of operations for the three and nine month periods 
ended  May  31,  1997  and  1996  and the condensed statements of cash flows 
for the nine month periods ended May 31, 1997  and  1996  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, 199  
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  May  31,  1997  are  not  
necessarily  indicative  of  the operating results for the full year.

Certain amounts in the fiscal 1996 financial statements have been 
reclassified  to conform with the presentation in the fiscal 1997 financial 
statements.

Note 2.  Net Income (Loss) Per Share

Net  income  per  share  is  computed  using the weighted average number  of 
common and common equivalent shares  of  common  stock outstanding, which
common equivalent shares include the dilutive effect from  stock  options and
warrants.  Net loss per share is computed using the weighted average number 
of  shares of common stock outstanding.  Common equivalent shares from  stock
options and  warrants  are excluded from the computation of net loss  per share 
because their effect is antidilutive.

<PAGE>6

Note 3.  Line of Credit

In  April  1995,  the  Company  entered  into a revolving line of credit 
agreement  (the  "Credit Agreement")  with  a  bank  (the "Bank").  The 
maximum amount  available  under  the  terms of the Credit Agreement is 
$750,000  and  is  based  upon  eligible outstanding accounts receivable 
balances.   Borrowings under the Credit Agreement bear interest at the Bank's 
prime  lending  rate plus  two  and  one-half percent and are secured by 
virtually all assets of the Company (11% as of May 31, 1997).

The Credit Agreement contains certain restrictive covenants which provide 
for, among  other things, certain working capital and net worth balances and
ratios,  and  limitations on the amount of net loss the Company may incur in 
a quarter.

In  connection  with  the  Credit  Agreement,  the  Company  also modified  a
warrant  previously  issued   to   the   Bank.   The modifications included 
increasing the number of common shares for which the  warrant is exercisable
to 25,000, changing the  per share exercise price to $2.39 and extending the
expiration date to April 2000.

In  November  1995,  the  Company and the Bank amended the Credit Agreement.
The amendments  included  extending the maturity date to April 1996, and 
increasing the amount  of the loss the Company may incur in a quarter.  As a
condition to  amending  the  Credit Agreement,  the  Company modified the 
warrant issued to the Bank.  The modifications included increasing the number
of common shares under the warrant for which the warrant is exercisable to 
67,500, reducing the per share  exercise price to $1.73 and extending the 
expiration date to November 2000.  The number of shares for which the warrant
is exercisable  was  reduced  to  50,000  due  to the occurrence of certain 
events set forth in the Credit Agreement.

In  April 1996, the Company and the Bank again amended the Credit Agreement.
The  amendments included extending the maturity date to July 1996 and 
limiting  the amount of the net loss the Company may incur in a quarter.

<PAGE>7

Note 3.  Line of Credit (continued)

In May 1996, the Bank exercised an alternative stock appreciation right  
available  under  the  warrant.   In conjunction with said exercise,  the 
Company accrued a liability  of  approximately $220,000 as  of May 31, 
1996, said amount being the entire amount of the obligation  under  the  
warrant.  The Company recognized additional interest expense of approximately
$151,000  during the quarter ended May 31, 1996 in connection with said 
exercise.  The Company  had previously accrued as interest expense approximately
$69,000 in  connection  with a put right under the warrant, which right is 
foregone in lieu  of the Bank exercising its alternative stock appreciation 
right.  The  parties  have agreed in principal to revise the form of 
consideration and timing  of  payment under the  alternative  stock 
appreciation right, but have not  as  yet agreed to the definitive terms 
thereof.

In November 1996, the  Company  and  the  Bank  again amended the Credit 
Agreement.  Then amendments included, among  other things, extending the 
maturity  date  to  March  1997,  subject to  the occurrence  of  certain  
equity  transactions,  and limiting  the amount  of  the net loss the Company
may incur in the  first  and second quarter of fiscal 1997.

As of May 31,  1997,  borrowings  in  the amount of $500,000 were outstanding
against the Credit Agreement.  The Company was not in compliance with certain
of the restrictive  covenants  for  the quarter ending November  30, 1996 and
the Company has requested from the Bank a waiver with respect to such non-
compliance.  The potential impact of not receiving a waiver from the Bank is 
that the Bank could demand payment of the balance  owing  against the Credit
Agreement,  which  amount  was $500,000 as of the date of this report.

Note 4.  Private Placement

On  November  21, 1995, the Company completed a private placement of 
1,368,421 shares of its common stock with detachable warrants.  With respect
to  each share of Common Stock purchased pursuant to the private placement, 
each purchaser received an "A Warrant" and a "B Warrant" to purchase shares
of the Company's common stock.  The A and B Warrants per share exercise 
prices  are  $1.25 and $1.75, respectively.  The number of shares exercisable
as well as the per share exercise prices of the A and B Warrants are subject
to adjustment  upon  the  occurrence  of  certain  events.  The A Warrants 
which were not previously exercised expired  on March 5, 1997, as amended, 
and the B Warrants will expire on November  21, 1997.

<PAGE>8


Note 4.  Private Placement (continued)

In  addition,  the  B  Warrants  are subject to redemption by the Company at
$.10  per  warrant  commencing  May  21,  1997 (the "Redemption Date") if the
Company's  common  stock  price exceeds $2.50  for  the  twenty  trading  days 
immediately preceding the corresponding Redemption Date. 

The  placement  agent  was  issued  a warrant to purchase 250,000 shares of 
the Company's common stock  at  $.95  per  share.   The number  of  shares  
exercisable as well as the per share exercise price are subject to adjustment
upon  the occurrence of certain events.  This warrant expires in November 
1999.  In addition, the placement agent will receive as a commission, 10% of 
the proceeds received by the Company upon the exercise of the A and B Warrants
described above.

In May 1996, 1,052,631 of the A Warrants were exercised.  The net proceeds 
from this exercise were approximately $1,184,000.

During the quarter ended February 28, 1997, the Company received net proceeds
of approximately  $495,000  for  the  exercise  of certain  of  the  A  and B
Warrants, the certificates for which shares have not been issued but which 
shares have been shown as outstanding as of May 31, 1997 in the accompanying 
Balance Sheet.

Note 5.  Subsequent Events

The  Credit  Agreement discussed in Note 3 above expired in March 1997.  In 
June  1997,  the Bank extended the maturity date of the Credit  Agreement to 
July  1997  and  the  Company  is  currently negotiating with the Bank to 
further  extend  said  Credit Agreement.  The potential  impact of not 
negotiating an extension with  the  Bank is that the Bank could demand 
payment  of  the balance owing against the Credit Agreement, which amount was
$500,000 as of the date of this report.

In  conjunction  with  said extension in June 1997, the Bank also granted to 
the Company waivers  of  the  Company's non-compliance with certain of the 
restrictive covenants  for the quarter ending November  30, 1996 as well as 
the non-occurrence  of  certain required equity transactions pursuant to the 
November 1996.

<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

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 Company has a reputation
within the ophthalmic  community  for  producing  high quality, reliable,
easy to use equipment and believes itself to be an  acknowledged industry
leader  in  the sales of digital ophthalmic imaging systems  for  instant
fluorescein angiography.

The Company continues to believe that as the U.S. healthcare system moves
toward managed care, the needs of the managed care providers are changing
the nature and  demand  for  medical imaging equipment and services.  New
opportunities in telemedicine  are  emerging  that may allow managed care
organizations to reduce costs while maintaining  their quality of patient
care.  The Company plans to leverage its digital imaging  technology  and
established  customer  base  to  develop  product  features  and services
targeting  telemedicine/managed  care applications for the ocular  health
care industry.

Since its inception, the Company's  products have addressed primarily the
needs of the ophthalmic flourescein angiography market, and more recently
the  indocyanine green ("ICG") market.  The  Company  believes  that  the
overall  angiography market remains limited, however, and that sustaining
growth in  its  traditional  angiography  equipment  business will become
increasingly difficult.  In recognition of this, the Company is expanding
its  product  capabilities  to address the emerging telemedicine  market,
including remote consultation.   The Company will continue to support its
entire line of digital angiography  products, focusing its future efforts
on developing product enhancements and  pursuing  viable opportunities in
this  market,  particularly  as they relate to telemedicine/managed  care
applications.

The Company's objective is to  become  a leading provider of telemedicine
products  and  services  in  the  ocular  health   care  industry,  while
maintaining  its  position  as  a  market leader in its existing  digital
imaging products.

In  this  regard,  in fiscal 1996 the Company  developed  a  Reading  and
Documentation Center,  through  which it intends to provide documentation
services of electronically transmitted  digital images acquired at remote
locations.

<PAGE>10

During fiscal 1996, the Company also secured  an  agreement  to conduct a
pilot program with a major managed care provider to evaluate remote image
interpretation for diabetic retinopathy screening.  This pilot program is
currently  targeted for completion at the end of calendar 1997.   At  the
conclusion of  the  pilot program, if successful, the Company anticipates
entering into negotiations with the provider, and others, for contracting
the Reading Center services.   The  Company currently has several initial
commitments to purchase its Reading and  Documentation  Center  services.
There  can be no assurance, however, that the pilot program will prove  a
success  or  that  these  negotiations  or  commitments  will  result  in
contracts for these services.

During  the  1996  fall meeting of the American Academy of Ophthalmology,
the   Company  introduced   a   lower-priced   digital   imaging   system
incorporating   telemedicine   features   and   targeting   the   general
ophthalmology  market.   The  majority  of orders received in conjunction
with  this  introduction  were  delivered during  the  second  and  third
quarters of fiscal 1997.

The  Company  continues  to  assess  potential  market  opportunities  in
anticipation of results from clinical validation studies of its Glaucoma-
Scope<reg-trade-mark> product, an instrument  specifically  designed  for
the  early  diagnosis  of  glaucoma,  a  commonly  occurring  eye disease
regularly screened for by eye care practitioners.

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,  1997.   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.

<PAGE>11

RESULTS OF OPERATIONS

The Company generated net income of  $3,668, or essentially breakeven per
share for the third quarter of fiscal  1997  as compared to a net loss of
$349,466, or $.16 per share, for the third quarter  of  fiscal 1996.  For
the first nine months of fiscal 1997, the Company incurred  a net loss of
$690,648,  or  $.19 per share, as compared to a net loss of $645,899,  or
$.35 for the comparable period of fiscal 1996.

The  Company's revenues  for  the  third  quarter  of  fiscal  1997  were
$1,975,085, representing an increase of approximately 9% from revenues of
$1,808,632  for the third quarter of fiscal 1996.  Revenues for the first
nine months of  fiscal  1997  were  $5,144,738  versus $5,888,311 for the
comparable  period  of  1996.   The 1997 third quarter  revenues  include
revenues from the Company's initial  deliveries  of  lower-priced higher-
margin digital imaging systems incorporating telemedicine features, which
systems were introduced at the 1996 fall meeting of the  American Academy
of  Ophthalmology.   A  primary  factor contributing to the reduced  1997
nine-month revenue level was the reallocation  of the Company's resources
to  address  emerging  opportunities  in  the  telemedicine/managed  care
market.   In addition, the 1996 nine-month revenue  levels  were  largely
attributable to strong sales of the Company's digital angiography systems
incorporating  ICG  and  Windows<trademark>  features introduced over the
previous two years.  The Company will continue  to  allocate resources to
address the telemedicine/managed care market.  Based  on  its  backlog of
current  orders,  the Company does not anticipate maintaining revenue  or
profitability levels  attained  during  the  1997  third  quarter and, in
comparison to previous years, the Company may experience reduced  revenue
levels from sales of its digital imaging equipment products in the  near-
term.

Contributions  to  revenues  from sales of Glaucoma-Scope<reg-trade-mark>
units have been negligible and management does not anticipate significant
near-term  sales  improvement  for   the  Glaucoma-Scope<reg-trade-mark>,
recognizing that longer-term sales growth  remains  dependent upon market
acceptance  of  the  system  and  resolution  of  healthcare  reform  and
reimbursement issues.

<PAGE>12

Gross margins were approximately 39% during the third  quarter  ended May
31,  1997  versus  approximately  34% for the comparable quarter of 1996.
For  the  nine-month  period  ended May  31,  1997,  gross  margins  were
approximately 38% as compared to  approximately 34% during the comparable
period of 1996.  The increase in gross  margin  percentage  for the nine-
month  period is attributable primarily to reduced direct material  costs
associated  with  delivered  systems, principally the sales of the lower-
priced higher-margin digital imaging  systems  delivered  during the 1997
second and third quarters.  The increased gross margin percentage  during
the  1997  third  quarter  also  reflects  the  impact  of  reduced fixed
manufacturing  and  support  costs during 1997 compared to the comparable
quarter of 1996.  The Company  continues to evaluate its expenses in this
area  consistent with current and  anticipated  business  conditions  and
management  anticipates  that near-term margin improvement, if any, would
result principally from reduced  material  costs  associated with current
deliverable system configurations, outsourcing certain  manufacturing and
assembly operations and related fixed cost reduction measures implemented
during the recently completed third quarter of 1997, including  personnel
cutbacks,  economies  of scale from increased unit production, and  other
manufacturing efficiencies.

Sales and marketing and general and administrative expenses accounted for
approximately 26% of total  revenues  during  the third quarter of fiscal
1997 compared to approximately 32% for the third  quarter of fiscal 1996.
For  the  first  nine  months  of  fiscal  1997 and 1996,  such  expenses
accounted  for approximately 36% and 31%, respectively.   Expense  levels
decreased to  $504,054  during  the third quarter of 1997 versus $583,232
during the third quarter of 1996,  primarily  due to the impact of a non-
recurring  downward  revision  of  amounts  owed  under  certain  of  the
Company's accounts payable during the 1997 third quarter.   For the first
nine  months  of  1997,  expense  levels  increased  to  $1,859,578  from
$1,799,843  during  the  comparable  period of 1996.  The primary factors
contributing  to  this  increase  were  costs   associated   with  hiring
additional  support  personnel,  and  related  costs associated with  the
telemedicine/managed care start-up marketing efforts.   While the Company
has  implemented  during  the third fiscal quarter of 1997 certain  fixed
cost  reduction  measures,  including   personnel   cutbacks,  management
anticipates  that  expenses  in  this  area will continue  to  run  above
historical levels for the foreseeable future,  in  particular conjunction
with the hiring of additional senior management level  personnel targeted
for the fourth quarter of fiscal 1997.

<PAGE>13

Research  and  development  expenses,  as a percentage of revenues,  were
approximately 13% in the third quarter of  1997  versus approximately 12%
in the third quarter of 1996.  For the first nine  months of fiscal 1997,
such  expenses  accounted  for  approximately  15% of total  revenues  as
compared  to  approximately  10% during the comparable  period  of  1996.
Expense levels increased in actual  dollar  terms  to $256,808 during the
third  quarter  of  1997 from $217,899 in 1996.  During  the  first  nine
months of fiscal 1997,  expense  levels  also  increased in actual dollar
terms to $754,234 versus $585,747 in 1996. The Company  anticipates  that
it  will  incur increased expense levels in the near-term as it dedicates
more resources  to  the  research and development of telemedicine/managed
care applications, while continuing to incur expenses with respect to its
current  products.  In this  regard,  the  Company  intends  to  continue
research and  development  efforts  on  product enhancements and reducing
cost configurations for its current products, particularly as they impact
telemedicine/managed care applications.

Other expense was $15,196 during the second quarter of fiscal 1997 versus
$166,321 during the same period of 1996.   Other expense during the first
nine months of fiscal 1997 was $42,475 as compared to $234,762 during the
comparable  period  of  1996. The primary contributing  factor  to  these
changes was a significant decrease in interest expense during 1997 versus
1996 associated with an existing  credit  line, in particular conjunction
with  an  alternative  stock appreciation right  pursuant  to  a  warrant
previously issued to the  Company's Bank. In May 1996, the Bank exercised
an alternative stock appreciation  right available under the warrant.  In
conjunction  with  said  exercise,  the   Company  recognized  additional
interest expense of approximately $151,000  during  the quarter ended May
31,  1996.  The  Company  had previously recognized interest  expense  of
approximately $69,000 in connection  with  a put right under the warrant,
which right is foregone in lieu of the Bank  exercising  its  alternative
stock appreciation right.  During the 1996 nine-month period, the Company
recognized as interest expense approximately $208,000 in connection  with
both  the  put  right  and the alternative stock appreciation right.  The
parties have agreed in principal  to revise the form of consideration and
timing of payment under the alternative  stock  appreciation  right,  but
have not as yet agreed to the definitive terms thereof.


LIQUIDITY AND CAPITAL RESOURCES

The  Company's  operating activities used cash of $1,333,281 and $787,046
in the first nine months of fiscal 1997 and 1996, respectively.  The cash
used by operations  in  1997  resulted primarily from the net loss during
the period and the increase in accounts receivable associated with timing
of product deliveries toward the  end  of  the  period,  which amount was
partially  offset by a reduction in inventory levels during  the  period.
The cash used  by  operations  in  the  first  nine months of fiscal 1996
resulted primarily from the net loss during the  period  and increases in
accounts receivable and inventory, which amounts were partially offset by
increases  in  accounts payable and other current liabilities,  excluding
borrowings under the Credit Agreement.

<PAGE>14

Cash used in investing  activities  was  $134,494  during  the first nine
months of 1997 as compared to $104,409 during the same period  for  1996.
The Company's primary investing activities consist of equipment and other
capital  asset  acquisitions.   The  Company  does not currently have any
pending  material  commitments  regarding  capital   expenditures.    The
Company,  however,  will  continue  to  upgrade  its  existing management
information  systems,  which  may  result in increased near-term  capital
expenditures.   In  addition,  the Company  anticipates  certain  capital
expenditures   to  support  efforts   to   expand   its   technology   to
telemedicine/managed  care  applications.   The  Company anticipates that
related expenditures, if any, will be financed from  one  or  more of the
following  sources:   (i)  working  capital;  (ii)  borrowings  under  an
existing  credit agreement, if available; or (iii) debt, equity or  other
financing arrangements, if any, available to the Company.

The Company  generated  cash of $586,595 from financing activities during
the first nine months of fiscal 1997 as compared to $2,413,966 during the
same period of fiscal 1996.  The cash generated from financing activities
during the 1997 period was principally the net proceeds from the exercise
of warrants issued pursuant  to  a  private  placement  of  the Company's
common stock in November 1995, and, to a lesser extent, net proceeds from
the  exercise  of  stock options issued to employees, which amounts  were
partially offset by  repayments of borrowings under the Credit Agreement.
The sources of cash from financing activities during the 1996 period were
principally the net proceeds  from  a  private placement of the Company's
common stock in November 1995,  the net  proceeds  from  the  exercise of
certain A Warrants issued pursuant to said private placement in  May 1996
and,   to  a  lesser  extent,  borrowings  under  the  Credit  Agreement.
Principal  repayments  on  notes  payable was negligible in both 1997 and
1996.

As indicated above, the Company intends to allocate significant resources
to the development and marketing of  telemedicine/managed  care  products
and  services.   During  this development period, the Company anticipates
that it could experience a  decrease  in  revenues  and  an  increase  in
operating  losses  as  a  result  of  incurring  additional  expenses  in
connection  with  activities relating to the development and marketing of
telemedicine/ managed  care  products  and  services.   Accordingly,  the
Company  anticipates  that  it could continue to experience negative cash
flow from operations in the near-term.  In addition, as indicated in Note
5  of  the  Notes  to  Condensed Financial  Statements,  the  Company  is
currently negotiating with  the Bank to extend the Credit Agreement which
expired in July 1997.  While  the  Company  has  negotiated previous such
extensions with the Bank, there can be no assurance  that it will be able
to negotiate further extensions.  The potential impact of not negotiating
an extension from the Bank is that the Bank could demand  payment  of the
balance owing against the Credit Agreement, which amount was $500,000  as
of  May  31, 1997.  As also indicated above, although the Company and the
Bank have  agreed  in  principal  to revise the form of consideration and
timing of payment under the alternative  stock appreciation right and the
Company believes that it will be able to enter  into  a  final  agreement
with the Bank with regard to such matters, there can be no assurance that
it  will  be  able  to  do  so,  in  which  case the entire amount of the
obligation,  which  amount  at May 31, 1997, including  accrued  interest
thereon, was approximately $246,000, would be due.

<PAGE>15

Although the Company believes  that  it  will  be able to raise the funds
necessary  to satisfy its liquidity and capital requirements  during  the
next twelve  months  from  alternative  sources  including  extending  or
refinancing  its  Credit  Agreement, other debt financing, issuing equity
securities or entering into other financing arrangements, there can be no
assurance that such financing  will  be available and, if available, that
it  will  be  obtained in terms favorable  to  the  Company.   Additional
capital could also  be  made  available  to  the  Company pursuant to the
exercise of additional warrants issued in connection  with  the  November
1995  private  placement,  as well as from other outstanding options  and
warrants.  In this regard, the  Company  has  received  a  commitment  to
exercise  a  significant  number  of  these  warrants from certain of the
warrant holders, and while the Company is currently in active discussions
with  such  warrant  holders regarding said exercise,  there  can  be  no
assurance that any such  warrants  will be exercised in the near-term, if
at all.

<PAGE>16

                      PART II     OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS
        
None.

ITEM 2.  CHANGES IN SECURITIES

In November 1996, the expiration date for the unexercised A Warrants issued 
pursuant to the Private Placement of the Company's Common Stock effective 
November 21, 1995, was extended from November 21, 1996 to February 19, 1997.
In February 1997, said expiration date was extended from February 19, 1997 to
March 5, 1997.

During  the  quarter,  the  Company  issued 11,800 shares of its Common Stock
in consideration of $35,400  from  the  exercise of stock  options granted
under  the  Company's 1992 Nonstatutory Stock Option Plan.  The Common Stock
issued upon the exercise of the options were issued pursuant to an exemption 
under rule 701 promulgated  under the Securities Act of 1933  (the  "Securities
Act").  There were no underwriting discounts or commissions paid in 
connection with such issuance.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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)  No reports on Form 8-K were filed during the quarter for which this 
     report was filed.

<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:   STEVEN R. VERDOONER
    
                                   Steven R. Verdooner,
                                   President and Chief Financial Officer
                                   (principal executive officer and
                                   principal financial and accounting officer)


Dated:  July 15, 1997

<PAGE>18
                            INDEX TO EXHIBITS

Exhibit                                                               Footnote
Number             Description of Exhibit                            Reference

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

3.2             Amended Bylaws of the Registrant                          *

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.                            *

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        (7)
                July 18, 1996.

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        (1)
                Agreement between the  Registrant  and  Dennis J.
                Makes dated March 27, 1992.

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

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.

<PAGE>19

10.7            Assignment  dated October 23, 1990 of U.S. Patent         *
                Application for  Apparatus  and  Method for Topo-
                graphical   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           Common   Stock  and  Warrant  Purchase  Agreement         *
                ("Stock  Purchase   Agreement"),   dated   as  of
                February 8, 1992, among the Registrant, Jonnie R.
                Williams,  Kathleen  M. O'Donnell, as Trustee  of
                Irrevocable Trust No. 6, FBO F.E. O'Donnell, Jr.,
                M.D., Steven R. Verdooner and Dennis J. Makes.

10.12(a)        Amendment  No.  1  to  Stock  Purchase Agreement,         *
                dated  March  25,  1992,  among  the  Registrant,
                Jonnie  R.  Williams,  individually,   Jonnie  R.
                Williams, as Trustee of Irrevocable Trust  No. 1,
                Rambert  Simmons,  and Kathleen M. O'Donnell,  as
                Trustee of Irrevocable  Trust  No.  6,  FBO  F.E.
                O'Donnell, Jr., M.D.

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

10.14           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.

<PAGE>20

10.15           Warrant  dated  February  12,  1993 issued by the        (1)
                Registrant  to  Steven R. Verdooner  to  purchase
                50,000 shares of Common Stock.

10.16           Stock Option Plan.                                       (1)

10.17           Promissory  Note  dated  January 4, 1993 from the        (1)
                Registrant to Western Financial  Savings  Bank in
                the   amount   of   $25,209.83  due  in  full  by
                January 4, 1998.

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

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

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

10.19(b)        Warrant  dated  November  1,  1995  issued by the        (4)
                Registrant  to  Imperial Bank to purchase  67,500
                shares of Common Stock.

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

10.19(d)        Registration  Rights  Agreement dated November 1,        (4)
                1995 between the Registrant and Imperial Bank.
 
10.19(e)        Amended  Loan and Security Agreement (with Credit        (6)
                Terms and Conditions) dated April 4, 1996.

10.19(f)        Amended  Loan and Security Agreement (with Credit        (7)
                Terms and Conditions) dated July 12, 1996.
 
10.19(g)        Amended  Loan and Security Agreement (with Credit        (7)
                Terms and Conditions) dated November 21, 1996.

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

10.20           Purchase   Agreements  dated  November  21,  1995        (4)
                between the  Registrant,  JB Oxford & Company and
                certain Investors.

10.20(a)        Warrant Agreement dated November 21, 1995 between        (4)
                the  Registrant,  JB Oxford & Company and certain
                Investors.

<PAGE>21

10.20(b)        First  Amendment Warrant Agreement dated November        (7)
                21, 1996  between  the  Registrant,  JB  Oxford &
                Company and certain Holders.

10.20(c)        Registration  Rights Agreement dated November 21,        (4)
                1995 between the  Registrant, JB Oxford & Company
                and certain Investors.

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

10.22           Employment  Agreement  dated  November  20,  1995        (4)
                between the Registrant and R. Michael Clark.

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


*     Incorporated  by reference to the like-numbered exhibits previously filed
      with 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.


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