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, 2001

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 14, 2001, 8,138,305 shares of common stock, at 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, 2001


PART I.  FINANCIAL INFORMATION                                         Page
                                                                       ----

Item 1.  Financial Statements

         Condensed Balance Sheet as of June 30, 2001                    2

         Condensed Statements of Operations for the Three Months
         and Six Months ended June 30, 2001 and June 30, 2000           3

         Condensed Statements of Cash Flows for the Three Months
         and Six Months ended June 30, 2001 and June 30, 2000           4

         Notes to Financial Statements                                  5

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            9


PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                              17

Item 2.  Changes in Securities and Use of Proceeds                      17

Item 3.  Defaults upon Senior Securities                                17

Item 4.  Submission of Matters to a Vote of Security Holders            17

Item 5.  Other Information                                              17

Item 6.  Exhibits and Reports on Form 8-K                               17

<PAGE>
                          PART I FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                           Ophthalmic Imaging Systems
                             Condensed Balance Sheet
                                  June 30, 2001
                                   (Unaudited)

<S>                                                                           <C>
ASSETS
------
Current assets:
      Cash and equivalents                                                 $    42,889
      Accounts receivable, net                                                 447,378
      Inventories, net                                                         328,696
      Prepaid expenses and other current assets                                 47,872
                                                                         -------------
Total current assets                                                           866,835
Furniture and equipment, net of accumulated
      depreciation and amortization of $1,197,032                              208,011
Other assets                                                                    10,601
                                                                         -------------
                                                                           $ 1,085,447
                                                                         =============

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
      Notes payable to related party                                       $   381,570
      Accounts payable                                                         562,867
      Accrued liabilities                                                    1,390,623
      Accrued warrant appreciation right                                             -
      Deferred extended warranty revenue                                       129,034
      Customer deposits                                                        429,371
      Capitalized lease obligation and other notes payable                       8,939
                                                                         -------------
Total current liabilities                                                    2,902,404
                                                                         -------------

Noncurrent liabilities:
      Capitalized lease obligation, less current portion                         6,967
      Notes payable to related party, less current portion                   1,422,911
                                                                         -------------

Total noncurrent liabilities                                                 1,429,878

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

Total liabilities                                                            4,332,282
                                                                         -------------


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;
           8,138,305 issued and outstanding                                 12,630,604
      Deferred compensation                                                          -
      Accumulated deficit                                                  (15,877,439)
                                                                         -------------
Total stockholders' deficit                                                 (3,246,835)
                                                                         -------------
                                                                           $ 1,085,447
                                                                         =============
</TABLE>


See accompanying notes.

                                            2
<PAGE>

<TABLE>
                           Ophthalmic Imaging Systems
                       Condensed Statements of Operations
                                   (Unaudited)

<CAPTION>
                                               Three months ended June 30,          Six months ended June 30,
                                                  2001            2000                2001             2000
                                             --------------   --------------     --------------   --------------


<S>                                            <C>                <C>              <C>              <C>
Net revenues                                   $ 1,331,803        $ 928,476        $ 3,040,604      $ 2,519,096
Cost of sales                                      617,751          511,605          1,434,503        1,288,873
                                             --------------   --------------     --------------   --------------
Gross profit                                       714,052          416,871          1,606,101        1,230,223
Operating expenses:
     Sales and marketing                           384,240          299,860            915,557          748,948
     General and administrative                    311,318          289,600            585,984          569,728
     Research and development                       94,339           62,542            177,290          121,863
                                             --------------   --------------     --------------   --------------
          Total operating expenses                 789,897          652,002          1,678,831        1,440,539
                                             --------------   --------------     --------------   --------------
Income (loss) from operations                      (75,845)        (235,131)           (72,730)        (210,316)
Other expense, net                                 (54,381)         (52,795)          (108,341)         (75,532)
                                             --------------   --------------     --------------   --------------
Income (loss) before extraordinary item           (130,226)        (287,926)          (181,071)        (285,848)
Extraordinary item                                       -                -            188,762                -
                                             --------------   --------------     --------------   --------------
Net income (loss)                              $  (130,226)       $(287,926)       $     7,691      $  (285,848)
                                             ==============   ==============     ==============   ==============

Shares used in the calculation of basic
     net income (loss) per share                 8,138,305        4,305,428          8,138,305        4,305,428
                                             ==============   ==============     ==============   ==============

Basic income (loss) per share before
     extraordinary item                        $     (0.02)       $   (0.07)       $     (0.02)     $     (0.07)
 Extraordinary item                                      -                -               0.02                -
                                             --------------   --------------     --------------   --------------
Basic net income (loss) per share              $     (0.02)       $   (0.07)       $         -      $     (0.07)
                                             ==============   ==============     ==============   ==============

Shares used in the calculation of diluted
     net income (loss) per share                 8,138,305        4,305,428          8,138,305        4,305,428
                                             ==============   ==============     ==============   ==============
Diluted  income (loss) per share before
     extraordinary item                        $     (0.02)       $   (0.07)       $     (0.02)     $     (0.07)
 Extraordinary item                                      -                -               0.02                -
                                             --------------   --------------     --------------   --------------
Diluted net income (loss) per share            $     (0.02)       $   (0.07)       $         -      $     (0.07)
                                             ==============   ==============     ==============   ==============
</TABLE>

See accompanying notes.

                                                        3
<PAGE>

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

<CAPTION>
                                                                      Six months ended June 30,
                                                                       2001                2000
                                                                 ------------------  -----------------

<S>                                                                        <C>             <C>
OPERATING ACTIVITIES:
Net income (loss)                                                        $   7,691         $ (285,848)
Adjustments to reconcile net income (loss) to net cash
     used in operating activities:
          Depreciation and amortization                                     60,200             63,491
          Stock option compensation expense                                  3,049             39,444
          Extraordinary gain on early exinguishment of debt               (188,762)                 -
          Net (increase) decrease in current assets other
              than cash and equivalents                                    (14,104)           497,010
          Net increase (decrease) in current liabilities
              other than short-term borrowings                              23,900            (95,409)
                                                                 ------------------  -----------------
Net cash (used in) provided by operating activities                       (108,026)           218,688

INVESTING ACTIVITIES:

Purchases of furniture and equipment                                       (56,223)                 -
Net (increase) decrease in other assets                                       (306)             2,474
                                                                 ------------------  -----------------
Net cash (used in) provided by investing activities                        (56,529)             2,474

FINANCING ACTIVITIES:

Principal payments on notes payable                                         (3,467)            (3,597)
Proceeds from (repayments of) borrowings under
     notes payable to significant shareholders, net                        174,337           (309,339)
Net repayments of credit facility borrowings                                     -            (24,844)
                                                                 ------------------  -----------------
Net cash provided by (used in) financing activities                        170,870           (337,780)
                                                                 ------------------  -----------------
Net increase (decrease) in cash and equivalents                              6,315           (116,618)
Cash and equivalents at beginning of period                                 36,574            212,586
                                                                 ------------------  -----------------
Cash and equivalents at end of period                                    $  42,889         $   95,968
                                                                 ==================  =================

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
          (Reduction) increase in aggregate debt payable
          to significant shareholders in exchange for
          inventory and other noncash transactions, net                  $ (58,477)        $  454,656
                                                                 ==================  =================
</TABLE>

See accompanying notes.

                                                   4
<PAGE>

                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

            Three and Six Month Periods ended June 30, 2001 and 2000

                                   (Unaudited)


Note 1.  Basis of Presentation

         The accompanying unaudited condensed balance sheet as of June 30, 2001,
         condensed  statements of operations for the three and six month periods
         ended June 30, 2001 and 2000 and the condensed statements of cash flows
         for the three and six month  periods  ended June 30, 2001 and 2000 have
         been  prepared  in  accordance  with  generally   accepted   accounting
         principles for interim financial  information and with the instructions
         to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly,  they do
         not include all of the information and footnote disclosures required by
         generally  accepted   accounting   principles  for  complete  financial
         statements.  It is suggested that these condensed financial  statements
         be read in conjunction with the audited financial  statements and notes
         thereto included in the registrant's (the Company's)  Transition Report
         for the Four Months Ended  December 31, 2000 on Form  10-KSB/A.  In the
         opinion of management,  the accompanying condensed financial statements
         include  all   adjustments,   consisting   only  of  normal   recurring
         adjustments,  necessary  for  a  fair  presentation  of  the  Company's
         financial position and results of operations for the periods presented.
         The results of  operations  for the period  ended June 30, 2001 are not
         necessarily indicative of the operating results for the full year.

         Certain  amounts  in the fiscal  2000  financial  statements  have been
         reclassified  to  conform  with the  presentation  in the  fiscal  2001
         financial statements.

Note 2.  Net Income (Loss) Per Share

         Basic earnings (loss) per share ("EPS"),  which excludes  dilution,  is
         computed by dividing income (loss) 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.  However,  diluted  EPS are not  presented  when a net loss occurs
         because the conversion of potential common stock is antidilutive.


                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                      Unaudited                    Unaudited
                                                  Three Months Ended           Six Months Ended
                                                       June 30,                    June 30,
                                             -------------------------     -------------------------
                                                 2001         2000            2001            2000
                                             ----------    -----------     ----------     ----------
         <S>                                 <C>           <C>              <C>           <C>
         Numerator for basic and diluted
         net income  (loss) per share        $ (130,266)   $ (287,926)     $    7,691     $ (285,848)
                                             ==========    ==========      ==========     ==========

         Denominator for basic net income
         (loss) per share:
            Weighted average shares           8,138,305     4,305,428       8,138,305      4,305,428

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

         Denominator for diluted net
         income (loss) per share              8,138,305     4,305,428       8,138,305      4,305,428
                                             ==========    ==========      ==========     ==========

         Basic net income (loss) per share   $   (0.02)    $   (0.07)      $       --     $    (0.07)
                                             ==========    ==========      ==========     ==========

         Diluted net income (loss) per
         share                               $   (0.02)    $   (0.07)      $       --     $    (0.07)
                                             ==========    ==========      ==========     ==========

</TABLE>

Note 3.  Notes Payable to Related Parties

         In July 2000, the Company,  Premier Laser Systems, Inc. ("Premier"),  a
         California corporation and the Company's then majority shareholder, and
         MediVision Medical Imaging Ltd. ("MediVision"), an Israeli corporation,
         entered into a series of definitive agreements relating to the transfer
         of  Premier's   ownership  interests  in  the  Company  to  MediVision,
         including,  among  other  things,  converting  in favor of Premier  the
         Company's  entire debt owed to Premier,  calculated  at an  approximate
         book value of $2.1 million,  into shares of the Company's  common stock
         at conversion price of $0.55 per share. This occurred in August 2000 in
         connection  with the closing of the  transactions  contemplated  by the
         definitive  agreements (the  "Closing").  In addition,  at the Closing,
         Premier and the Company executed a mutual waiver and release of claims,
         thereby releasing each other from any and all claims,  whether known or
         unknown between them.

         Also in connection  with the definitive  agreements,  in July 2000, the
         Company  executed  a  promissory  note  in  favor  of  MediVision  (the
         "Short-Term  Note").  The Company has  borrowed  the maximum  principal
         amount of $260,000 available under the Short-Term Note, which principal
         amount  outstanding,  together with any and all accrued  interest,  was
         payable the earlier of the closing or termination  of the  transactions
         contemplated  by the  definitive  agreements,  October  13,  2000 or as
         otherwise  stipulated in the  Short-Term  Note.  Under the terms of the
         Short-Term Note, borrowings bear interest at the rate of 9.3% per annum
         and are secured by certain of the Company's  assets.  At June 30, 2001,
         the Company  had  recorded  approximately  $283,000  in  principal  and
         interest  outstanding  under the  Short-Term  Note.  MediVision and the
         Company are in


                                       6
<PAGE>

         discussions with regard to reclassifying  amounts currently owing under
         the  Short-Term  Note to amounts  owing under the Working  Capital Note
         discussed in further detail below.

         In further  connection  with the  Closing in August  2000,  the Company
         executed a second  promissory note in favor of MediVision (the "Working
         Capital Note").  The Company has borrowed the maximum  principal amount
         of $1.5  million  available  under  the  Working  Capital  Note,  which
         principal  amount  outstanding,  together  with  any  and  all  accrued
         interest,  is payable by August 31, 2003 or as otherwise  stipulated in
         the Working Capital Note, except that MediVision may, at its option, at
         any time  convert  any  amount of  principal  and  accrued  but  unpaid
         interest then  outstanding into shares of the Company's common stock at
         a  conversion  price of $0.80 per  share,  which  price is  subject  to
         adjustment  upon the  occurrence  of  certain  events  set forth in the
         Working  Capital  Note.  Under the terms of the Working  Capital  Note,
         borrowings  bear interest at the rate of 9.3% per annum and are secured
         by all of the  Company's  assets.  At June 30,  2001,  the  Company had
         recorded approximately $1,812,000 in principal and interest outstanding
         under the Working Capital Note.

         At June 30, 2001, the Company had recorded approximately  $1,804,000 in
         aggregate debt owed to MediVision, which amount is net of approximately
         $291,000 in accounts  receivable  recorded in connection  with sales of
         the Company's  products to  MediVision.  In addition,  at that date the
         Company and  MediVision  were in  negotiations  to, among other things,
         increase the principal  amount under the Working Capital Note (see Note
         6).

Note 4   MediVision and Premier Transactions

         In February 2000, Premier, then a significant shareholder with majority
         voting  control  of the  Company,  notified  the  Company  that  it was
         considering  seeking protection under the U.S.  Bankruptcy Code and the
         Company  thereupon  terminated  a  merger  agreement  and  rendered  as
         non-effective a manufacturing  agreement and certain other arrangements
         then in effect  between the  parties.  In March 2000,  Premier  filed a
         voluntary petition for protection and  reorganization  under Chapter 11
         of the U.S. Bankruptcy Code.

         In July 2000, the Company, Premier and MediVision entered into a series
         of  definitive   agreements  relating  to  the  transfer  of  Premier's
         ownership  interests in the Company to MediVision  (see Note 3 and Note
         6). At the Closing, among other things, MediVision purchased all of the
         stock of the Company then held by Premier,  including 150 shares of the
         Company's  Series B Preferred Stock which were converted by their terms
         into  shares of common  stock,  and  3,832,727  shares of common  stock
         issued pursuant to the conversion of the Premier debt.

         As a result of the foregoing  transactions,  MediVision  currently owns
         approximately 73% of the Company's outstanding common stock.

Note 5   Extraordinary Item


                                       7
<PAGE>

         In March 2001,  the Company  reached  agreement with Imperial Bank (the
         "Bank")  to retire  the  aggregate  amount of  principal  and  interest
         previously  recorded pursuant to a stock  appreciation right granted to
         the Bank in connection with a credit agreement.  Accordingly,  the debt
         forgiven  in  the  amount  of  $188,762  has  been   recognized  as  an
         extraordinary  item in the financial  statements  for the quarter ended
         March 31, 2001.

Note 6   Subsequent Event

         Subsequent to June 30, 2001,  the Company and  MediVision  entered into
         Amendment No. 1 to the Working Capital Funding Agreement  ("Amendment")
         whereby,  among other things, the maximum principal amount of allowable
         borrowings  pursuant to the Working Capital Funding  Agreement  entered
         into in  connection  with the Closing was  increased by  $1,000,000  to
         $2,500,000 (see Note 3). In connection with the Amendment,  the Company
         executed in favor of  MediVision  a  promissory  note in the  aggregate
         amount of $1,000,000  (the  "Amendment  Note").  Under the terms of the
         Amendment Note, all principal  amounts  outstanding,  together with any
         and all accrued interest, is payable by August 31, 2003 or as otherwise
         stipulated in the Amendment  Note,  except that  MediVision may, at its
         option,  at any time  convert any amount of  principal  and accrued but
         unpaid interest then  outstanding  into shares of the Company's  common
         stock at a conversion price of $0.185 per share, which price is subject
         to adjustment  upon the  occurrence of certain  events set forth in the
         Amendment Note. Under the terms of the Amendment Note,  borrowings bear
         interest  at the rate of 9.3% per annum and are  secured  by all of the
         Company's assets.


                                       8
<PAGE>

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

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

Overview
--------

     To date,  the Company has designed,  developed,  manufactured  and marketed
ophthalmic  digital  imaging  systems and has derived  substantially  all of its
revenues  from the sale of such  products.  The  primary  target  market for the
Company's  digital  angiography  systems and related products has  traditionally
been retinal specialists.

     The Company introduced its newest line of digital angiography  systems, the
WinStation 1400 and WinStation  3000, at the 2000 Annual Meeting of the American
Academy of Ophthalmology  held in Dallas,  Texas during the last quarter of 2000
("2000 AAO Meeting"). These products have received considerable interest and the
Company has received significant  purchase  commitments for these products.  The
Company commenced  commercial delivery of these systems during the first quarter
ended March 31, 2001.

     In recent years, the Company expended  research and development  efforts on
product  offerings and  applications  targeting  the broader  markets of general
ophthalmology and optometry. Two such products resulting from these efforts, the
Digital Fundus Imager (the "DFI") and the Digital Slit Lamp Imager (the "DSLI"),
were introduced in the latter half of 1998, with the DFI receiving  considerable
interest.

     The Company,  however,  had limited financial and operational  resources to
meet the demand  resulting  from the  introduction  of the DFI. In that  regard,
during  1999,  the  Company   entered  into  a   manufacturing   agreement  (the
"Manufacturing  Agreement")  with Premier Laser  Systems,  Inc.  ("Premier"),  a
California  corporation  and the  Company's  majority  shareholder  at the time,
whereby  Premier began  assembling  and  manufacturing  the


                                       9
<PAGE>

Company's products,  including the DFI and DSLI. In addition, the Company agreed
with  Premier on  certain  co-marketing  and  selling  arrangements  and the two
companies  began selling their  ophthalmic  products  through a jointly  managed
EyeSys Vision Group.

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

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

     As a consequence  of the  termination  of the Merger  Agreement in February
2000 and Premier's filing for protection under the U.S. Bankruptcy Code in March
2000, the  co-marketing  and selling  arrangements  between the companies became
non-effective and Premier  discontinued  producing the Company's  products under
the Manufacturing  Agreement.  The Company  subsequently resumed manufacture and
assembly  of its  products  in its  facilities  in  Sacramento,  California  but
incurred  increased  costs and  significant  delays in  production  and  product
deliveries  as a result of these failed  arrangements.  The Company also noted a
reduction in its new order  bookings  following  the  termination  of the Merger
Agreement and Premier's subsequent filing for bankruptcy protection.

     In July 2000, the Company,  Premier and MediVision entered into a series of
agreements,  discussed in further  detail below,  the closing of which in August
2000 resulted in, among other things, transfer of majority voting control of the
Company from Premier to  MediVision,  conversion  of the debt owed to Premier to
shares of the Company's  common stock and capital  commitments to the Company by
MediVision  of  $1,500,000,  which  commitments  were  increased  to  $2,500,000
pursuant to an agreement entered into subsequent to June 30, 2001.

     The Company has experienced operating losses for each fiscal year since its
initial  public  offering  in  1992.  At  June  30,  2001,  the  Company  had an
accumulated  deficit  in  excess  of  $15,000,000  and its  current  liabilities
exceeded its current assets by approximately  $2,036,000.  The Company continues
to experience cash flow pressures and there can be no assurance that the Company
will be able to achieve or sustain significant positive cash flows,  revenues or
profitability in the future.

MediVision and Premier Transactions
-----------------------------------

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


                                       10
<PAGE>

"Termination Fee") as provided for in the Stock Purchase  Agreement.  The demand
was not  pursued  at the time  because  of a revival  of plans for merger of the
companies.

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

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

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

     As a result of the foregoing  transactions,  at the time of its  bankruptcy
filing,  Premier owned 49.5% of the Company's  outstanding  common stock and all
150 outstanding shares of the Company's Series B Preferred Stock, thereby giving
Premier majority voting control.

     On July 13, 2000, the Company, Premier and MediVision entered into a series
of  definitive  agreements  relating  to the  transfer  of  Premier's  ownership
interests  in the  Company to  MediVision  in  exchange  for cash and stock (the
"MediVision  Investments").  In separate  but related  transactions,  MediVision
loaned the Company $260,000 as short-term funding for continued  operations and,
upon the closing of the transactions contemplated under the agreements in August
2000 (the  "Closing"),  MediVision has committed to loan up to $1,500,000 to the
Company,  which  is  convertible  at  MediVision's  option  into  shares  of the
Company's common stock. This commitment was increased to $2,500,000  pursuant to
an amendment  executed  subsequent to June 30, 2001.  Pursuant to the agreements
relating to the MediVision  Investments,  among other things:  (i) the Company's
entire  debt  owed to  Premier,  calculated  at an  approximate  book  value  of
$2,100,000,  was converted per the agreements in favor of Premier into shares of
the Company's  common stock at a conversion  price of $0.55 per share;  and (ii)
MediVision  purchased  all of the stock of the  Company  then  held by  Premier,
including  150  shares of the  Company's  Series B  Preferred  Stock  which were
converted by their terms into shares of common stock,  and  3,832,727  shares of
common stock issued pursuant to the conversion of the Premier debt.

     In  addition,  at the  Closing,  Premier and the Company  executed a mutual
waiver  and  release of claims,  thereby  releasing  each other from any and all
claims,   whether  known  or  unknown  between  them,   including  the  $500,000
Termination Fee claimed by the Company against Premier.

     As a  result  of the  foregoing  transactions,  MediVision  currently  owns
approximately 73% of the Company's outstanding common stock.


                                       11
<PAGE>

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

Revenues

     The  Company's  revenues  for the second  quarter  ended June 30, 2001 were
$1,331,803  representing  an  increase  of  approximately  43% from  revenues of
$928,476 for the second quarter ended June 30, 2000.  Revenues for the first six
months of fiscal 2001 were $3,040,604  representing an increase of approximately
21% from revenues of $2,519,096  for the  comparable  period of fiscal 2000. The
increased  revenue  levels  during  fiscal 2001  include  revenues  from initial
deliveries of the Company's newest digital angiography  systems,  the WinStation
1400 and WinStation  3000. Sales of these products  accounted for  approximately
67% and 64% of the  Company's  total  revenues  for the 2001 second  quarter and
six-month period, respectively. Revenues from sales of systems incorporating the
Company's  DFI  and  DSLI  products  continue  to be  below  initial  management
expectations  and  accounted  for  approximately  12% and 10% of second  quarter
revenues during 2001 and 2000, respectively,  and 11% and 9% of revenues for the
first six months of 2001 and 2000, respectively.

Gross Margins

     Gross margins were  approximately  54% during the second quarter ended June
30, 2001 versus  approximately  45% for the comparable  quarter of 2000. For the
six-month  period ended June 30, 2001, gross margins were  approximately  53% as
compared to approximately 49% during the comparable period of 2000.  Pursuant to
the Closing of the transactions  with MediVision,  the Company has, with support
from  MediVision,  undertaken  certain  gross  margin  enhancement  efforts  and
continues to monitor its expenses in this area in  contemplation  of current and
anticipated business conditions.

Sales, Marketing, General and Administrative Expenses

     Sales and marketing and general and  administrative  expenses accounted for
approximately  52% of total revenues during the second quarter of fiscal 2001 as
compared with approximately 63% during the second quarter of fiscal 2000. Actual
expense  levels  increased to $695,558  during the second quarter of 2001 versus
$589,460  during the second  quarter of 2000. For the first six months of fiscal
2001 and fiscal 2000 such expenses  accounted for  approximately  49% and 52% of
total revenues for the respective  six-month periods.  Actual expenses increased
to $1,501,541  from $1,318,676  during the six-month  periods of fiscal 2001 and
2000, respectively.  Primary contributing factors to the increased expenses were
professional,  administrative  and  other  costs  in  connection  with  or  as a
consequence of the transactions  with  MediVision.  Subsequent to


                                       12
<PAGE>

the Closing of the transactions  with MediVision,  the Company has hired,  among
others,  a Director of Operations and certain sales and related support managers
and has undertaken  recruitment  efforts for  management and other  personnel in
this and other areas.

Research and Development Expenses

     Research and development expenses increased by approximately 51% to $94,339
in the second quarter of fiscal 2001 from $62,542 in fiscal 2000.  Such expenses
accounted for  approximately  7% of revenues  during the second  quarter of both
periods.  For the first six months of fiscal 2001,  such expenses  accounted for
approximately  6% of total revenues as compared to  approximately  5% during the
comparable  period of 2000.  The Company has  focused  its recent  research  and
development  efforts on new digital  image  capture  products and reducing  cost
configurations for its current products. The extent and focus of future research
and  development  efforts  will depend,  in large  measure,  on  direction  from
MediVision,  including potential  collaborative  projects between MediVision and
the Company,  one of which such projects has been  undertaken  commencing in the
last quarter of fiscal 2000.

Other Expense

     Other expense was $54,381  during the second  quarter of fiscal 2001 versus
$52,795 during the same period of 2000. For the six-month periods, other expense
was  $108,341 and $75,532 in fiscal 2001 and fiscal  2000,  respectively.  These
amounts were  comprised  principally  of interest  expense  associated  with net
borrowings   from   MediVision   and  Premier   during  fiscal  2001  and  2000,
respectively, as well as interest expense during both periods in connection with
a stock  appreciation  right granted to the Company's  bank discussed in further
detail below.  The fiscal 2000 expenses  were  partially  offset by an insurance
claim settlement during the first quarter.

Net Income

     The Company  recorded a net loss of $130,226,  or $0.02 per share,  for the
second  quarter  ended June 30, 2001 as compared to a net loss of  $287,926,  or
$0.07 per share,  for the second  quarter ended June 30, 2000. For the six-month
periods,  the Company  recorded net income of $7,691,  or breakeven per share as
compared to a net loss of $285,848,  or $0.07 per share  during  fiscal 2001 and
fiscal 2000, respectively.

     The 2001 amounts  include an  extraordinary  gain recorded during the first
quarter of $188,762, or $0.02 per share, resulting from the negotiated reduction
of certain principal and interest charges previously recorded in connection with
a stock  appreciation right granted to the Company's bank (the "Bank") discussed
in  further  detail in Note 5 of the  Notes to  Condensed  Financial  Statements
included in Item 1 of this Form 10-QSB.

     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  $1.9  million.  Management  believes  that  the  probability  of  such an
assessment is remote and


                                       13
<PAGE>

accordingly, has not recorded a liability in its financial statements.  However,
there can be no assurance that the amount that might  ultimately be assessed for
prior periods would not materially affect the Company's results of operations or
cash flows in any given reporting period.

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

     The Company's  operating  activities  used cash of $108,026  during the six
months ended June 30, 2001 as compared to generating cash of $218,688 in the six
months ended June 30,  2000.  The cash used in  operations  during the first six
months of 2001 was principally to fund the loss before  extraordinary  item, the
impact of which was  partially  offset by an  increase  in  accrued  liabilities
during the period, as well as increases in customer deposits  resulting in large
measure from orders generated in connection with the 2000 AAO Meeting.  The cash
provided  by  operations  during  the first six months of fiscal  2000  resulted
principally  from increased  payable amounts  associated with the procurement of
inventory,  including  inventory  purchased from Premier under the Manufacturing
Agreement, as well as collection of accounts receivable during the period, which
amounts were only partially offset by reduced levels of accrued  liabilities and
customer deposits.

     Cash used in investing  activities  was $56,529 during the first six months
of 2001 as compared to cash  provided by investing  activities  of $2,474 during
the same period for 2000. The Company's primary investing  activities consist of
equipment  and  other  capital  asset  acquisitions.   The  Company  anticipates
continued certain near-term capital  expenditures in connection with 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  borrowings  under  existing   arrangements  with
MediVision, if available, or other financing arrangements,  if any, available to
the Company.

     The Company generated cash from financing activities of $170,870 during the
first six months of fiscal 2001 as compared to using cash of $337,780 during the
comparable  period of fiscal 2000.  The cash  provided by  financing  activities
during  the  first  quarter  of  fiscal  2001  was  principally  from  increased
borrowings  under  existing  arrangements  with  MediVision.  The  cash  used in
financing  activities  during the first quarter of fiscal 2000 were  principally
payments under then-existing  arrangements with Premier and, to a lesser extent,
payments  under a  then-available  credit  facility  with  the  Bank.  Principal
payments on notes payable other than to significant  shareholders  in both years
was minimal.

     As discussed further above and in Note 3, Note 4 and Note 6 of the Notes to
Condensed  Financial  Statements included in Item 1 of this Form 10-QSB, on July
21, 2000,  the Company  executed a promissory  note in favor of MediVision  (the
"Short-Term  Note") and the Company has borrowed the maximum principal amount of
$260,000  available under the Short-Term Note. At June 30, 2001, the Company had
recorded  approximately $283,000 in principal and interest outstanding under the
Short-Term Note and the Company is currently in discussions with MediVision with
regard to  reclassifying  amounts  currently  owing under the Short-Term Note to
amounts owing under the Working Capital Note discussed in further detail below.


                                       14
<PAGE>

     In  addition,  in  connection  with  the  Closing  in  August  2000  of the
transactions contemplated by the MediVision Investments,  the Company executed a
second promissory note in favor of MediVision (the "Working Capital Note").  The
Company has borrowed the maximum  principal  amount  available under the Working
Capital Note of $1,500,000,  which principal amount  outstanding,  together with
any and all accrued  interest,  is payable by August 31,  2003,  except that any
principal and accrued but unpaid interest  amount  outstanding is convertible at
any time at MediVision's  option into shares of the Company's  common stock at a
conversion  price of $0.80 per  share.  Under the terms of the  Working  Capital
Note,  borrowings  bear  interest at the rate of 9.3% per annum,  are secured by
substantially  all of the Company's  assets.  At June 30, 2001,  the Company had
recorded  approximately  $1,812,000 in principal and interest  outstanding under
the Working Capital Note.

     At June 30, 2001,  the Company had  recorded  approximately  $1,804,000  in
aggregate debt owed to MediVision, which amount is net of approximately $291,000
in  accounts  receivable  recorded  in  connection  with sales of the  Company's
products to MediVision for further sale to customers in international markets.

     Subsequent  to June 30,  2001,  the Company  and  MediVision  entered  into
Amendment No. 1 to the Working Capital Funding Agreement  ("Amendment") whereby,
among  other  things,  the  maximum  principal  amount of  allowable  borrowings
pursuant to the Working  Capital  Funding  Agreement  entered into in connection
with the Closing in August 2000 was increased by  $1,000,000 to $2,500,000  from
$1,500,000,  which  earlier  amount was  supported  by the Working  Capital Note
discussed in further detail above. In connection with the Amendment, the Company
executed in favor of  MediVision a promissory  note in the  aggregate  amount of
$1,000,000  (the "Amendment  Note").  Under the terms of the Amendment Note, all
principal amounts  outstanding,  together with any and all accrued interest,  is
payable by August 31,  2003,  except that any  principal  and accrued but unpaid
interest amount  outstanding is convertible at any time at  MediVision's  option
into shares of the  Company's  common stock at a conversion  price of $0.185 per
share.  Under the terms of the Amendment  Note,  borrowings bear interest at the
rate of 9.3% per annum and are secured by all of the Company's assets.

     On June 30, 2001,  the Company's  cash and cash  equivalents  were $42,889.
Management anticipates that additional sources of capital beyond those currently
available  to the Company  will be required to continue  operations  and procure
inventory  necessary to meet current and  anticipated  demand for the  Company's
products.  Substantial  delays in the delivery of the Company's  products  would
result in reduced  cash flow from sales of such  products  as well as  potential
increased  costs.  Additionally,  such delays could prompt  customers to request
return  deposits  which  would  further  adversely  impact  the  Company's  cash
position.

     Recent   transactions   between  the  Company  and   MediVision   will,  in
Management's  opinion,  significantly  improve the Company's financial condition
and enhance Management's ability to achieve sustained profitable operations.



                                       15
<PAGE>

     Its relationship  with MediVision  provides the Company access to resources
in  addition  to working  capital.  As a direct  consequence  of the  MediVision
transactions,  the Company  has  undertaken  certain  gross  margin  enhancement
efforts,  including improved production cost control and sustaining  engineering
programs.  In  addition,  the Company and  MediVision  have begun  collaborative
efforts with respect to design and implementation of certain product development
programs. Furthermore, the relationship with MediVision could assist the Company
in  reducing  selling,  general and  administrative  expenses,  particularly  in
connection with co-marketing and co-selling  arrangements currently contemplated
with respect to certain international markets.

     In these  regards,  the Company and  MediVision  have recently  executed an
agreement to increase  available working capital beyond the $1,500,000 under the
Working Capital Note by $1,000,000 to $2,500,000. Irrespective of this increase,
the Company will continue to evaluate alternative sources of capital to meet its
cash  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.



                                       16
<PAGE>


                            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
                    None.

ITEM 6.             EXHIBITS AND REPORTS ON FORM 8-K
                    (a)      None.
                    (b)      None.



                                       17
<PAGE>


                                   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/ GIL ALLON
                                             ----------------------------------
                                             Gil Allon,
                                             Chief Executive Officer

Dated:  August 14, 2001


                                       18