U.S. 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 June 30, 2004

Commission File Number:    1-11140

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

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

                 221 LATHROP WAY, SUITE I, SACRAMENTO, CA 95815
                    (Address of principal executive offices)

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

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

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

As of August 5, 2004,  14,962,157  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 June 30, 2004



PART I.  FINANCIAL INFORMATION                                         PAGE
                                                                       ----

Item 1.  Financial Statements (unaudited)

         Condensed Balance Sheet as of June 30, 2004                     2

         Condensed Statements of Operations for the Three Months
         and Six Months ended June 30, 2004 and June 30, 2003            3

         Condensed Statements of Cash Flows for the Six Months
         ended June 30, 2004 and June 30, 2003                           4

         Notes to Condensed Financial Statements                         5

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations                                       8

Item 3.  Controls and Procedures                                        13

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                              14

Item 2.  Changes in Securities and Use of Proceeds                      14

Item 3.  Defaults upon Senior Securities                                14

Item 4.  Submission of Matters to a Vote of Security Holders            14

Item 5.  Other Information                                              14

Item 6.  Exhibits and Reports on Form 8-K                               15


<PAGE>


                          PART I FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS




















                                       1
<PAGE>


                                         Ophthalmic Imaging Systems
                                           Condensed Balance Sheet
                                                June 30, 2004
                                                 (Unaudited)

<TABLE>
<CAPTION>
ASSETS
------
Current assets:
<S>                                                                                      <C>
        Cash and equivalents                                                             $         1,848,280
        Accounts receivable, net                                                                   1,493,144
        Inventories, net                                                                             758,667
        Prepaid expenses and other current assets                                                    238,823
        Deferred tax asset                                                                           500,000
                                                                                         ---------------------
             Total current assets                                                                  4,838,914
Furniture and equipment, net of accumulated
        depreciation and amortization of $1,139,101                                                  170,228
Restricted cash                                                                                      150,000
Receivable from related party                                                                        114,644
Other assets                                                                                         197,797
                                                                                         ---------------------
             Total assets                                                                $         5,471,583
                                                                                         =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
        Accounts payable                                                                 $           535,737
        Accrued liabilities                                                                        1,246,859
        Deferred extended warranty revenue                                                           564,647
        Customer deposits                                                                            159,460
        Income taxes payable                                                                          32,600
        Notes payable- current portion                                                               748,973
                                                                                         ---------------------
             Total current liabilities                                                             3,288,276
                                                                                         ---------------------

Noncurrent Liabilities:
        Line of credit                                                                               150,000
        Notes payable, less current portion                                                        1,135,873
                                                                                         ---------------------
             Total noncurrent liabilities                                                          1,285,873
                                                                                         ---------------------

Stockholders' equity:
        Common stock, no par value, 35,000,000 shares authorized;
             14,772,157 issued and outstanding                                                    14,222,593
        Accumulated deficit                                                                      (13,325,159)
                                                                                         ---------------------
             Total stockholders' equity                                                              897,434
                                                                                         ---------------------
             Total liabilities and stockholders' equity                                  $         5,471,583
                                                                                         =====================


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

</TABLE>



                                       2
<PAGE>




<TABLE>
<CAPTION>
                                                   Ophthalmic Imaging Systems

                                               Condensed Statements of Operations

                                                           (Unaudited)

                                                    Three months ended June 30,                  Six months ended June 30,
                                                    2004                  2003                  2004                  2003
                                              ------------------   --------------------   ------------------   ------------------

<S>                                            <C>                  <C>                    <C>                  <C>
Net revenues                                   $     2,403,040      $       2,400,724      $     4,800,109      $     4,786,437
Cost of sales                                          914,399                977,424            1,871,945            1,937,083
                                              ------------------   --------------------   ------------------   ------------------
Gross profit                                         1,488,641              1,423,300            2,928,164            2,849,354

Operating expenses:
      Sales and marketing
                                                       696,325                697,699            1,356,007            1,330,555
      General and administrative
                                                       258,340                164,757              505,805              541,331
      Research and development
                                                       229,950                180,322              477,186              261,230
                                              ------------------   --------------------   ------------------   ------------------
          Total operating expenses                   1,184,615              1,042,778            2,338,998            2,133,116
                                              ------------------   --------------------   ------------------   ------------------
Income from operations                                 304,026                380,522              589,166              716,238
Interest and other expense, net                        (59,342)               (75,424)            (104,667)            (118,470)
                                              ------------------   --------------------   ------------------   ------------------
Net income before income taxes                         244,684                305,098              484,499              597,768
Income taxes                                                                   (3,000)                                   (3,000)
                                              ------------------   --------------------   ------------------   ------------------

Net income                                     $       244,684      $         302,098      $       484,499     $        594,768
                                              ==================   ====================   ==================   ==================
Shares used in the calculation of basic
        net income per share                        14,639,300              8,206,615           14,537,924            8,172,460

Basic net income per share                    $           0.02      $            0.04      $          0.03      $          0.07
                                              ==================   ====================   ==================   ==================

Shares used in the calculation of diluted
        net income per share                        15,700,475              8,651,215           15,583,163           8,400,620

Diluted net income per share                  $           0.02      $            0.03      $          0.03      $         0.07
                                              ==================   ====================   ==================   ==================



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

</TABLE>





                                       3
<PAGE>

                                              Ophthalmic Imaging Systems

                                          Condensed Statements of Cash Flows

                                                     (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Six months ended June 30,
                                                                                   2004                    2003
                                                                            --------------------    -------------------

<S>                                                                         <C>                     <C>
OPERATING ACTIVITIES:
Net income                                                                  $         484,499       $          594,768
Adjustments to reconcile net income to net cash
       provided by (used in) operating activities
            Depreciation and amortization                                              50,918                   24,914
            Non-cash payment of interest                                               21,802
            Loss of disposition of equipment                                              457
            Net increase in current assets other
                than cash and equivalents                                            (322,950)                (350,270)
            Net increase in other assets                                             (136,734)
            Net (decrease) increase in current liabilities other
                than short-term borrowings                                           (233,388)                  16,720
                                                                            -----------------       -------------------
Net cash (used in) provided by operating activities                                  (135,396)                 286,132

INVESTING ACTIVITIES:
Acquisition of furniture and equipment                                                 (8,565)                 (16,903)
Proceeds from disposition of equipment                                                    890
Increase in restricted cash                                                                                   (150,000)
                                                                            -----------------       -------------------
Net cash used in investing activities                                                  (7,675)                (166,903)

FINANCING ACTIVITIES:
Principal payments on notes payable                                                   (14,528)                  (1,409)
Proceeds from notes payable, other                                                  1,000,000
Proceeds from borrowings under line of credit, net                                                             150,000
Proceeds from sale of stock                                                            49,468
Advances to related parties                                                          (114,644)
Repayments of borrowings under notes
       payable to related party, net                                                 (200,979)                (304,586)
                                                                            -----------------       -------------------
Net cash provided by (used in) financing activities                                   719,317                 (155,995)
                                                                            -----------------       -------------------
Net increase (decrease) in cash and equivalents                                       576,246                  (36,766)
Cash and equivalents at beginning of period                                 $       1,272,034       $          383,234
                                                                            -----------------       -------------------
Cash and equivalents at beginning of period                                 $       1,848,280       $          346,468
                                                                            =================       ===================

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
            Repayment of notes payable with common stock                              315,135
            Payment of interest with common stock                                      21,802
            Addition to capital lease obligation for equipment purchases               41,258
            Addition to (reduction in) aggregate debt payable
              to significant shareholders in exchange for
              inventory and other noncash transactions, net                 $          92,366       $         (104,586)
                                                                            =================       ===================

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
            Conversion of related party notes payable to common stock                               $        1,150,000
            Cash paid for taxes                                             $          70,050       $           45,000


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

</TABLE>



                                       4
<PAGE>

                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

            Three and Six Month Periods ended June 30, 2004 and 2003


                                   (Unaudited)


Note 1.         Basis of Presentation

                The accompanying  unaudited  condensed  balance sheet as of June
                30, 2004,  condensed  statements of operations for the three and
                six month periods ended June 30, 2004 and 2003 and the condensed
                statements  of cash flows for the six month  periods  ended June
                30,  2004  and  2003  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 condensed financial statements should be read
                in conjunction with the audited  financial  statements and notes
                thereto   included   in   Ophthalmic   Imaging   Systems'   (the
                "Company's")  Annual Report for the year ended December 31, 2003
                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  June  30,  2004  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.





                                       5
<PAGE>

<TABLE>
<CAPTION>
                                                             Unaudited                       Unaudited
                                                         Three Months Ended               Six Months Ended
                                                              June 30,                        June 30,
                                                        2004            2003           2004            2003
                                                   ---------------------------------------------------------------

                <S>                                 <C>             <C>             <C>             <C>
                Numerator for basic and diluted
                net income per share                 $ 244,684       $ 302,098       $ 484,499       $ 594,768
                                                   ===============================================================

                Denominator for basic net income
                per share:
                   Weighted average shares           14,639,300      8,206,615      14,537,924       8,172,460

                Effect of dilutive securities:
                   Employee/director stock            1,061,175        444,600       1,045,239         228,160
                options
                   Warrants and other                       --              --             --              --
                                                   ---------------------------------------------------------------
                Dilutive potential common shares      1,061,175        444,600       1,045,239         228,160

                                                   ---------------------------------------------------------------
                Denominator for diluted net
                income  per share                    15,700,475      8,651,215      15,583,163       8,400,620
                                                   ===============================================================
                Basic net income per share               $ 0.02         $ 0.04          $ 0.03          $ 0.07
                                                   ===============================================================

                Diluted net income per share             $ 0.02         $ 0.03          $ 0.03          $ 0.07
                                                   ===============================================================
</TABLE>

                Options and warrants  whose  exercise  price exceeds the average
                market  price  of  the  stock  have  been   excluded  from  this
                computation.

Note 3.         Related Parties Transactions

                During  the period of August  2000  through  July 1,  2001,  the
                Company executed several promissory notes in favor of MediVision
                Medical Imaging Ltd. ("MediVision"),  an Israeli corporation and
                majority shareholder in the 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 provide 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 the  Company's  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 the Company's  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, the Company and MediVision entered in Amendment No.
                2 to the Working  Capital  Funding  Agreement and the Short Term
                Note whereby the repayment  terms on the debt were extended such
                that all principal  and interest  shall become due on January 1,
                2005.

                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 common shares of stock.


                                       6
<PAGE>


                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 of the Company's  common stock to S2 Partners LP
                at a price of $1.35  per  share.  On June 23,  2004,  MediVison,
                through  Nollenberger Capital Partners Inc. acting as its agent,
                sold an additional  500,000 shares of the Company's common stock
                at a price of $1.38  per  share.  As a result  of the  foregoing
                transactions, MediVision currently owns approximately 75% of the
                Company's outstanding common stock.

                At June 30, 2004 the Company had  recorded a net amount due from
                MediVision  of  approximately  $115,000.  This amount  comprises
                approximately  $462,000  due from  MediVision  for  products and
                services offset by approximately $347,000 owed to MediVision for
                interest on the loans.

                In  August  2002,   the  Company's   Board  of   Directors,   at
                MediVision's request, authorized the Company to guarantee and/or
                provide  security   interests  in  its  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 the  Company's  assets,  which  had  been
                granted  in   consideration   of  loans  to  the  Company   from
                MediVision.  In December 2002, the Company's  Board of Directors
                approved  that the Company  enter into and issue a debenture  in
                favor of the bank to act as security for the debt of MediVision.
                Such  debenture  is  secured  by a  first  lien  on  all  of the
                Company's assets. The debenture and lien were signed in December
                2002.  The  amount  owed  to  the  financial   institutions   by
                MediVision as of June 30, 2004 was approximately $984,000.

Note 4.         Stock Based Compensation

                At June 30, 2004, 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.







                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                                    Unaudited                    Unaudited
                                                                Three Months Ended            Six Months Ended
                                                                     June 30,                     June 30,
                                                           ----------------------------------------------------------
                                                               2004           2003           2004          2003
                                                           ----------------------------------------------------------
<S>                                                          <C>            <C>            <C>            <C>
                Net Income, As Reported                      $ 244,684      $ 302,098      $  484,499     $  594,768

                Deduct Total Stock-Based Employee
                   Compensation Expenses Determined
                   Under the Fair Value Based Method
                   For all Awards, Net of Related Tax
                   Effects                                     (1,078)        (15,234)         (2,165)       (28,662)
                                                           ----------------------------------------------------------
                Pro Forma Net Income                         $ 243,606      $ 286,864      $  482,334     $  566,106
                                                           ==========================================================

                Basic Earnings Per Share
                    As Reported                              $    0.02      $    0.04      $     0.03     $     0.07
                    Pro Forma                                $    0.02      $    0.04      $     0.03     $     0.07

                Diluted Earnings Per Share:
                    As Reported                              $    0.02      $    0.03      $     0.03     $     0.07
                    Pro Forma                                $    0.02      $    0.03      $     0.03     $     0.07
</TABLE>


                As required,  the pro forma  disclosures  above include  options
                granted  since  January 1, 1995.  Consequently,  the  effects of
                applying  FASB   Statement  No.  123  for  providing  pro  forma
                disclosures may not be representative of the effects on reported
                net income for future  years until all options  outstanding  are
                included in the pro forma disclosures.

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

                No options  were granted for the  three-month  period ended June
                30, 2004.


     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




                                       8
<PAGE>

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 of 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.

     In April 2004,  the Company  entered into a $1,000,000  debt agreement with
Laurus Master Fund, Ltd. ("Laurus") in the form of a three-year convertible note
with a fixed  coupon  price  of 6.5%  per  annum.  The  convertible  note may be
converted by Laurus into the Company's  Common Stock at a fixed conversion price
of $1.22.  The Company also issued  five-year  detachable  warrants to Laurus to
purchase 313,000 shares of the Company's Common Stock at exercise prices ranging
between $1.40 and $1.83 per share.

     At June 30, 2004,  the Company had  stockholders'  equity of  approximately
$897,000  and  its  current   assets   exceeded  its  current   liabilities   by
approximately $1,551,000.  The convertible loan agreements with 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  current  ratio.  There can be no
assurance  that the  Company  will be able to  achieve  or  sustain  significant
positive cash flows, revenues or profitability in the future.

     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.

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  within its statements is, to a
significant  extent,  financial  information  that is based on  measures  of the
financial  effects of  transactions  and events that have  already  occurred.  A
variety of factors could affect the ultimate value that is obtained  either when
earning  income,  recognizing  an expense,  recovering  an asset or  relieving a
liability.  The Company recognizes revenue when products are shipped.  Estimates
are used relative to 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 those estimates.
In addition,  GAAP itself may change from one  previously  acceptable  method to
another method. Although the economics of the


                                       9
<PAGE>

Company's transactions would be the same, the timing of events that would impact
transactions could change.


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

Revenues

     The  Company's  revenues  for the second  quarter  ended June 30, 2004 were
$2,403,040,  representing  no change from revenues of $2,400,724  for the second
quarter  ended June 30,  2003.  Revenues for the first six months of fiscal 2004
were  $4,800,109  representing  no change from  revenues of  $4,786,437  for the
comparable  six  months  of  fiscal  2003.  Digital   angiography   systems  and
peripherals  accounted for  approximately  89% of the Company's  revenue for the
second quarter and six-month period of 2004.  Sales of these products  accounted
for approximately 93% of the Company's total revenues for the second quarter and
six-month period of 2003.  Service revenues  accounted for  approximately 11% of
the Company's  revenue for the second  quarter and six-month  period of 2004 and
approximately  7% of the Company's  revenue for the second quarter and six-month
period of 2003. Revenues from sales of the Company's products to MediVision were
approximately  $97,000 and $280,000 during the three-month and six-month periods
ended June 30, 2004 and $237,000 and $290,000 for the comparable three-month and
six-month periods ending June 30, 2003, respectively.

Gross Margins

     Gross margins were  approximately  62% during the second quarter ended June
30, 2004 versus  approximately  59% for the comparable  quarter of 2003. For the
six-month  period ended June 30, 2004, gross margins were  approximately  61% as
compared  to 60% for the  comparable  six-month  period  of  2003.  The  Company
continues to monitor its expenses in this area in  contemplation  of current and
anticipated  business  conditions.  It is anticipated  that the Company's  gross
margins  will  decrease  as its  sales  of the  NextGen  Healthcare  Information
Systems, Inc. software products become more significant, since the gross margins
associated  with such sales are less than the majority of the products  that the
Company currently markets.

Sales and Marketing Expenses

     Sales and  marketing  expenses  accounted  for  approximately  29% of total
revenues during the second quarter of fiscal 2004 as compared with approximately
28% during the second  quarter of fiscal 2003.  Actual  expense  levels showed a
minor  decrease to $696,325  during the second  quarter of 2004 versus  $697,699
during the second  quarter of 2003.  For the first six months of fiscal 2004 and
fiscal 2003 such expenses  accounted for approximately 28% of total revenues for
the respective  six-month periods.  Actual expenses increased to $1,356,007 from
$1,330,555 during the six-month periods of fiscal 2004 and 2003, respectively.




                                       10
<PAGE>


General and Administrative Expenses

     General and administrative  expenses were $258,340 in the second quarter of
fiscal 2004 and  $164,757 in the second  quarter of fiscal 2003.  Such  expenses
accounted for  approximately 11% and 7% of revenues during the second quarter of
2004 and 2003,  respectively.  For the first six months of fiscal  2004 and 2003
such  expenses  accounted  for  approximately  11% of  total  revenues  for  the
respective  six-month  periods.  Actual  expenses  decreased  to  $505,805  from
$541,331 during the six-month periods of fiscal 2004 and 2003, respectively.

Research and Development Expenses

     Research and  development  expenses were $229,950 in the second  quarter of
fiscal 2004 and  $180,322 in the second  quarter of fiscal 2003.  Such  expenses
accounted for  approximately 10% and 8% of revenues during the second quarter of
2004 and  2003,  respectively.  For the first six  months of fiscal  2004,  such
expenses  accounted  for  approximately  10% of total  revenues  as  compared to
approximately 6% during the comparable six-month period of 2003. The Company has
focused its recent research and development efforts on new digital image capture
products. The Company expects its research and development  expenditures to grow
as a result of its paying for research and  development  conducted by MediVision
and  other  outsourced   consulting  on  the  Company's  behalf.   Research  and
development  expenses  incurred by  MediVision  on behalf of the Company for the
second  quarter  and the first  six  months of 2004  amounted  to  approximately
$181,000 and $330,000,  respectively.  Such expenses for the second  quarter and
first six months of 2003 were approximately $66,000.

Interest and Other Expense, net

     Interest and other expense was $59,342  during the second quarter of fiscal
2004 versus $75,424 during the same quarter of 2003. For the six-month  periods,
interest  and other  expense was $104,667 and $118,470 in fiscal 2004 and fiscal
2003,  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.

Net Income

     The Company  recorded net income of $244,684,  or $0.02 per share basic and
diluted  earnings for the second  quarter ended June 30, 2004 as compared to net
income of $302,098 or $0.04 per share basic earnings and $0.03 per share diluted
earnings for the second quarter ended June 30, 2003. For the six-month  periods,
the Company recorded net income of $484,499 or $0.03 per share basic and diluted
earnings as compared to $594.768,  or $0.07 per share basic and diluted earnings
during fiscal 2004 and fiscal 2003,  respectively.  The decrease in earnings per
share is mainly attributable to a substantial increase in the weighted number of
shares of common stock outstanding between the comparable quarters and six-month
periods.

     The results of  operations  do not include  any amounts  with  respect to a
potential  contingent  liability in connection with the collection of taxes from
the  Company's  customers,  which  amount  has been  estimated  on the  basis of
numerous factors and assumptions that might, in the least favorable combination,
reach $569,000.  Management  believes that the probability of such an assessment
is remote  and  accordingly,  has not  recorded  a  liability  in its  financial
statements.  However,  there can be no  assurance  that the  amount  that  might
ultimately be assessed for prior



                                       11
<PAGE>

periods would not materially  affect the Company's results of operations or cash
flows in any given reporting period.


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

     The Company's  operating  activities  used cash of $135,396  during the six
months ended June 30, 2004 as compared to generating cash of $286,132 in the six
months ended June 30,  2003.  The cash used by  operations  during the first six
months of 2004 was  principally  from  increased  inventory  and a reduction  of
current  liabilities  offset  partially  by net income for the period.  The cash
generated from  operations  during the first six months of 2003 was  principally
from net income for the period which amounts were partially  offset by increased
receivables.

     Cash used in investing activities was $7,675 during the first six months of
2004 as  compared to $166,903  during the same  period for 2003.  The  Company's
investing  activities in 2004  consisted of minor  purchases of  equipment.  The
primary  investing  activities in 2003  consisted of an investment to secure the
line of  credit  with  its  bank.  The  Company  anticipates  continued  certain
near-term  capital  expenditures  in  connection  with  increasing  its  pool of
demonstration  equipment, as well as its ongoing efforts to upgrade its existing
management   information  and  corporate   communication  systems.  The  Company
anticipates that related  expenditures,  if any, will be financed from cash flow
from operations or other  financing  arrangements  available to the Company,  if
any.

     The Company  generated cash in financing  activities of $719,317 during the
first six months of fiscal 2004 as compared to using cash of $155,995 during the
comparable  six-month  period of fiscal  2003.  The cash  generated in financing
activities  during the first six months of 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.  The cash used during
the same six-month  period in 2003 was principally from repayments of borrowings
to MediVision offset by borrowings under the Company's line of credit.

      In June 2003,  MediVision  exercised  its  option,  as  stipulated  in the
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 common shares of stock.

     At June 30, 2004 the Company had recorded a net amount due from  MediVision
of approximately $115,000. This amount comprises approximately $462,000 due from
MediVision for products and services  offset by  approximately  $347,000 owed to
MediVision for interest on the loans.

    On June 30, 2004 the Company's cash and cash  equivalents  were  $1,848,280.
Management anticipates that additional sources of capital beyond those currently
available  to the Company may be  required to continue  funding of research  and
development  for new products  and selling and  marketing  related  expenses for
existing products.

    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 and is hopeful that it
will be successful in this regard. 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.




                                       12
<PAGE>

ITEM 3.       CONTROLS AND PROCEDURES

         The Company's  Chief  Executive  Officer and Chief  Financial  Officer,
based on their evaluation within 90 days prior to the date of this report of the
Company's  disclosure  controls and  procedures (as defined in Exchange Act Rule
13a--14(c)),   have  concluded  that  the  Company's   disclosure  controls  and
procedures are adequate and effective for purposes of Rule  13a--14(c) in timely
alerting  them to material  information  relating to the Company  required to be
included in the Company's filings with the SEC under the Securities Exchange Act
of 1934.

         There were no significant changes in the Company's internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of their evaluation.













                                       13
<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 Ophthalmic,  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  and   injunctive   relief   against  the
                    defendants.

ITEM 2.             CHANGES IN SECURITIES
                    On April  27,  2004,  the  Company  entered  into a  private
                    placement  transaction  with Laurus Master Fund,  Ltd. which
                    was  exempt  from  registration  under  Section 4 (2) of the
                    Securities  Act  of  1933  and  Regulation  D and  Rule  506
                    promulgated there under. Pursuant to the securities purchase
                    agreement,  the Company sold to Laurus a secured convertible
                    term  note in the  principal  amount of  $1,000,000  bearing
                    interest at the rate of six and one-half  percent (6.5%) per
                    annum,  due April 27, 2007,  convertible  into shares of the
                    Company's  common stock at a  conversion  price of $1.22 per
                    share.  Interest is payable at the Company's  option in cash
                    or shares of common stock. Additionally,  the Company issued
                    a warrant to Laurus to purchase 313,000 shares of its common
                    stock at exercise prices ranging between $1.40 and $1.83 per
                    share.  Laurus may  exercise the warrant  through  April 27,
                    2009.

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES
                    None.

ITEM 4.             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
                    None.

ITEM 5.             OTHER INFORMATION
                    None.




                                       14
<PAGE>




ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      4.1 - Securities  Purchase  Agreement  dated April 27, 2004 by
                  and between the Company and Laurus. *

                  4.2 - Secured Convertible Term Note dated April 27, 2004 April
                  27, 2004 issued to Laurus. *

                  4.3 - Common Stock Purchase Warrant  Agreement dated April 27,
                  2004 issued to Laurus. *

                  4.4 - Registration  Rights  Agreement  dated April 27, 2004 by
                  and between the Company and Laurus. *

                  4.5 - Security  Agreement  dated April 27, 2004 by and between
                  the Company and Laurus. *

                  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
                  --------------------------------------------------------------

                  *Incorporated  herein by reference to the Company's Form 8-K
                  filed on April 29, 2004.

           (b)    None.






                                       15
<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



Dated: August 5, 2004





















                                       16