UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended March 31,1999
                               -------------------------------------------------

                                       or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the transition period from ____________________ to   _______________________

Commission File Number: 0-21214


                                ORTHOLOGIC CORP.
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

        Delaware                                               86-0585310
--------------------------------                           -------------------
(State of other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                          Identification No.)

1275 W. Washington Street, Tempe, Arizona                         85281
-----------------------------------------                  -------------------
(Address of principal executive offices)                        (Zip Code)

                                 (602) 286-5520
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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 [ ]

                      APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

        25,455,590 shares of common stock outstanding as of April 30,1999
<PAGE>
                                ORTHOLOGIC CORP.



                                      INDEX

                                                                        PAGE NO.
Part I    Financial Information

          Item 1. Financial Statements

          Consolidated Balance Sheets
              March 31,1999 and December 31,1998 ...........................2

          Consolidated Statements of Operations and of
            Comprehensive Income
              Three Months ended March 31,1999 and 1998 ....................3

          Consolidated Statements of Cash Flows
              Three Months ended March 31,1999 and 1998 ....................4

          Notes to Consolidated Financial Statements .......................5

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


Part II   Other Information

          Item 1.  Legal Proceedings ......................................14

          Item 6.  Exhibits and Reports on Form 8 K .......................14

<PAGE>
                                ORTHOLOGIC CORP.
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
                                    UNAUDITED


                                                        March 31,   December 31,
ASSETS                                                    1999          1998
                                                        ---------     ---------
Cash and cash equivalents                               $   3,698     $   1,714
Short-term investments                                      1,248         6,053
Accounts receivable                                        28,501        27,031
Inventory                                                  11,075        11,960
Prepaids and other current assets                           1,576           799
Deferred income taxes                                       2,640         2,643
                                                        ---------     ---------
     Total Current assets                                  48,738        50,200

Furniture, rental fleet and equipment                      23,515        21,962
Accumulated depreciation                                   (9,975)       (9,095)
                                                        ---------     ---------
     Furniture and equipment, net                          13,540        12,867
                                                        ---------     ---------

Goodwill and other intangibles                             30,245        30,568
Deposits and other assets                                     717           345
                                                        ---------     ---------
     Total Assets                                       $  93,240     $  93,980
                                                        =========     =========


LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES

Accounts payable                                        $   2,934     $   3,039
Loan payable-current portion                                  250           500
Obligations under co-promotion agreement                        -         1,000
Accrued liabilities                                         7,050         6,844
                                                        ---------     ---------
     Total current liabilities                             10,234        11,383
                                                        ---------     ---------
Deferred rent and capital lease obligation                    270           196
                                                        ---------     ---------
     Total liabilities                                     10,504        11,579
                                                        ---------     ---------
Series B Convertible Preferred Stock                       14,794        14,176

Stockholders' Equity

Common Stock                                                   13            13
Additional paid in capital                                120,026       119,659
Accumulated deficit                                       (51,932)      (51,419)
Comprehensive Income (loss)                                  (165)          (28)
                                                        ---------     ---------
     Total stockholders' equity                            67,942        68,225
                                                        ---------     ---------
     Total Liabilities and Stockholders' Equity         $  93,240     $  93,980
                                                        =========     =========

See notes to consolidated financial statements

                                                                          Page 2
<PAGE>
                                ORTHOLOGIC CORP.
        CONSOLIDATED STATEMENT OF OPERATIONS AND OF COMPREHENSIVE INCOME
                      (in thousands, except per share data)
                                    UNAUDITED

                                                    Three months ended March 31,
                                                    ----------------------------
                                                       1999              1998
                                                     --------          --------
Revenues                                             $ 21,068          $ 19,109

Cost of revenues                                        4,718             4,416
                                                     --------          --------
Gross profit                                           16,350            14,693

Operating expenses
  Selling, general and administrative                  15,738            23,821
  Research and development                                520               498
  Restructuring and other charges                          --              (399)
                                                     --------          --------
       Total operating expenses                        16,258            23,920
                                                     --------          --------

Operating income (loss)                                    92            (9,227)

  Other income
  Grant revenue                                             1                --
  Interest income                                          56                97
                                                     --------          --------
       Total other income                                  57                97
                                                     --------          --------

Income (loss) before income taxes                         149            (9,130)

Provision for income taxes                                 16                 0
                                                     --------          --------
Net income (loss)                                         133            (9,130)
                                                     --------          --------
Accretion on non cash preferred stock dividend           (618)               --
                                                     --------          --------
Net loss applicable to common stockholders           $   (485)         $ (9,130)
                                                     ========          ========

BASIC EARNINGS PER SHARE

Net loss per common share                            $  (0.02)         $  (0.36)
                                                     ========          ========

Weighted average number of common and equivalent
  shares outstanding                                   25,379            25,267
                                                     ========          ========

DILUTED EARNINGS PER SHARE

Net loss per common and equivalent shares            $  (0.02)         $  (0.36)
                                                     ========          ========

Weighted average number of common and diluted
  shares outstanding                                   25,379            25,267
                                                     ========          ========

                 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Net loss applicable to common stockholders           $   (485)         $ (9,130)
Foreign translation adjustment                           (165)              (13)
                                                     --------          --------
Comprehensive loss applicable to common
 stockholders                                        $   (650)         $ (9,143)
                                                     ========          ========

See notes to consolidated financial statements

                                                                          Page 3
<PAGE>
                                ORTHOLOGIC CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                    UNAUDITED

                                                    Three months ended March 31,
                                                    ----------------------------
                                                          1999        1998
                                                        -------     -------

OPERATING ACTIVITIES
  Net profit (loss)                                     $   133     $(9,130)
    Non cash items:
    Depreciation and amortization                         1,441       2,181

    Net change in other operating items:
    Accounts receivable                                  (1,470)      6,966
    Inventories                                             855      (1,184)
    Prepaids and other current assets                      (744)       (191)
    Deposits and other assets                              (372)        (70)
    Accounts payable                                       (105)        963
    Accrued and other current liabilities                   206      (1,591)
                                                        -------     -------
        Cash flows used in operating activities             (56)     (2,056)
                                                        -------     -------

INVESTING ACTIVITIES
    Purchase of fixed assets                             (1,614)     (3,342)
    Acquisitions, net of cash acquired                     (176)        (81)
    Investments in Chrysalis                                 --        (750)
    Sales of short-term investments                       4,804       1,073
                                                        -------     -------
      Cash flows provided by (used in) investing
        activities                                        3,014      (3,100)
                                                        -------     -------

FINANCING ACTIVITIES
    Payments on capital leases & long term debt              73        (274)
    Payments on loan payable                               (250)         --
    Payments under co-promotion agreement                (1,000)     (1,000)
    Foreign Exchange                                       (165)        (28)
    Net proceeds from stock option exercises                368          61
                                                        -------     -------
      Cash flows used in financing activities              (974)     (1,241)
                                                        -------     -------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS      1,984      (6,397)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD            1,714       7,783
                                                        -------     -------
CASH AND CASH EQUIVALENTS, END OF PERIOD                $ 3,698     $ 1,386
                                                        =======     =======


Supplemental disclosure of cash flow information
    Accretion of non cash preferred stock dividend      $   618          --
    Cash paid during the period for interest            $    35     $    10
    Cash paid during the period for income taxes        $    80          --

See notes to consolidated financial statements


                                                                          Page 4
<PAGE>
                                ORTHOLOGIC CORP.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.    FINANCIAL STATEMENT PRESENTATION

      The consolidated  balance sheet as of March 31,1999,  and the consolidated
      statements of  operations  and cash flows for the three months ended March
      31, 1999 and 1998 are  unaudited,  however,  in the opinion of management,
      include all adjustments  (consisting only of normal recurring adjustments)
      necessary for the fair presentation of the financial position,  results of
      operations  and cash  flows.  The  results of  operations  for the interim
      periods are not  necessarily  indicative of the results to be expected for
      the  complete  fiscal year.  The Balance  Sheet as of December 31, 1998 is
      derived from the Company's  audited financial  statements  included in the
      1998 Annual  Report.  It is suggested that these  financial  statements be
      read in  conjunction  with the  financial  statements  and  notes  thereto
      included in the Company's 1998 Annual Report.

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  necessarily  requires  management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts  of  revenue  and
     expenses during the reporting  period.  Significant  estimates  include the
     allowance  for  doubtful  accounts,  which is based  primarily on trends in
     historical  collection  statistics,  consideration of current events, payer
     mix and other  considerations.  The Company derives a significant amount of
     its revenues in the United States from third-party  health insurance plans,
     including  Medicare.  Amounts paid under these plans are generally based on
     fixed or  allowable  reimbursement  rates.  Revenues  are  recorded  at the
     expected or preauthorized  reimbursement  rates when billed.  Some billings
     are  subject  to  adjustments.  In  the  opinion  of  management,  adequate
     allowances  have  been  provided  for  doubtful  accounts  and  contractual
     adjustments.  Any differences  between  estimated  reimbursement  and final
     determinations are reflected in the year finalized.

2.   CO-PROMOTION AGREEMENT

     The  Company  entered  into  an  exclusive   co-promotion   agreement  (the
     "Agreement") with Sanofi  Pharmaceuticals Inc. ("Sanofi") at a cost of $4.0
     million on June 23, 1997 for the purpose of marketing Hyalgan, a hyaluronic
     acid sodium  salt,  to  orthopedic  surgeons  in the United  States for the
     treatment of pain in patients with  osteoarthritis of the knee. During 1997
     and 1998 the Company paid $3.0 million of this amount.  The remaining  $1.0
     million  was paid in the first  quarter of 1999.  The  initial  term of the
     agreement  ends on December 31, 2002.  Upon the  expiration  of the initial
     term,  Sanofi may terminate the  agreement,  extend the agreement for up to
     ten additional one year periods or enter into a revised  agreement with the
     Company.  Management believes it is mutually beneficial for both parties to
     extend the agreement  beyond the initial  period.  Upon  termination of the
     agreement, Sanofi must pay the Company the amount equal to 50% of the gross
     compensation  paid  to the  Company,  pursuant  to the  Agreement,  for the
     immediately preceding year.

                                                                          Page 5
<PAGE>
     The Company's  sales force began to promote Hyalgan in the third quarter of
     1997. Fee revenue of $1.6 and $1.8 million was recognized  during the first
     quarters of 1999 and 1998 respectively.

3.   LICENSING AGREEMENT

     The  Company  announced  in  January  1998 that it had  acquired a minority
     equity  interest  in a biotech  firm,  Chrysalis  BioTechnology,  Inc.  for
     $750,000. As part of the transaction,  the Company was awarded a nine-month
     world-wide  exclusive  option to license  the  orthopedic  applications  of
     Chrysalin,  a patented  23-amino  acid  peptide  that has shown  promise in
     accelerating   the  healing   process  and  has   completed   an  extensive
     pre-clinical  safety and efficacy  profile of the product.  In pre-clinical
     animal  studies,  Chrysalin  was also shown to double the rate of  fracture
     healing with a single  injection into the fresh fracture gap. The Company's
     agreement  with Chrysalis  contains  provisions for the Company to continue
     and  expand  its option to license  Chrysalin  contingent  upon  regulatory
     approvals,  successful  pre-clinical trials, and certain trials and certain
     milestone  payments  to  Chrysalis  by the  Company.  As part of the equity
     investment  OrthoLogic acquired options to license Chrysalin for orthopedic
     applications.  An  additional  fee of $750,000 for the initial  license was
     expensed in the third  quarter of 1998 and the  Agreement  was  extended to
     January 1999. In January 1999, the Company  exercised its option to license
     the U.S. development,  marketing and distribution rights for Chrysalin, for
     fresh fracture  indications.  The Company will pursue  commercialization of
     Chrysalin,  initially seeking Food and Drug Administration ("FDA") approval
     for the human  clinical  trials for the  fracture-healing  indication.  The
     Company  projects  that  Chrysalin  could  receive  all the  necessary  FDA
     approvals  and be  introduced  in the market  during 2003.  There can be no
     assurance,  however, that the clinical trials will result in favorable data
     or that FDA approvals, if sought, will be obtained.  Significant additional
     costs will be necessary to compete development of this product.

4.   LITIGATION

     During 1996,  certain  lawsuits  were filed in the United  States  District
     Court for the District of Arizona against the Company and certain  officers
     and  directors,  alleging  violations  of Section  10(b) of the  Securities
     Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder.

     Plaintiffs in these  actions  alleged that  correspondence  received by the
     Company from the FDA regarding the  Company's  OrthoLogic  1000 Bone Growth
     Stimulator  was  material  and  undisclosed,  leading  to  an  artificially
     inflated stock price.  Plaintiffs further alleged that practices referenced
     in the correspondence  operated as a fraud against  plaintiffs.  Plaintiffs
     further  alleged that once the FDA letter became known, a material  decline
     in  the  stock  price  of  the  Company  occurred,  causing  damage  to the
     plaintiffs.

     The  actions  were  consolidated  for the  purposes  in the  United  States
     District court for the District of Arizona. On March 31, 1999, the judge in
     the  consolidated  case before the United States District Court granted the
     Company's  Motion to Dismiss and entered an order  dismissing all claims in
     the suit  against the Company and two  individual  officers/directors.  The
     judge allowed  certain narrow claims based on insider  trading  theories to
     proceed against certain individual defendants.

                                                                          Page 6
<PAGE>
     In addition to the case proceeding in the United States District Court, the
     Company  had been  served  with a  substantially  similar  action  filed in
     Arizona  State Court  alleging  state law causes of action  grounded in the
     same set of facts. By agreement  between the parties this action was stayed
     while the federal actions proceeded. In early May 1999, the Company filed a
     Motion to Dismiss this case with the Arizona State Court.

     In addition to the foregoing,  a shareholder derivative complaint alleging,
     among other things, breach of fiduciary duty in connection with the conduct
     alleged in the  aforesaid  federal and state court class  actions have also
     been filed in Arizona State Court. That action was stayed pending action on
     the federal court proceedings.

     Management  believes  that the remaining  allegations  in the federal court
     case and the state court case are without merit and will vigorously  defend
     against them.

     At March 31,1999,  in addition to the matters  disclosed above, the Company
     is involved in various other legal  proceedings  that arose in the ordinary
     course of business.

     The costs associated with defending the above allegations and the potential
     outcome cannot be determined at this time and accordingly,  no estimate for
     such costs have been included in the accompanying Financial Statements.  In
     management's opinion, the ultimate resolution of the above legal proceeding
     will not have a  material  effect on the  financial  positions,  results of
     operations, or cash flow of the Company.

5.   COMMITMENTS

     The Company has secured a $7.5 million accounts  receivable  revolving line
     of credit and a $2.5 million  revolving  term loan from a bank. The maximum
     amount  that may be  borrowed  under this  agreement  is $10  million.  The
     Company  may borrow up to 80% of  eligible  accounts  receivable  under the
     accounts receivable  revolving line of credit and 50% of the net book value
     of the  Continuous  Passive  Motion  ("CPM") fleet under the revolving term
     loan. The accounts receivable revolving line of credit matures May 1, 2000,
     and the  revolving  term loan on  November  31,  1999.  Interest is payable
     monthly on the accounts  receivable  revolving line of credit and amortized
     principal  and interest  are due monthly on the  revolving  term loan.  The
     interest  rate is prime  plus  1.05% for the  accounts  receivable  line of
     credit,  and prime plus .65% for the revolving term loan. There are certain
     financial convenants and reporting requirements  associated with the loans.
     In  connection  with these  loans the  Company  issued a warrant in 1998 to
     purchase 10,000 shares of Common Stock at a price of $6.13.  These warrants
     expire in 2003.

6.   ALLOWANCE FOR DOUBTFUL ACCOUNTS

     During  the  first  quarter  of 1998,  the  Company  recorded  a charge  of
     approximately $9.3 million for additional bad debt expense.  The charge was
     a result of a management decision during the first quarter of 1998 to focus
     proportionately  more  resources  on  collection  of  current  sales and on
     re-engineering  the overall process of billing and collections.  Management
     determined it was no longer

                                                                          Page 7
<PAGE>
     considered  to be cost  effective  to expend  significant  resources on the
     collection of the older receivables as had been done in the past

7.   SERIES B CONVERTIBLE PREFERRED STOCK

     In July 1998, the Company completed a private placement with two investors,
     an affiliate of Credit  Suisse  First  Boston  Corp.  and Capital  Ventures
     International.  Under the terms of the Purchase Agreement,  OrthoLogic sold
     15,000  shares  of Series B  Convertible  Preferred  Stock for $15  million
     (prior  to  costs).   The  Series  B  Convertible   Preferred   Stock  will
     automatically convert, to the extent not previously converted,  into Common
     Stock four years  following  the date of  issuance.  Each share of Series B
     Convertible Preferred Stock is convertible into Common Stock at a per share
     price  equal to the  lesser of the  average of the 10 lowest  closing  bids
     during  the 30 days  prior to  conversion  or,  103% of the  average of the
     closing bids for the 10 days prior to the 300th day following the issuance.
     The Series B Convertible  Preferred Stock is convertible  into Common Stock
     prior to the 300th day after issuance upon the occurrence of certain events
     (in which case the  conversion  price will be the  average of the 10 lowest
     closing  bids  during  the 30 days  prior to  conversion).  In the event of
     certain  Mandatory  Redemption  Events,  each  holder of Series B Preferred
     Shares will have the right to require the  Company to redeem  those  shares
     for cash at the Mandatory  Redemption  Price.  Mandatory  Redemption Events
     include,  but are not  limited  to: the  failure  of the  Company to timely
     deliver Common Shares as required under the terms of the Series B Preferred
     Shares  or  Warrants;   the  Company's  failure  to  satisfy   registration
     requirements  applicable to such  securities;  the failure by the Company's
     stockholders  to approve the  transactions  contemplated  by the Securities
     Purchase  Agreement  relating  to the  issuance  of the Series B  Preferred
     Shares;  the failure by the  company to maintain  the listing of its Common
     Stock on  NASDAQ or  another  national  securities  exchange;  and  certain
     transactions   involving  the  sale  of  assets  or  business  combinations
     involving  the Company.  In the event of any  liquidation,  dissolution  or
     winding  of the  Company,  holders  of the  Series B  Preferred  Shares are
     entitled to receive,  prior and in  preference to any  distribution  of any
     assets of the Company to the holders of Common Stock,  the Stated Value for
     each  Series B  Preferred  Share  outstanding  at that time.  The  Purchase
     Agreement  contains  strict  covenants  that  protect  against  hedging and
     short-selling  of OrthoLogic  Common Stock while the purchasers hold shares
     of the Series B Convertible Preferred Stock.

     In  connection  with the  private  placement  of the  Series B  Convertible
     Preferred Stock,  OrthoLogic issued to the purchasers  warrants to purchase
     40 shares of Common Stock for each share of Series B Convertible  Preferred
     Stock,  exercisable at $5.50 per share.  These warrants expire in 2008. The
     warrants  were  valued  at  $1,093,980.  Additional  costs  of the  private
     placement were approximately  $966,000.  Both the value of the warrants and
     the cost of the  private  placement  will be  recognized  over the 10 month
     conversion  period as an "accretion of non-cash  Preferred Stock Dividends"
     for the amount of $617,994 per quarter.  The Company  filed a  registration
     statement covering the underlying Common Stock.

     Proceeds  from the  private  placement  are being used to fund new  product
     opportunities,  including  SpinaLogic,  Chrysalin and Hyalgan as well as to
     complete the re-engineering of the Company's key business processes.

                                                                          Page 8
<PAGE>
8.   RELATED PARTIES

     On  February  9,1999,  the  Company  loaned  $157,800  to an officer of the
     Company. The note plus accrued interest is payable on June 15,1999.

9.   SUBSEQUENT EVENTS

     The U.S. Food and Drug Administration ("FDA") on April 21,1999 approved, as
     a pre-market approval ("PMA") supplement, an updated post-marketing Patient
     Registry  information sheet for the OrthoLogic (R) Bone Growth  Stimulator.
     This data reflects the new non-union definition approved by the FDA in June
     1998 which states that a fracture is considered non-union when the fracture
     site shows no visible progress signs of healing.

                                                                          Page 9
<PAGE>
               MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL
                      CONDITIONS AND RESULTS OF OPERATIONS

The following is  management's  discussion of significant  factors that affected
the Company's interim financial condition and results of operations. This should
be read in conjunction  with  Management's  Discussion and Analysis of Financial
Condition and Results of Operations  included in the Company's  Annual Report on
Form 10-K for the year ended December 31, 1998.

RESULTS OF OPERATIONS

REVENUES

The  Company  reported   revenues  of  $21.0  million  for  the  first  quarter,
representing  a 10.2%  increase  from  revenues  of $19.1  million for the first
quarter of 1998. Sales for the first quarter exceeded expectations.

GROSS PROFIT

Gross  profit  increased  from $14.7  million for the three  months  ended March
31,1998 to $16.3 million for the three months ended March 31,1999.  Gross profit
for the period,  as a  percentage  of revenue,  was 78%  compared to 77% for the
comparable period during 1998.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling, general and administrative ("SG&A") expenses for the three months ended
March 31, 1999 were $16.3 million,  down $7.6 million from the comparable period
in 1998.  The decrease  from 1998 is due to the fact that first  quarter of 1998
included an increase in the  allowance  for  doubtful  accounts  over the normal
quarterly  provision.  During the first quarter of 1998, the Company  recorded a
charge of approximately $9.3 million for additional bad debt expense. The charge
was a result of a management  decision during the first quarter of 1998 to focus
proportionately   more   resources  on   collection  of  current  sales  and  on
re-engineering  the  overall  process of  billing  and  collections.  Management
determined  it  was  no  longer  considered  to  be  cost  effective  to  expend
significant  resources on the  collection of the older  receivables  as had been
done in the past.

The bad debt  charge  during the quarter  ended March 31, 1999 was $8.2  million
less than the bad debt expense for the  comparable  period in 1998. The decrease
was partially offset by an increase in commission  expense.  Commission expenses
for the  quarter  ending  March 31,  1999 were $1.6  million as compared to $1.2
million for the quarter ending March 31,1998. The increase in commission expense
is directly related to the increase in sales.

RESEARCH AND DEVELOPMENT

Research and  Development  ("R&D")  expenses  were $520,000 for the three months
ending March 31,1999 compared to $498,000 for the comparable 1998 period.  There
are no significant variances between the two years.

                                                                         Page 10
<PAGE>
OTHER INCOME AND EXPENSES

Other income  declined to $57,000 in the three months ending March 31, 1999 from
$97,000  during  the same  period in 1998.  This  decrease  is  attributed  to a
reduction  in cash and  investments,  which has yielded a reduction  in interest
income earned.

LIQUIDITY AND CAPITAL RESOURCES

On March 31,1999,  the Company had cash and investments of $4.9 million compared
to $7.8 million  (including  short-term  investments)  at December 31, 1998. The
change in cash and  investments is primarily the result of a $1 million  payment
under the Co-Promotion  Agreement, a payment of $750,000 to Chrysalin and a $1.5
million  increase in accounts  receivable.  Cash used by operations  amounted to
$56,000 during the three month period. The Company has an available $7.5 million
accounts  receivable  revolving line of credit and a $2.5 million revolving term
line of credit with a bank.

The Company  anticipates  that its cash on hand and the funds available from the
line of credit will be sufficient to meet the Company's presently projected cash
and  working  capital  requirements  for the  next 12  months.  There  can be no
assurance,  however,  that this will prove to be the case.  If the Company  were
required to obtain additional financing in the future, there can be no assurance
that such  sources  of  capital  will be  available  on terms  favorable  to the
Company, if at all.

YEAR 2000 COMPLIANCE

The   inability   of   computers,   software  and  other   equipment   utilizing
microprocessors  to recognize  and properly  process data fields  containing a 2
digit year is commonly  referred to as the Year 2000  Compliance  issue.  As the
year 2000 approaches,  such systems may be unable to accurately  process certain
date-based information.

STATE OF READINESS: The Company has implemented a Year 2000 Corporate Compliance
Plan for  coordinating  and  evaluating  compliance  activities  in all business
activities.  The Company's  Plan includes a series of initiatives to ensure that
all the Company's  computer equipment and software will function properly in the
next  millennium.  "Computer  equipment (or  hardware)  and  software"  includes
systems generally  thought of as IT dependent,  as well as systems not obviously
IT dependent, such as manufacturing equipment, telecopier machines, and security
systems.

The  Company  began the  implementation  of this plan in fiscal  year 1998.  All
internal IT systems and non-IT  systems were  inventoried  during the assessment
phase of the plan.  The first  execution of the plan  occurred in June 1998 when
the  Company   transferred  all  internal  processing  systems  for  accounting,
manufacturing, third party billing, inventory and other operational processes to
Year 2000 compliant software.  In addition,  in the ordinary course of business,
as the Company  periodically  replaces computer equipment and software,  it will
acquire only year 2000 compliant  products.  The Company presently believes that
its software replacements and planned modifications of certain existing computer
equipment and software will be completed on a timely basis so as to avoid any of
the potential  Year 2000 related  disruptions  or  malfunctions  of its computer
equipment and software.

                                                                         Page 11
<PAGE>
The Company has completed its compliance review of virtually all of its products
and has not  learned  of any  products  that it  manufactures  that  will  cease
functioning  or  experience  an  interruption  in  operations as a result of the
transition to the year 2000.

COSTS: The Company has used both internal and external resources to reprogram or
replace,   test  and  implement  its  IT  and  non-IT   systems  for  Year  2000
modifications. The Company does not separately track the internal costs incurred
to date on the Year 2000  compliance.  Such costs are  principally  payroll  and
related  costs for internal IT  personnel.  The cost to date have been less than
$100,000. Future costs related to Year 2000 compliance is anticipated to be less
than  $100,000 for fiscal year 1999.  External  costs have been incurred for the
normal system  upgrades and software  conversions  related to other  operational
requirements.

RISKS:  The Company believes it has an effective Plan in place to anticipate and
resolve  any  potential  Year 2000  issues  in a timely  manner.  In the  event,
however,  that the Company does not properly  identify  Year 2000 issues or that
compliance testing is not conducted on a timely basis, there can be no assurance
that Year 2000 issues will not  materially  and  adversely  affect the Company's
results  of  operations  or  relationships  with  third  parties.  In  addition,
disruptions in the economy generally  resulting from Year 2000 issues also could
materially and adversely affect the Company.  The amount of potential  liability
and lost revenue that would be  reasonably  likely to result from the failure by
the Company and certain key parties to achieve Year 2000  compliance on a timely
basis cannot be reasonably estimated at this time.

The Company  currently  believes  that the most likely worst case  scenario with
respect to the Year 2000 issue is the failure of third party insurance payors to
become  compliant,  which  could  result in the  temporary  interruption  of the
payments received for services and products purchased. This could interrupt cash
payments received by the Company,  which in turn would have a negative impact on
the Company.

CONTINGENCY PLAN: A contingency plan has not yet been developed for dealing with
the most  likely  worst case  scenarios.  As part of its  continuous  assessment
process, the Company is developing  contingency plans as necessary.  These plans
could include, but are not limited to, use of alternative suppliers and vendors,
substitutes  for  banking  institutions,  and  the  development  of  alternative
payments  solutions in dealing with third party  payors.  The Company  currently
plans to complete such contingency planning by December 1999.

These  plans  are based on  management's  best  estimates,  which  were  derived
utilizing  numerous   assumptions  of  future  events  including  the  continued
availability  of certain  resources,  third party  modification  plans and other
factors.  However,  there  can be no  guarantee  that  these  estimates  will be
achieved and actual results could differ from those plans.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This  report  contains  forward-looking  statements  within  the  meaning of the
Private  Securities  Litigation  Reform Act of 1995,  including  projections  of
results of operations  and financial  condition,  statements of future  economic
performance,  and  general or specific  statements  of future  expectations  and
beliefs. The matters covered by such  forward-looking  statements are subject to
known and unknown  risks,  uncertainties  and other  factors which may cause the
actual results, performance or achievements of the

                                                                         Page 12
<PAGE>
Company  to  differ  materially  from  those  contemplated  or  implied  by such
forward-looking statements.  Important factors which may cause actual results to
differ  include,  but are not  limited  to,  the  following  matters,  which are
discussed in more detail in the Company's Form 10-K for the 1998 fiscal year:

The Company's lack of experience with respect to newly acquired technologies and
products may reduce the Company's ability to exploit the opportunites offered by
the  acquisitions  discussed in the annual  report.  Potential  difficulties  in
integrating the operations of newly acquired businesses may impact negatively on
the Company's  ability to realize  benefits from the  acquisitions.  The Company
intends to pursue sales in international markets. The Company,  however, has had
little  experience  in such  markets.  Expanded  efforts at pursuing new markets
necessarily  involves  expenditures  to develop such markets and there can be no
assurance that the results of those efforts will be profitable.  There can be no
assurance  that the Company's  estimates of the market will not cause the nature
and extent of that market to deviate materially from the Company's expectations.
To  the  extent  that  the  Company  presently  enjoys  perceived  technological
advantages  over  competitiors,  technological  innovation  by present or future
competitors may erode the Company's position in the market. To sustain long-term
growth,  the  Company  must  develop  and  introduce  new  products  and  expand
applications of existing products;  however,  there can be no assurance that the
Company  will be able to do so or that  the  market  will  accept  any  such new
products or applications. The Company operates in a highly regulated environment
and  cannot  predict  the  actions  of  regulatory  authorities.  The  action or
non-action of regulatory authorities may impede the development and introduction
of new  products  and new  applications  for  existing  products,  and may  have
temporary or  permanent  effects on the  Company's  marketing of its existing or
planned  products.  There can be no assurance that the influence of managed care
will continue to grow either in the United States or abroad, or that such growth
will  result  in  greater  acceptance  or sales of the  Company's  products.  In
particular,  there can be no assurance that existing or future  decision  makers
and third party payors within the medical community will be receptive to the use
of  the  Company's  products  or  replace  or  supplement   existing  or  future
treatments.  Moreover,  the  transition  to  managed  care  and  the  increasing
consolidation  underway in the managed care  industry may  concentrate  economic
power  among  buyers  of  the  Company's  products,  which  concentration  could
foreseeable  adversely  affect  the  Company's  margins.  Although  the  company
believes that existing litigation initiated against the Company is without merit
and the Company intends to defend such litigation vigorously, an adverse outcome
of such  litigation  could  have a  material  adverse  effect  on the  Company's
business, financial condition and results of operation.

                                                                         Page 13
<PAGE>
Part II - OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

           See  "Note 4 -  Litigation"  of the Notes to  Consolidated  Financial
           Statements above.

ITEM 6.    EXHIBITS AND REPORTS

(a)        See  Exhibit  Index   following  the   Signatures   page,   which  is
           incorporated herein by reference.

(b)        Reports on Form 8-K

                  None

                                   SIGNATURES
                                   ----------

Pursuant  to 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.



ORTHOLOGIC CORP.
----------------
(Registrant)

<TABLE>
<CAPTION>
Signature                              Title                                      Date
---------                              -----                                      ----
<S>                         <C>                                                <C>
/s/ Thomas R. Trotter       President and Chief Executive Officer               May 10, 1999
---------------------       (Principal Executive Officer)
Thomas R. Trotter



/s/ Terry D. Meier          Sr. Vice-President and Chief Financial Officer      May 10, 1999
---------------------       (Principal Financial and Accounting Officer)
Terry D. Meier

</TABLE>

                                                                         Page 14