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 September 30, 2004

Commission File Number:    1-11140

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

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

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

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

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

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

As of November 05, 2004,  15,033,585  shares of common stock, no par value, were
outstanding.

Transitional Small Business Disclosure Format:

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



<PAGE>

                           OPHTHALMIC IMAGING SYSTEMS

                                   FORM 10-QSB

                    FOR THE QUARTER ENDED September 30, 2004



PART I.  FINANCIAL INFORMATION                                              PAGE
                                                                            ----

Item 1.  Financial Statements (unaudited)

         Condensed Balance Sheet as of September 30, 2004                     2

         Condensed Statements of Operations for the Three Months and
         Nine Months ended September 30, 2004 and September 30, 2003          3

         Condensed Statements of Cash Flows for the Nine Months
         ended September 30, 2004 and September 30, 2003                      4

         Notes to Condensed Financial Statements                              5

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

Item 3.  Controls and Procedures                                              14

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings                                                    15

Item 2.  Changes in Securities and Use of Proceeds                            15

Item 3.  Defaults upon Senior Securities                                      15

Item 4.  Submission of Matters to a Vote of Security Holders                  16

Item 5.  Other Information                                                    16

Item 6.  Exhibits and Reports on Form 8-K                                     16


<PAGE>


                          PART I FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS


<PAGE>




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

<TABLE>
<CAPTION>
ASSETS
------
Current assets:
<S>                                                                                      <C>
        Cash and equivalents                                                             $         1,904,023
        Accounts receivable, net                                                                   1,738,457
        Inventories, net                                                                             583,817
        Prepaid expenses and other current assets                                                    266,664
        Deferred tax asset                                                                           500,000
                                                                                         ---------------------
             Total current assets                                                                  4,992,961
Furniture and equipment, net of accumulated
        depreciation and amortization of $768,625                                                    160,494
Restricted cash                                                                                      150,000
Receivable from related party                                                                        397,729
Other assets                                                                                         195,639
                                                                                         ---------------------
             Total assets                                                                $         5,896,823
                                                                                         =====================

LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
        Accounts payable                                                                 $           517,838
        Accrued liabilities                                                                        1,242,014
        Deferred extended warranty revenue                                                           758,205
        Customer deposits                                                                            225,328
        Income taxes payable                                                                          32,600
        Notes payable- current portion                                                               746,753
                                                                                         ---------------------
             Total current liabilities                                                             3,522,738
                                                                                         ---------------------

Noncurrent Liabilities:
        Notes payable, less current portion                                                          870,211
                                                                                         ---------------------
             Total noncurrent liabilities                                                            870,211
                                                                                         ---------------------

Stockholders' equity:
        Common stock, no par value, 35,000,000 shares authorized;
             15,033,585 issued and outstanding                                                    14,502,320
        Accumulated deficit                                                                      (12,998,446)
                                                                                         ---------------------
             Total stockholders' equity                                                            1,503,874
                                                                                         ---------------------
             Total liabilities and stockholders' equity                                  $         5,896,823
                                                                                         =====================
</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 September 30,            Nine months ended September 30,
                                                    2004                  2003                  2004                  2003
                                              ------------------   --------------------   ------------------   --------------------

<S>                                            <C>                  <C>                    <C>                  <C>
Net revenues                                   $     2,614,798      $       2,446,084      $     7,414,907      $       7,232,522
Cost of sales                                        1,053,576                986,422            2,925,522              2,923,506
                                              ------------------   --------------------   ------------------   --------------------
Gross profit                                         1,561,222              1,459,662            4,489,385              4,309,016

Operating expenses:
      Sales and marketing                              641,828                661,872                                   1,992,427
      General and administrative                       290,912                219,126              796,716                760,457
      Research and development                         242,847                215,003              720,033                476,234
                                              ------------------   --------------------   ------------------   --------------------
          Total operating expenses                   1,175,587              1,096,001            3,514,583              3,229,118
                                              ------------------   --------------------   ------------------   --------------------
Income from operations                                 385,635                363,661              974,802              1,079,898
Interest and other expense, net                        (58,922)               (46,077)            (163,590)              (164,546)
                                              ------------------   --------------------   ------------------   --------------------
Net income before income taxes                         326,713                317,584              811,212                915,352
Income taxes                                                                   (7,500)                                    (10,500)
                                              ------------------   --------------------   ------------------   --------------------

Net income                                     $       326,713      $         310,084      $       811,212      $         904,852
                                              ==================   ====================   ==================   ====================

Shares used in the calculation of basic
        net income per share                        14,975,014             14,354,521           14,683,620             10,233,147

Basic net income per share                     $          0.02       $           0.02      $          0.06      $            0.09
                                              ==================   ====================   ==================   ====================

Shares used in the calculation of diluted
        net income per share                        15,981,937             15,251,916           15,716,087             10,684,385

Diluted net income per share                   $          0.02       $           0.02      $          0.06      $            0.09
                                              ==================   ====================   ==================   ====================

</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>
                                                                                 Nine months ended September 30,
                                                                                   2004                    2003
                                                                            --------------------    -------------------

<S>                                                                          <C>                     <C>
OPERATING ACTIVITIES:
Net income                                                                   $          811,212      $           904,852
Adjustments to reconcile net income to net cash
       provided by (used in) operating activities
            Depreciation and amortization                                                83,732                   38,645
            Non-cash payment of interest                                                 35,869
            Loss of disposition of equipment                                              1,499
            Net increase in current assets other
                than cash and equivalents                                              (421,255)                (358,905)
            Net increase in other assets                                               (150,385)                 (44,908)
            Net  increase in current liabilities other
                than short-term borrowings                                                3,293                   20,450
                                                                             -------------------     --------------------

Net cash provided by operating activities                                               363,965                  560,134

INVESTING ACTIVITIES:
Acquisition of furniture and equipment                                                  (16,875)                 (10,903)
Proceeds from disposition of equipment                                                      890
Increase in restricted cash                                                                                     (150,000)
                                                                             -------------------     --------------------
Net cash used in investing activities                                                   (15,985)                (160,903)

FINANCING ACTIVITIES:
Principal payments on notes payable                                                     (16,751)                  (4,167)
Proceeds from notes payable, other                                                    1,000,000                1,200,000
Repayment of line of credit, net                                                       (150,000)
Proceeds from sale of stock                                                              49,468
Advances to related parties                                                            (397,729)
Repayments of borrowings under notes
       payable to related party, net                                                   (200,979)                (333,300)
                                                                             -------------------     --------------------
Net cash provided by  financing activities                                              284,009                  862,533
                                                                             -------------------     --------------------
Net increase in cash and equivalents                                                    631,989                1,261,764
Cash and equivalents at beginning of period                                           1,272,034                  383,234
                                                                             -------------------     --------------------
Cash and equivalents at beginning of period                                  $        1,904,023      $         1,644,998
                                                                             ===================     ====================

SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
            Repayment of notes payable with common stock                     $          580,796
            Payment of interest with common stock                            $           35,869
            Addition to capital lease obligation for equipment purchases     $           41,261
            Reductions in aggregate debt payable
              to significant shareholders in exchange for
              inventory and other noncash transactions, net                  $          (28,215)     $          (133,300)
                                                                             ===================     ====================

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION:
            Conversion of related party notes payable to common stock                                $         1,150,000
            Cash paid for taxes                                              $           70,050      $            52,500

</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 Nine Month Periods ended September 30, 2004 and 2003


                                   (Unaudited)


Note 1.         Basis of Presentation

                The  accompanying   unaudited  condensed  balance  sheet  as  of
                September 30, 2004,  condensed  statements of operations for the
                three and nine month periods  ended  September 30, 2004 and 2003
                and the  condensed  statements  of cash flows for the nine month
                periods ended  September 30, 2004 and 2003 have been prepared in
                accordance  with generally  accepted  accounting  principles for
                interim financial  information and with the instructions to Form
                10-QSB and Item 310(b) of Regulation S-B.  Accordingly,  they do
                not  include all of the  information  and  footnote  disclosures
                required  by  generally  accepted   accounting   principles  for
                complete  financial   statements.   These  condensed   financial
                statements  should  be  read in  conjunction  with  the  audited
                financial  statements  and notes thereto  included in Ophthalmic
                Imaging  Systems' (the  "Company's")  Annual Report for the year
                ended  December  31,  2003 on Form  10-KSB.  In the  opinion  of
                management,  the  accompanying  condensed  financial  statements
                include all  adjustments,  consisting  only of normal  recurring
                adjustments,  necessary for a fair presentation of the Company's
                financial  position  and results of  operations  for the periods
                presented.  The  results  of  operations  for the  period  ended
                September  30,  2004  are  not  necessarily  indicative  of  the
                operating results for the full year.

                Certain  amounts in the fiscal 2003  financial  statements  have
                been  reclassified to conform to the  presentation in the fiscal
                2004 financial statements.

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              Nine Months Ended
                                                           September 30,                   September 30,
                                                        2004            2003           2004            2003
                                                   --------------- --------------- -------------- ----------------

<S>                                                <C>             <C>             <C>             <C>
                Numerator for basic and diluted
                net income per share               $      326,713  $     310,084   $     811,212   $      904,852
                                                   =============== =============== ============== ================

                Denominator for basic net income
                per share:
                   Weighted average shares             14,975,014     14,354,521      14,683,620       10,233,147

                Effect of dilutive securities:
                   Employee/director stock
                     options                            1,006,923        897,395       1,032,467          451,238
                   Warrants and other                          --             --              --               --
                                                   --------------- --------------- -------------- ----------------
                Dilutive potential common shares        1,006,923        897,395       1,032,467          451,238
                                                   --------------- --------------- -------------- ----------------
                Denominator for diluted net
                income  per share                      15,981,937     15,251,916      15,716,087       10,684,385
                                                   =============== =============== ============== ================
                Basic net income per share                 $ 0.02         $ 0.02          $ 0.06           $ 0.09
                                                   =============== =============== =============== ===============

                Diluted net income per share               $ 0.02         $ 0.02          $ 0.05           $ 0.08
                                                   =============== =============== =============== ===============
</TABLE>

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

Note 3.         Related Parties Transactions

                During  the period of August  2000  through  July 1,  2001,  the
                Company executed several promissory notes in favor of MediVision
                Medical Imaging Ltd. ("MediVision"),  an Israeli corporation and
                majority shareholder in the Company. The "Short-Term Note" had a
                maximum  principal  balance  of  $260,000  available,  while the
                "Working  Capital Funding  Agreement and Amendment No.1" to this
                agreement provide additional  funding of $2,500,000.  Both Notes
                and the  Amendment  bear  interest at the rate of 9.3% per annum
                and are secured by all of the  Company's  assets.  The principal
                amount  outstanding,  together with any and all accrued interest
                on the Working Capital Note and Amendment, was payable by August
                31, 2003, except that MediVision may, at its option, at any time
                convert any amount of principal  and interest  then  outstanding
                into shares of the Company's  common stock at a conversion price
                of $.80 per share on the  Working  Capital  Note and  $0.185 per
                share on the Amendment No.1 to the Working Capital Note.

                In May 2003, the Company and MediVision entered in Amendment No.
                2 to the Working  Capital  Funding  Agreement and the Short Term
                Note whereby the repayment  terms on the debt were extended such
                that all principal  and interest  shall become due on January 1,
                2005.

                In June 2003,  MediVision exercised its option, as stipulated in
                the  Working  Capital  Funding  Agreement,  Amendment  No. 1, to
                convert  $1,150,000  of  principal  and interest at a conversion
                price of $0.185 per share into 6,216,216 common shares of stock.


                                       6
<PAGE>


                Pursuant to a Common Stock Purchase  Agreement  dated as of June
                1, 2004 between MediVision and S2 Partners LP, MediVision agreed
                to sell 550,000 of the Company's  common stock to S2 Partners LP
                at a price of $1.35 per  share.  On June 23,  2004,  MediVision,
                through  Nollenberger Capital Partners Inc. acting as its agent,
                sold an additional  500,000 shares of the Company's common stock
                at a price of $1.38  per  share.  As a result  of the  foregoing
                transactions, MediVision currently owns approximately 74% of the
                Company's outstanding common stock.

                At September  30, 2004 the Company had recorded a net amount due
                from MediVision of approximately $398,000. This amount comprises
                approximately  $745,000  due from  MediVision  for  products and
                services offset by approximately $347,000 owed to MediVision for
                interest on the loans.

                In  August  2002,   the  Company's   Board  of   Directors,   at
                MediVision's request, authorized the Company to guarantee and/or
                provide  security   interests  in  its  assets  for  certain  of
                MediVision's loans with financial  institutions,  on the maximum
                aggregate  amount of approximately  $1,900,000.  In August 2002,
                MediVision   subordinated  to  the  financial  institutions  its
                security  position  in the  Company's  assets,  which  had  been
                granted  in   consideration   of  loans  to  the  Company   from
                MediVision.  In December 2002, the Company's  Board of Directors
                approved  that the Company  enter into and issue a debenture  in
                favor of the bank to act as security for the debt of MediVision.
                Such  debenture  is  secured  by a  first  lien  on  all  of the
                Company's assets. The debenture and lien were signed in December
                2002.  The  amount  owed  to  the  financial   institutions   by
                MediVision as of September 30, 2004 was approximately $784,000.

Note 4.         Stock Based Compensation

                At  September  30,  2004,  the  Company  had  five   stock-based
                compensation  plans (the "Plans").  The Company accounts for the
                Plans under the recognition  and  measurement  principles of APB
                Opinion No. 25,  "Accounting for Stock Issued to Employees," and
                related  interpretations.  No stock-based  compensation  cost is
                reflected in net income,  as all options granted under the Plans
                had an exercise  price equal to or above the market value of the
                underlying common stock on the date of grant.

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







                                       7
<PAGE>

<TABLE>
<CAPTION>
                                                              Unaudited                    Unaudited
                                                          Three Months Ended           Nine Months Ended
                                                             September 30,               September 30,
                                                     ----------------------------- ---------------------------
                                                         2004           2003           2004          2003
                                                     -------------- -------------- ------------- --------------

<S>                                                    <C>            <C>            <C>            <C>
          Net Income, As Reported                      $ 326,713      $  310,084     $  811,212     $  904,852

          Deduct Total Stock-Based Employee
            Compensation Expenses Determined
            Under the Fair Value Based Method
            For all Awards, Net of Related Tax
              Effects                                    (1,078)         (15,633)        (3,244)       (46,898)
                                                     -------------- -------------- ------------- --------------

          Pro Forma Net Income                         $ 325,635      $  294,451     $  807,968     $  857,954
                                                     ============== ============== ============= ==============

          Basic Earnings Per Share
              As Reported                              $    0.02      $     0.02     $     0.06     $     0.09
              Pro Forma                                $    0.02      $     0.02     $     0.06     $     0.09

          Diluted Earnings Per Share:
              As Reported                              $    0.02      $     0.02     $     0.05     $     0.08
              Pro Forma                                $    0.02      $     0.02     $     0.05     $     0.08
</TABLE>


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

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

                No  options  were  granted  for  the  three-month  period  ended
                September 30, 2004.  For the nine-month  period ended  September
                30, 2004 there were 25,000 options granted.

Note 5.         Warranty Obligations

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

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


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                                              Unaudited                    Unaudited
                                                          Three Months Ended           Nine Months Ended
                                                             September 30,                September 30,
                                                     ----------------------------- ---------------------------
                                                         2004           2003           2004          2003

<S>                                                    <C>            <C>            <C>           <C>
       Warranty balance at beginning of period         $ 346,244      $ 409,688      $  438,450    $ 370,680

       Net provision for current period                   33,516         73,900           3,060      197,138
       Warranty costs incurred                           (44,375)       (59,588)       (106,125)    (138,198)
                                                     -------------- -------------- ------------- -------------

       Warranty balance at end of period               $ 335,385     $  423,900     $   335,385    $ 423.900
                                                     ============== ============== ============= =============
</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.

Overview
--------

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

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



                                       9
<PAGE>



     At  September   30,  2004,   the  Company  had   stockholders'   equity  of
approximately $1,504,000 and its current assets exceeded its current liabilities
by  approximately  $1,470,000.  The convertible loan agreements with Laurus that
were  entered  into during the third  quarter of 2003 and the second  quarter of
2004 have had a favorable  impact on the Company's  current ratio.  At September
30, 2004,  under the terms of the 2003  convertible  loan agreement,  Laurus has
converted  $649,913  of  principal  and  interest  into  607,396  shares  of the
Company's common stock at a conversion price of $1.07 per share. There can be no
assurance  that the  Company  will be able to  achieve  or  sustain  significant
positive cash flows, revenues or profitability in the future.

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

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

     The  Company's  financial   statements  are  prepared  in  accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP").  The financial  information  contained  within its statements is, to a
significant  extent,  financial  information  that is based on  measures  of the
financial  effects of  transactions  and events that have  already  occurred.  A
variety of factors could affect the ultimate value that is obtained  either when
earning  income,  recognizing  an expense,  recovering  an asset or  relieving a
liability.  The  Company  records  revenue in  accordance  with SAB 101 and 104,
Revenue Recognition in Financial  Statements.  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.  Estimates are used
relative to the expected useful lives of depreciable assets.  Management is also
required to make estimates and assumptions  that affect the reported  amounts of
assets and liabilities  and the disclosure of contingent  assets and liabilities
at the date of the  financial  statements  and revenues and expenses  during the
reporting period. Actual results could differ from those estimates. In addition,
GAAP itself may change from one previously  acceptable method to another method.
Although the  economics of the  Company's  transactions  would be the same,  the
timing of events that would impact transactions could change.

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

Revenues

     The Company's  revenues for the third quarter ended September 30, 2004 were
$2,614,798, representing a 7% increase from revenues of $2,446,084 for the third
quarter ended  September 30, 2003.  Revenues for the first nine months of fiscal
2004 were  $7,414,907  representing  a 3% change from revenues of $7,232,522 for
the  comparable  nine months of fiscal  2003.  Digital  angiography  systems and
peripherals  accounted for  approximately  88% of the Company's  revenue for the
third quarter and nine-month  period of 2004. Sales of these products  accounted
for  approximately  92% and 93% of the  Company's  total  revenues for the third
quarter and nine-month period of 2003, respectively.  Service revenues accounted
for  approximately  12% of the  Company's  revenue  for the  third  quarter  and
nine-month  period of 2004 and  approximately 8% and 7% of the Company's revenue
for the third quarter and nine-month period of 2003, respectively. Revenues from
sales of the Company's  products to MediVision were



                                       10
<PAGE>

approximately  $266,000  and  $545,000  during the  three-month  and  nine-month
periods ended  September  30, 2004 and $102,000 and $392,000 for the  comparable
three-month and nine-month periods ending September 30, 2003, respectively.

Gross Margins

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

Sales and Marketing Expenses

     Sales and  marketing  expenses  accounted  for  approximately  25% of total
revenues during the third quarter of fiscal 2004 as compared with  approximately
27% during the third  quarter of fiscal 2003.  Actual  expense  levels  showed a
minor  decrease to  $641,828  during the third  quarter of 2004 versus  $661,872
during the third  quarter of 2003.  For the first nine months of fiscal 2004 and
fiscal  2003 such  expenses  accounted  for  approximately  27% and 28% of total
revenues  for  the  respective  nine-month  periods.  Actual  expenses  remained
relatively   constant  increasing  to  $1,997,834  from  $1,992,427  during  the
nine-month periods of fiscal 2004 and 2003, respectively.

General and Administrative Expenses

     General and  administrative  expenses were $290,912 in the third quarter of
fiscal 2004 and  $219,126 in the third  quarter of fiscal  2003.  Such  expenses
accounted for  approximately  11% and 9% of revenues during the third quarter of
2004 and 2003,  respectively.  For the first nine months of fiscal 2004 and 2003
such  expenses  accounted  for  approximately  11% of  total  revenues  for  the
respective  nine-month  periods.  Actual  expenses  increased  to $796,716  from
$760,457 during the nine-month periods of fiscal 2004 and 2003, respectively.

Research and Development Expenses

     Research and  development  expenses  were  $242,847 in the third quarter of
fiscal 2004 and  $215,003 in the third  quarter of fiscal  2003.  Such  expenses
accounted for  approximately 9% of revenues during the third quarter of 2004 and
2003,  respectively.  For the first nine months of fiscal  2004,  such  expenses
accounted for  approximately  10% of total revenues as compared to approximately
7% during the comparable  nine-month period of 2003. The Company has focused its
recent research and development  efforts on new digital image capture  products.
The Company  expects its  research  and  development  expenditures  to grow as a
result of its paying for research and  development  conducted by MediVision  and
other outsourced  consulting on the Company's  behalf.  Research and development
expenses  incurred by  MediVision on behalf of the Company for the third quarter
and the first  nine  months  of 2004  amounted  to  approximately  $142,000  and
$471,000,  respectively.  Such  expenses  for the third  quarter  and first nine
months of 2003 were approximately $99,000 and 165,000 , respectively.



                                       11
<PAGE>



Interest and Other Expense, net

     Interest and other  expense was $58,922  during the third quarter of fiscal
2004 versus  $46,077 during the third quarter of fiscal 2003. For the nine-month
periods, interest and other expense was $163,590 and $164,546 in fiscal 2004 and
fiscal 2003, respectively.  These amounts were comprised principally of interest
expense,  mainly  associated  with the  convertible  loans from  Laurus and with
financing  arrangements  provided  to  certain  of the  Company's  customers  in
connection with sales of its products.

Income Taxes

     The Company has not provided for any income tax expense for the three-month
and  nine-month  periods  ending  September 30, 2004. At December 31, 2003,  the
Company had a net operating loss  carryforward of  approximately  $5,410,500 for
Federal  income tax purposes  which  expires  between  2007 and 2020,  and a net
operating loss  carryforward of  approximately  $2,088,800 for California  state
income tax purposes  which  expires  through  2010.  Due to changes in ownership
which occurred in prior years, Section 382 of the Internal Revenue Code provides
for   significant   limitations  on  the   utilization  of  net  operating  loss
carryforwards and tax credits. The Company believes however, that based on these
carryforwards  and on its results of operations  through  September 30, 2004, no
income tax provision is required at this time.

Net Income

     The Company  recorded net income of $326,713,  or $0.02 per share basic and
diluted  earnings for the third quarter ended  September 30, 2004 as compared to
net income of $310,084 or $0.02 per share  basic and  diluted  earnings  for the
third quarter ended September 30, 2003. For the nine-month periods,  the Company
recorded  net  income of  $811,212  or $0.06 per share  basic and $.05 per share
diluted earnings as compared to $904,852, or $0.09 per share basic and $0.08 per
share diluted  earnings  during fiscal 2004 and fiscal 2003,  respectively.  The
decrease in earnings per share is mainly attributable to a substantial  increase
in the  weighted  number  of  shares of common  stock  outstanding  between  the
comparable nine-month periods.

     The results of  operations  do not include  any amounts  with  respect to a
potential  contingent  liability in connection with the collection of taxes from
the  Company's  customers,  which  amount  has been  estimated  on the  basis of
numerous factors and assumptions that might, in the least favorable combination,
reach $526,000.  Management  believes that the probability of such an assessment
is remote  and  accordingly,  has not  recorded  a  liability  in its  financial
statements.  However,  there can be no  assurance  that the  amount  that  might
ultimately  be  assessed  for prior  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  generated cash of $363,965 during the
nine months ended  September 30, 2004 as compared to generating cash of $560,134
during  the  nine  months  ended  September  30,  2003.  The cash  generated  by
operations  during the first nine months of 2004 was principally from income for
the period  which  amounts were  partially  offset by  increased  inventory  and
receivables.  The cash generated from operations during the first nine



                                       12
<PAGE>

months of 2003 was principally from net income for the period which amounts were
partially offset by increased receivables.

     Cash used in investing  activities was $15,985 during the first nine months
of 2004 as compared to $160,903  during the same period for 2003.  The Company's
investing  activities in 2004  consisted of minor  purchases of  equipment.  The
primary  investing  activities in 2003  consisted of an investment to secure the
line of  credit  with  its  bank.  The  Company  anticipates  continued  certain
near-term  capital  expenditures  in  connection  with  increasing  its  pool of
demonstration  equipment, as well as its ongoing efforts to upgrade its existing
management   information  and  corporate   communication  systems.  The  Company
anticipates that related  expenditures,  if any, will be financed from cash flow
from operations or other  financing  arrangements  available to the Company,  if
any.

     The Company  generated cash in financing  activities of $284,009 during the
first nine  months of fiscal 2004 as  compared  to  generating  cash of $862,533
during the  comparable  nine-month  period of fiscal 2003. The cash generated in
financing  activities  during the first nine months of 2004 was principally from
proceeds received from the signing of the $1,000,000 convertible debt instrument
with  Laurus  and the  addition  of a  capital  lease  offset by  repayments  of
borrowings and advances under existing  arrangements  with MediVision.  The cash
generated  during the same nine-month  period in 2003 was  principally  from the
signing of the  $1,200,000  convertible  debt  instrument  with Laurus offset by
repayments of borrowings to MediVision.

      In June 2003,  MediVision  exercised  its  option,  as  stipulated  in the
Amendment No.1, to convert  $1,150,000 of principal and interest at a conversion
price of $0.185 per share into 6,216,216 common shares of stock.

     At  September  30,  2004 the  Company  had  recorded  a net amount due from
MediVision  of  approximately  $398,000.  This  amount  comprises  approximately
$745,000 due from MediVision for products and services  offset by  approximately
$347,000 owed to MediVision for interest on the loans.

    On  September  30,  2004  the  Company's  cash  and  cash  equivalents  were
$1,904,023.  Management  anticipates  that additional  sources of capital beyond
those currently  available to the Company may be required to continue funding of
research and  development  for new products  and selling and  marketing  related
expenses for existing products.


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






                                       13
<PAGE>


ITEM 3.       CONTROLS AND PROCEDURES

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

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



























                                       14
<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  and   injunctive   relief   against  the
                    defendants.

                    On August 20, 2004, the United States District Court for the
                    Eastern   District  of  California   granted  the  Company's
                    application for a preliminary  injunction against certain of
                    the defendants. The motion for an injunction was denied with
                    respect to defendants Dale Brodsky and Eyepictures, Inc. and
                    was granted with respect to defendants Mark Fukhara, Douglas
                    Burland,  Michael Gerkovich,  Steven Leach, Edmund Peterson,
                    Dan Salomon,  Joe Silva,  Justice  Ophthalmics,  Inc.,  Zeta
                    Development Labs, Inc. and Johnny Justice Jr.  (collectively
                    the  "Fukhara  Defendants").  Pursuant  to  the  order,  the
                    Fukhara  Defendants  are enjoined  from making any copies of
                    any  computer  software  created or licensed by the Company;
                    selling,  distributing  or  transferring  any  copies of any
                    version of the Company's  WinStation computer software;  and
                    transferring  or disclosing to any third party any documents
                    containing a copy of the Company's  customer  database.  The
                    Fukhara Defendants shall resell any of the Company's imaging
                    systems or devices  already in their  possession "as is" and
                    shall not modify those  systems or devices in any way before
                    resale, even at the request of the customer, except that the
                    Fukuhara Defendants may do so if they advise the customer in
                    writing that the systems or devices  have been  modified and
                    are not the Company's original systems or devices.


ITEM 2.             CHANGES IN SECURITIES
                    None

ITEM 3.             DEFAULTS UPON SENIOR SECURITIES
                    None.



                                       15
<PAGE>

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

ITEM 5.             OTHER INFORMATION
                    None.

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)  None.

















                                       16
<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: November 05, 2004





















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