<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC. 20549
                                   FORM 10-QSB


(Mark One)

         [X]  Quarterly Report under section 13 or 15(d) of the Securities
              Exchange Act of 1934 for the quarterly period ended June 30,
              1999 or

         [ ]  Transition Report under section 13 or 15(d) of the Securities
              Exchange Act for the transition period from ________ to ________.


                         Commission file number: 0-24738


                        LORONIX INFORMATION SYSTEMS, INC.
        (Exact name of small business issuer as specified in its charter)



            Nevada                                             33-0248747
(State or other jurisdiction of                              (IRS Employer
 incorporation or organization)                            Identification No.)



                    820 Airport Road, Durango, Colorado 81301
                    (Address of principal executive offices)

                    Issuer's telephone number: (970) 259-6161



         Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 July 26, 1999, there were 4,817,011 shares of the issuer's common
stock outstanding.

<PAGE>

                        LORONIX INFORMATION SYSTEMS, INC.

                                      INDEX

<TABLE>
<CAPTION>
PART I.         FINANCIAL INFORMATION                                               PAGE NO.
                ---------------------                                               --------
<S>             <C>                                                                 <C>
                Item 1.    Financial Statements

                           Unaudited Condensed Consolidated Balance Sheet               1
                              as of June 30, 1999

                           Unaudited Condensed Consolidated Statements                  3
                              of Operations for the three and six months ended
                              June 30, 1999 and 1998

                           Unaudited Condensed Consolidated Statements of               4
                              Cash Flows for the six months ended
                              June 30, 1999 and 1998

                           Notes to Unaudited Condensed Consolidated Financial          5
                              Statements

                Item 2.    Management's Discussion and Analysis of                      7
                           Financial Condition and Results of Operations


PART II.        OTHER INFORMATION
                -----------------

                Item 4.    Submission of Matters to a Vote of Security Holders          15

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


SIGNATURES.                                                                             16
</TABLE>

<PAGE>

                        PART 1 - FINANCIAL INFORMATION

                       LORONIX INFORMATION SYSTEMS, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEET

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                 JUNE 30,
                                                                                   1999
                                                                            --------------------
                                                                                (UNAUDITED)
<S>                                                                         <C>
    Current assets:
         Cash and cash equivalents                                                   $2,975,636
         Accounts receivable:
            Trade, net of allowance for doubtful accounts
               of $532,311                                                            4,777,905
            Officers and employees                                                       22,570
         Inventory, net                                                               2,321,253
         Prepaid expenses and other assets                                              128,240
         Notes receivable, related parties                                               38,454
                                                                            --------------------

                Total current assets                                                 10,264,058

         Property and equipment, net of accumulated
              depreciation of $2,874,233                                              3,969,268
         Capitalized software and third party design costs, net of
              accumulated amortization of $1,529,113                                    993,599
         Notes receivable, related parties                                               19,224
         Accounts receivable - officers and employees                                   140,231
         Deposits and other assets                                                       23,668
                                                                            --------------------

                 Total assets                                                       $15,410,048
                                                                            --------------------
                                                                            --------------------
</TABLE>

                                  (continued)
                                       1
<PAGE>

                        LORONIX INFORMATION SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEET

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                                 JUNE 30,
                                                                                   1999
                                                                           ---------------------
                                                                               (UNAUDITED)
<S>                                                                        <C>
    Current liabilities:
         Current installments of long-term debt                                         $80,733
         Current installments of capital lease obligations                                3,593
         Accounts payable                                                             1,892,744
         Accrued liabilities                                                          1,472,821
         Accrued commissions                                                            144,000
                                                                           ---------------------

              Total current liabilities                                               3,593,891
                                                                           ---------------------

         Long-term debt, excluding current installments                               1,036,106

               Total liabilities                                                      4,629,997

    Stockholders' equity:
       Preferred stock, $.001 par value.  Authorized 2,000,000
         shares; no shares issued and outstanding.                                  -
       Common stock, $.001 par value.  Authorized 20,000,000
         shares; issued and outstanding 4,812,585 shares.                                 4,813
       Additional paid-in capital                                                    15,757,626
       Notes receivable from stockholders                                             (147,883)
       Accumulated deficit                                                          (4,834,505)
                                                                           ---------------------

              Total stockholders' equity                                             10,780,051
                                                                           ---------------------

              Total liabilities and stockholders' equity                            $15,410,048
                                                                           ---------------------
                                                                           ---------------------
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       2
<PAGE>

                        LORONIX INFORMATION SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED               SIX MONTHS ENDED
                                                        JUNE 30,                       JUNE 30,
                                                  1999          1998            1999             1998
                                               ------------  ------------   --------------   --------------
                                                      (UNAUDITED)                    (UNAUDITED)
<S>                                            <C>           <C>            <C>              <C>
Systems, supplies and maintenance
   revenue                                      $7,530,032    $1,984,676      $14,920,068       $3,888,545
                                               ------------  ------------   --------------   --------------
Operating costs and expenses:
  Cost of products sold                          4,160,439     1,065,930        8,164,306        2,069,493
  Operations and customer support                  612,638       313,383        1,142,774          661,307
  Selling, general and administrative            1,663,066     1,163,438        3,549,918        2,063,115
  Research and development                         458,897       339,763          841,805          679,659
                                               ------------  ------------   --------------   --------------
       Total cost and expenses                   6,895,040     2,882,514       13,698,803        5,473,574

        Income (loss) income from operations       634,992     (897,838)        1,221,265      (1,585,029)

Other income (expense):
  Interest income                                   33,424        34,790           64,857           66,633
  Interest expense                                (26,110)      (16,693)         (55,957)         (33,515)
  Other expense                                    (4,229)       (8,428)          (4,933)          (4,053)
                                               ------------  ------------   --------------   --------------
                                                     3,085         9,669            3,967           29,065

         Income (loss) before income taxes         638,077     (888,169)        1,225,232      (1,555,964)

Income tax expense                                (16,292)         -             (48,292)            (800)
                                               ------------  ------------   --------------   --------------

          Net income (loss)                       $621,785    ($888,169)       $1,176,940     ($1,556,764)
                                               ------------  ------------   --------------   --------------
                                               ------------  ------------   --------------   --------------

Basic income (loss) per share                        $0.13       ($0.19)            $0.25          ($0.34)
                                               ------------  ------------   --------------   --------------
                                               ------------  ------------   --------------   --------------

Diluted income (loss) per share                      $0.11       ($0.19)            $0.22          ($0.34)
                                               ------------  ------------   --------------   --------------
                                               ------------  ------------   --------------   --------------

Weighted-average shares outstanding              4,808,275     4,646,329        4,771,473        4,646,258
                                               ------------  ------------   --------------   --------------
                                               ------------  ------------   --------------   --------------

Diluted weighted-average shares outstanding      5,577,597     4,646,329        5,367,474        4,646,258
                                               ------------  ------------   --------------   --------------
                                               ------------  ------------   --------------   --------------
</TABLE>

      See accompanying notes to condensed consolidated financial statements

                                       3
<PAGE>

                        LORONIX INFORMATION SYSTEMS, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                   SIX MONTHS ENDED
                                                                                        JUNE 30,
                                                                                1999               1998
                                                                           ---------------------------------
                                                                            (UNAUDITED)         (UNAUDITED)
<S>                                                                        <C>                  <C>
Cash flows from operating activities:
   Net income (loss)                                                        $ 1,176,940         $(1,556,764)
   Adjustments to reconcile net income (loss) to net cash provided
    by operating activities:
       Depreciation and amortization                                            693,822             594,292
       (Gain) loss on disposal of capital equipment                              (7,709)              6,857
       Loss (gain) on foreign currency exchange                                     721              (1,175)
       Compensation expense related to grant of stock options                     7,385
       Changes in operating assets and liabilities:
          Increase in accounts receivable, net                               (2,384,710)             (8,030)
          Increase in inventory, net                                           (498,059)           (500,675)
          Decrease in prepaid expenses and other assets                          30,266             562,269
          Increase in accounts payable                                        1,207,659              34,956
          Increase in accrued liabilities and commissions                     1,097,861           1,618,844
                                                                            -----------         -----------
                Net cash provided by operating activities                     1,324,176             750,574
                                                                            -----------         -----------

Cash flows from investing activities:
   Capital expenditures                                                        (254,761)            (94,895)
   Proceeds from disposal of capital equipment                                   36,494                 -
   Decrease in notes receivable, related parties                                 19,227              39,383
   Decrease in deposits and other assets                                         12,807               2,843
   Capitalized software and third party design                                 (289,549)           (192,160)
                                                                            -----------         -----------
                Net cash used in investing activities                          (475,782)           (244,829)
                                                                            -----------         -----------

Cash flows from financing activities:
    Payments on bank borrowings                                                 (31,739)                -
    Payments on facility mortgage                                               (12,120)            (11,056)
    Payments on capital lease                                                    (5,390)             (7,934)
    Proceeds from exercise of stock options                                     551,232               1,814
                                                                            -----------         -----------
                Net cash provided by (used in) financing activities:            501,983             (17,176)
                                                                            -----------         -----------

Net increase in cash                                                          1,350,377             488,569
Cash and cash equivalents, beginning of year                                  1,625,259           3,334,124
                                                                            -----------         -----------
Cash and cash equivalents, end of June                                      $ 2,975,636         $ 3,822,693
                                                                            -----------         -----------
                                                                            -----------         -----------


Supplemental cash flow information:
   Interest paid                                                            $    55,957         $    33,515
                                                                            -----------         -----------
                                                                            -----------         -----------
   Income taxes paid                                                        $    16,292         $       800
                                                                            -----------         -----------
                                                                            -----------         -----------

Noncash investing activities:
  In 1999 the Company transferred inventory valued at $101,855 to property and
     equipment.
  In 1998 the Company transferred inventory valued at $49,071 to property and
     equipment.
</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>

                        LORONIX INFORMATION SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                           (JUNE 30, 1999 - UNAUDITED)


NOTE 1:  BASIS OF PRESENTATION

         The accompanying condensed consolidated financial statements have
been prepared in accordance with Securities and Exchange Commission
requirements for interim financial statements. Therefore, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The financial
statements should be read in conjunction with the Form 10-KSB for the year
ended December 31, 1998 of Loronix Information Systems, Inc. (the "Company").

         The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the full
year. In the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.

NOTE 2:  EARNINGS PER SHARE

         The Company presents net income and net loss per share in accordance
with SFAS No. 128, "Earnings per Share." As required by SFAS No. 128, the
Company must present basic and diluted net income and net loss per share as
defined. Basic net income and net loss per common share is computed using the
weighted average number of common shares outstanding during the period.
Diluted net income and net loss per common share is computed to incorporate
the incremental dilutive shares issuable upon the assumed exercise of stock
options. All prior period net income and net loss per common share
information are presented in accordance with SFAS No. 128.

         Stock options and warrants to purchase a total of 1,442,049 common
shares were outstanding at June 30, 1999. For the three months ended June 30,
1999, 765,819 shares, representing the dilutive effect of stock options and
warrants, were included in computing the diluted net income per share. For
the six months ended June 30, 1999, 589,794 shares, representing the dilutive
effect of stock options, were included in computing the diluted net income
per share. Warrants to purchase a total of 240,000 common shares were not
included in computing the diluted net income per share for the six months
ended June 30, 1999 because the effect would have been antidilutive. Stock
options and warrants to purchase a total of 1,349,398 common shares for the
three and six months ended June 30, 1998, were not included in computing the
diluted net loss per share because the effect would have been antidilutive.


                                       5
<PAGE>

NOTE 3:  SEGMENT INFORMATION

         The Company has identified two primary segments: digital video
recording products ("CCTVware-Registered Trademark- Products") and digital
identification products ("ID Products"). Segment selection was based upon
internal organization structure and the availability of financial results.

<TABLE>
<CAPTION>
                                       Three Months Ended June 30,1999            Six Months Ended June 30, 1999
                                        CCTVware          ID            Total          CCTVware          ID            Total
                                    --------------------------------------------------------------------------------------------
<S>                                 <C>              <C>             <C>             <C>             <C>             <C>
1999
Sales                                $ 6,960,400     $   569,600     $ 7,530,000     $13,761,500     $ 1,158,600     $14,920,100
Cost of Goods Sold                     3,821,400         339,000       4,160,400       7,522,300         642,000       8,164,300
                                    --------------------------------------------------------------------------------------------

   Segment Margin                    $ 3,139,000     $   230,600     $ 3,369,600     $ 6,239,200     $   516,600     $ 6,755,800

Segment gross margin %                      45.1%           40.5%           44.7%           45.3%           44.6%           45.3%

Additions to capitalized software    $   100,000     $     7,000     $   107,000     $   193,000     $    16,000     $   209,000

Software amortization                $   105,400     $    23,700     $   129,100     $   204,400     $    46,700     $   251,100

Capitalized software                 $ 1,464,800     $   977,100     $ 2,441,900     $ 1,464,800     $   977,100     $ 2,441,900
Accumulated amortization                 672,500         856,600       1,529,100         672,500         856,600       1,529,100
                                    --------------------------------------------------------------------------------------------

   Net book value of capitalized
      software costs                 $   792,300     $   120,500     $   912,800     $   792,300     $   120,500     $   912,800

1998
Sales                                $ 1,416,300     $   568,400     $ 1,984,700     $ 2,955,100     $   933,400     $ 3,888,500
Cost of Goods Sold                       807,000         258,900       1,065,900       1,633,600         435,900       2,069,500
                                    --------------------------------------------------------------------------------------------

   Segment Margin                    $   609,300     $   309,500     $   918,800     $ 1,321,500     $   497,500     $ 1,819,000

Segment gross margin %                      43.0%           54.5%           46.3%           44.7%           53.3%           46.8%

Additions to capitalized software    $    85,000     $     7,000     $    92,000     $   179,000     $    14,000     $   193,000

Software amortization                $    70,400     $    29,100     $    99,500     $   131,400     $    63,100     $   194,500

Capitalized software                 $   932,700     $   941,200     $ 1,873,900     $   932,700     $   941,200     $ 1,873,900
Accumulated amortization                 292,200         761,800       1,054,000         292,200         761,800       1,054,000
                                    --------------------------------------------------------------------------------------------

   Net book value of capitalized
      software costs                 $   640,500     $   179,400     $   819,900     $   640,500     $   179,400     $   819,900
</TABLE>

NOTE 4:  LEGAL PROCEEDINGS

         On October 17, 1997, the Company received notice that it had been
named as a defendant in a patent infringement lawsuit brought by a
competitor, Prima Facie, Inc. ("PFI"), in the U.S. District Court for the
District of Maryland. The lawsuit alleged that the Company's CCTVware Transit
product infringed certain claims of two patents held by PFI and that the
Company has interfered with PFI's business relationships. The claim was
amended in June 1998 to allege infringement by the Company's other CCTVware
Products. The suit seeks injunctive relief against further infringement and
damages. The lawsuit also names one of the Company's domestic dealers as a
co-defendant. The Company believes that these claims are without merit and is
defending itself vigorously.

         On July 6, 1998, the Company filed counterclaims against PFI. These
counterclaims include a request for Declaratory Judgment of Patent Invalidity
and six other counterclaims. The Company and PFI have agreed to separate the
patent infringement claims from all other claims and resolve the patent
infringement issues first. To date, no trial has been scheduled.

                                       6
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

         The following discussion and analysis should be read in conjunction
with the Company's condensed consolidated financial statements and the notes
related thereto included herein.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998

         REVENUE

         The Company's revenue is derived from sales of systems and supplies
and from maintenance services. Historically, systems and supplies have
accounted for greater than 90% of total revenue, with systems accounting for
a substantial majority of total revenue. Revenue increased from $1,984,700 in
the second quarter of 1998 to $7,530,000 in the second quarter of 1999,
representing a 279% increase. Revenue in the second quarter of 1998 and 1999
included approximately $1,416,300, or 71% of total revenue, and approximately
$6,960,400, or 92% of total revenue, respectively, of CCTVware Products. The
Company attributes the increase in revenue to growing demand in the market
for digital video recording technology.

         COSTS AND EXPENSES

         COST OF REVENUE. The cost of revenue, consisting principally of the
costs of hardware components and supplies as well as software amortization,
increased from $1,065,900 in the second quarter of 1998 to $4,160,400 in the
second quarter of 1999, and represented 54% and 55% of revenue, respectively.
The increase in the cost of revenue as a percentage of revenue was primarily
attributable to a shift in the product mix and warranty charges associated
with a retrofit program of certain of the Company's CCTVware transit products.

         OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support
expenses increased from approximately $313,400 in the second quarter of 1998
to approximately $612,600 in the first quarter of 1999, and represented 16%
and 8% of revenue, respectively. The increase in such expenses in absolute
terms resulted primarily from headcount and compensation-related increases
and an increase in travel expenses. These increased expenses were associated
with increased business levels and more customer installations and support.
The decrease in these expenses in percentage terms is the result of
substantially higher revenue in the second quarter of 1999.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased from approximately $1,163,400 in the second
quarter of 1998 to $1,663,100 in the second quarter of 1999, and represented
59% and 22% of revenue, respectively. The increase in such expenses in
absolute terms resulted primarily from headcount and compensation-related
increases and increases in travel, recruiting, telecommunications, product
promotions, maintenance and depreciation expenses and an increase in the
provision for doubtful accounts. The decrease in these expenses in percentage
terms is the result of substantially higher revenue in the second quarter of
1999.

         RESEARCH AND DEVELOPMENT. Research and development expenses, net of
capitalized software costs, increased from approximately $339,800 in the
second quarter of 1998 to approximately $458,900 in the second quarter of
1999, and represented 17% and 6% of revenue, respectively. The increase in
such expenses in absolute terms resulted primarily from headcount and
compensation-related increases and an increase in recruiting expense. The
decrease in these expenses in percentage terms is the result of substantially
higher revenue in the second quarter of 1999.

         INTEREST INCOME. Interest income decreased slightly from
approximately $34,800 in the second quarter of 1998 to approximately $33,400
in the second quarter of 1999. This decrease was due to a reduction in the
average cash available for investment.

         INTEREST EXPENSE. Interest expense increased from approximately
$16,700 in the second quarter of 1998 to approximately $26,100 in the second
quarter of 1999 as a result of increased bank borrowings.

                                       7
<PAGE>

         INCOME TAX EXPENSE. In the second quarter of 1998, the Company
recorded no income tax expense do to losses. In the second quarter of 1999,
income tax expense of $16,300 was recorded do to the Company's increased
profitability and was somewhat offset by the carry-forward of net operating
losses.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999

REVENUE

         Revenue increased from $3,888,500 in the first six months of 1998 to
$14,920,100 in the first six months of 1999, representing a 284% increase.
Revenue in the first six months of 1998 and 1999 included approximately
$2,955,100, or 76% of total revenue, and approximately $13,761,500, or 92% of
total revenue, of CCTVware Products, respectively.

         COSTS AND EXPENSES

         COST OF REVENUE. The cost of revenue, consisting principally of the
costs of hardware components and supplies as well as software amortization,
increased from $2,069,500 million in the first six months of 1998 to
$8,164,300 million in the first six months of 1999, and represented 53% and
55% of revenue, respectively. The increase in the cost of revenue as a
percentage of revenue was primarily attributable to a shift in the product
mix and warranty charges associated with a retrofit program of certain of the
Company's CCTVware transit products.

         OPERATIONS AND CUSTOMER SUPPORT. Operations and customer support
expenses increase from $661,300 in the first six months of 1998 to $1,142,800
in the first six months of 1999, and represented 17% and 8% of revenue,
respectively. The increase in such expenses in absolute terms resulted
primarily from headcount and compensation-related increases and an increase
in travel expenses. These increased expenses were associated with increased
business levels and more customer installations and support. The decrease in
these expenses in percentage terms is the result of substantially higher
revenue in the second quarter of 1999.

         SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased from $2,063,100 in the first six months of
1998 to $3,549,900 in the first six months of 1999, and represented 53% and
24% of revenue, respectively. The increase in such expenses in absolute terms
resulted primarily from (i) headcount and compensation-related increases,
(ii) an increase in legal fees associated with the Company's patent
litigation with PFI, and (iii) increases in travel, recruiting,
telecommunications, product promotions, maintenance and depreciation expenses
and an increase in the provision for doubtful accounts. The decrease in these
expenses in percentage terms is the result of substantially higher revenue in
the first quarter of 1999.

         RESEARCH AND DEVELOPMENT. Research and development expenses, net of
capitalized software costs, decreased from $679,700 in the first six months
of 1998 to $841,800 in the first six months of 1998, and represented 17% and
6% of revenue, respectively. The increase in such expenses in absolute terms
resulted primarily from headcount and compensation-related increases an
increase in recruiting expense. The decrease in these expenses in percentage
terms is the result of substantially higher revenue in the second quarter of
1999.

         INTEREST INCOME. Interest income decreased slightly from
approximately $66,600 in the first six months of 1998 to approximately
$64,900 in the first six months of 1999. This decrease was due to a reduction
in the average cash available for investment.

         INTEREST EXPENSE. Interest expense increased from approximately
$33,500 in the first six months of 1998 to approximately $56,000 in the first
six months of 1999 as a result of increased bank borrowings.

         INCOME TAX EXPENSE. In the six months ended June 30, 1998, an income
tax expense of $800, representing minimum estimated California franchise tax,
was recorded. In the six months ended June 30, 1999, income tax expense of
$48,300 was recorded do to the Company's increased profitability and was
somewhat offset by the carry-forward of net operating losses.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         During each of the six month periods ended June 30, 1998 and 1999,
the Company financed its operations primarily from cash from operations.

                                       8
<PAGE>

         The Company's principal uses of cash during each of the six month
periods ended June 30, 1998 and 1999 were to acquire property and equipment
and invest in the development of software.

         During the first six months of 1998, the Company's cash and cash
equivalents increased from $3,334,000 at December 31, 1997 to $3,823,000 at
June 30, 1998. Net cash provided by operating activities of $751,000
consisted primarily of losses of $1,557,000, increases in accounts receivable
and inventory of $509,000 offset by depreciation and amortization and
increases in accounts payable and accrued liabilities and commissions and a
decrease in prepaid expenses and other assets of $2,810,000. Net cash used in
investing activities of $245,000 consisted primarily of $95,000 of capital
expenditures and $192,000 of capitalized software offset by a decrease in
notes receivable, related parties. Net cash used in financing activities of
$17,000 consisted primarily of payments on the facility mortgage and capital
leases.

         During the first six months of 1999, the Company's cash and cash
equivalents increased from $1,625,000 at December 31, 1998 to $2,976,000 at
June 30, 1999. Net cash provided by operating activities of $1,324,000
consisted primarily of income of $1,177,000, depreciation and amortization
and increases in accounts payable and accrued liabilities and commissions and
a decrease in prepaid expenses and other assets of $3,030,000 offset by
increases in accounts receivable and inventory of $2,883,000. Net cash used
in investing activities of $476,000 consisted primarily of $255,000 of
capital expenditures, $81,000 of third-party hardware design and $209,000 of
capitalized software. Net cash provided by financing activities of $502,000
consisted primarily of proceeds from the exercise of stock options of
$551,000 offset by payments on bank borrowings, facility mortgage and capital
leases of $49,000.

         At June 30, 1999, the Company had $6,670,000 in working capital,
including $4,778,000 of trade accounts receivable and $2,321,000 of
inventory. Days sales outstanding, calculated using an average accounts
receivable balance for the quarter, were approximately 52 days as of June 30,
1999, compared to 109 days for the same period a year ago. The Company has
provided and may continue to provide payment term extensions to certain of
its customers from time to time*. As of June 30, 1999, the Company had
payment term extensions outstanding of approximately $780,000.

         The Company's inventory balance at June 30, 1999 and 1998 was
$2,321,000 and $1,963,000 respectively. Annualized inventory turns,
calculated using an average inventory balance, were 6.6 and 2.3 as of June
30, 1999 and 1998, respectively.

         The Company's principal sources of liquidity are its cash and cash
equivalents and cash generated from operating activities, if any. The Company
also has available up to a $1,000,000 line of credit based on a percentage of
the Company's eligible accounts receivable. The line of credit has not been
used to date. The Company anticipates capital expenditures for the remainder
of 1999 of approximately $550,000*. Further, the Company may expand its
existing facility in Durango, Colorado by 20,000 square feet*. The cost for
such expansion is estimated to be approximately $700,000*. The Company
believes that, based on its current financial projections, it has sufficient
working capital, inclusive of its line of credit facility, to meet its
capital requirements and fund operations for at least the next twelve months*.

YEAR 2000 CONVERSION

         Many computer systems may experience problems handling dates beyond
1999. Therefore, some computer hardware and software will need to be modified
prior to 2000 in order to remain functional. The Company has completed its
initial assessment of the readiness and compliance of its computer-based
products available for sale and is currently assessing its computer-based
systems used internally, and the Company expects to implement successfully
the system and programming changes necessary to address year 2000 issues by
September 1999*. The Company does not believe that the cost of such actions
will have a material effect on the Company's results of operations or
financial condition*. There can be no assurance, however, that there will not
be a delay in, or increased costs associated with, the implementation of such
changes, and the Company's inability to implement

-------------------
* Forward-looking statement.

                                       9
<PAGE>

such changes on a timely basis could have an adverse effect on future results
of operations, liquidity or financial condition.

         COMPUTER-BASED PRODUCTS AVAILABLE FOR SALE. The Company has two
primary product lines available for sale, CCTVware Products and ID Products.

         CCTVWARE PRODUCTS. The Company's CCTVware Products consists of two
major components including: CCTVware MSeries and Enterprise products and the
CCTVware Transit product ("Transit"). The Company has created and executed a
series of tests to determine the possible problems year 2000 might have on
the operation of the MSeries and Enterprise products version 1.2. These tests
indicated that year 2000 would not adversely affect the performance of the
MSeries and Enterprise products version 1.2. The Company is currently testing
its MSeries and Enterprise products version 1.3 including what effect, if
any, leap years may have on the operation of these products. The Company
expects to complete its MSeries and Enterprise products version 1.3 and leap
year testing within the next two months*. The Company does not anticipate
that the year 2000 or leap years will adversely affect the performance of the
MSeries and Enterprise products*. The Company has created and executed a
series of tests to determine the possible problems year 2000 might have on
the operation of the Transit product. These tests indicated a possible year
2000 issue that the Company is currently investigating further. The Company
does not expect the resolution of this issue to have an adverse effect on the
Company's future results of operations, liquidity or financial condition.

         A key component of determining the Company's year 2000 state of
readiness is to identify those areas of operation where CCTVware Products
incorporate software and hardware products supplied by third party vendors
and, thus, where year 2000 problems may arise as a result of products
supplied by third parties. Because CCTVware Products are dependent, in
certain respects, on products supplied by third-party vendors, an important
part of the Company's year 2000 effort is to contact those vendors who supply
products that the Company considers critical to the operation of the CCTVware
Products and gauge their year 2000 compliance efforts. The Company has sent
letters to various vendors and is in the process of receiving and analyzing
the responses to determine the year 2000 state of readiness of such vendor
supplied products. Responses and tests to date indicate that certain
third-party supplied products do not appear to adversely affect the
performance of the CCTVware Products with respect to the year 2000 issue*.

         The Company has released and expects to release new versions of its
CCTVware Products in the future*. The Company will continue to audit and test
compliance with year 2000 performance of its internally developed products.

         ID PRODUCTS. The Company has created and executed a series of tests
to determine the possible problems the year 2000 will have on the operation
of those ID Products which the Company continues to support. Such ID products
include: ImageSHARE for NT versions 2.5 and 3.1, ImageSHARE Express 1.1, and
Instant ID 2.0. These tests indicated, that if configured properly, the year
2000 will not adversely affect the performance of the ID Products.

         Certain of the Company's ID Products also include interfaces to
various access control applications. The interface design methodology used to
integrate the ID Products are primarily controlled by the access control
vendors. The Company can make no assurances that these interfaces are year
2000 compliant.

         A key component of determining the Company's year 2000 state of
readiness is to identify those areas of operation where ID Products
incorporate hardware and software products supplied by third-party vendors
and, thus, where year 2000 problems may arise as a result of products
supplied by third parties. For older ID Product configurations, many of the
third-party vendor hardware products are no longer manufactured or supported
by the supplier. The Company can make no assurances that these devices are
year 2000 compliant. At risk are older computers that may have embedded
problems in the basic input/output system ("BIOS") for processing year 2000
dates. Certain routines within the ID Products use the BIOS date information
to calculate current dates. Computers that possess this problem will require
the BIOS to be updated and/or the computer replaced. Because ID Products are
dependent, in certain respects, on products supplied by third-party vendors,
an important part of the Company's year 2000 compliance effort is to contact
those vendors who supply products that the Company considers critical to

-------------------
* Forward-looking statement.

                                       10
<PAGE>

the operation of ID Products and gauge their year 2000 compliance efforts.
The Company has sent letters to various vendors and is in the process of
receiving and analyzing the responses to determine the year 2000 state of
readiness of such vendor supplied products. Responses and tests to date
indicated that certain third-party supplied products do not appear to
adversely affect the performance of the ID Products with respect to the year
2000 issue.

         From 1989 through 1997, the Company developed eleven different ID
Products. Between 1996 and 1999, the Company recognized that the
unavailability of peripheral replacement equipment from third-party vendors
and inadequate technical resources made it infeasible for the Company to
continue to support these products. Accordingly, the Company notified its
customers that it would no longer support these products and made available
upgrade options to allow customers to migrate to newer products that would be
supported by the Company.

         COMPUTER-BASED SYSTEMS USED INTERNALLY. The Company uses various
computer-based systems to operate its business on a day-to-day basis. In
1998, the Company upgraded its financial software to the year 2000 compliant
version. The Company is currently assessing its other internal computer-based
systems to determine their susceptibility to the year 2000 issue. The Company
expects to complete its assessment and incorporate any required fixes to
ensure compatibility with year 2000 by September 1, 1999*.

         COST OF YEAR 2000 CONVERSION. To date, the Company estimates that it
has spent less than $20,000 of incremental external spending on the year 2000
issue and estimates that future external costs associated with its year 2000
compliance efforts will not exceed $50,000*.

        CONTINGENCY PLANS. The Company has not yet completed its assessment
of the reasonably likely worst case scenario of Non-Information Technology
Business Systems and/or Information Technology Systems failures and related
consequences. Although the Company does not currently anticipate any
significant issues relating to year 2000, it intends to create contingency
plans as information becomes available indicating areas of non-compliance
that could have an adverse effect on the Company's future results of
operations, liquidity or financial condition*.

CERTAIN FACTORS BEARING ON FUTURE RESULTS

         The sentences in this report identified with an asterisk (*) are
forward looking statements. In addition, the Company may from time to time
make oral forward-looking statements. The following are certain important
factors that could cause actual results to differ materially from those
projected in any such forward-looking statements.

         CAPITAL REQUIREMENTS. The Company believes that, based on its
current projections, it has sufficient working capital to meet its
requirements for at least the next 12 months*. However, to the extent that
the Company experiences growth generally, or the Company's CCTVware Products
generate high demand, or the Company receives extraordinarily large orders
for certain CCTVware Products from large business, institutional or
government buyers, the Company's capital requirements may exceed the
Company's available capital resources. Additionally, the Company has suffered
losses in seven of the past ten quarters, and such losses, which may occur in
the foreseeable future, would diminish the Company's cash and cash
equivalents. There can be no assurance that the Company will be able to raise
equity or debt financing on favorable terms, or at all. If the Company fails
in such circumstances to raise additional capital as needed, the Company
would likely be required to reduce the scope of its product development,
selling and marketing activities and other operations, which would have a
material adverse effect on the Company's business, operating results and
financial condition.

         DISTRIBUTION RELATIONSHIPS. The Company believes its success in
penetrating markets for its CCTVware Products and ID Products depends in part
on its ability to maintain distribution relationships with manufacturing
representatives, dealers and systems integrators and to cultivate additional,
similar relationships. There can be no assurance that the Company will be
successful in maintaining or expanding its distribution relationships. The
loss of certain distribution relationships could have a negative impact on
the Company's revenue stream. Further, there can be no assurance that the
businesses with whom the Company has developed such relationships, some of
whom have significantly greater financial and marketing resources than the
Company, will not develop and market products in competition with the Company
or will not otherwise discontinue their relationships with the Company.

-------------------
* Forward-looking statement.

                                       11
<PAGE>

         COMPETITION. The markets for the Company's CCTVware Products and ID
Products are extremely competitive. Competitors include a broad range of
companies that develop and market products for the identification and
surveillance markets. Competitors in the identification market include: (i)
in film-based systems, Polaroid Corporation, and (ii) in digital-based
systems, Polaroid Corporation, Data Card Corporation, Dactek International,
Inc., Imaging Technology Corporation, G & A Imaging, Goddard Technology
Corporation and Laminex, Inc., as well as many other organizations.
Competitors in the surveillance market include numerous VCR suppliers and
digital recording suppliers including, among others: (i) TVX, Inc. and Prima
Facie, Inc. for the Transit product and (ii) Dedicated Micros, Inc.,
Sensormatic Corporation, Primary Image Vision Systems, Ltd., Alpha Systems
Lab, NICE Systems, Ltd., Mavix Ltd., Prism Video, Inc., Telexis Corporation
and Integrated Electronic Systems for MSeries and Enterprise products.

         The Company believes that the principal competitive factors in its
markets include: system performance and functionality, price, system
configuration flexibility, ease-of-use, system maintenance costs, quality,
reliability, customer support and brand name. Further, the Company believes
that its primary competitive strengths include system performance and
functionality, system configuration flexibility and ease-of-use. Larger, more
established companies with substantially greater technical, financial and
marketing resources than the Company, such as Data Card Corporation,
Sensormatic Corporation and NICE Systems, Ltd., could use such resources to
undermine the Company's ability to compete effectively for sales and market
share. In addition, there can be no assurance that any of the Company's
products will be competitive in the face of advances in product technology
developed by the Company's current or future competitors.

         LEGAL PROCEEDINGS. On October 17, 1997, the Company received notice
that it had been named as a defendant in a patent infringement lawsuit
brought by a competitor, Prima Facie, Inc. ("PFI"), in the U.S. District
Court for the District of Maryland. The lawsuit alleges that the Company's
CCTVware Transit product infringes certain claims of two patents held by PFI
and that the Company has interfered with PFI's business relationships. The
claim has been amended to allege infringement by the Company's other CCTVware
products. The suit seeks injunctive relief against further infringement and
damages. The lawsuit also names one of the Company's domestic distributors as
a codefendant. Although the Company believes these claims are without merit
and is defending itself vigorously, an adverse result in the litigation could
have a negative impact on the Company's business, operating results and
financial condition. More specifically, if the claims of PFI are upheld as
valid, enforceable and infringed, the Company might be held liable for a
substantial damage award and would be required to obtain a license from PFI
or be required to redesign its products to avoid infringement. There can be
no assurance that a license would be available from PFI, or if available,
would be available on terms acceptable to the Company or that the Company
would be able to redesign its products to avoid infringement. Accordingly, an
adverse determination in the pending judicial proceedings could prevent the
Company from manufacturing and selling its CCTVware Products which would
almost certainly adversely affect the Company's business, operating results
and financial condition. Additionally, the Company has incurred and continues
to incur substantial expenses in its litigation with PFI, and there can be no
assurance that the Company will not continue to incur such expenses for some
considerable amount of time.

         INTERNATIONAL SALES. The Company is seeking to expand its
international presence by developing new distribution channels in certain
foreign countries where it has not previously had a presence. International
sales are subject to a number of risks, including political and economic
instability, unexpected changes in regulatory requirements, tariffs and other
trade barriers, fluctuating exchange rates and the possibility of greater
difficulty in accounts receivable collection. There can be no assurance that
these and other factors will not have a material adverse effect on the
Company's future international sales, if any, and, consequently, the
Company's business, operating results and financial condition.

         DEPENDENCE ON MAJOR CUSTOMERS. For the six months ended June 30,
1999, sales to three customers accounted for 67% of the Company's revenue.
These customers are not obligated to purchase any minimum levels of the
Company's products, and although two of these customers have placed
additional orders with the Company, there can be no assurance that any
further business will arise from these customers. Any significant reduction
in product sales to these customers that cannot be replaced with new business
may materially and adversely affect the Company's business, operating results
and financial condition.

         YEAR 2000 ISSUES. The "year 2000 issue" arises because most computer
systems and programs were designed to handle only a two-digit year, not a
four-digit year. When the year 2000 begins, these computers may interpret
"00" as the year 1900 and could either stop processing date-related
computations or could process them

                                       12
<PAGE>

incorrectly. The Company has taken steps to implement new information systems
and migrate to year 2000 compliant software for its accounting, customer
order processing, purchasing and inventory control software, and accordingly,
the Company does not currently anticipate any internal year 2000 issues from
this software*. However, the Company could be adversely impacted by year 2000
issues related to other internally used computer-based systems and issues
faced by major suppliers, customers, vendors and distributors with which the
Company interacts. The Company has completed its initial testing program to
gauge the year 2000 compliance of its products, and the Company has
corresponded with certain third parties to determine whether they are year
2000 compliant. The Company will evaluate and follow up on the responses to
determine the impact that third parties who are not year 2000 compliant may
have on the operations and products of the Company. As a result of the
unprecedented and potentially complex nature of the year 2000 issue however,
there can be no assurance that this issue will not have a material and
adverse impact on the business, operating results and financial condition of
the Company, despite the Company's efforts.

         DEPENDENCE ON NEW PRODUCTS. The market for the Company's products is
characterized by ongoing technological development and evolving industry
standards. The Company's success will depend upon its ability to enhance its
current products and to introduce new products which address technological
and market developments and satisfy the increasingly sophisticated needs of
customers. For instance, the Company has released several products based on
its CCTVware technology. There can be no assurance that the Company will be
successful in developing, marketing and selling sufficient volumes of its new
CCTVware Products or developing and marketing on a timely basis any other
fully functional product enhancements or new products that respond to the
technological advances by others. There also can be no assurance that the
Company's new products will be accepted by customers.

         MANAGEMENT AND EMPLOYEES. The Company's future success depends in
significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical and managerial personnel in the future. The Company has
in the past encountered some difficulties in fulfilling its hiring needs in
the Durango, Colorado employment market, and there can be no assurance that
the Company will be successful in hiring and retaining qualified employees in
the future.

         PROPRIETARY RIGHTS. The Company is not aware that its products,
trademarks or other proprietary rights infringe on the proprietary rights of
any third parties, except that a claim of infringement has been asserted
against the Company by PFI (see "Note 4: Legal Proceedings" and "Risk Factors
- Legal Proceedings"). The Company has already expended considerable
resources and funds towards defending itself in this infringement litigation
and an adverse result in this litigation with PFI could have a negative
impact on the financial position and results of operations of the Company.
Further, there can be no assurance that other third parties will not assert
infringement claims against the Company in the future with respect to current
or future products. As the number of software products in the industry
increases and the functionality of these products further overlaps, the
Company believes that software developers may become increasingly subject to
infringement claims. Any such claims against the Company, with or without
merit, could result in costly litigation or might require the Company to
enter into royalty or licensing agreements. Such royalty and licensing
agreements, if required, may not be available on terms acceptable to the
Company.

         VARIABILITY OF OPERATING RESULTS. The Company's revenue and
operating results have fluctuated significantly from quarter to quarter, and
may continue to fluctuate, due to a combination of factors. These factors
include relatively long sales cycles for certain products, the timing or
cancellation of orders from major customers, the timing of new product
introductions by the Company or its competitors, the Company's use of
third-party distribution channels, the fulfillment of large one-time orders
to particular customers and general economic conditions and other factors
affecting capital spending. For example, a longer than expected sales cycle
for the CCTVware Pproducts initially delayed anticipated revenue.
Additionally, the Company generally ships a large number of orders in the
quarter in which such orders are received, and accordingly, revenue in any
quarter is substantially dependent on the orders booked and shipped in that
quarter. Further, the Company has typically recognized a substantial portion
of its revenue in the last month of the quarter. Because the Company's
operating expense levels are relatively fixed and based, to some extent, on
anticipated revenue levels, a small variation in revenue can cause
significant variations in operating results from quarter to quarter and may
result in losses. Due to

-------------------
* Forward-looking statement.

                                       13
<PAGE>

all of the foregoing, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance.

         PRODUCT OBSOLESCENCE. The Company's current products and products
under development are limited in number and concentrated primarily in the
markets for identification and surveillance products. The life cycles of the
Company's products are difficult to estimate due in large measure to changing
and developing technology as well as the unknown future effect of products
introduced by the Company's competition. Price reductions or declines in
demand for the Company's products, whether as a result of competition,
technological change or otherwise, would have a materially adverse effect on
the Company's business, operating results and financial condition.

         VOLATILITY OF STOCK PRICE. The market price of the Company's Common
Stock has experienced significant volatility, and is likely to continue to be
significantly affected by factors such as actual or anticipated fluctuations
in the Company's operating results, the Company's failure to meet or exceed
published earnings estimates, changes in earnings estimates or
recommendations by securities analysts, announcements of technological
innovations, new products or new contracts by the Company or its existing or
potential competitors, developments with respect to patents, copyrights or
proprietary rights, adoption of new accounting standards affecting the
software industry, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and
volume fluctuations that have particularly affected the market prices for the
common stock of technology companies which have often been unrelated to the
operating performance of such companies. These broad market fluctuations may
materially adversely affect the market price of the Company's common stock.
There can be no assurance that the trading price of the Company's Common
Stock will not experience substantial volatility in the future.






                                       14
<PAGE>

PART II.    OTHER INFORMATION

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         Matters submitted for a vote by security holders at the Company's May
24, 1999 annual meeting of stockholders included:

     (a)  approval of the minutes of the 1998 annual meeting of stockholders;
     (b)  election of directors; and
     (c)  ratification of the appointment of KPMG LLP as independent auditors of
          the Company for the fiscal year ending December 31, 1999.

          The results of the stockholder votes were as follows:

     (a)  the minutes of the prior year's annual meeting of stockholders were
          approved.

<TABLE>
<CAPTION>
                                             Votes       Votes          Votes
                                              For       Against       Abstained
                                           ---------    -------       ---------
<S>                                        <C>          <C>           <C>
     (b)  Election of Directors
          Edward Jankowski                 3,381,873    45,400
          George M. Duffy                  3,381,873    45,400
          C. Rodney Wilger                 3,381,873    45,400
          Don W. Stevens                   3,381,873    45,400
          Louis E. Colonna                 3,381,873    45,400

         (c)  Appointment of KPMG LLP      3,413,153       100         14,020
</TABLE>

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  27 Financial Data Schedule

     (b)  No reports on Form 8-K were filed by the Company during the quarter
          ended June 30, 1999.






                                       15
<PAGE>

                                   SIGNATURES


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

                                      Loronix Information Systems, Inc.

July 27, 1999                         /s/ Jonathan C. Lupia
-------------                         ---------------------
   Date                               Jonathan C. Lupia,
                                      Chief Operating Officer and
                                      Chief Financial Officer



















                                       16