UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549

                                   FORM 10-QSB

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

For the quarterly period ended September 30, 2005

Commission File Number:    1-11140

                           OPHTHALMIC IMAGING SYSTEMS
        (Exact name of small business issuer as specified in its charter)

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

                 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) 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
             ------                 ------
Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.)

         Yes                     No   XX
             ------                 ------

As of November 11, 2005,  15,457,570  shares of common stock, no par value, were
outstanding.

Transitional Small Business Disclosure Format:

         Yes                     No   XX
             ------                 ------

<PAGE>


                           OPHTHALMIC IMAGING SYSTEMS

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED September 30, 2005



PART I   -   FINANCIAL INFORMATION                                          Page

Item 1.      Financial Statements (unaudited)

             Condensed Balance Sheet as of September 30, 2005                  4

             Condensed Income Statements for the Three and
             Nine Months ended September 30, 2005 and September 30, 2004       5

             Condensed Statements of Cash Flows for the Nine Months
             ended September 30, 2005 and September 30, 2004                   6

             Notes to Condensed Financial Statements                           7

Item 2.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                        14

Item 3.      Controls and Procedures                                          20


PART II  -   OTHER INFORMATION

Item 1.      Legal Proceedings                                                21


Item 6.      Exhibits and Reports on Form 8-K                                 22



                                       2
<PAGE>

                          PART I-FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS














                                       3
<PAGE>


                           Ophthalmic Imaging Systems

                             Condensed Balance Sheet

                               September 30, 2005

                                   (Unaudited)

Assets
------
Current assets:

        Cash and equivalents                                       $  3,181,256
        Accounts receivable, net                                      2,833,020
        Receivable from related party                                    60,672
        Note receivable from related party                              770,106
        Inventories, net                                                354,310
        Prepaid expenses and other current assets                       416,432
        Deferred income taxes                                         1,029,000
                                                                   ------------
             Total current assets                                     8,644,796
Furniture and equipment, net of accumulated
        depreciation and amortization of $306,636                       115,529
Restricted cash                                                         150,000
Other assets                                                             50,694
                                                                   ------------
             Total assets                                          $  8,961,019
                                                                   ============

Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:

        Accounts payable                                           $    317,266
        Accrued liabilities                                           1,901,954
        Deferred extended warranty revenue                              827,943
        Customer deposits                                               842,954
        Income taxes payable                                              1,649
        Notes payable- current portion                                  776,338
                                                                   ------------
             Total current liabilities                                4,668,104
                                                                   ------------

Noncurrent Liabilities:

        Notes payable, less current portion                             364,660
                                                                   ------------
             Total noncurrent liabilities                               364,660
                                                                   ------------

Stockholders' equity:

        Common stock, no par value, 35,000,000 shares authorized;
             15,337,570 issued and outstanding                       14,776,826
        Accumulated deficit                                         (10,848,571)
                                                                   ------------
             Total stockholders' equity                               3,928,255
                                                                   ------------
             Total liabilities and stockholders' equity            $  8,961,019
                                                                   ============

    The accompanying notes are an integral part of these unaudited condensed
                             financial statements.



                                       4
<PAGE>


                           Ophthalmic Imaging Systems
                           Condensed Income Statement

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                    Three months ended September 30,             Nine months ended September 30,
                                                      2005                  2004                   2005                   2004
                                                      ----                  ----                   ----                   ----
<S>                                              <C>                    <C>                    <C>                    <C>
Net revenues                                     $  3,246,216           $  2,614,798           $  9,035,820           $  7,414,907
Cost of sales

                                                    1,249,701              1,053,576              3,625,713              2,925,522
                                                 ------------           ------------           ------------           ------------
Gross profit                                        1,996,515              1,561,222              5,410,107              4,489,385

Operating expenses:
      Sales and marketing                             781,521                641,828              2,195,917              1,997,834
      General and administrative                      360,291                290,912                998,922                796,716
      Research and development                        327,501                242,847                835,313                720,033
                                                 ------------           ------------           ------------           ------------
          Total operating expenses
                                                    1,469,313              1,175,587              4,030,152              3,514,583
                                                 ------------           ------------           ------------           ------------
Income from operations                                527,202                385,635              1,379,955                974,802
Interest and other expense, net                         6,378                (58,922)               (97,240)              (163,590)
                                                 ------------           ------------           ------------           ------------
Income before income taxes
                                                      533,580                326,713              1,282,715                811,212
Income taxes                                           17,200                                        26,224
                                                 ------------           ------------           ------------           ------------
Net income                                       $    516,380           $    326,713           $  1,256,491           $    811,212
                                                 ============           ============           ============           ============

Shares used in the calculation of basic
        net income per share                       15,263,798             14,975,014             15,125,515             14,683,620
Basic net income per share                       $       0.03           $       0.02           $       0.08                   0.06
                                                 ============           ============           ============           ============

Shares used in the calculation of diluted
        net income per share                       16,427,844             15,981,937             16,295,525             15,716,087
Diluted net income per share                     $       0.03           $       0.02           $       0.08           $       0.05
                                                 ============           ============           ============           ============
</TABLE>


         The accompanying notes are an integral part of these unaudited
                        condensed financial statements.

                                       5
<PAGE>

                           Ophthalmic Imaging Systems
                       Condensed Statements of Cash Flows

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                              Nine months ended September 30,
                                                                                 2005              2004
                                                                                 ----              ----
<S>                                                                          <C>              <C>
OPERATING ACTIVITIES:
Net income                                                                   $ 1,256,491      $   811,212
Adjustments to reconcile net income to net cash
       provided by operating activities
            Depreciation and amortization                                         59,703           83,732
            Non-cash interest charge                                               8,011           35,869
            Loss of disposition of equipment                                                        1,499
            Net increase in current assets other
                than cash and equivalents                                     (1,104,642)        (421,255)
            Net decrease (increase) in other assets                               87,236         (150,385)
            Net increase in current liabilities other
                than short-term borrowings                                       830,692            3,293
                                                                             -----------      -----------
Net cash provided by operating activities                                      1,137,491          363,965
INVESTING ACTIVITIES:

Acquisition of furniture and equipment                                           (24,745)         (16,875)
Proceeds from disposition of equipment                                                                890
                                                                             -----------      -----------
Net cash used in investing activities                                            (24,745)         (15,985)
FINANCING ACTIVITIES:
Principal payments on notes payable                                             (254,886)         (16,751)
Proceeds from notes payable, other                                               285,406        1,000,000
Repayment of line of credit, net                                                                 (150,000)
Proceeds from sale of stock                                                       47,680           49,468
Advances to related parties                                                                      (397,729)
Repayments of borrowings under notes
       payable to related party, net                                                             (200,979)
                                                                             -----------      -----------
Net cash provided by  financing activities                                        78,200          284,009
                                                                             -----------      -----------
Net increase in cash and equivalents                                           1,190,946          631,989
Cash and equivalents at beginning of period                                    1,990,310        1,272,034
                                                                             -----------      -----------
Cash and equivalents at end of period                                        $ 3,181,256      $ 1,904,023
                                                                             ===========      ===========

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:

            Conversion of notes payable with common stock                    $   210,253      $   580,796
            Conversion of interest with common stock                         $     8,011      $    35,869
            Addition to capital lease obligation for equipment purchases     $                $    41,261
            Addition to aggregate debt payable
              to significant shareholders in exchange for
              inventory and other noncash transactions, net                                   $   (28,215)
                                                                                              ===========
            Addition to net receivable from significant shareholders in
              Exchange for inventory and other noncash transactions, net     $    46,778
                                                                             ===========

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:

            Cash paid for interest                                           $    60,478
            Cash paid for taxes                                              $    41,026      $    70,050
</TABLE>

         The accompanying notes are an integral part of these unaudited
                        condensed financial statements.


                                       6
<PAGE>

                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

         Three and Nine Month Periods ended September 30, 2005 and 2004

                                   (Unaudited)

Note 1.         Basis of Presentation

                The  accompanying   unaudited  condensed  balance  sheet  as  of
                September 30, 2005, unaudited condensed income statement for the
                three and nine month periods  ended  September 30, 2005 and 2004
                and the  unaudited  condensed  statements  of cash flows for the
                nine month periods  ended  September 30, 2005 and 2004 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.  These unaudited
                condensed  financial  statements  should be read in  conjunction
                with the audited financial statements and notes thereto included
                in Ophthalmic  Imaging  Systems' (the  "Company""we,us  or our")
                Annual  Report  for the year  ended  December  31,  2004 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 September 30, 2005 are not  necessarily  indicative
                of the operating results for the full year.

Note 2.         Net Income Per Share

                Basic earnings per share ("EPS"),  which excludes  dilution,  is
                computed by dividing income available to common  shareholders by
                the weighted-average number of common shares outstanding for the
                period.  Diluted EPS reflects the potential  dilution that could
                occur if  securities  or other  contracts to issue common stock,
                such as stock  options,  result in the issuance of common stock,
                which shares in the earnings of the Company.  The treasury stock
                method is  applied to  determine  the  dilutive  effect of stock
                options in computing diluted EPS.



                                       7
<PAGE>

<TABLE>
<CAPTION>

                                                             Unaudited                       Unaudited
                                                         Three Months Ended              Nine Months Ended
                                                           September 30,                   September 30,
                                                      2005             2004             2005            2004
                                               ----------------------------------------------------------------
<S>                                             <C>               <C>                <C>            <C>
Numerator for basic and diluted
net income per share                            $     516,380     $      326,713     $1,256,491     $   811,212
                                                ===============================================================

Denominator for basic net income per share:
   Weighted average shares                         15,263,798         14,975,014     15,125,515      14,683,620

Effect of dilutive securities:
    Stock options                                   1,164,046          1,006,923      1,170,010       1,032,467
                                               ----------------------------------------------------------------
Denominator for diluted net
income  per share                                  16,427,844         15,981,937     16,295,525      15,716,087
                                                ===============================================================
Basic net income per share                      $        0.03     $         0.02     $     0.08     $      0.06
                                                ===============================================================
Diluted net income per share                    $        0.03     $         0.02     $     0.08     $      0.05
                                                ===============================================================
</TABLE>

                As of  September  30,  2005 and  September  30,  2004 there were
                744,500 and 714,500  options and  warrants,  respectively  whose
                exercise  price  exceeded the average  market price of the stock
                and have been excluded from this computation.

Note 3.         Related Party Transactions

                         During the period of August 2000  through July 1, 2001,
                we executed several promissory notes in favor of MediVision,  an
                Israeli corporation and majority shareholder in our Company. The
                Short-Term  Note had a maximum  principal  balance  of  $260,000
                available,  while the  Working  Capital  Funding  Agreement  and
                Amendment No.1 to this agreement  provided an additional funding
                of $2,500,000. Both Notes and the Amendment bear interest at the
                rate of 9.3% per annum and are secured by all of our assets. The
                principal amount outstanding,  together with any and all accrued
                interest on the Working Capital Note and Amendment,  was payable
                by August 31, 2003,  except that  MediVision may, at its option,
                at any time  convert any amount of principal  and interest  then
                outstanding  into  shares of our  common  stock at a  conversion
                price of $.80 per share on the Working  Capital  Note and $0.185
                per share on the Amendment No.1 to the Working  Capital Note. In
                May 2003, we entered in Amendment  No. 2 to the Working  Capital
                Funding  Agreement  and the  Short  Term  Note  with  MediVision
                whereby  the  repayment  terms on the debt were  extended on all
                principal and interest due until January 1, 2005. As a result of
                cash  payments  and product  shipments to  MediVision  discussed
                below,  the  principal  and  interest  was paid during the first
                quarter of 2004. In June 2003,  MediVision exercised its option,
                as  stipulated  in  the  Working  Capital   Funding   Agreement,
                Amendment No. 1, to convert $1,150,000 of principal and interest
                at a conversion  price of $0.185 per share into 6,216,216 shares
                of common stock.

                         In March 2004,  our Board of Directors  approved a line
                of credit to  MediVision  of $1,000,000 at 9.3% interest for two
                years.  In  January  2005 our  Board of  Directors  approved  an
                additional loan advance of $150,000 for a 30 day term.

                         On March 2, 2005,  we entered  into a Loan and Security
                Agreement  and  Promissory   Note  with  MediVision  (the  "Loan
                Agreement"),   whereby  we  agreed  to  loan  MediVision  up  to
                $2,000,000.  The  Loan  Agreement  incorporated  the  $1,150,000
                previously  approved by our Board of Directors.  Under the terms
                of the agreement,



                                       8
<PAGE>

                interest is 7.25% per annum and is payable on February  28, 2006
                along with all outstanding  principal due at that date. The note
                was  secured by  2,409,000  shares of our common  stock owned by
                MediVision.  The  number  of  shares  was  based on the  average
                closing price of shares of our stock during the period  covering
                the last ten (10) business days of February, 2005, which average
                closing  price was $1.11,  discounted  by 25%. In the event that
                MediVision  were to sell any shares of our stock it owns  during
                the period of the  agreement,  a minimum of 50% of the  proceeds
                from such sales would be required to be paid to us to reduce the
                outstanding  amount owed.  On July 28, 2005,  we and  MediVision
                entered  into  an  amendment  to  the  Loan  Agreement   whereby
                MediVision  repaid  $1,000,000 to us, decreasing the agreed upon
                loan of  $2,000,000  to  $1,000,000  and the  amount  of  shares
                securing the loan was decreased by 1,204,500 shares.

                         In August 2002, our Board of Directors, at MediVision's
                request,  authorized  us to guarantee  and/or  provide  security
                interests in our assets for certain of  MediVision's  loans with
                financial  institutions,  on the  maximum  aggregate  amount  of
                approximately    $1,900,000.    In   August   2002,   MediVision
                subordinated to the financial institutions its security position
                in our assets,  which had been granted in consideration of loans
                to us from MediVision.  In December 2002, our Board of Directors
                approved our issuance of two debentures in favor of the banks to
                act as security  for the debt of  MediVision,  which  debentures
                were  secured  by a  first  lien  on  all of  our  assets.  Such
                debentures and lien were signed in December 2002. The purpose of
                both  debentures  was to  guarantee  and/or  provide a  security
                interest for certain debts and  liabilities  of  MediVision.  On
                July 20, 2005, we replaced the existing  debentures  and lien in
                favor of the banks that were issued by us in an aggregate amount
                of  up to  $1,900,000,  with  a new  debenture  and  lien  in an
                aggregate  amount  of up to  $2,000,000.  One of the  terminated
                debentures  was issued in favor of United  Mizrahi Bank Ltd. and
                the other terminated debenture was issued in favor of Bank Leumi
                Le-Israel. In lieu of the terminated debentures, we entered into
                a new Secured  Debenture  (the  "Debenture")  in favor of United
                Mizrahi  Bank  Ltd.,  in an  amount  of up to  $2,000,000  (plus
                interest,  commissions and all expenses). Under the terms of the
                Debenture,  we  guarantee  the  payment  of all of the debts and
                liabilities  of MediVision to United Mizrahi Bank. The Debenture
                is  secured  by a first  lien on all of our  assets.  MediVision
                pledged  2,345,500  shares of our common  stock it owns to us in
                order to secure the Debenture. The number of shares securing the
                Debenture  is  comprised  of  the  1,204,500  shares  previously
                securing the  promissory  note under the Loan Agreement to cover
                $1,000,000  and  1,141,000  shares of our  common  stock  (which
                number was based upon the average closing price of shares of our
                stock during the period covering the last ten (10) business days
                of February,  2005, which was $1.17, discounted by 25%) to cover
                the  second  $1,000,000.   The  amount  owed  to  the  financial
                institutions  by  MediVision  and secured by us as of October 4,
                2005 was approximately $2,000,000.

                         As a result of the amendments to the Loan Agreement and
                the  Debenture,   the  total  number  of  shares   securing  the
                promissory note under the Loan Agreement,  and the Debenture, is
                3,550,000  out of the  10,730,851  shares  of our  common  stock
                currently owned by MediVision.

                         At June 30, 2005 we had  recorded a net amount due from
                MediVision of  approximately  $1,955,558 on the promissory  note
                and approximately $28,539 net, due for products and services. On
                July 28, 2005,  pursuant to the aforementioned  Debenture signed
                by us,  MediVision  executed the amended Loan Agreement and paid
                back  $1,000,000  of the  loan  from  us;  reducing  the  amount
                MediVision  owed  us on the  promissory  note  to  $955,558.  On
                September  20,  2005,   pursuant  to  a  Common  Stock  Purchase
                Agreement,  dated as of September 16, 2005,  between  MediVision
                and Meadowbrook  Opportunity  Fund LLC,  MediVision sold 400,000
                shares of our common stock to Meadowbrook  Opportunity  Fund LLC
                at a price of $1.20 per share.



                                       9
<PAGE>

                MediVision used $240,000 of the proceeds from this sale to repay
                part of the  aforementioned  loan  to us,  reducing  the  amount
                MediVision  owes us on the  promissory  note to  $715,558,  plus
                accrued interest under the loan.

                         Pursuant to a Common Stock Purchase  Agreement dated as
                of  June  1,  2004  between   MediVision  and  S2  Partners  LP,
                MediVision  agreed to sell 550,000 shares of our common stock to
                S2 Partners LP at a price of $1.35 per share.  On June 23, 2004,
                MediVision, through Nollenberger Capital Partners Inc. acting as
                its agent, sold an additional 500,000 shares of our common stock
                at a price of $1.38 per share.

                         Pursuant to a Common Stock Purchase  Agreement dated as
                of  September  16,  2005  between   MediVision  and  Meadowbrook
                Opportunity  Fund LLC,  MediVision  sold  400,000  shares of our
                common stock to Meadowbrook  Opportunity  Fund LLC at a price of
                $1.20 per share. As a result of the foregoing  transactions,  as
                of September 23, 2005, MediVision owned approximately 70% of our
                outstanding common stock.

                             At  September  30, 2005 the Company had  recorded a
                net amount due from MediVision of approximately  $770,106 on the
                promissory note and approximately  $60,672 net, due for products
                and services.

                             Sales to  MediVision  during the nine months  ended
                September 30, 2005 and 2004 totaled  approximately  $584,200 and
                $545,000,  respectively. Sales derived from product shipments to
                MediVision  are  made at  transfer  pricing  which  is  based on
                similar volume  discounts that are available to other  resellers
                or distributors of the Company's products.

                            During the  nine-month  periods ended  September 30,
                2005 and 2004,  the  Company  paid  approximately  $504,000  and
                $401,000   respectively,   to   MediVision   for   research  and
                development performed by MediVision on behalf of the Company.

Note 4.         Stock Based Compensation

                At  September  30,  2005,  the  Company  had  five   stock-based
                compensation  plans (the "Plans").  The Company accounts for the
                Plans under the recognition  and  measurement  principles of APB
                Opinion No. 25,  "Accounting for Stock Issued to Employees," and
                related  interpretations.  No stock-based  compensation  cost is
                reflected in net income,  as all options granted under the Plans
                had an exercise  price equal to or above the market value of the
                underlying common stock on the date of grant.

                For purposes of pro forma disclosures,  the estimated fair value
                of  stock-based   compensation   plans  and  other  options  are
                amortized  to expense  primarily  over the vesting  period.  The
                following  tables  illustrate  the  effect  on  net  income  and
                earnings  per share if the  Company  had  applied the fair value
                recognition  provisions of FASB  Statement No. 123,  "Accounting
                for Stock-Based Compensation," to stock-based compensation.



                                       10
<PAGE>

<TABLE>
<CAPTION>

                                                                Unaudited                               Unaudited
                                                            Three Months Ended                      Nine Months Ended
                                                               September 30,                          September 30,
                                                     ---------------------------------------------------------------------
                                                          2005            2004                   2005              2004
                                                     ---------------------------------------------------------------------
<S>                                                 <C>              <C>                   <C>                <C>
Net Income, As Reported                             $   516,380      $   326,713           $   1,256,491      $   811,212

Deduct Total Stock-Based Employee
 Compensation Expenses Determined
 Under the Fair Value Based Method
 For all Awards, Net of Related Tax Effects              (7,449)          (1,078)                (17,509)          (3,244)
                                                     ---------------------------------------------------------------------

Pro Forma Net Income                                $   508,931      $   325,635           $   1,238,982      $   807,968
                                                     =====================================================================

Basic Earnings Per Share

    As Reported                                     $      0.03      $      0.02           $        0.08      $      0.06
    Pro Forma                                       $      0.03      $      0.02           $        0.08      $      0.06

Diluted Earnings Per Share:

    As Reported                                     $      0.03      $      0.02           $        0.08      $      0.05

    Pro Forma                                       $      0.03      $      0.02           $        0.08      $      0.05

</TABLE>


The fair value of the options granted during the periods indicated was estimated
on the date of grant using an option-pricing model.

There were 40,000 non-qualified options granted for the three-month period ended
September 30, 2005 to Merle Symes, a director of the Company. The estimated fair
market value of each option granted was $1.23.

On August 2,  2005,  the Board of  Directors  adopted,  subject  to  shareholder
approval at the Meeting, the Company's 2005 Stock Option Plan (the "2005 Plan").
The purpose of the 2005 Plan is to enable the Company to provide an incentive to
employees  (including  directors and officers who are employees) and consultants
of the  Company  or its  present  and  future  subsidiaries,  and  to  offer  an
additional inducement in obtaining the services of such individuals.

In December 2004, the FASB issued  Statement Number 123 (revised 2004) ("FAS 123
(R")),  Share-Based  Payments.  FAS 123 (R)  requires  all entities to recognize
compensation  expense  in an  amount  equal  to the fair  value  of  share-based
payments, such as stock options granted to employees. The Company is required to
apply FAS 123 (R) on a  modified  prospective  method.  Under this  method,  the
Company is required to record compensation  expense (as previous awards continue
to vest) for the  unvested  portion of  previously  granted  awards  that remain
outstanding at the date of adoption. In addition, the Company may elect to adopt
FAS 123 (R) by restating  previously  issued  financial  statements,  basing the
expense on that previously  reported in their pro forma disclosures  required by
FAS 123. FAS 123 (R) is effective for the first reporting period beginning after
December  15,  2005,  for the  Company  this will be for the fiscal  year ending
December 31, 2006.  Management  has not completed  its  evaluation of the effect
that FAS 123 (R) will have, but believes that its effect will be consistent with
previous pro forma disclosures.



                                       11
<PAGE>

Note 5.         Warranty Obligations

                The  Company   generally  offers  a  one-year  warranty  to  its
                customers.  The  Company's  warranty  requires  it to  repair or
                replace  defective  products during the warranty period.  At the
                time  product  revenue  is  recognized,  the  Company  records a
                liability  for  estimated  costs that may be incurred  under its
                warranties.   The  costs  are  estimated   based  on  historical
                experience  and any  specific  warranty  issues  that  have been
                identified.  The amount of warranty  liability  accrued reflects
                the  Company's  best  estimate  of the  expected  future cost of
                honoring its obligations  under the warranty plans.  The Company
                periodically  assesses  the  adequacy of its  recorded  warranty
                liability and adjusts the balance as necessary.

                The  following  provides  a  reconciliation  of  changes  in the
                Company's warranty reserve.

<TABLE>
<CAPTION>

                                                                 Unaudited                               Unaudited
                                                             Three Months Ended                      Nine Months Ended
                                                                September 30,                           September 30,
                                                     -------------------------------------------------------------------------
                                                           2005                2004                 2005                2004
<S>                                                     <C>                 <C>                 <C>                 <C>
       Warranty balance at beginning of period          $ 410,013           $ 346,244           $ 505,850           $ 438,450

       Net provision for current period                   173,650              33,516             243,900               3,060
       Warranty costs incurred                            (57,813)            (44,375)           (223,900)           (106,125)
                                                     -------------------------------------------------------------------------
       Warranty balance at end of period                $ 525,850           $ 335,385           $ 525,850           $ 335,385
                                                     =========================================================================
</TABLE>




                                       12
<PAGE>


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 the Company, 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 the Company with the  Securities  and
Exchange   Commission   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 its
revenues  from the sale of such  products.  The  primary  target  market for the
Company's  digital  angiography  systems and related products has  traditionally
been retinal  specialists.  The Company  recently  made a strategic  decision to
expand its product offering to include the ophthalmic  informatics  field.  Over
the last year the Company  introduced its Ophthalmology  Office line composed of
the Electronic  Medical Records (EMR) and Enterprise  Practice  Management (EPM)
software  products  by NextGen  Healthcare  Information  Systems,  Inc.  and the
Company's import modules. This decision has enabled the Company to offer a wider
variety  of  products  and  comprehensive  solutions  to its  customer  base  of
ophthalmology departments and practices.

     As of September 30, 2005,  the Company had  stockholders'  equity  totaling
$3,928,255  and  its  current  assets   exceeded  its  current   liabilities  by
approximately $3,976,692.

     The convertible  loan  agreements with Laurus Master Fund. Ltd.  ("Laurus")
that were entered into during the third  quarter of 2003 and the second  quarter
of 2004, have had a favorable impact on the Company's ratio of current assets to
current  liabilities.  As of  September  30,  2005,  under the terms of the 2003
convertible  loan  agreement,  Laurus had  converted  $868,177 of principal  and
interest into 811,381 shares of the Company's common stock at a conversion price
of $1.07 per share. As of September 30, 2004,  Laurus had converted  $649,913 of
principal  and interest into 607,396  shares of the Company's  common stock at a
conversion price of $1.07.

     The following  discussion  should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are included under Item
1 of this 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, necessary to fairly present the results of the reported
periods.



                                       13
<PAGE>

Critical Accounting Policies
----------------------------

     The  Company's  financial   statements  are  prepared  in  accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP"). The financial information contained in the financial statements is, to
a significant extent, financial information based on effects of transactions and
events  that have  already  occurred.  A variety  of  factors  could  affect the
ultimate value obtained when earning income, recognizing an expense,  recovering
an asset or relieving a liability.  The Company's revenue  recognition  policies
are in compliance with applicable  accounting rules and  regulations,  including
Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition in Financial
Statements,"  American  Institute of  Certified  Public  accountants  ("AICPA"),
Statement of Position ("SOP") 97-2,  "Software  Revenue  Recognition," SOP 98-9,
"Modification  of SOP 97-2",  with Respect to Certain  Transactions and Emerging
Issues  Task  Force   Issue   00-21,   "Revenue   Arrangements   with   Multiple
Deliverables".  As such,  revenue  is  recorded  when  there is  evidence  of an
arrangement,  delivery has  occurred,  the price is fixed and  determinable  and
collectability  is reasonably  assured.  Revenue from  installation and training
services are recognized when such services are performed. Revenue generated from
service  contracts  are  recognized  ratably  over  the  term of the  contracts.
Estimates  are used in  determining  the expected  useful  lives of  depreciable
assets.  Management is also  required to make  estimates  and  assumptions  that
affect the reported  amounts of assets and  liabilities  and the  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
revenues and expenses during the reporting  period.  Actual results could differ
from these  estimates.  In addition,  GAAP itself may change from one previously
acceptable   method  to  another.   Although  the  economics  of  the  Company's
transactions  would not change, the timing of the recognition of such events for
accounting purposes may change.


Results of Operations
---------------------

Revenues

     The Company's  revenues for the third quarter ended September 30, 2005 were
$3,246,216 representing a 24% increase from revenues of $2,614,798 for the third
quarter ended  September 30, 2004.  Revenues for the first nine months of fiscal
2005 were $9,035,820 representing a 22% increase from revenues of $7,414,907 for
the  comparable  nine months of fiscal 2004.  The increase in revenues is due to
higher revenues generated from the Digital  Angiography  Systems,  Ophthalmology
Office  products,   and  service  revenues.   Digital  Angiography  Systems  and
Ophthalmology  Office Products  accounted for approximately 85% of the Company's
revenue for the third quarter and  nine-month  period ended  September 30, 2005.
Sales of these products  accounted for  approximately 88% of the Company's total
revenues for the third quarter and nine-month  period ended  September 30, 2004.
Service revenues  accounted for  approximately  15% of the Company's revenue for
the third  quarter and  nine-month  period ended  September 30, 2005 compared to
approximately  12% of the Company's revenue for the third quarter and nine-month
period ended September 30, 2004.  Revenues from sales of the Company's  products
to MediVision  were  approximately  $179,600 and $584,200 during the three-month
and  nine-month  periods ended  September 30, 2005 and $266,000 and $545,000 for
the  comparable  three-month  and nine-month  periods ended  September 30, 2004,
respectively.



                                       14
<PAGE>

Gross Margins

     Gross margins were  approximately 61% for the third quarter ended September
30,  2005 and 60% for the  third  quarter  ended  September  30,  2004.  For the
nine-month period ended September 30, 2005, gross margins were approximately 60%
as compared to 61% for the comparable nine-month period of 2004.

Sales and Marketing Expenses

     Sales and  marketing  expenses  accounted  for  approximately  24% of total
revenues  during the third  quarter of fiscal 2005 as compared to  approximately
25%  during the third  quarter  of fiscal  2004.  Sales and  marketing  expenses
increased  to $781,521  and  $641,828  for the third  quarter of fiscal 2005 and
2004, respectively. For the nine months ended September 30, 2005 and 2004, sales
and marketing expenses accounted for approximately 24% and 27% of total revenues
respectively.   Sales  and  marketing  expenses  increased  to  $2,195,917  from
$1,997,834   during  the  nine  months  ended   September  30,  2005  and  2004,
respectively.  The increases are primarily attributable to increased commissions
resulting   from   increased   revenues,   the   addition   of  two  new   sales
representatives,  and  higher  marketing  expenses  from the  Company's  largest
tradeshow in Chicago this year.

General and Administrative Expenses

     General and  administrative  expenses were $360,291 in the third quarter of
fiscal 2005 and  $290,912 in the third  quarter of fiscal  2004.  Such  expenses
accounted for approximately 11% of revenues during the third quarter of 2005 and
2004. For the first nine months of fiscal 2005 and 2004 such expenses  accounted
for approximately 11% of total revenues for the respective  nine-month  periods.
Actual  expenses  increased  to $998,922  from  $796,716  during the  nine-month
periods of fiscal 2005 and 2004,  respectively.  The 2005 increase resulted from
increased legal expenses and reserves in contrast to a write-down in reserves in
2004.

Research and Development Expenses

     Research and  development  expenses  were  $327,501 in the third quarter of
fiscal 2005 and  $242,847 in the third  quarter of fiscal  2004.  Such  expenses
accounted for  approximately  10% and 9% of revenues during the third quarter of
2005 and 2004, respectively.  For the first nine months of fiscal 2005 and 2004,
research and  development  expenses  accounted for  approximately  9% and 10% of
revenues,  respectively. The Company focused its recent research and development
efforts on new digital  image  capture  products,  and expect such  research and
development  expenditures  to grow as a result of  outsourcing  its research and
development activities to MediVision and other consultants.



                                       15
<PAGE>


Interest and Other Expense, net

     Interest  and other  expenses  were  ($6,378)  during the third  quarter of
fiscal 2005 versus $58,922 during the third quarter of fiscal 2004. Interest and
other  expenses  were $97,240 and $163,590 in the third  quarters of fiscal 2005
and fiscal 2004,  respectively.  These  amounts were  comprised  principally  of
interest  expense,  mainly associated with the convertible loans from Laurus and
with financing  arrangements  provided to certain of the Company's  customers in
connection  with sales of its  products.  The  decrease  of  interest  and other
expenses is due to an increase in interest  income  related to the  intercompany
receivable with MediVision.

Net Income

     The Company  recorded net income of $516,380,  or $0.03 per share basic and
diluted  earnings for the third quarter ended  September 30, 2005 as compared to
net income of $326,713 or $0.02 per share  basic and  diluted  earnings  for the
third quarter ended September 30, 2004. For the nine-month periods,  the Company
recorded net income of $1,256,491 or $0.08  earnings per share basic and diluted
as compared to $811,212,  or $0.06  earnings per share basic and $0.05 per share
diluted  during  fiscal  2005 and fiscal  2004,  respectively.  The  increase in
earnings per share is mainly  attributable  to an increase in income between the
comparable quarters and nine-month periods.

Liquidity and Capital Resources
-------------------------------

     The Company's operating  activities generated cash of $1,137,491 during the
nine months ended  September 30, 2005 as compared to generating cash of $363,965
during  the  nine  months  ended  September  30,  2004.  The cash  generated  by
operations  during the first nine months of 2005 was principally from net income
for the  period  and an  increase  in  customer  deposits,  partially  offset by
increased  receivables  and prepaid  assets.  The cash generated from operations
during the first  nine  months of 2004 was  principally  from net income for the
period  which  amounts  were  partially   offset  by  increased   inventory  and
receivables.

     Cash used in investing  activities was $24,745 during the first nine months
of 2005 as compared to $15,985  during the same period for 2004.  The  Company's
investing activities in 2005 and 2004 consisted of minor purchases of equipment.
The Company anticipates  continued near-term capital  expenditures in connection
with  ongoing  efforts  to  upgrade  its  existing  management  information  and
communication  systems.  The Company anticipates that related  expenditures,  if
any,  will be  financed  from cash  flows  from  operations  or other  financing
arrangements available to the Company.

     The Company generated cash from financing  activities of $78,200 during the
first nine  months of fiscal 2005 as  compared  to  generating  cash of $284,009
during the comparable  nine-month period of fiscal 2004. The cash generated from
financing activities during the first nine months of 2005 was primarily due to a
payment  from  MediVision  of an  intercompany  receivable,  offset  by  monthly
payments of the debt  instrument to Laurus.  The cash generated  during the same
nine-month  period  in 2004 was  principally  from  proceeds  received  from the
signing  of the  $1,000,000  convertible  debt  instrument  with  Laurus and the
addition of a capital  lease offset by  repayments  of  borrowings  and advances
under existing arrangements with MediVision.



                                       16
<PAGE>

     During the nine-month period,  MediVision paid back $1,240,000 of the loan;
reducing  the  amount  MediVision  owes the  Company on the  promissory  note to
$715,558, plus accrued interest as of September 30, 2005

     As of September  30,  2005,  the Company had recorded a net amount due from
MediVision of $770,106 on the promissory note,  including interest,  and $60,672
net amount due for products and services.

     On  September  30,  2005,  the  Company's  cash and cash  equivalents  were
$3,181,256.  In the foreseeable future,  management  anticipates having adequate
cash flow to fund the daily needs of the Company.

     There  can be no  assurances,  however,  that the  Company  will be able to
achieve or sustain significant positive cash flows, revenues or profitability in
the future.

     The Company  will  continue to evaluate  alternative  sources of capital to
meet its growth requirements,  including other asset or debt financing,  issuing
equity securities and entering into other financing  arrangements.  There are no
assurances,  however,  that  any  of  the  contemplated  financing  arrangements
described  herein will be available  and, even if available,  can be obtained on
terms favorable to the Company.



                                       17
<PAGE>



ITEM 3.  CONTROLS AND PROCEDURES

     As of the end of the  period  covered  by this  Report,  management  of the
Company,  with  the  participation  of the  Company's  Chief  Executive  Officer
(principal   executive  officer)  and  the  Company's  Chief  Financial  Officer
(principal  financial  officer),  evaluated the  effectiveness  of the Company's
"disclosure  controls and  procedures,"  as defined in Rule 13a-15(e)  under the
Securities  Exchange  Act of 1934.  Based  on that  evaluation,  these  officers
concluded that, as of September 30, 2005, the Company's  disclosure controls and
procedures were effective.

     During the quarter ended  September 30, 2005,  there were no changes in the
Company's  internal  control  over  financial  reporting  that  have  materially
affected,  or are reasonably likely to materially affect, the Company's internal
control over financial reporting.












                                       18
<PAGE>


                            PART II OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

               On March 9, 2004,  the Company filed a civil action in the United
         States  District Court for the Eastern  District of California  against
         several  of its former  employees,  led by former  vice-president  Mark
         Fukuhara,  who have  been  doing  business  for the  last two  years as
         Imaging  Service Group (ISG) and Zeta  Development  Laboratories  in El
         Dorado Hills, California, and several affiliated persons and companies,
         including Dale Brodsky, Eyepictures,  Inc., Johnny Justice Jr., and two
         of his ophthalmic  equipment  businesses,  Zeta Development  Labs, Inc.
         (doing business as Justice Diagnostic Imaging) and Justice Ophthalmics,
         Inc.  The  complaint  alleges  claims  for  misappropriation  of  trade
         secrets,  violations  of the  federal  computer  fraud and  abuse  act,
         copyright infringement, breach of contract, interference with contract,
         and false advertising.  The complaint seeks monetary damages as well as
         injunctive relief against the defendants.

               On August 20,  2004,  the United  States  District  Court for the
         Eastern   District  of   California   granted  in  part  the  Company's
         application  for  a  preliminary  injunction  against  certain  of  the
         defendants.  In December 2004, the Court dismissed Johnny Justice,  Jr.
         as an  individual  and  Justice  Ophthalmics,  Inc.  from the case.  In
         October 2005 OIS settled its claims against  defendant Zeta Development
         Labs, Inc.Trial in the matter currently is scheduled for April 2006.

               Other than the action referred to above and immaterial  claims in
         the  ordinary  course  of  business,  to our  knowledge,  there  are no
         material legal proceedings  presently pending or threatened to which we
         (or any of our directors or officers in their capacity as such) are, or
         may be, a party or to which our property is, or may be, subject.






                                       19
<PAGE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)

         31.1 - Certification Required Under Section 302 of Sarbanes-Oxley Act
         of 2002

         31.2 - Certification Required Under Section 302 of Sarbanes-Oxley Act
         of 2002

         32 - Certification Required Under Section 906 of Sarbanes-Oxley Act
         of 2002


         (b) Reports on Form 8-K

             Current  Report on Form 8-K, filed with the Securities and Exchange
             Commission on July 25, 2005.

             Current  Report on Form 8-K, filed with the Securities and Exchange
             Commission on July 29, 2005.







                                       20
<PAGE>


                                   SIGNATURES

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

                                               OPHTHALMIC IMAGING SYSTEMS
                                               (Company)


                                       By:   /s/ Gil Allon
                                             -----------------------------------
                                             Gil Allon,
                                             Chief Executive Officer


                                             /s/ Ariel Shenhar
                                             -----------------------------------
                                             Ariel Shenhar,
                                             Chief Financial Officer






                                       21