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, 2005

                         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      X                 No
              -------------             -------------

As of August 8, 2005,  15,288,585  shares of common  stock,  no par value,  were
outstanding.

Transitional Small Business Disclosure Format:

         Yes                        No      X
              -------------             -------------



<PAGE>




                           OPHTHALMIC IMAGING SYSTEMS

                                   FORM 10-QSB

                       FOR THE QUARTER ENDED June 30, 2005



PART I.    FINANCIAL INFORMATION                                            PAGE
                                                                            ----

Item 1.    Financial Statements (unaudited)

           Condensed Balance Sheet as of June 30, 2005                         2

           Condensed Statements of Operations for the Three Months
           and Six Months ended June 30, 2005 and June 30, 2004                3

           Condensed Statements of Cash Flows for the Six Months
           ended June 30, 2005 and June 30, 2004                               4

           Notes to Condensed Financial Statements                             5

Item 2.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations                                              10

Item 3.    Controls and Procedures                                            15

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings                                                  16

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


<PAGE>





                          PART I FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS






                                       1
<PAGE>



                           Ophthalmic Imaging Systems
                             Condensed Balance Sheet
                                  June 30, 2005
                                   (Unaudited)


<TABLE>
<CAPTION>
ASSETS
------
<S>                                                                                      <C>
Current assets:
        Cash and cash equivalents                                                        $         2,106,084
        Accounts receivable, net                                                                   1,833,007
        Receivable from related party                                                                 28,539
        Note Receivable from related party                                                         1,955,558
        Inventories, net                                                                             354,731
        Prepaid expenses and other current assets                                                    288,075
        Deferred tax asset                                                                         1,029,000
                                                                                         ---------------------
             Total current assets                                                                  7,594,994
Furniture and equipment, net of accumulated
        depreciation and amortization of $288,065                                                    124,597
Restricted cash                                                                                      150,000
Other assets                                                                                         143,494
                                                                                         ---------------------
             Total assets                                                                $         8,013,085
                                                                                         =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
        Accounts payable                                                                 $           340,028
        Accrued liabilities                                                                        1,788,321
        Deferred extended warranty revenue                                                           826,396
        Customer deposits                                                                            268,483
        Income taxes payable
                                                                                                      16,982
        Notes payable- current portion                                                               772,443
                                                                                         ---------------------
             Total current liabilities                                                             4,012,653
                                                                                         ---------------------

Noncurrent Liabilities:
        Line of credit                                                                               150,000
        Notes payable, less current portion                                                          620,114
                                                                                         ---------------------
             Total noncurrent liabilities                                                            770,114
                                                                                         ---------------------

Stockholders' equity:
        Common stock, no par value, 35,000,000 shares authorized;
             15,118,585 issued and outstanding                                                    14,595,270
        Accumulated deficit                                                                      (11,364,952)
                                                                                         ---------------------
             Total stockholders' equity                                                            3,230,318
                                                                                         ---------------------
             Total liabilities and stockholders' equity                                  $         8,013,085
                                                                                         =====================

</TABLE>
              The accompanying notes are an integral part of these
                   unaudited condensed financial statements.



                                       2
<PAGE>


                           Ophthalmic Imaging Systems
                       Condensed Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                    Three months ended June 30,                  Six months ended June 30,
                                                    2005                  2004                  2005                  2004
                                              ------------------   --------------------   ------------------   --------------------

<S>                                            <C>                  <C>                    <C>                  <C>
Net revenues                                   $     2,949,579      $       2,403,040      $     5,789,604      $       4,800,109
Cost of sales                                        1,210,145                914,399            2,376,013              1,871,945
                                              ------------------   --------------------   ------------------   --------------------
Gross profit                                         1,739,434              1,488,641            3,413,591              2,928,164

Operating expenses:
      Sales and marketing                              686,390                696,325            1,414,395              1,356,007
      General and administrative                       325,636                258,340              638,632                505,805
      Research and development                         265,404                229,950              507,811                477,186
                                              ------------------   --------------------   ------------------   --------------------
          Total operating expenses                   1,277,430              1,184,615            2,560,838              2,338,998
                                              ------------------   --------------------   ------------------   --------------------
Income from operations                                 462,004                304,026              852,753                589,166
Interest and other expense, net                        (51,029)               (59,342)            (103,618)              (104,667)
                                              ------------------   --------------------   ------------------   --------------------
Net income before income taxes                         410,975                244,684              749,135                484,499
Income taxes                                           (5,024)                                     (9,024)
                                              ------------------   --------------------   ------------------   --------------------

Net income                                     $       405,951      $         244,684      $     740,111        $         484,499
                                              ==================   ====================   ==================   ====================

Shares used in the calculation of basic
        net income per share                        15,071,607             14,639,300           15,056,374             14,537,924

Basic net income per share                     $          0.03      $            0.02      $          0.05      $            0.03
                                              ==================   ====================   ==================   ====================

Shares used in the calculation of diluted
        net income per share                        16,136,823             15,700,475           16,229,367             15,583,163

Diluted net income per share                   $          0.03      $            0.02      $          0.05      $            0.03
                                              ==================   ====================   ==================   ====================
</TABLE>

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



                                       3
<PAGE>







                           Ophthalmic Imaging Systems
                       Condensed Statements of Cash Flows
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                    Six months ended June 30,
                                                                                   2005                    2004
                                                                            --------------------    -------------------

OPERATING ACTIVITIES:
<S>                                                                               <C>                    <C>
Net income                                                                        $     740,111          $     484,499
Adjustments to reconcile net income to net cash
       provided by (used in) operating activities
            Depreciation and amortization
                                                                                         34,640                 50,918
            Non-cash payment of interest
                                                                                          5,546                 21,802
            Loss on disposition of equipment
                                                                                                                   457
            Net decrease (increase) in current assets other
                than cash and cash equivalents
                                                                                         78,415               (322,950)
            Net (increase) decrease in other assets
                                                                                        (28,539)              (136,734)
            Net increase (decrease)  in current liabilities other
                than short-term borrowings
                                                                                        179,136               (233,388)
                                                                            --------------------    -------------------
Net cash provided by (used in) operating activities
                                                                                      1,009,309               (135,396)
INVESTING ACTIVITIES:
Acquisition of furniture and equipment
                                                                                         (8,750)                (8,565)
Proceeds from disposition of equipment                                                                             890
                                                                            --------------------    -------------------
Net cash used in investing activities                                                    (8,750)                (7,675)
FINANCING ACTIVITIES:
Principal payments on notes payable                                                    (147,239)               (14,528)
Proceeds from notes payable, other                                                      150,000               1,000,000
Proceeds from sale of stock                                                              12,500                  49,468
Advances to related parties                                                            (900,046)               (114,644)
Repayments of borrowings under notes
       payable to related party, net                                                          -                (200,979)
                                                                            --------------------    -------------------
Net cash (used in) provided by financing activities                                    (884,785)                719,317
                                                                            --------------------    -------------------
Net increase in cash and equivalents                                                    115,774                 576,246
Cash and cash equivalents at beginning of period                                      1,990,310               1,272,034
                                                                            --------------------    -------------------
Cash and cash equivalents at beginning of period                                  $   2,106,084           $   1,848,280
                                                                            ====================    ===================

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
            Repayment of notes payable with common stock                          $      58,654           $     315,135
            Payment of interest with common stock                                 $       5,546           $      21,802
            Addition to capital lease obligation for equipment purchases                                  $      41,258
            Addition to aggregate debt payable to significant
              shareholders in exchange for inventory and other
              noncash transactions, net                                                                   $      92,366
                                                                            ====================    ===================
                 Addition to net receivable from significant shareholders
                   in exchange for inventory and other noncash
                   transactions, net                                              $     22,398
                                                                            ====================


SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
            Cash Paid for interest                                                $     47,119
            Cash paid for taxes                                                   $     24,024            $      70,050
</TABLE>

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



                                       4
<PAGE>





                           Ophthalmic Imaging Systems

                     Notes to Condensed Financial Statements

            Three and Six Month Periods ended June 30, 2005 and 2004


                                   (Unaudited)


Note 1.         Basis of Presentation

                The accompanying  unaudited  condensed  balance sheet as of June
                30, 2005,  condensed  statements of operations for the three and
                six month periods ended June 30, 2005 and 2004 and the condensed
                statements  of cash flows for the six month  periods  ended June
                30,  2005  and  2004  have  been  prepared  in  accordance  with
                generally accepted  accounting  principles for interim financial
                information  and with the  instructions  to Form 10-QSB and Item
                310(b) of Regulation S-B.  Accordingly,  they do not include all
                of  the  information  and  footnote   disclosures   required  by
                generally accepted accounting  principles for complete financial
                statements.  These 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, 2004
                on Form 10-KSB.  In the opinion of management,  the accompanying
                condensed   financial   statements   include  all   adjustments,
                consisting only of normal recurring adjustments, necessary for a
                fair  presentation  of  the  Company's  financial  position  and
                results of operations for the periods presented.  The results of
                operations   for  the  period   ended  June  30,  2005  are  not
                necessarily  indicative  of the  operating  results for the full
                year.


Note 2.         Net Income Per Share

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





                                       5
<PAGE>



<TABLE>
<CAPTION>
                                                             Unaudited                       Unaudited
                                                         Three Months Ended               Six Months Ended
                                                              June 30,                        June 30,
                                                                                                     -
                                                        2005            2004           2005            2004
                                                   --------------- --------------- -------------- ----------------

<S>                                                  <C>             <C>             <C>             <C>
                Numerator for basic and diluted
                net income per share                 $  405,951      $  244,684     $  740,111       $  484,499
                                                   =============== =============== ============== ================

                Denominator for basic net income
                    per share:
                   Weighted average shares           15,071,607      14,639,300     15,056,374       14,537,924

                Effect of dilutive securities:
                   Employee/director stock
                    options                           1,065,216       1,061,175      1,172,993        1,045,239
                                                   --------------- --------------- -------------- ----------------
                Dilutive potential common shares      1,065,216       1,061,175      1,172,993        1,045,239

                                                   --------------- --------------- -------------- ----------------
                Denominator for diluted net
                income  per share                    16,136,823      15,700,475     16,229,367       15,583,163
                                                   =============== =============== ============== ================
                Basic net income per share              $  0.03          $ 0.02         $ 0.05           $ 0.03
                                                   =============== =============== =============== ===============

                Diluted net income per share            $  0.03          $ 0.02         $ 0.05           $ 0.03
                                                   =============== =============== =============== ===============
</TABLE>

                As of June 30,  2005 and June 30,  2004 there were  735,500  and
                714,500 options and warrants,  respectively whose exercise price
                exceeded  the  average  market  price of the stock and have been
                excluded from this computation.


Note 3.         Related 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>

                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  banks  to  act  as  security  for  the  debt  of
                MediVision,  such debenture  shall be secured by a first lien on
                all of the Company's assets. Such debenture and lien were signed
                in December  2002.  On July 20,  2005,  the  Company's  Board of
                Directors   approved  that  the  Company  replace  the  existing
                debentures to the  financial  institutions  with a  consolidated
                debenture  to only one  financial  institution  in the amount of
                $2,000,000.

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

                On February 28, 2005, the Company and MediVision  entered into a
                Loan and  Security  Agreement  and  Promissory  Note whereby the
                Company  agreed to loan  MediVision  up to two  million  dollars
                ($2,000,000).  The loan  agreement  incorporates  the $1,150,000
                previously  approved by the Company's Board of Directors.  Under
                the terms of the  agreement,  interest is 7.25% per annum and is
                payable  on  February  28,  2006  along  with  all   outstanding
                principal due at that date.  The note is secured by 2,409,000 of
                the  11,130,151  shares of the  Company's  common stock owned by
                MediVision. The number of shares is based on the average closing
                price of shares of the Company  during the period  covering  the
                last ten (10)  business  days of February,  2005,  which average
                closing  price was $1.11,  discounted  by 25%. In the event that
                MediVision  sells any shares it owns in the  Company  during the
                period of the  agreement,  a minimum of 50% of the proceeds from
                such sales would be required to be paid to the Company to reduce
                the outstanding amount owed.

                On July 20, 2005, the Company's Board of Directors  amended this
                loan agreement as follows:  MediVision  repay  $1,000,000 to the
                Company,  decreasing  the  agreed  upon  loan of  $2,000,000  to
                $1,000,000. The amount of shares securing the loan will increase
                by  1,141,000.  The  number of  shares  is based on the  average
                closing  price  of  shares  of the  Company  during  the  period
                covering  the last ten (10)  business  days  before the  Board's
                decision,  which average closing price was $1.17,  discounted by
                25%.  Pursuant to these additional  shares securing the loan the
                total number of shares securing the loan is 3,550,000 out of the
                11,130,151  shares  of  the  Company's  common  stock  owned  by
                MediVision.

                At June 30, 2005 the Company had  recorded a net amount due from
                MediVision of  approximately  $1,955,558 on the promissory  note
                and approximately $28,539 net, due for products and services.


                                       7
<PAGE>


                On July  28,  2005,  pursuant  to the  aforementioned  debenture
                signed by the Company, MediVision signed the loan agreement with
                the above-mentioned financial institute and paid back $1,000,000
                of the loan;  from the Company;  reducing the amount  MediVision
                owes the Company on the promissory note to $955,558.

                Sales to  MediVision  during the six months  ended June 30, 2005
                and  2004   totaled   approximately   $405,565   and   $280,000,
                respectively. Sales derived from product shipments to MediVision
                are made at transfer  pricing  which is based on similar  volume
                discounts that are available to other  resellers or distributors
                of the Company's products.

                During the six-month  periods ended June 30, 2005 and 2004,  the
                Company paid approximately  $370,000 and $330,000  respectively,
                to  MediVision  for  research  and   development   performed  by
                MediVision  on  behalf  of the  Company  As of  June  30,  2005,
                MediVision  currently  owns  approximately  74% of the Company's
                outstanding common stock.

Note 4.         Stock Based Compensation

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

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



                                       8
<PAGE>


<TABLE>
<CAPTION>
                                                              Unaudited                    Unaudited
                                                          Three Months Ended            Six Months Ended
                                                               June 30,                     June 30,
                                                     ----------------------------- ---------------------------
                                                         2005           2004           2005          2004
                                                     -------------- -------------- ------------- --------------

<S>                                                    <C>            <C>            <C>          <C>
          Net Income, As Reported                      $   405,951    $   244,684    $  740,111   $    484,499

          Deduct Total Stock-Based Employee
             Compensation Expenses Determined
             Under the Fair Value Based Method
             For all Awards, Net of Related Tax
             Effects                                        (5,030)        (1,078)      (10,060)        (2,165)
                                                     -------------- -------------- ------------- --------------

          Pro Forma Net Income                         $   400,921    $   243,606    $  730,051   $    482,334
                                                     ============== ============== ============= ==============

          Basic Earnings Per Share
              As Reported                              $      0.03    $      0.02    $     0.05   $       0.03
              Pro Forma                                $      0.03    $      0.02    $     0.05   $       0.03

          Diluted Earnings Per Share:
              As Reported                              $      0.03    $      0.02    $     0.05   $       0.03
              Pro Forma                                $      0.03    $      0.02    $     0.05   $       0.03

</TABLE>




The fair value of the options 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, 2005.

In December  2004 the FASB issued  Statement  Number 123 (revised  2004) (FAS 23
(R)),  Share-Based  Payments.  FAS 123 (R)  requires  all  entities to recognize
compensation  expense  in an  amount  equal  to the fair  value  of  share-based
payments such as stock options granted to employees.  The Company is required to
apply FAS 123 (R) on a  modified  prospective  method.  Under this  method,  the
Company is required to record compensation  expense (as previous awards continue
to vest) for the  unvested  portion of  previously  granted  awards  that remain
outstanding at the date of adoption. In addition, the Company may elect to adopt
FAS 123 (R) by restating  previously  issued  financial  statements,  basing the
expense on that previously  reported in their pro forma disclosures  required by
FAS 123. FAS 123 (R) is effective for the first reporting period beginning after
June 15,  2005.  For  companies  filing  under  Regulation  S-B,  FAS 123 (R) is
effective the beginning of the first annual  reporting  period that begins after
December  15, 2005,  which for the Company will be for year ending  December 31,
2006. Management has not completed its evaluation of the effect that FAS 123 (R)
will have, but believes that the effect will be consistent with its previous pro
forma disclosures.








                                       9
<PAGE>

Note 5.         Warranty Obligations

                The  Company   generally  offers  a  one-year  warranty  to  its
                customers.  The  Company's  warranty  requires  it to  repair or
                replace  defective  products during the warranty period.  At the
                time  product  revenue  is  recognized,  the  Company  records a
                liability  for  estimated  costs that may be incurred  under its
                warranties.   The  costs  are  estimated   based  on  historical
                experience  and any  specific  warranty  issues  that  have been
                identified.  Although historical warranty costs have been within
                expectations,  there can be no  assurance  that future  warranty
                costs will not exceed historical amounts. The amount of warranty
                liability  accrued  reflects the Company's  best estimate of the
                expected  future  cost of  honoring  its  obligations  under the
                warranty plans. The Company  periodically  assesses the adequacy
                of its recorded  warranty  liability  and adjusts the balance as
                necessary.

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


<TABLE>
<CAPTION>
                                                              Unaudited                    Unaudited
                                                          Three Months Ended            Six Months Ended
                                                               June 30,                          June 30,
                                                     ----------------------------- ---------------------------
                                                         2005           2004       2005          2004

<S>                                                    <C>           <C>            <C>           <C>
       Warranty balance at beginning of period         $ 396,981     $   406,365    $ 505,851     $   438,449

       Net provision (reduction) for current period       54,000         (24,684)      70,250         (30,455)
                                                         (40,968)        (35,438)    (166,088)        (61,750)
                                                     -------------- -------------- ------------- --------------

       Warranty balance at end of period               $ 410,013     $   346,243    $ 410,013     $   346,244
                                                     ============== ============== ============= ==============
</TABLE>

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

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



                                       10
<PAGE>

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  recently  made a strategic  decision to
expand its product offering to include the ophthalmic  informatics  field.  Over
the last year the Company  introduced its Ophthalmology  Office line composed of
the Electronic  Medical Records (EMR) and Enterprise  Practice  Management (EPM)
software  products  by NextGen  Healthcare  Information  Systems,  Inc.  and the
Company's import modules. This decision has enabled the Company to offer a wider
variety  of  products  and  comprehensive  solutions  to its  customer  base  of
ophthalmology departments and practices.

     On December 28, 2004, the Company entered into an investment agreement with
Dutchess Private Equities Fund II, LP ("Dutchess") for an equity line of credit.
Pursuant to the  investment  agreement,  Dutchess  agreed to provide the Company
with up to $9,000,000 of funding during the thirty month period beginning on the
date that the  registration  statement the Company  agreed to file providing for
the resale of the shares of common stock issuable under the investment agreement
is declared  effective by the  Securities and Exchange  Commission.  During this
thirty month period, the Company may request a drawdown by selling shares of its
common stock to Dutchess,  who will be  obligated to purchase  such shares.  The
Company has no obligation to request any such drawdown.

     Under a drawdown notice, the Company can request, at its own election,  the
greater of (A) up to 200% of the average  daily volume of the  Company's  common
stock  for the ten  trading  days  prior  to the  date  of the  drawdown  notice
multiplied  by the average of the three daily  closing bid prices for the common
stock  immediately  preceding  the date of the drawdown  notice or (B) $100,000;
provided  that the Company may not request  more than  $1,000,000  in any single
drawdown. As of June 30, 2005, the Company's registration statement had not been
declared effective; accordingly no drawdowns have been made.

     As of  June  30,  2005,  the  Company  had  stockholders'  equity  totaling
$3,230,318  and  its  current  assets   exceeded  its  current   liabilities  by
approximately $3,582,341.

     The convertible  loan  agreements with Laurus Master Fund. Ltd.  ("Laurus")
that were entered into during the third  quarter of 2003 and the second  quarter
of 2004, have had a favorable impact on the Company's ratio of current assets to
current  liabilities.  As of  June  30,  2005,  under  the  terms  of  the  2003
convertible  loan  agreement,  Laurus had  converted  $714,113 of principal  and
interest into 665,908 shares of the Company's common stock at a conversion price
of $1.07 per share.  As of June 30,  2004,  Laurus  had  converted  $336,937  of
principal  and interest into 314,894  shares of the Company's  common stock at a
conversion price of $1.07.

     The following  discussion  should be read in conjunction with the unaudited
interim financial statements and the notes thereto which are included under Item
1 of this Form  10-QSB.  In the opinion of  management,  the  unaudited  interim
period  financial  statements  include  all  adjustments,  all of which are of a
normal  recurring  nature,  that are  necessary for a fair  presentation  of the
results of the periods.


                                       11
<PAGE>

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

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

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

Revenues

     The  Company's  revenues  for the second  quarter  ended June 30, 2005 were
$2,949,579,  representing  a 23% increase from  revenues of  $2,403,039  for the
second quarter ended June 30, 2004.  Revenues for the first six months of fiscal
2005 were  $5,789,604,  representing  a 21% increase from revenues of $4,800,109
for the  comparable  six months of fiscal 2004.  The increase in revenues is due
primarily to higher revenues  generated from the Ophthalmology  Office products,
and increased  service  revenues.  Digital  angiography  systems and Informatics
accounted for  approximately 85% and 89% of the Company's revenue for the second
quarters and six month periods of 2005 and 2004, respectively.  Service revenues
accounted for  approximately 15% and 11% of the Company's revenue for the second
quarter and  six-month  periods of 2005 and 2004,  respectively.  Revenues  from
sales of the Company's  products to MediVision were  approximately  $137,900 and
$405,565 during the three and six-month  periods ended June 30, 2005 and $96,839
and $279,914 for the comparable three and six-month period ending June 30, 2004,
respectively.

Gross Margins

     Gross margins were  approximately  59% during the second quarter ended June
30, 2005 as compared to 62% for the second  quarter ended June 30, 2004. For the
six-month  period ended June 30, 2005, gross margins were  approximately  59% as
compared to 61% for the  comparable  six-month  period of 2004.  The decrease in
margins  is a  result  of  an  increase  in  sales  of  the  NextGen  Healthcare
Information Systems, Inc. software products, which have lower gross margins than
the  majority  of the  Company's  other  products.  It is  anticipated  that the
Company's



                                       12
<PAGE>

gross margins will decrease as its sales of the NextGen software products become
more significant.

Sales and Marketing Expenses

     Sales and  marketing  expenses  accounted  for  approximately  23% of total
revenues  during the second quarter of fiscal 2005 as compared to  approximately
29% during the second quarter of fiscal 2004. Actual expense levels decreased to
$686,390  during the second  quarter of 2005 versus  $696,325  during the second
quarter of 2004.  For the first six months of fiscal  2005 and fiscal  2004 such
expenses  accounted  for  approximately  24% and 28% of total  revenues  for the
respective six-month periods.  These decreases are primarily  attributable to an
increase  in  revenues,  a static  number  of sales  representatives  and  lower
marketing expenses mainly due to postponement of certain marketing projects.

General and Administrative Expenses

     General and administrative  expenses were $325,636 in the second quarter of
fiscal 2005 and  $258,340 in the second  quarter of fiscal 2004.  Such  expenses
accounted for  approximately  11% of revenues  during the second quarter of 2005
and  2004.  For the  first six  months  of  fiscal  2005 and 2004 such  expenses
accounted for approximately  11% of total revenues for the respective  six-month
periods.  Expenses  increased to $638,632  from  $505,805  during the  six-month
periods of fiscal 2005 and 2004 respectively. The 2005 expense increase resulted
from increased  legal  expenses and reserves  versus a write-down in reserves in
2004.


Research and Development Expenses

     Research and  development  expenses were $265,404 in the second  quarter of
fiscal 2005 and  $229,950 in the second  quarter of fiscal 2004.  Such  expenses
accounted for  approximately 9% and 10% of revenues during the second quarter of
2005 and  2004,  respectively.  For the first six  months of fiscal  2005,  such
expenses  accounted  for  approximately  9% of total  revenues  as  compared  to
approximately  10% during the comparable  six-month  period of 2004. The Company
focused its recent research and development efforts on new digital image capture
products and expects such  research and  development  expenditures  to grow as a
result of outsourcing its research and development  activities to MediVision and
other consultants.

Interest and Other Expense, net

     Interest and other expense was $51,029  during the second quarter of fiscal
2005 versus  $59,342 during the second quarter of fiscal 2004. For the six-month
periods, interest and other expense was $103,618 and $104,667 in fiscal 2005 and
fiscal 2004, respectively.  These amounts were comprised principally of interest
expense,  mainly  associated  with the  convertible  loans from  Laurus and with
financing  arrangements  provided  to  certain  of the  Company's  customers  in
connection with sales of its products.

Net Income

     The Company  recorded net income of $405,951,  or $0.03 per share basic and
diluted earnings,  for the second quarter ended June 30, 2005 as compared to net
income of $244,684 or $0.02 per share basic and diluted  earnings for the second
quarter ended June 30, 2004. For the



                                       13
<PAGE>

six-month  periods,  the  Company  recorded  net income of $740,111 or $0.05 per
share basic earnings and diluted earnings, as compared to $484,499, or $0.03 per
share  basic  and  diluted   earnings   during  fiscal  2005  and  fiscal  2004,
respectively.  The increase in earnings per share is mainly  attributable  to an
increase in income between the comparable quarters and six-month periods.


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

     The Company's operating  activities generated cash of $1,009,309 during the
six months  ended June 30,  2005 as compared to cash used of $135,396 in the six
months ended June 30, 2004. The cash generated from operations  during the first
six months of 2005 was principally from net income for the period, a decrease in
inventory, and an increase of current liabilities. The cash used from 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.

     Cash used in investing activities was $8,750 during the first six months of
2005 as compared to $7,675  during the first six months of 2004.  The  Company's
investing  activities  consisted of minor  purchases of  equipment.  The Company
anticipates   continued  near-term  capital   expenditures  in  connection  with
increasing its pool of demonstration  equipment,  and ongoing efforts to upgrade
its existing  management  information  and  communication  systems.  The Company
anticipates that related expenditures,  if any, will be financed from cash flows
from operations or other financing arrangements available to the Company.

     The Company used cash in financing  activities of $884,785 during the first
six months of fiscal 2005 as compared to generating  cash of $719,317 during the
first six months of fiscal 2004.  The cash used in financing  activities  during
the  first  six  months  of 2005  was  principally  from  advances  on the  note
receivable from MediVision and repayments of the debt to Laurus.  Cash generated
in financing activities during the first six months of 2004 was principally from
proceeds  received from signing 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.

     As of June  30,  2005  the  Company  had  recorded  a net  amount  due from
MediVision of approximately  $1,955,558 on the promissory note and approximately
$28,558 net amount due for products and services.

     On July 28, 2005, MediVision paid back $1,000,000 of the loan; reducing the
amount MediVision owes the Company on the promissory note to $955,558.

      On June 30, 2005 the Company's cash and cash  equivalents were $2,106,084.
In the foreseeable future,  management  anticipates having adequate cash flow to
fund the daily needs of the company.

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


      The Company will  continue to evaluate  alternative  sources of capital to
meet its growth requirements,  including other asset or debt financing,  issuing
equity securities and entering into



                                       14
<PAGE>

other financing arrangements.  There are no assurances, however, that any of the
contemplated financing arrangements described herein will be available and, even
if available, can be obtained on terms favorable to the Company.



ITEM 3.       CONTROLS AND PROCEDURES

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

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





                                       15
<PAGE>

                            PART II OTHER INFORMATION

ITEM 1.             LEGAL PROCEEDINGS
                    On March 9, 2004,  the Company  filed a civil  action in the
                    United  States  District  Court for the Eastern  District of
                    California  against several of its former employees,  led by
                    former  vice-president  Mark  Fukuhara,  who have been doing
                    business  for the last two years as  Imaging  Service  Group
                    (ISG) and Zeta Development  Laboratories in El Dorado Hills,
                    California,  and several  affiliated  persons and companies,
                    including Dale Brodsky,  Eyepictures,  Inc.,  Johnny Justice
                    Jr., and two of his ophthalmic  equipment  businesses,  Zeta
                    Development Labs, Inc. (doing business as Justice Diagnostic
                    Imaging) and Justice Ophthalmics, Inc. The complaint alleges
                    claims for misappropriation of trade secrets,  violations of
                    the  federal   computer  fraud  and  abuse  act,   copyright
                    infringement,   breach  of   contract,   interference   with
                    contract,   and  false  advertising.   The  complaint  seeks
                    monetary  damages as well as injunctive  relief  against the
                    defendants.

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








                                       16
<PAGE>





ITEM 6.        EXHIBITS AND REPORTS ON FORM 8-K

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

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

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

               (b)  Reports on Form 8-K

                    Current  Report on Form 8-K,  filed with the  Securities and
                    Exchange Commission on May 5, 2005.

                    Current  Report on Form 8-K,  filed with the  Securities and
                    Exchange Commission on May 10, 2005.





                                       17
<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 8, 2005



                                       18