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 June 30, 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 of             (I.R.S. Employer Identification No.)
 incorporation or organization)

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.  [X] Yes   [ ] 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.

        25,520,590 shares of common stock outstanding as of June 30,1999
<PAGE>
                                ORTHOLOGIC CORP.

                                      INDEX

                                                                        Page No.
                                                                        --------
Part I Financial Information

   Item 1. Financial Statements

           Consolidated Balance Sheets
             June 30,1999 and December 31,1998 ............................   2

           Consolidated Statements of Operations and of
           Comprehensive Income
             Three months and six months ended June 30,1999 and 1998 ......   3

           Consolidated Statements of Cash Flows
             Six months ended June 30,1999 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 4.  Submission of Matters to Vote of Security Holders .............  14

   Item 5.  Deadline for Shareholders Proposals ...........................  14

   Item 6.  Exhibits and Reports on Form 8-K ..............................  14
<PAGE>
PART I - Financial Information
Item 1.  Financial Statements

                               OrthoLogic, Corp.
                      Condensed Consolidated Balance Sheet
                                 (in thousands)
                                   Unaudited
                                                      June 30,      December 31,
                                                       1999             1998
                                                     ---------       ---------
ASSETS

Cash and cash equivalents                            $   3,391       $   1,714
Short term investments                                     501           6,053
Accounts receivable                                     29,349          27,031
Inventory                                                9,972          11,960
Prepaids and other current assets                        1,383             799
Deferred income tax                                      2,637           2,643
                                                     ---------       ---------
  Total current assets                                  47,233          50,200

Furniture, rental fleet and equipment                   24,664          21,962
Accumulated depreciation                               (11,035)         (9,095)
                                                     ---------       ---------
   Furniture and equipment, net                         13,629          12,867

Intangibles, net                                        29,747          30,568
Deposits and other assets                                  619             345
                                                     ---------       ---------

     Total assets                                    $  91,228       $  93,980
                                                     =========       =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
  Accounts payable                                   $   1,936       $   3,039
  Loan payable - current portion                           125             500
  Obligations under co-promotion agreement                  --           1,000
  Accrued liabilities                                    6,198           6,844
                                                     ---------       ---------
   Total current liabilities                             8,259          11,383

Deferred rent and capital lease obligations                226             196
                                                     ---------       ---------

   Total liabilities                                     8,485          11,579
                                                     ---------       ---------

Series B Convertible Preferred Stock                    15,000          14,176
                                                     ---------       ---------
Stockholders' Equity

  Common stock                                              13              13
  Additional paid-in capital                           120,245         119,659
  Accumulated deficit                                  (52,265)        (51,406)
  Comprehensive income (loss)                             (250)            (41)
                                                     ---------       ---------
   Total stockholders' equity                           67,743          68,225
                                                     ---------       ---------

     Total liabilities and stockholders' equity      $  91,228       $  93,980
                                                     =========       =========

See notes to condensed consolidated financial statements

                                                                          Page 2
<PAGE>
                               OrthoLogic, Corp.
   Condensed Consolidated Statement of Operations and of Comprehensive Income
                                 (in thousands)
                                   Unaudited
<TABLE>
<CAPTION>
                                                   Three months ended June 30,     Six months ended June 30,
                                                   ---------------------------     -------------------------
                                                      1999             1998           1999           1998
                                                    --------         --------       --------       --------
<S>                                                 <C>              <C>            <C>            <C>
Revenues                                            $ 20,728         $ 17,501       $ 41,796       $ 36,610
Cost of revenues                                       4,609            4,203          9,327          8,619
                                                    --------         --------       --------       --------
Gross profit                                          16,119           13,298         32,469         27,991

Operating expenses
  Selling, general and administrative                 15,777           16,694         31,515         40,515
  Research and development                               556              545          1,076          1,043
  Restructuring and other charges                         --               --           (399)            --
                                                    --------         --------       --------       --------

Total operating expenses                              16,333           17,239         32,591         41,159

Operating loss                                          (214)          (3,941)          (122)       (13,168)

Other income
  Grant/other revenue                                     --               --              1             --
  Interest income                                         46               40            102            137
                                                    --------         --------       --------       --------
Total other income                                        46               40            103            137
                                                    --------         --------       --------       --------

Loss before income taxes                                (168)          (3,901)           (19)       (13,031)
Provision for income taxes                                --               --             16             --
Net loss                                            $   (168)        $ (3,901)      $    (35)      $(13,031)
                                                    ========         ========       ========       ========

Accretion of non-cash preferred stock dividend          (206)              --           (824)            --
                                                    --------         --------       --------       --------

Net loss applicable to common shareholder           $   (374)        $ (3,901)      $   (859)      $(13,031)
                                                    ========         ========       ========       ========

BASIC EARNINGS PER SHARE

Net loss per common share                           $  (0.01)        $  (0.15)      $  (0.03)      $  (0.52)
                                                    --------         --------       --------       --------
Weighted average number of common
 shares outstanding                                 $ 25,492         $ 25,293       $ 25,436       $ 25,276
                                                    --------         --------       --------       --------
DILUTED EARNINGS PER SHARE

Net loss per common and equivalent shares           $  (0.01)        $  (0.15)      $  (0.03)      $  (0.52)
                                                    --------         --------       --------       --------
Weighted shares outstanding                           25,492           25,293         25,436         25,276
                                                    --------         --------       --------       --------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Net loss applicable to common shareholders              (374)          (3,901)          (859)       (13,031)
Foreign translation adjustment                           (45)             (22)          (209)           (35)
                                                    --------         --------       --------       --------
Comprehensive loss applicable to common
 shareholders                                           (419)          (3,923)        (1,068)       (13,066)
</TABLE>

See notes to condensed consolidated financial statements

                                                                          Page 3
<PAGE>
                                ORTHOLOGIC, CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                    UNAUDITED

                                                     Six months ended June 30,
                                                     -------------------------
                                                        1999            1998
                                                      --------        --------
OPERATING ACTIVITIES
  Net loss                                            $    (35)       $(13,031)

  Noncash items:
    Depreciation and amortization                        3,062           3,913
    Net change on other operating items:
    Accounts receivable                                 (2,319)          7,344
    Inventory                                            1,988          (2,346)
    Prepaids and other current assets                     (577)             75
    Deposits and other assets                             (274)           (297)
    Accounts payable                                    (1,102)            685
    Accrued liabilities                                   (646)         (2,201)
                                                      --------        --------
     Cash flows provided by (used in) operating
       activities                                           97          (5,858)
                                                      --------        --------
INVESTING ACTIVITIES
  Purchase of fixed assets, net                         (2,833)         (5,167)
  Cash paid for acquisition, net                          (171)            (81)
  Investment in Chrysalis                                   --            (750)
  Sales (Purchases) of short-term investments            5,552           4,568
                                                      --------        --------
     Cash flows provided by (used in) investing
       activities                                        2,548          (1,430)
                                                      --------        --------
FINANCING ACTIVITIES
  Payments on capital leases                                30            (402)
  Payment on loan payable                                 (375)          1,504
  Payments under co-promotion agreement                 (1,000)         (1,000)
  Foreign exchange                                        (209)            (49)
  Net proceeds from stock option exercises                 586             240
                                                      --------        --------
     Cash flows provided by (used in) financing
       activities                                         (968)            293
                                                      --------        --------
NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                                        1,677          (6,995)

CASH AND CASH EQUIVALENTS, BEGINNING
 OF PERIOD                                               1,714           7,783
                                                      --------        --------
CASH AND CASH EQUIVALENTS, END OF PERIOD              $  3,391        $    788
                                                      ========        ========

Supplemental disclosure of cash flow information
  Accretion of non-cash preferred stock dividend           824               0
  Cash paid during the period for interest                  56              30

See notes to condensed consolidated financial statements

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


1. FINANCIAL STATEMENT PRESENTATION

   The  consolidated  balance  sheet as of June  30,1999,  and the  consolidated
   statements of operations and comprehensive  income for the three months ended
   June 30,  1999 and 1998 and six months  ended June 30,  1999 and 1998 and the
   consolidated  statements of cash flows for the six months ended June 30, 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.  In  the  opinion  of  management,  adequate
   allowances   have  been  provided  for  doubtful   accounts  and  contractual
   adjustments.  However, these estimates are subject to adjustments in the near
   term,   which  could  be  material.   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 $2.0 and $1.8 million was  recognized  during the second
   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 has elected not to exercise its
   option to license  worldwide  (excluding the US)  development,  marketing and
   distribution  rights for Chrysalin for fracture and  orthopedic  applications
   which expired on June 30, 1999.  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.

   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

                                                                          Page 6
<PAGE>
   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.  The Court denied the motion
   in July 1999 and discovery is proceeding in the case.

   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 has been stayed  pending action in
   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 June 30,1999,  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 proceedings
   will not  have a  material  effect  on the  financial  position,  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 30, 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. 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 $15 million (prior
   to  costs).  The Series B  Convertible  Preferred  Stock  will  automatically
   convert, to the extent not previously converted, into Common Stock four years
   following the date of issuance.  Each share of Series B Convertible Preferred
   Stock is  convertible  into  Common  Stock at a per share  price equal to the
   lesser of the average of the 10 lowest  closing bids during the 30 days prior
   to  conversion  or, 103% of the  average of the closing  bids for the 10 days
   prior to the 300th day following the issuance ($ 3.0353). In the event of

                                                                          Page 7
<PAGE>
   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 up 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 were 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.

7. RELATED PARTIES

   On June  15,  1999,  the  Company  extended  the  maturity  date on a loan of
   $157,800 to an officer of the Company to February 15, 2000.

8. PRE-MARKET APPROVAL SUPPLEMENT

   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.

9. LEGAL SETTLEMENT

   The Company  expensed  funds in the second  quarter of 1998 to settle a false
   claims matter with the U.S. Department of Justice in a case that was filed in
   December  1996 under qui tam  provisions of the Federal False Claims Act. The
   allegations included the submission of claims for reimbursement for a small

                                                                          Page 8
<PAGE>
   number of custom medical devices to various  federal care programs  including
   Medicare,  TRICARE  (formerly  known as CHAMPUS) and various  state  Medicaid
   programs.

   OrthoLogic denies any wrongdoing or liability with respect to the allegations
   in this matter.  Nevertheless,  in an effort to avoid the expense, burden and
   uncertianty  of litigation in this case as well as the potential  distraction
   this case could  have on the  Company's  management,  the  Company  agreed to
   settle this matter. Under the terms of the definitive  settlement  agreement,
   OrthoLogic  paid and in the second  quarter of 1998  expensed $1.0 million to
   the U.S.  Department  of Justice,  on behalf of several  federal  health care
   programs including Medicare, TRICARE, and various state Medicaid programs. In
   return,  the U.S.  Department  of Justice  released the  Company's  officers,
   employees,  and  directors  from any causes of actions  for civil  damages or
   civil penalties for the various allegations being settled in this matter. The
   original complaint was dismissed with prejudice.

                                                                          Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION 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 $20.7 million for the second  quarter of 1999
representing an 18% increase over revenues of $17.5 million for the same quarter
of 1998.  The increase in sales was  attributable  to  increased  demand for the
Continuous  Passive  Motion  products  and  Hyalgan.  Sales for the OL-1000 Bone
Growth  Stimulator held consistent  with prior  quarters'  sales.  The Company's
revenues  increased  14% to $41.8 million for the six months ended June 30, 1999
from $36.6 million for the six months ended June 30, 1998

GROSS PROFIT

Gross profits increased from $13.3 million for the three months ended June 30,
1998 to $16.1 million for the three months ended June 30, 1999, a 21% increase.
Gross profits as a percentage of revenues was 78% for the quarter compared to
76% for the same period last year. For the six months ended June 30, 1999, gross
profits was $32.5 million as compared to $28.0 million for the six months ended
June 30, 1998. The change in gross profit represents an increase of 16% for the
six months ended June 30, 1999 compared to June 30, 1998. Gross profits as a
percentage of revenues was 76% for the six month period ended June 30, 1998 and
increased to 78% for the same period in 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and administrative ("SGA") expenses for the three months ended
June 30, 1999 were $15.8  million,  a decrease  from $16.7 million for the three
months ended June 30, 1998. The most significant reason for the reduction in SGA
expenses  was due to a legal  settlement  in the period  ended June 30,  1998, a
reduction in other outside  purchased  services,  and a reduction in advertising
expenses.  SGA  expenses  for the six  months  ended  June 30,  1999 were  $31.5
million, a decrease from $40.5 million for the six months ended June 30, 1998, a
decrease  of 22%.  The  decrease  from  1998 is due to the fact  that the  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
expenses.  The charge was the 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.

                                                                         Page 10
<PAGE>
RESEARCH AND DEVELOPMENT

Research and development  ("R&D") expenses  remained  relatively  unchanged with
expenses of $556,000 in the period ended June 30, 1999  compared to $545,000 for
the same period last year.  R&D  expenses for the six months ended June 30, 1999
totaled $1.1 million,  a slight  increase over the $1.0 million  expense for the
six months ended June 30, 1998.

OTHER INCOME AND EXPENSES

Other income,  consisting of interest income, increased slightly from $40,000 to
$46,000 for the periods ended June 30, 1998 and 1999  respectively.  For the six
month  period  ended June 30,  1999,  other  income  declined to  $103,000  from
$137,000 for the same period in the previous year.

LIQUIDITY AND CAPITAL RESOURCES

On June 30, 1999 the Company had cash and  investments of $3.9 million  compared
to $7.8 million as of 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 $2.3  million  increase  in accounts
receivable. Cash provided by operations amounted to $97,000 during the six month
period ended June 30, 1999. 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 and short-term  investments on hand, cash
from  operations  and the funds  available from the line of credit and revolving
term loan will be sufficient to meet the Company's  presently projected cash and
working capital requirements for the next 12 months. There can be no assurances,
however,  that this will prove to be the case.  The  timing and  amounts of cash
used will depend on many factors, including the Company's ability to continue to
increase  revenues,  reduce and control its expenditures,  become profitable and
collect amounts due from third party payors. Additional funds may be required if
the Company is not  successful in any of these areas.  The Company's  ability to
continue funding its planned  operations  beyond the next 12 months is dependent
on its ability to generate  sufficient  cash flow to meet its  obligations  on a
timely basis, or to obtain additional funds through equity or debt financing, or
from other sources of financing, as may be required.

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 (the "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"

                                                                         Page 11
<PAGE>
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.

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 October 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

                                                                         Page 12
<PAGE>
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 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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

The annual meeting of the stockholders of the Company was held on May 4, 1999 to
vote on: the  election of Class II Directors  (Proposal  1); an amendment to the
Company's  1997 Stock  Option  Plan to  increase  the number of shares of Common
Stock available for grant  thereunder by 275,000 shares (Proposal 2); to approve
the  issuance  and  sale  of  Series  B  Convertible  Preferred  Shares  and the
reservation  for  issuance  and the  issuance  of Shares of  Common  Stock  upon
conversion of the Series B Convertible  Preferred  Shares (Proposal 3); to amend
the Company's  Certificate of Incorporation to increase the number of authorized
Shares of Common Stock from  40,000,000 to 50,000,000  shares  (Proposal 4); and
the  ratification  of Deloitte & Touche LLP as  independent  accountant  for the
fiscal year ending December 31,1999 (Proposal 5). The results are as follows:

Proposal 1

                                 For       Withheld    Abstain   Broker NonVotes
                                 ---       --------    -------   ---------------

John Holliman III             23,123,162   248,286        0             0
Augustus A. White III, M.D.   23,140,712   246,736        0             0

                                 For        Against    Abstain   Broker NonVotes
                                 ---        -------    -------   ---------------
Proposal 2                    20,592,488   2,695,164    99,796
Proposal 3                    14,992,620     903,603    97,056          0
Proposal 4                    22,295,093   1,022,473    69,882          0
Proposal 5                    23,239,227     106,030    42,191          0

A more detailed  discussion of each proposal is included in the Company's  Proxy
Statement for the 1999 Annual Meeting of Stockholders.

The  Company's  directors  continuing  in office are:  Stuart H. Altman,  Ph.D.,
Elwood D. Howse, Jr., Frederic J. Feldman, Ph.D., and Thomas R Trotter.

ITEM 6. EXHIBITS AND REPORTS

      (a) Exhibit Index

          See Exhibit Index following the signature  page which is  incorporated
          herein by reference.

      (b) Reports on Form 8-K

          None

                                                                         Page 14
<PAGE>
                                   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)


   Signature                            Title                          Date
   ---------                            -----                          ----



/s/ Thomas R. Trotter          President and Chief Executive       July 30, 1999
--------------------------     Officer (Principal Executive
Thomas R. Trotter              Officer)



/s/ Terry D. Meier             Sr. Vice-President and              July 30, 1999
--------------------------     Chief Financial Officer (Principal
    Terry D. Meier             Financial and Accounting Officer)




                                                                         Page 15
<PAGE>

                                 EXHIBIT INDEX

                 Exhibit No.                     Description
                 -----------                     -----------

                     27                       Financial Data Schedule