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 September 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
     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. [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.

      27,280,058 shares of common stock outstanding as of September 30,1999
<PAGE>
                                ORTHOLOGIC CORP.

                                      INDEX

                                                                      PAGE NO.
                                                                      --------
Part I. Financial Information

   Item 1. Financial Statements

        Consolidated Balance Sheets
         September 30,1999 and December 31,1998                           3

        Consolidated Statements of Operations and of
         Comprehensive Income Three months and nine months
         ended September 30, 1999 and 1998                                4

        Consolidated Statements of Cash Flows
         Nine months ended September 30,1999 and 1998                     5

        Notes to Consolidated Financial Statements                        7

   Item 2. Management's Discussion and Analysis of
            Financial Condition and Results of Operations                12

Part II. Other Information

   Item 1. Legal Proceedings                                             16

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


                                                                          Page 2
<PAGE>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                OrthoLogic, Corp.
                      Condensed Consolidated Balance Sheet
                                 (in thousands)
                                    Unaudited

                                                     September 30,  December 31,
                                                         1999          1998
                                                       ---------     ---------
ASSETS

Cash and cash equivalents                              $   5,056     $   1,714
Short term investments                                       488         6,053
Accounts receivable                                       29,541        27,031
Inventory                                                 10,111        11,960
Prepaids and other current assets                          1,145           799
Deferred income tax                                        2,634         2,643
                                                       ---------     ---------
  Total current assets                                    48,975        50,200

Furniture, rental fleet and equipment                     25,472        21,962
Accumulated depreciation                                 (12,093)       (9,095)
                                                       ---------     ---------
   Furniture and equipment, net                           13,379        12,867

Intangibles, net                                          29,248        30,568
Deposits and other assets                                    637           345
                                                       ---------     ---------
     Total assets                                      $  92,239     $  93,980
                                                       =========     =========
LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities

Accounts payable                                       $   2,597     $   3,039
Loan payable - current portion                                --           500
Obligations under co-promotion agreement                      --         1,000
Accrued liabilities                                        6,647         6,844
                                                       ---------     ---------
   Total current liabilities                               9,244        11,383

Deferred rent and capital lease obligations                  185           196
                                                       ---------     ---------
   Total liabilities                                       9,429        11,579
                                                       ---------     ---------
Series B Convertible Preferred Stock                      10,950        14,176
                                                       ---------     ---------
Stockholders' Equity

Common stock                                                  14            13
Additional paid-in capital                               124,372       119,659
Accumulated deficit                                      (52,213)      (51,406)
Comprehensive income (loss)                                 (313)          (41)
                                                       ---------     ---------
   Total stockholders' equity                             71,860        68,225
                                                       ---------     ---------
     Total liabilities and stockholders' equity        $  92,239     $  93,980
                                                       =========     =========

See notes to condensed consolidated financial statements

                                                                          Page 3
<PAGE>
                                OrthoLogic, Corp.
   Condensed Consolidated Statement of Operations and of Comprehensive Income
                      (in thousands, except per share data)
                                    Unaudited
<TABLE>
<CAPTION>
                                                   Three months ended       Nine months ended
                                                      September 30,           September 30,
                                                   --------------------    --------------------
                                                     1999        1998        1999        1998
                                                   --------    --------    --------    --------
<S>                                                <C>         <C>         <C>         <C>
Revenues                                           $ 20,258    $ 17,739    $ 62,054    $ 54,350

Cost of revenues                                      4,672       4,293      13,999      12,912
                                                   --------    --------    --------    --------
Gross profit                                         15,586      13,446      48,055      41,438

Operating expenses
   Selling, general and administrative               14,937      15,824      46,452      56,344
   Research and development                             625       1,425       1,701       2,468
   Restructuring and other charges                       --          --          --        (399)
                                                   --------    --------    --------    --------
Total operating expenses                             15,562      17,249      48,153      58,413

Operating income (loss)                                  24      (3,803)        (98)    (16,975)
                                                   --------    --------    --------    --------
Other income
   Grant/other revenue                                    1           2           2           2
   Interest income                                       51         130         153         267
                                                   --------    --------    --------    --------
Total other income                                       52         132         155         269
                                                   --------    --------    --------    --------
Income (loss) before income taxes                        76      (3,671)         57     (16,706)
                                                   --------    --------    --------    --------
Provision for income taxes                               24          --          40          --
                                                   --------    --------    --------    --------
Net income (loss)                                  $     52    $ (3,671)   $     17    $(16,706)
                                                   ========    ========    ========    ========
Accretion of non-cash preferred stock dividend           --        (618)       (824)       (618)
                                                   --------    --------    --------    --------
Net loss applicable to common shareholder          $     52    $ (4,289)   $   (807)   $(17,324)
                                                   ========    ========    ========    ========
BASIC EARNINGS PER SHARE

Net loss per common share                          $   0.00    $  (0.17)   $  (0.03)   $  (0.69)
                                                   --------    --------    --------    --------
Weighted average number of common shares
outstanding                                          25,860      25,300      25,579      25,287
                                                   --------    --------    --------    --------
DILUTED EARNINGS PER SHARE

Net loss per common and equivalent shares          $   0.00    $  (0.17)   $  (0.03)   $  (0.69)
                                                   --------    --------    --------    --------
Weighted shares outstanding                          30,516      25,300      25,579      25,287
                                                   --------    --------    --------    --------
Consolidated Statement of Comprehensive Income

Net income (loss) applicable to common
shareholders                                       $     52    $ (4,289)   $   (807)   $(17,324)

Foreign translation adjustment                          (63)       (145)       (272)       (180)
                                                   ========    ========    ========    ========
Comprehensive loss applicable to common
shareholders                                       $    (11)   $ (4,433)   $ (1,080)   $(17,504)
                                                   ========    ========    ========    ========
</TABLE>

See notes to condensed consolidated financial statements

                                                                          Page 4
<PAGE>
                                ORTHOLOGIC, CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                    UNAUDITED

                                                            Nine months ended
                                                                Sept. 30,
                                                          ---------------------
                                                            1999         1998
                                                          --------     --------
OPERATING ACTIVITIES
Net loss                                                  $     17     $(16,706)

Noncash items:
  Depreciation and amortization                              4,654        5,464
  Net change on other operating items:
  Accounts receivable                                       (2,510)       8,340
  Inventory                                                  1,849       (1,863)
  Prepaids and other current assets                           (337)         287
  Deposits and other assets                                   (292)        (203)
  Accounts payable                                            (442)        (847)
  Accrued liabilities                                         (197)      (3,624)
                                                          --------     --------
    Cash flows  provided by (used in)
      operating activities                                   2,742       (9,152)
                                                          --------     --------
INVESTING ACTIVITIES
  Purchase of fixed assets, net                             (3,675)      (5,186)
  Cash paid for acquisition, net                              (171)         (81)
  Investment in Chrysalis                                       --         (750)
  Sales (Purchases) of short-term investments                5,565       (1,567)
                                                          --------     --------
    Cash flows provided by (used in)
      investing activities                                   1,719       (7,584)
                                                          --------     --------
FINANCING ACTIVITIES
  Payments on capital leases                                   (11)        (155)
  Payment on loan payable                                     (500)        (375)
  Payments under co-promotion agreement                     (1,000)      (2,000)
  Foreign exchange                                            (272)        (194)
  Proceeds from issuance of convertible
  preferred stock and warrants (net)                                     14,034
  Net proceeds from stock option exercises                     664          240
                                                          --------     --------
    Cash flows  provided by (used in)
      financing activities                                  (1,119)      11,550
                                                          --------     --------
NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                           3,342       (5,186)

CASH AND CASH EQUIVALENTS, BEGINNING
  OF PERIOD                                                  1,714        7,783
                                                          --------     --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                  $  5,056     $  2,597
                                                          ========     ========

Supplemental disclosure of cash flow information
  Accretion of non-cash preferred stock dividend          $    824     $    618
  Cash paid during the period for interest                      70           70
  Cash paid during the period for income taxes                  --           --

See notes to condensed consolidated financial statements

                                                                          Page 5
<PAGE>
                                ORTHOLOGIC CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.   FINANCIAL STATEMENT PRESENTATION

     The  consolidated   balance  sheet  as  of  September  30,  1999,  and  the
     consolidated  statements of  operations  and  comprehensive  income for the
     three  months  ended  September  30,  1999 and 1998 and nine  months  ended
     September 30, 1999 and 1998 and the  consolidated  statements of cash flows
     for the nine  months  ended  September  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.

     The Company's  sales force began to promote Hyalgan in the third quarter of
     1997.

                                                                          Page 6
<PAGE>
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 facts.  The Company  filed a Motion to Dismiss the Complaint in

                                                                          Page 7
<PAGE>
     Arizona  State Court in May 1999.  The Court denied the motion in July 1999
     and discovery is proceeding in the case.  Plaintiffs'  Motion for the Class
     Certification is currently pending before the 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 is also
     pending in the United  States  District  Court for the District of Arizona.
     The  Company  filed a  Motion  to  Dismiss  the  Complaint,  which is still
     pending.

     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  September  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 $5.75.  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 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

                                                                          Page 8
<PAGE>
     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.

     As of September 30, 1999,  4,050 shares of Series B  Convertible  Preferred
     Stock had been converted into 1,727,468 shares of Common Stock.

7.   RELATED PARTIES

     In the second quarter of 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.

                                                                          Page 9
<PAGE>
     The allegations  included the submission of claims for  reimbursement for a
     small 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  uncertainty 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.

10.  SUBSEQUENT EVENTS

     As part of the license  agreement (See Note 3), and in conjunction with FDA
     clearance  to begin human  trials on  Chrysalin,  the Company will make and
     expense a $500,000  milestone payment to Chrysalis  BioTechnology,  Inc. in
     the last quarter of 1999.

                                                                         Page 10
<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 $20.3  million for the third  quarter of 1999
representing  a 14% increase over revenues of $17.7 million for the same quarter
of 1998. Sales for both Fracture Healing and Hyalgan increased over the previous
two quarters. The Company's revenues increased 14% to $62.1 million for the nine
months  ended  September  30, 1999 from $54.4  million for the nine months ended
September 30, 1998.

GROSS PROFIT

Gross profits  increased from $13.4 million for the three months ended September
30, 1998 to $15.6  million for the three months ended  September 30, 1999, a 16%
increase.  Gross  profits as a  percentage  of revenues  was 77% for the quarter
compared  to 76% for the  same  period  last  year.  For the nine  months  ended
September 30, 1999, gross profits was $48.1 million as compared to $41.4 million
for the nine months ended  September 30, 1998.  Gross profits as a percentage of
revenues  was 76% for the  nine  month  period  ended  September  30,  1998  and
increased to 77% for the same period in 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Selling,  general and administrative ("SGA") expenses for the three months ended
September  30, 1999 were $14.9  million,  a decrease  from $15.8 million for the
three months ended  September  30, 1998.  SGA expenses for the nine months ended
September  30, 1999 were $46.5  million,  a decrease  from $56.3 million for the
nine months ended  September 30, 1998, a decrease of 18%. 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. This reduction
in bad debt was partially offset by standard additional reserves which relate to
the sales increases previously discussed. SGA expenses for the nine month period
also decreased due to the reduction in outside  consulting  fees by $1.8 million
in 1999 compared to 1998.

                                                                         Page 11
<PAGE>
RESEARCH AND DEVELOPMENT

Research and development  ("R&D") expenses declined with expenses of $625,000 in
the three month period ended September 30, 1999 compared to $1.4 million for the
same period last year. R&D expenses for the nine months ended September 30, 1999
totaled $1.7  million,  a decrease  from the $2.5  million  expense for the nine
months ended September 30, 1998.  This decline was caused by a $750,000  accrued
expense in the third quarter of 1998 for the initial  license fee for Chrysalin.
In addition, 1998 R&D expenses include costs associated with the new single coil
version  of the  OL-1000  to the thigh and long bone of the upper arms which was
introduced in 1998 and no longer in R&D.

OTHER INCOME AND EXPENSES

Other income,  consisting primarily of interest income,  decreased from $132,000
to  $52,000  for the three  month  periods  ended  September  30,  1999 and 1998
respectively.  For the nine month period ended September 30, 1999,  other income
declined to $155,000 from $269,000 for the same period in the previous year.

LIQUIDITY AND CAPITAL RESOURCES

On  September  30,  1999 the Company had cash and  investments  of $5.5  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 $2.5 million
increase in accounts  receivable,  primarily as a result of increased  revenues.
Cash  provided  by  operations  amounted to $2.7  million  during the nine month
period  ended  September  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 payers. 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

                                                                         Page 12
<PAGE>
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  believes  that its
software  replacements and planned  modifications  of certain existing  computer
equipment  and  software  was  completed  on a timely  basis 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: As part of its continuous  assessment process,  the Company is
developing  contingency  plans as necessary.  These plans  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.

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.

                                                                         Page 13
<PAGE>
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  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 14
<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

     None

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 15
<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      November 10, 1999
-------------------------   Officer (Principal Executive
Thomas R. Trotter           Officer)



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


                                                                         Page 16
<PAGE>
                                OrthoLogic Corp.
                 Exhibit Index to Quarterly Report on Form 10-Q
                For the Quarterly Period Ended September 30, 1999


                                                 Incorporated by        Filed
Exhibit No         Description                    Reference to:        Herewith
----------         -----------                   ---------------       --------
27                 Financial Data Schedule                                X


                                                                         Page 17