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 November 30, 1998

Commission File Number:      1-11140

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

                              California94-3035367
            (State of Incorporation)(IRS Employer Identification No.)

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

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

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

        Yes    XX            No             

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




<PAGE>1



                                 PART I FINANCIAL INFORMATION


ITEM 1.        FINANCIAL STATEMENTS

<PAGE>2
                          

                           Opthalmic Imaging Systems
                            Condensed Balance Sheet
                               November 30, 1998
                                  (Unaudited)

<TABLE>
<S>                                                                                   <C>   
Assets
Current assets:
       Cash and equivalents                                                              $          364,088
       Accounts receivable, net                                                                     569,493
       Inventories, net                                                                             695,545
       Prepaid expenses and other current assets                                                     22,952
                                                                                      ----------------------
Total current assets                                                                              1,652,078
Furniture and equipment, net of accumulated
       depreciation and amortization of $940,606                                                    378,468
Other assets                                                                                          7,932
                                                                                      ======================
                                                                                         $        2,038,478
                                                                                      ======================
Liabilities and Stockholders' Equity
Current liabilities:
       Borrowings under line of credit                                                   $           20,171
       Borrowings under note payable to, and unsecured
            advances from significant shareholder                                                 1,471,769
       Accounts payable                                                                             414,599
       Accrued liabilities                                                                        1,652,911
       Accrued warrant appreciation right                                                           274,335
       Deferred extended warranty revenue                                                           114,018
       Customer deposits                                                                            320,145
       Capitalized lease obligation and other notes payable                                           9,125
                                                                                      ----------------------
Total current liabilities                                                                         4,277,073
Capitalized lease obligation and other notes payable, less current portion                           20,069
Commitments
Stockholders' deficit:
       Preferred stock, no par value, 20,000,000 shares authorized;
            none issued or outstanding                                                                   --
       Common stock, no par value, 20,000,000 shares authorized;
            4,155,428 issued and outstanding                                                     10,462,604
       Deferred compensation                                                                       (158,935)
       Accumulated deficit                                                                      (12,562,333)
                                                                                      ----------------------
Total stockholders' deficit                                                                      (2,258,664)
                                                                                      ======================
                                                                                         $        2,038,478
                                                                                      ======================
</TABLE>

See accompanying notes.



<PAGE>3


                            Opthalmic Imaging Systems
                        Condensed Statement of Operations
                                  (Unaudited)

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


                                                   Three months ended November 30,
                                                     1998                   1997
                                              --------------------   --------------------

Net revenues                                    $       1,490,234      $       1,901,877
Cost of sales                                             972,421              1,247,596
                                              --------------------   --------------------
Gross Profit                                              517,813                654,281
Operating expenses:
     Sales and marketing                                  525,387                506,818
     General and administrative                           299,864                323,418
     Research and development                             207,914                212,268
                                              --------------------   --------------------
          Total operating expenses                      1,033,165              1,042,504
                                              --------------------   --------------------
Income (loss) from operations                            (515,352)              (388,223)
Other expense, net                                        (42,010)                (9,129)
                                              ====================   ====================
Net income (loss)                               $        (557,362)     $        (397,352)
                                              ====================   ====================

Shares used in the calculation of basic
     net income (loss) per share                        4,155,428              3,905,428
                                              ====================   ====================
Basic net income (loss) per share               $           (0.13)     $           (0.10)
                                              ====================   ====================

Shares used in the calculation of diluted
     net income (loss) per share                        4,155,428              3,905,428
                                              ====================   ====================
Diluted net income (loss) per share             $           (0.13)     $           (0.10)
                                              ====================   ====================

</TABLE>

See accompanying notes.

<PAGE>4



                            Opthalmic Imaging Systems
                        Consensed Statement of Cash Flows
                  Increase (Decrease) in Cash and Equivalents
                                   (Unaudited)

<TABLE>
<S>                                                                <C>                      <C>    
                                                                         Three months ended November 30,
                                                                           1998                     1997
                                                                   ----------------------   ----------------------

Operating activities:
Net loss                                                               $        (557,362)       $        (397,352)
Adjustments to reconcile net loss to net cash
     used in operating activities:
          Depreciation and amortization                                           32,924                   29,459
          Stock option compensation expense                                       32,365                   28,681
          Net increase in current assets other than
               cash and equivalents                                              (67,633)                (126,605)
          Net increase in current liabilities other than
               short-term borrowings                                             479,002                  485,991
                                                                   ----------------------   ----------------------
Net cash used in operating activities                                            (80,704)                  20,174
Investing activities:
Purchases of furniture and equipment                                                  --                  (18,526)
Net (increase) decrease in other assets                                             (547)                  (1,831)
                                                                   ----------------------   ----------------------
Net cash used in investing activities                                               (547)                 (20,357)
Financing activities:
Principal payments on notes payable                                                 (132)                  (1,534)
Net proceeds from borrowings under note payable to
     and unsecured advances from significant shareholder                           9,289                       --
Net (repayments of) proceeds from line-of-credit
     borrowings                                                                  (78,004)                  86,930
                                                                   ----------------------   ----------------------
Net cash provided by financing activities                                        (68,847)                  85,396
                                                                   ----------------------   ----------------------
Net decrease in cash and equivalents                                            (150,098)                  85,213
Cash and equivalents at beginning of period                                      514,186                  142,300
                                                                   ======================   ======================
Cash and equivalents at end of period                                  $         364,088        $         227,513
                                                                   ======================   ======================
</TABLE>

See accompanying notes.

<PAGE>5


                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

              Three Month Periods ended November 30, 1998 and 1997

                                   (Unaudited)



Note 1.      Basis of Presentation

             The accompanying  unaudited  condensed balance sheet as of November
             30, 1998,  condensed  statements of operations  for the three month
             periods  ended  November  30,  1998  and  1997  and  the  condensed
             statements of cash flows for the three month periods ended November
             30, 1998 and 1997 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 includ  information and
             footnote  disclosures  required by  generally  accepted  accounting
             principles for complete financial statements.  It is suggested that
             these condensed  financial  statements be read in conjunction  with
             the audited financial  statements and notes thereto included in the
             registrant's  (the  Company's)  Annual  Report for the Fiscal  Year
             Ended August 31, 1998 on Form 10-KSB. In the opinion of management,
             the  accompanying   condensed  financial   statements  include  all
             adjustments,  consisting on 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  November  30,  1998  are  not  necessarily
             indicative of the operating results for the full year.

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

Note 2.      Net Loss Per Share

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

<PAGE>6

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

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

                                                  Unaudited
                                              Three Months Ended
                                                 November 30,

                                              1998          1997
                                          ---------------------------

Numerator for basic and diluted 
net income (loss) per share               $ (557,362)   $ (397,352)
                                          ============= =============

Denominator for basic net income 
(loss) per share: Weighted average                
 shares                                    4,155,428     3,905,428


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

Denominator for diluted net income 
  (loss) per share                         4,155,428     3,905,428
                                          ============= =============


Basic net income (loss) per share         $    (0.13)     $ (0.10)
                                          ============= =============

                                          ============= =============
Diluted net income (loss) per share       $    (0.13)     $ (0.10)
                                          ============= =============


Note 3.      Short-Term Borrowings

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

             In November 1997, the Company  entered into an accounts  receivable
             credit agreement (the  "Agreement")  with the Bank, and all amounts
             outstanding  under the Credit  Agreement were  considered to be the
             initial advance under the Agreement. The Agreement allows for up to
             an 80% advance rate on eligible accounts receivable  balances,  and
             the maximum borrowing base under the Agreement is $1.2 million. The
             Bank  has full  recourse  against  the  Company  and the  Agreement
             remains in effect  from year to year  terminated  in writing by the
             Company or the Bank.  Borrowings  under the Agreement bear interest
             at the Bank's prime  lending  rate plus 4%. In  addition,  the Bank
             will charge monthly an  administrative  fee equal to the greater of
             1/2% of the average  daily  balance for the month or $1,200.  Under
             the terms of the Agreement, borrowings are secured by substantially
             all of the Company's  assets.  At November 30, 1998,  approximately
             $20,200 in principal was outstanding under the Agreement.


<PAGE>

                                                
Note 4.      Note Payable to Related Party       

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

             At November 30, 1998, approximately $1,527,000 in principal and 
             interest was outstanding under the Note and unsecured advances.
             The Company and Premier are currently in negotiations, among other
             things, to reduce the aggregate amount of the Company's debt to
             Premier by the $500,000 Termination Fee (see Note 5), to increase
             the maximum principal amount available under the Note accordingly 
             and to establish mutually acceptable repayment terms.           

Note 5.      Stock Purchase Agreement                                     

             On February 25,  1998,  the Company  entered into a Stock  Purchase
             Agreement (the "Stock Purchase  Agreement") with Premier,  pursuant
             to which,  among other  things:  (i)  Premier  agreed to commence a
             tender offer to acquire those shares of the Company's  common stock
             which were not already owned by it; and (ii) the Company  agreed to
             amend its Rights  Agreement  dated as of  December  31, 1997 by and
             between  the  Company and its rights  agent,  to permit  Premier to
             acquire  up to  51.3% of the  Company's  outsta  stock  in  private
             transactions  executed simultaneous with the execution of the Stock
             Purchase Agreement.

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

<PAGE>8


Note 6.      Ability to Continue as a Going Concern                         

             The Company has an accumulated deficit of $12,562,333 at November
             30, 1998.  In addition, current liabilities exceed current assets 
             by $2,624,995 as of that date.  These factors, among others, may 
             suggest that the Company could be unable to continue as a going 
             concern.

             The Company is currently negotiating with Premier, among other  
             things, the repayment terms of the Note and unsecured advances
             described in Note 4 and the Termination Fee described in Note 5. 
             While management is confident that the negotiations will result in
             extended repayment terms and that the aggregate amount owing under
             the Note and unsecured advances will be reduced by the $500,000
             Termination Fee, there can be no assurances that the Company will 
             generated sufficient liquidity from opera
             obligations as they become due even if the Note is renegotiated. 

             In addition, the Company has received several informal indications
             of interest from third parties regarding, among other things,
             transactions involving potential joint business venture
             arrangements, acquisition of the Company's assets and equity
             investments in the Company.  The Company intends to pursue these 
             indications of interest in the context of the arrangements, if any
             with Premier.  In addition, the Company will continue to evaluate
             alternative sources of capital to meet its cash require including
             debt financing, issuing equity securities and entering into other
             financing arrangements and/or strategic alliances.  There can be 
             not assurance, however, that any of the contemplated financing 
             arrangements described herein will be available and, if available,
             can be obtained on terms favorable to the Company.         

<PAGE>9


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

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

Overview

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 technology and
sales of digital ophthalmic imaging systems.

The Company believes, however, that as the U.S. healthcare system moves toward
managed care the needs of the managed care providers are changing the nature of
demand for medical imaging equipment and services.  New opportunities in 
telemedicine, combined with lower cost imaging devices and systems, are emerging
that allow physicians and managed care organizations to deliver a high quality 
of patient care while reducing costs.  OIS is currently a market leader in the 
ophthalmic imaging field and plans to expand this role by applying its
technology to the development of new ocular imaging devices and 
telemedicine/managed care applications targeted at the mass markets of general 
ophthalmology and optometry.

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

In this  regard,  the  Company  has  recently  refocused  its  resources  on the
marketing  and  sales  of  its  WinStation   digital  imaging  systems  and  the
development of two ocular imaging devices, the Digital Fundus Imager ("DFI") and
the  Digital  Slit Lamp  Imager  ("DSLI").  These two new  products,  which were
introduced at the recently  completed  Annual Meeting of the American Academy of
Ophthalmology  (the "AAO")  held in New Orleans in November  1998 (the "1998 AAO
Meeting"), represent a paradigm shift in imaging for ocular health professionals
by providing  diagnostic  imaging devices and digital imaging systems affordable
to the general  ophthalmology and optometry markets. The Company is focusing its
current  development  efforts on its DFI and DSLI products,  as well as features
and enhancements to its existing products.


<PAGE>10
                                             
The Company is hopeful that there will be favorable market acceptance of the DFI
and the  DSLI  and  that the DFI and  DSLI  and  related  products  will  become
significant  product  lines for the  Company.  Although  the Company has limited
capacity to produce these  products  from its present  facility with its current
workforce,  if future demand meets the Company's optimistic  expectations,  then
the  Company may need to seek  additional  funds and  manufacturing  capacity in
order to produce and distribute that level of demand for these new products.  In
the longer term,  the Company is  optimistic  that it can  generate  significant
revenues  from sales of these  products  sufficient to fund the  production  and
distribution of said products.  There can be no assurance,  however,  that there
will be favorable market acceptance of these products.  Furthermore, if there is
favorable  market  acceptance,  then there can be no assurance  that the Company
will be able to identify a suitable  manufacturing  alternative to alleviate any
overcapacity  situation  or that there  will be  arrangements  available  to the
Company to secure or  otherwise  generate  the funds  necessary  to produce  and
distribute  a large  demand  for  these  products  or, if  available,  that such
alternatives  or  financing  arrangements  will  be on  terms  favorable  to the
Company.

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

On February 25, 1998, the Company and Premier Laser Systems, Inc., a California
corporation ("Premier"), entered into a Stock Purchase Agreement (the "Stock
Purchase Agreement") whereby, among other things, Premier would offer to buy 
those shares of the Company's common stock which were not already owned by it.
As a result of the negotiation of the Stock Purchase Agreement and in
contemplation of its consummation, the Company incurred significant costs and 
expenses and diverted a significant amount of it resources away from its core 
business.  In addition, the Company entered into various financing arrangements
 with Premier. 

In August 1998, it was determined that the transactions  contemplated  under the
Stock  Purchase   Agreement  between  the  Company  and  Premier  would  not  be
consummated.  As a result,  the Stock Purchase  Agreement was  terminated.  As a
result of such  termination,  the Company has made demand to Premier for payment
of the $500,000  termination fee (the "Termination  Fee") as provided for in the
Stock Purchase Agreement.  The Termination Fee, however,  among other things, is
the  subject  of  current  negotiations  between th  companies.  For  additional
information  regarding the terms and conditions of the Stock Purchase Agreement,
see the Company's  Form 8-K filed on March 9, 1998,  and as referenced in Note 5
of the Notes to Condensed  Financial  Statements included in Item 1 of this Form
10-QSB.

As a result of the transactions contemplated under the Stock Purchase Agreement,
together with certain private purchase transactions made simultaneously with the
execution of the Stock Purchase Agreement,  Premier currently owns approximately
51.3% of the Company's outstanding common stock.

<PAGE>11
                     
The following discussion should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are set forth 
elsewhere in this Report on Form 10-QSB.  In the opinion of management, the
 unaudited interim period financial statements include all adjustments, all of
 which are of a normal recurring nature, that are necessary for a fair
presentation of the results of the periods.  

Results of Operations     

The Company incurred a net loss of $557,362, or $.13 per share, for the first
quarter of fiscal 1999 as compared to a net loss of $397,352, or $.10 per share,
 for the first quarter of fiscal 1998.  The per share figures are basic amounts
 in accordance with Financial Accounting Standards No. 128 (see Note 2 of Notes 
to Condensed Financial Statements included in Item 1 of this Form 10-QSB). 

The 1999 figures reflect the adverse impact on revenues and corporate operations
 resulting from efforts associated with the contemplated transaction with 
Premier.  The Company has incurred significant costs and professional fees and
 expenses in connection therewith, while diverting a significant amount of the
 Company's resources and management's attention and selling efforts away from 
the Company's core operations during this period. 

The  Company's  revenues  for the first  quarter of fiscal 1999 were  $1,490,234
representing a decrease of approximately 22% from revenues of $1,901,877 for the
first quarter of fiscal 1998.  The primary  factor  contributing  to the reduced
1999 revenue level was the adverse impact of management's efforts being directed
to the  negotiations  with  Premier and less time devoted to the  generation  of
sales.  During the recently  completed 1998 AAO Meeting,  the Company introduced
its low-cost digital imaging systems incorporating its recently developed ocular
imaging devices,  the DFI and the DSLI. The Company received  substantially more
purchase commitments for its products as compared to previous AAO meetings, with
significant purchase commitments for the newly introduced products. As such, the
Company will  continue and direct the majority of its  resources to both support
the  demand  for  its  digital   imaging   products  as  well  as  pursue  other
opportunities in these and related markets,  including general ophthalmology and
optometry.

Gross margins were approximately 35% during the first quarter ended November 30,
1998 versus  approximately  34% for the comparable  quarter of 1998. 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
additional   manufacturing  and  assembly  operations  and  related  fixed  cost
reduction  measures  implemented  during  the  latter  half of  1997,  including
personnel cutbacks,  economies of scale from increased unit production and other
manufacturing efficiencies.

<PAGE>12

                                   
Sales and  marketing  and  general and  administrative  expenses  accounted  for
approximately  55% of total revenues  during the first quarter of fiscal 1998 as
compared with  approximately  44% during the first quarter of fiscal 1998,  with
the  increased  percentage  resulting  principally  as a function of the reduced
revenue levels during the first quarter of 1999. Actual expense levels decreased
slightly,  to $825,251  during the first quarter of 1999 versus  $830,236 during
the first quarter of 1998.  Reduced  commissions and other costs associated with
decreased  revenue levels during the first quarter of 1999 versus the comparable
period 1998, as well as the cost reductions realized during the first quarter of
1999 from the termination of certain management personnel during the latter half
of 1998, were partially offset by increased  marketing costs associated with the
1998 AAO Meeting and, to a lesser  extent,  costs  associated  with the on-going
negotiations with Premier.  The Company  anticipates that recurring  expenses in
this area will continue to run at or above historical levels.

Research and development expenses, as a percentage of revenues, was 
approximately 14% in the first quarter of 1999 versus approximately 11% during
the same period of 1998.  This percentage increase is a function of the reduced
revenue levels during the first quarter of 1999.  Expense levels, however, 
decreased slightly in actual dollar terms to $207,914 during the first quarter
 of 1999 from $212,268 in 1998.  The Company intends to focus its research and 
development efforts on its recently introduced digital image capture products, 
current product enhancements and reducing cost configurations for its current 
products.  The Company anticipates that research and development expense will be
 maintained at or above current levels in the near term.

Other expense was $42,010 during the first quarter of fiscal 1999 versus $9,129
during the same period of 1998.  The primary contributing factor to this change
was an increase in interest expense during 1999 versus 1998 associated with
 borrowings and unsecured advances from Premier, which borrowings and unsecured
 advances were made after the first quarter of 1998 (see Note 4 of Notes to 
Condensed Financial Statements included in Item 1 of this Form 10-QSB).


Liquidity and Capital Resources

The Company's operating  activities used cash of $80,704 in the first quarter of
fiscal 1999 and  generated  cash of $20,174 in the first  quarter of fiscal 1998
and used cash of $325,820 in the first quarter of fiscal 1997.  The cash used in
operations during the first quarter of 1999 was expended principally to fund the
net loss during the period. This amount was significantly offset by increases in
customer deposits from orders generated at the 1998 AAO Meeting and increases in
accrued  liabilities,  including  those  liabilities  accrued in connection with
professional costs associated with on-going negotiations with Premier as well as
interest  associated  with  borrowings  from  Premier  (see  Note 4 of  Notes to
Condensed  Financial  Statements  included in Item 1 of this Form 10-QSB).  Cash
generated  from  operating  activities  in the first  quarter  of 1998  resulted
principally from the collection of accounts receivable,  significantly increased
revenue levels during the period and increases in customer  deposits from orders
generated at the 1997 AAO fall meeting,  the aggregate impact of which more than
offset the net loss for the quarter.


<PAGE>13

                                             
Cash used in investing activities was $547 during the first quarter of 1999 as
compared to $20,357 during the same period for 1998.  The Company's primary
investing activities consist of equipment and other capital asset acquisitions.
The Company does not currently have any pending material commitments for 
capital expenditures and the Company has deferred significant capital
acquisition decisions pending the on-going negotiations with Premier.

The  Company  used cash in the  amount of $68,847  during  the first  quarter of
fiscal 1999 as compared to generating cash of $85,396 from financing  activities
during the same period of fiscal 1998.  The use of cash in financing  activities
during the 1998 period was principally repayments of borrowings under the credit
facility with Imperial Bank (the "Bank"),  which amount was partially  offset by
an increase in the amount of borrowings  under the note payable to and unsecured
advances by Premier.  The source of cash from  financing  activities in 1998 was
proceeds  from  increased  borrowings  under the credit  facility with the Bank.
Principal repayments on notes payable was negligible in both 1999 and 1998.

As  indicated  in Note 3 of the  Notes to  Condensed  Financial  Statements,  in
November 1997, the Company entered into an accounts  receivable credit agreement
(the  "Agreement")  with the Bank, and all amounts  outstanding  under a matured
revolving  line of  credit  agreement  with the Bank were  considered  to be the
initial  advance  under the  Agreement.  The  Agreement  allows for up to an 80%
advance rate on eligible accounts receivable balances, and the maximum borrowing
base under the Agreement is $1.2 million. The Bank has full recourse against the
Company  and the  Agreement  expires  in  November  1998.  Borrowings  under the
Agreement  bear  interest at the Bank's prime lending rate plus 4%. In addition,
the Bank will charge monthly an administrative  fee equal to the greater of 1/2%
of the average  daily  balance  for the month or $1,200.  Under the terms of the
Agreement,  borrowings are secured by substantially all of the Company's assets.
At November 30, 1998,  approximately  $20,200 in principal was outstanding under
the Agreement.


<PAGE>14
                                             
Additionally,  as  discussed  in Note 4 of the  Notes  to  Financial  Statements
included in Item 1 of this Form 10-QSB,  on April 30, 1998, the Company executed
a promissory note in favor of Premier (the "Premier Note").  Borrowings  against
the Premier Note are available to the Company in the form of periodic  advances.
The maximum principal amount available under the Premier Note is $500,000, which
principal amount  outstanding,  together with any and all accrued  interest,  is
payable  the earlier of (i)  written  demand by Premier or (ii) April 30,  1999.
Under the terms of the Premier Note,  borrowings  bear interest at the rate of 8
1/2% per annum, are secured by substantially all of the Company's assets and are
subordinate  to  borrowings  against the Agreement  with the  Company's  Bank as
discussed immediately above. Premier also has made certain unsecured advances to
the Company which are not covered by the Premier Note.  Approximately $1,527,000
in principal and interest was  outstanding  under the Premier Note and unsecured
advances at November  30,  1998.  The  Company  and  Premier  are  currently  in
negotiations,  among  other  things,  to  reduce  the  aggregate  amount  of the
Company's  debt to Premier by the  $500,000  Termination  Fee, to  increase  the
maximum  principal  amount  available under the Premier Note  accordingly and to
establish mutually acceptable  repayment terms. While the parties have agreed in
principle  on these  issues,  there can be no assurance  that a final  agreement
between  the  parties  can be  reached.  In the event that no  agreement  can be
reached, if demand for payment in full is made by Premier and the Company cannot
obtain  financing to make such  payment,  then the Company  would not be able to
satisfy such demand,  thereby  seriously  jeopardizing,  if not precluding,  its
ability to continue as a going concern.

At November 30, 1998,  the Company's  cash and cash  equivalents  were $364,088.
Barring  demand for payment of amounts owing under the Premier Note, the Company
believes that its existing cash balances  together with ongoing  collections  of
its accounts  receivable  and available  borrowing  capacity under the Agreement
could be adequate to meet its  liquidity  and capital  requirements  in the near
term.  However,  demand for payment of amounts due under the  alternative  stock
appreciation right with the Bank or the increase in demand for the Company's new
products  could  result in the need for  additional  cash.  While no request for
payment  has yet been  made,  principal  and  interest  amounts  due  under  the
alternative  stock   appreciation  right  with  the  Bank,  which  amounts  were
approximately  $274,000 as of November  30,  1998,  are also  currently  due. If
demand for payment were to be made by the Bank, then the Company would also have
to seek financing to make such payment,  including,  but not limited to, debt or
equity financing.  Further, although the Company has capacity to produce the DFI
and DSLI  products  from its present  facility  with its current  workforce,  if
future demand meets the Company's  optimistic  expectations  for these products,
then the Company may need to seek additional funds and manufacturing capacity in
order to produce and distribute that level of demand for these new products.

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


<PAGE>15


                                  PART II OTHER INFORMATION



ITEM 1.         LEGAL PROCEEDINGS
                None.

ITEM 2.         CHANGES IN SECURITIES
                None.

ITEM 3.         DEFAULTS UPON SENIOR SECURITIES
                None.

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

ITEM 5.         OTHER INFORMATION
                In November 1998, the Company granted to certain of its 
employees options to purchase, in the aggregate, up to 168,480 shares of the
 Company's common stock at an exercise price of $0.625 per share.  The exercise
of these options is subject to certain vesting requirements. These options were
not granted pursuant to any of the Company's existing stock option plans.  None 
of these options have been exercised as of the date hereof.

                In November 1998,  the Company  granted to each of its directors
options to purchase up to 5,000 shares (or 25,000 shares in the aggregate of all
directors)  of the  Company's  common  stock at an exercise  price of $0.625 per
share. These options were granted pursuant to the Company's 1997 Nonstatutory 
Stock Option Plan and are  immediately  exercisable.  None of these  options 
have been exercised as of the date hereof.

ITEM 6.         EXHIBITS AND REPORTS ON FORM 8-K


                (a)     The exhibits listed on the accompanying Index to 
                        Exhibits below are filed as a part hereof and are 
                        incorporated by reference as  noted.
                (b)     None.


<PAGE>16

                                           
                                          SIGNATURES

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


                               OPHTHALMIC IMAGING SYSTEMS
                               (Registrant)



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



Dated:  January 14, 1999


<PAGE>17


                                              16
                                      INDEX TO EXHIBITS

<TABLE>

    <S>            <C>                                                                                                <C>    
  
    Exhibit                                                                                                            Footnote
    Number         Description of Exhibit                                                                             Reference
    -------       -----------------------                                                                             ----------
   

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

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

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

     3.2          Amended Bylaws of the Registrant.                                                                             *

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

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

     4.2          Specimen of Stock Certificate.                                                                                *

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

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

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

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

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

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

<PAGE>18


                                                     
     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.             * 

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

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

     10.9         Original Equipment Manufacturer Agreement, dated April 1, 1991, between the Regrstrant 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 Nonstatatory Stock Option
                  Agreement.                                                                                                    *  

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

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

     10.14        Stock Option Plan.                                                                                           (1)

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

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

<PAGE>19

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

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

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

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

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

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

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

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

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

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

     10.16(k)     Amended  Loan and  Security  Agreement  (with  Credit  Terms  and Conditions) dated November 3, 1997.        (9)
 
     10.16(l)     Amended  Loan and  Security  Agreement  (with  Credit  Terms  and Conditions) dated November 21, 1997.       (9)

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

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

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

<PAGE>20                                              


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

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

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

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

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

     27           Financial Data Schedule (for SEC use only).                                                                 (16)




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

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

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

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

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

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

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

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

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

<PAGE>21

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

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

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

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

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

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

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

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

</TABLE>