UNITED
STATES


SECURITIES AND
EXCHANGE COMMISSION


Washington, DC
20549





FORM
10-Q


(Mark
One)





x
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES  EXCHANGE ACT OF
1934





For the quarterly period ended
            March 31, 2008


or





o
            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
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer 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.             xYesoNo





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.    Large accelerated filer o    Accelerated
filer x     Non-accelerated
filer o


Smaller
reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o  No x .





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.





41,274,383
shares of common stock outstanding as of April 30, 2008.







1





ORTHOLOGIC CORP.


(A
Development Stage Company)


INDEX





Page
              No.Part I
            
            Financial
      InformationItem 1.
            
            Financial
      Statements (Unaudited)Condensed Balance Sheets as of March 31, 2008 and December
      31, 2007
            3Condensed Statements of Operations for the three months
      ended March 31, 2008 and 2007
            4Condensed Statements of Cash Flows for the three months
      ended March 31, 2008 and 2007
            5Notes to Condensed Financial Statements
            6Item 2.
            
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            10Item 4.
            
            Controls and Procedures
            12Part II
            
            Other
      InformationItem 1A.
            
            Risk Factors
            13Item 2.
            
            Unregistered Sales of Equity Securities and Use of
      Proceeds
            14Item 6.
            
            Exhibits
            14EXHIBIT
      31.1EXHIBIT
      31.2EXHIBIT
      32





2
 Index




PART
I – Financial Information


Item
1.  Financial Statements





ORTHOLOGIC
CORP.


(A Development Stage
Company)


CONDENSED BALANCE
SHEETS


(in thousands, except share data)





March
      31,
            
            
            December 31,2008
            
            
            2007(Unaudited)ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            6,063
            
            
            $
            20,943Short-term
      investments
            
            
            35,791
            
            
            
            18,236Prepaids
      and other current assets
            
            
            1,022
            
            
            
            906Total
      current assets
            
            
            42,876
            
            
            
            40,085Furniture
      and equipment, net
            
            
            339
            
            
            
            318Long-term
      investments
            
            
            15,459
            
            
            
            21,459Total
      assets
            
            $
            58,674
            
            
            $
            61,862LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
            
            $
            662
            
            
            $
            702Accrued
      compensation
            
            
            477
            
            
            
            824Accrued
      clinical
            
            
            30
            
            
            
            1Other
      accrued liabilities
            
            
            759
            
            
            
            874Total
      current liabilities
            
            
            1,928
            
            
            
            2,401Stockholders'
      EquityCommon
      Stock  $.0005 par value;
            
            
            21
            
            
            
            21100,000,000
      shares authorized; 41,624,438 in 2008 and 41,758,065 in 2007 shares issued
      and outstandingAdditional
      paid-in capital
            
            
            188,955
            
            
            
            189,013Accumulated
      deficit
            
            
            (132,230
            )
            
            
            (129,573
            )Total
      stockholders' equity
            
            
            56,746
            
            
            
            59,461Total
      liabilities and stockholders' equity
            
            $
            58,674
            
            
            $
            61,862





See
notes to unaudited condensed financial statements





3
 Index





ORTHOLOGIC CORP.


(A
Development Stage Company)


CONDENSED
STATEMENTS OF OPERATIONS


(in
thousands, except per share data)


(Unaudited)




As
      a DevelopmentThree
      months ended
            
            
            Stage CompanyMarch
      31,
            
            
            August 5, 2004 -2008
            
            
            2007
            
            
            March
      31, 2008OPERATING
      EXPENSESGeneral
      and administrative
            
            $
            821
            
            
            $
            979
            
            
            $
            17,905Research
      and development
            
            
            2,442
            
            
            
            2,818
            
            
            
            65,268Purchased
      in-process research and development
            
            
            -
            
            
            
            -
            
            
            
            34,311Other
            
            
            -
            
            
            
            -
            
            
            
            (375
            )Total
      operating expenses
            
            
            3,263
            
            
            
            3,797
            
            
            
            117,109Interest
      and other income, net
            
            
            (606
            )
            
            
            (884
            )
            
            
            (11,158
            )Loss
      from continuing operations before taxes
            
            
            2,657
            
            
            
            2,913
            
            
            
            105,951Income
      tax expense
            
            
            -
            
            
            
            -
            
            
            
            356Loss
      from continuing operations
            
            
            2,657
            
            
            
            2,913
            
            
            
            106,307Discontinued
      operations - net gain on sale of the bone device business, net of taxes
      ($267)
            
            
            -
            
            
            
            -
            
            
            
            (2,202
            )NET
      LOSS
            
            $
            2,657
            
            
            $
            2,913
            
            
            $
            104,105Per
      Share Information:Net
      loss, basic and diluted
            
            $
            0.06
            
            
            $
            0.07Basic
      and diluted shares outstanding
            
            
            41,763
            
            
            
            41,594





See
notes to unaudited condensed financial statements





4
 Index





ORTHOLOGIC CORP.


(A
Development Stage Company)


CONDENSED
STATEMENTS OF CASH FLOWS


(in
thousands)


(Unaudited)





As
      a DevelopmentThree
      months ended
            
            
            Stage CompanyMarch
      31,
            
            
            August 5th 2004 -2008
            
            
            2007
            
            
            March
      31, 2008OPERATING
      ACTIVITIESNet
      loss
            
            $
            (2,657
            )
            
            $
            (2,913
            )
            
            $
            (104,105
            )Non
      cash items:Deferred
      tax expense
            
            
            -
            
            
            
            -
            
            
            
            770Depreciation
      and amortization
            
            
            32
            
            
            
            67
            
            
            
            3,466Non-cash
      stock compensation
            
            
            111
            
            
            
            32
            
            
            
            3,831Gain
      on sale of bone device business
            
            
            -
            
            
            
            -
            
            
            
            (2,298
            )In-process
      research and development
            
            
            -
            
            
            
            -
            
            
            
            34,311Change
      in other operating items:Prepaids
      and other current assets
            
            
            (116
            )
            
            
            902
            
            
            
            687Accounts
      payable
            
            
            (39
            )
            
            
            (576
            )
            
            
            (308
            )Accrued
      liabilities
            
            
            (433
            )
            
            
            (413
            )
            
            
            (1,750
            )Cash
      flows used in operating activities
            
            
            (3,102
            )
            
            
            (2,901
            )
            
            
            (65,396
            )INVESTING
      ACTIVITIESExpenditures
      for furniture and equipment, net
            
            
            (53
            )
            
            
            (60
            )
            
            
            (746
            )Proceeds
      from sale of assets
            
            
            -
            
            
            
            -
            
            
            
            7,000Cash
      paid for assets of AzERx/CBI
            
            
            -
            
            
            
            -
            
            
            
            (4,058
            )Cash
      paid for patent assignment rights
            
            
            -
            
            
            
            -
            
            
            
            (650
            )Purchases
      of investments
            
            
            (17,253
            )
            
            
            (13,817
            )
            
            
            (214,542
            )Maturities
      of investments
            
            
            5,697
            
            
            
            18,627
            
            
            
            221,229Cash
      flows (used in) provided by investing activities
            
            
            (11,609
            )
            
            
            4,750
            
            
            
            8,233FINANCING
      ACTIVITIESNet
      proceeds from stock option exercises
            
            
            -
            
            
            
            -
            
            
            
            4,612Net
      proceeds from sale of stock
            
            
            -
            
            
            
            -
            
            
            
            3,376Common
      stock purchases
            
            
            (169
            )
            
            
            -
            
            
            
            (169
            )Cash
      flows (used in) provided by financing activities
            
            
            (169
            )
            
            
            -
            
            
            
            7,819NET
      (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
            
            
            (14,880
            )
            
            
            1,849
            
            
            
            (49,344
            )CASH
      AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            
            20,943
            
            
            
            18,047
            
            
            
            55,407CASH
      AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            6,063
            
            
            $
            19,896
            
            
            $
            6,063Supplemental
      Disclosure of Non-Cash Investing Activities
            
            
            
            
            
            
            
            
            
            AzERx
      and CBIAzERx/CBI
      AcquisitionCurrent
      assets acquired
            
            
            
            
            
            
            
            
            
            $
            29Patents
      acquired
            
            
            
            
            
            
            
            
            
            
            2,142Liabilities
      acquired, and accrued acquisition costs
            
            
            
            
            
            
            
            
            
            
            (457
            )Original
      investment reversal
            
            
            
            
            
            
            
            
            
            
            (750
            )In-process
      research and development acquired
            
            
            
            
            
            
            
            
            
            
            34,311Common
      stock issued for acquisition
            
            
            
            
            
            
            
            
            
            
            (31,217
            )Cash
      paid for acquisition
            
            
            
            
            
            
            
            
            
            $
            4,058





See
notes to unaudited condensed financial statements





5
 Index





ORTHOLOGIC CORP.


(A
Development Stage Company)


NOTES
TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


March
31, 2008








OVERVIEW OF
BUSINESS





Description of the
business





OrthoLogic is a biotechnology company
committed to developing a pipeline of novel therapeutic peptides aimed at
helping patients with under-served medical conditions.  The Company is
focused on development and commercialization of two product platforms: AZX100
and Chrysalin® (TP508).





AZX100





AZX100, a
novel 24-amino acid peptide, relaxes smooth muscle which modulates blood
pressure and the function of blood vessels, airways, sphincters, the
gastrointestinal tract and the genitourinary tract.  Sustained
abnormal contraction of any of these muscles is called spasm.  Any
disorders known to be associated with excessive constriction or inadequate
dilation of smooth muscle represent potential applications for
AZX100.





AZX100
may also inhibit the fibrotic phenotype of fibroblasts and smooth muscle cells
in a mechanism similar to that which causes vasorelaxation.  Through
phenotypic modulation of fibroblasts and smooth muscle cells, AZX100 may inhibit
the scarring that results from wound healing and may mitigate fibrotic disease
states in the dermis, blood vessels, lungs, liver and other organs.





AZX100 is
currently being evaluated for medically and commercially significant
applications, such as prevention of dermal scarring, treatment of refractory
asthma, pulmonary fibrosis and vascular intimal hyperplasia.  We are
executing a development plan for this peptide which included filing an IND for
dermal scarring in 2007 and commencement of a Phase 1 safety study in this
indication in the first quarter of 2008.  The study includes
approximately 30 subjects and is expected to be completed in
mid-2008.  Pending favorable results, we will initiate further safety
and dose-ranging studies for dermal scarring.  In 2008, we also intend
to perform further pre-clinical studies supporting multiple indications for
AZX100.








Chrysalin





Chrysalin
(TP508), a novel synthetic 23-amino acid peptide, is believed to produce
angiogenic and other tissue repair effects in part by 1) activating or
upregulating endothelial nitric oxide synthase (eNOS); 2) upregulating vascular
endothelial growth factor; and 3) inhibiting apoptosis (programmed cell
death).  It may have therapeutic value in diseases associated with
endothelial dysfunction.





We have
conducted clinical trials for two potential Chrysalin
applications:  acceleration of fracture repair and diabetic foot ulcer
healing.  We previously conducted a pilot human study for spine
fusion, and pre-clinical testing for cartilage defect repair, cardiovascular
repair, dental bone repair, and tendon repair.  Currently, we are
focusing our efforts on pre-clinical studies in vascular
applications.  If successful, these studies will provide additional
support for partnering Chrysalin’s future development.




6
 Index





Company History





Prior to November 26, 2003, we
developed, manufactured and marketed proprietary, technologically advanced
orthopedic products designed to promote the healing of musculoskeletal bone and
tissue, with particular emphasis on fracture healing and spine
repair.  Our product lines included bone growth stimulation and
fracture fixation devicesincluding the OL1000 product line, SpinaLogic® and OrthoFrame/Mayo,which we sometimes refer to as our “Bone
Device Business.”





On November 26, 2003, we sold our Bone
Device Business.  Our principal business remains focused on tissue
repair, although through biopharmaceutical approaches rather than through the
use of medical devices.





On August 5, 2004, we purchased
substantially all of the assets and intellectual property of Chrysalis
Biotechnology, Inc. (“CBI”), including its exclusive worldwide license for
Chrysalin for all medical indications.We became a development stagecompanycommensurate with the
acquisition.  Subsequently, all of our collective effortswere focused on research and development
of our Chrysalin Product Platform, with the goal of commercializing
ourproducts.





On February27, 2006,the Company purchasedcertain assets and assumedcertain liabilities of AzERx, Inc.Under the terms of the transaction,
OrthoLogic acquired an exclusive license for the core intellectual property
relating to AZX100.





Ourdevelopment activities forthe Chrysalin Product Platformand AZX100represent a single operating
segmentas they share the
same product development path and utilize the same Company resources.  As a result, we have
determined that it is appropriate to reflect our operations as one reportable
segment.Through March 31,
2008, we haveincurred$104 millioninnet lossesas a development stage
company.





In these notes, references to “we”,
“our” and the “Company” refer to OrthoLogic Corp.  References to our
Bone Device Business refer to our former business line of bone growth
stimulation and fracture fixation devices, including the OL1000 product line,
SpinaLogic®, OrthoFrame® and OrthoFrame/Mayo.








Financial Statement
Presentation





In the opinion of management, the
unaudited condensed interim financial statements include all adjustments
necessary for the fair presentation of our 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.





Use of estimates: The preparation of
financial statements in accordance with accounting principles generally accepted
in theUnited States of
Americarequires that
management make a number of assumptions and estimates that affect the reported
amounts of assets, liabilities, and expenses in our financial statements and
accompanying notes.  Management bases its estimates on historical
experience and various other assumptions believed to be
reasonable.  Although these estimates are based on management’sassumptions
regardingcurrent events
and actions that may impact the Company in the future, actual results may differ
from these estimates and assumptions.  Our critical accounting
policies are those that affect, or could affect our financial statements
materially and involve a significant level of judgment by
management.The accounting policies and related
risks described in our Annual Report for the year ended December 31,
2007are those that depend most heavily on
these judgments and estimates.  As of March 31, 2008, there have been no material changes to
any of the critical accounting policies contained therein.





7
 Index





Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant toSecurities and
Exchange Commissionrules
and regulations, although the Company believes that the disclosures herein are
adequate to make the information presented not misleading.  It is
suggested that these unaudited condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in the
Company’s Annual Report for the year ended December 31, 2007.Information presented as of
December 31, 2007 is derived from audited statements.





Adoption of New Accounting
Standards





Effective January 1, 2008, the Company
adopted the reporting requirements of FASB Statement No. 157, (FAS 157) “Fair
Value Measurements”, and No. 159, (FAS 159) “Fair Value Option for Financial
Assets and Liabilities”.  Statements 157 and 159 are effective for
fiscal years beginning after November 15, 2007, though early adoption was
permitted.  FAS 157 establishes a standard framework for measuring
fair value in generally accepted accounting principles (GAAP), clarifies the
definition of “fair value” within that framework, and expands disclosures about
the use of fair value measurements.  FAS 159 allows entities to
voluntarily choose, at specified election dates, to measure many financial
assets and liabilities (as well as certain nonfinancial instruments that are
similar to financial instruments) at fair value (the “value
option”).  The Company did not choose to voluntarily measure any
financial assets or liabilities at fair value.  The adoption of FASB
Statements No. 157 and No. 159 did not have any effect on the Company results of
operations or financial position.








A.   Stock Based
Compensation





2008
Stock Options





On
January 1, 2008, the Board of Directors granted each Director a fully vested
option to purchase 10,000 shares of the Company’s common stock at an exercise
price of $1.35.  Additionally, during the three months ended March 31,
2008, the Company granted employees options to purchase 217,173 shares of the
Company’s common stock at an exercise price of $1.02. The options vest over a
two to four year period.





The Company used the Black-Scholesmodelwith the following
assumptions, to determine
the total fair valueof
$147,000 for options to purchase267,173sharesofthe Company’s common stock issued
during thethree months
ended March 31, 2008:





Three
      months endedMarch
      31, 2008Risk
      free interest rate
            2.4%  -  3.4%Volatility
            57%  -  58%Expected
      term from vesting
            3.7
      YearsDividend
      yield
            0%




8
 Index





2008StockAwards





On January 1, 2008, the Board of
Directors of the Company awarded 92,595 shares of restricted stock (18,519
shares to each director), which vest on January 1, 2009.  The total
fair value of the awards, determined using the closing price of the Company’s
common stock on the date of grant, was $125,000, of which $26,000 has been
recognized as compensation cost in the three months ended March 31,
2008.





On February 21, 2008, the Company
awarded 56,373 fully vested shares of the Company’s common stock, having a fair
value on the date of the awards of $57,500, to various employees. The fair value of the awards has been
recognized as compensation cost in the three months ended March 31,
2008.





Summary





Non-cash
stock compensation cost for the three months ended March 31, 2008, totaled
$111,000.  In the condensed Statements of Operations for the three
months ended March 31, 2008, non-cash stock compensation expense of $88,000 was
recorded as a general and administrative expense and $23,000 was recorded as a
research and development expense.





Non-cash
stock compensation cost for the three months ended March 31, 2007, totaled
$32,000.  In the condensed Statements of Operations for the three
months ended March 31, 2007, non-cash stock compensation expense of $49,000 was
recorded as a general and administrative expense and $17,000 was recorded as a
reduction (credit) of research and development expense.





No options were exercised in the three
month periods ended March 31, 2008 and 2007.





It is the
Company’s policy to issue options from shareholder approved incentive plans.
However, if the options are issued as an inducement for an individual to join
the Company, the Company may issue stock options outside of shareholder approved
plans.  Options granted to employees under shareholder approved
incentive plans have a ten-year term and vest over a two to four-year period of
service.  All options and stock purchase rights are granted with an
exercise price equal to the current market value on the date of grant and,
accordingly, options or stock purchase rights have no intrinsic value on the
date of grant.  Based on the closing market price of the Company’s
common stock at March 31, 2008 of $0.85, stock options exercisable or expected
to vest at March 31, 2008, have no intrinsic value.  At March 31,
2008, 19,885 shares remain available to grant under the Company’s existing stock
option plans.





Warrants





At March
31, 2008, the Company has warrants outstanding to purchase 46,706 shares of the
Company’s common stock with an exercise price of $6.39 per share which expire in
February 2016, and warrants outstanding to purchase 117,423 shares of the
Company’s common stock with an exercise price of $1.91 per share which expire in
July 2016.





Additionally,
(as described in Note 15 to our Annual Report on Form 10-K for the year ended
December 31, 2007), performance based warrants to purchase 240,000 shares of the
Company’s common stock with an exercise price of $1.91, which expire in February
2016, are outstanding but unvested at March 31, 2008.  The total cost
of the performance based warrants will be charged to expense over the period of
performance. The costs will be determined based on the fair value of the
warrants determined by using the Black-Scholes model, revalued at each Company
reporting date until fully vested.  The fair value of the milestone
warrants using the Black-Scholes model, 57% volatility, 0% dividend yield,
expected term of 7.9 years, and 2.4% interest rate was $90,000 at March 31,
2008.  No costs were charged to expense at March 31, 2008 as it is not
yet probable that any milestone warrants will vest.





9
 Index





B.   Authorization
of Company Buy-Back of Common Stock





On
March 5, 2008, the Company announced that its Board of Directors has approved a
stock repurchase program for up to five percent of its then outstanding common
shares.  The shares may be repurchased from time to time in open
market transactions or privately negotiated transactions at the Company’s
discretion, subject to market conditions and other factors.  There
were approximately 41.8 million shares of common stock outstanding on March 5,
2008.





During the three month period ended
March 31, 2008, the Company purchased 190,000 shares at a total cost of
$169,000.








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





The
following is management’s discussion of significant events in the quarter ended
March 31, 2008 and factors that affected OrthoLogic’s interim financial
condition and results of operations.  This should be read in
conjunction with our “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” included in our Annual Report on Form 10-K
for the year ended December 31, 2007 and Item 1A. Risk Factors included in Part
II of this quarterly report.








Overview
of the Business





OrthoLogic
is a biotechnology company focused on the development and commercialization of
the novel synthetic peptides AZX100 and Chrysalin® (TP508).





In 2008
and 2007 our efforts were:





·
            Evaluating
      AZX100 for medically and commercially significant applications, such as
      prevention of dermal scarring, pulmonary fibrosis, the treatment of
      asthma, and vascular intimal hyperplasia.  We performed
      pre-clinical work leading to the filing of an IND for a dermal indication
      in 2007 and commencement of a Phase 1 safety study in dermal scarring in
      the first quarter of 2008.  The first safety study will include
      approximately 30 healthy subjects and is expected to be completed in mid
      2008.  Pending favorable results, we will initiate further
      safety and dose-ranging studies for dermal scarring.  In 2008,
      we also intend to perform further pre-clinical studies supporting multiple
      indications for AZX100.





·
            Pre-clinical
      experiments tying Chrysalin to potential modulation of the health of
      endothelial tissue in blood vessels and other mechanism-of-action studies
      to support our strategy to partner our vascular product
      candidates.  We did not perform additional pre-clinical or
      clinical studies in fracture repair, wound healing, spine fusion,
      cartilage defect repair, dental bone repair or tendon
      repair.  In 2008, we will continue studies to support our
      vascular partnering efforts.




10
 Index





Results
of Operations Comparing Three-Month Period Ended March 31, 2008 to the
Corresponding Period in 2007.





General and Administrative
(“G&A”) Expenses:  G&A expenses related to our ongoing
development operations decreased by $158,000 from $979,000 in the first quarter
of 2007 to $821,000 in the first quarter of 2008.  Our administrative
expenses during the first quarter of 2008 were lower than the same period of
2007 primarily as a result of the timing of expenditures as well as the effect
of general cost containment efforts.





Research and Development
Expenses:  Research and development expenses were $2,442,000
for the first three months in 2008 compared to $2,818,000 for the first three
months in 2007.  Our research and development expenses decreased
$376,000 in the first quarter of 2008 compared to the same period in 2007
primarily due to a decline in AZX100 pre-clinical costs related to the filing of
an IND in a dermal scarring indication, which was completed as of December 31,
2007.  This decrease was partially offset by costs incurred for the
Phase 1clinical trial in dermal scarring which commenced in the first quarter of
2008.  Given the overlapping nature of our research efforts it is not
possible to clearly separate research expenditures between Chrysalin and AZX100;
however, the substantial majority of our research and development expenses in
2008 and 2007 are directed towards AZX100 development efforts.





Interest and Other Income,
Net:  Interest and Other Income Net decreased from $884,000 in
the first quarter of 2007 to $606,000 in the first quarter of 2008 due to the
decrease in interest rates between the two periods and reduction in the amount
available for investment.





Net Loss:  We
incurred a net loss in the first three months of 2008 of $2.7 million compared
to a net loss of $2.9 million in the first three months of 2007.  The
$0.2 million decrease in the net loss for the three months ended March 31, 2008
compared to the same period in 2007, resulted primarily from lower general and
administrative expenses, due to the timing of expenditures and general cost
containment efforts, and reduced AZX100 pre-clinical costs related to the filing
of an IND for a dermal scarring indication, which was completed as of December
31, 2007, partially offset by costs related to commencement of a Phase 1
clinical trial in dermal scarring in 2008, and reduced interest income, due to
the decrease in interest rates between the two periods and reduction in the
amount available for investment.








Liquidity
and Capital Resources





We
historically financed our operations through operating cash flows and the public
and private sales of equity securities.  However, with the sale of our
Bone Device Business in November 2003, we sold all of our revenue producing
operations.  We received approximately $93.0 million in cash from the
sale of our Bone Device Business.  On December 1, 2005, we received
the additional $7.2 million, including interest, from the escrow balance related
to the sale of the Bone Device Business.  On February 27, 2006, the
Company entered into an agreement with Quintiles (see Note 15 in our Annual
Report on Form 10-K for the year ended December 31, 2007), which provided an
investment by Quintiles in the Company’s common stock,  of which
$2,000,000 was received on February 27, 2006 and $1,500,000 was received on July
3, 2006.  We also received net proceeds of $4,612,000 from the
exercise of stock options during our development stage
period.   As of March 31, 2008, we had cash and cash equivalents
of $6.1 million, short-term investments of $35.8 million and long-term
investments of $15.4 million.





We announced that we have no
immediate plans to re-enter clinical trials for Chrysalin-based product
candidates and a strategic shift in our development approach to our Chrysalin
Product Platform.  We currently intend to pursue development
partnering or licensing opportunities for our Chrysalin-based product
candidates, a change from our previous development history of independently
conducting human clinical trials necessary to advance our Chrysalin-based
product candidates to market.  We will continue to explore Chrysalin’s
therapeutic value in tissues and diseases exhibiting endothelial dysfunction as
well as the science behind and potential of Chrysalin. We will also continue
research and development expenditures for further pre-clinical studies
supporting multiple indications for AZX100 and plan to continue AZX100 dermal
scarring human clinical trials in 2008.





11
 Index





Our future research and development
expenses may vary significantly from prior periods depending on the Company’s
decisions on its future Chrysalin and AZX100 development
plans.





On March 5, 2008, the Company announced
a stock repurchase program and at March 31, 2008, the Company had repurchased
190,000 shares of its common stock, at a total cost of $169,000, and has
allocated approximately $1,900,000 to fund possible future stock
repurchases.





We anticipate that our cash and
short-term investments will be sufficient to meet our presently projected cash
and working capital requirements for the next year. However, the timing and
amounts of cash used will depend on many factors, including our ability to
continue to control our expenditures related to our current research and
development programs.  If weenter into newclinical trials or if we consider other
opportunities in the market, our expense levels may change, which could require
us to seek other sources of capital.  If additional funding is
required, we would be required to seek new sources of funds, including raising
capital through the sales of securities or licensing
agreements.  These sources of funds may not be available or could only
be available at terms that would have a material adverse impact on our existing
stockholders’ interests.








Item 4.  Controls and Procedures





Disclosure Controls and
Procedures





Our principal executive officer and
chief financial officer have reviewed and evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this
Form 10-Q. Based on their evaluation, the principal executive officer and chief
financial officer have each concluded that, as of the end of such period, our
disclosure controls and procedures are effective and provide reasonable
assurance that we record, process, summarize, and report information required to
be disclosed in the reports we file under the Securities Exchange Act of 1934
within the time periods specified by the Securities and Exchange Commission’s
rules and forms.








Internal Control Over
Financial Reporting





There have not been any changes in our
internal control over financial reporting during the fiscal quarter to which
this report relates that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.




12
 Index





Part
II – Other Information





Item 1A.  Risk Factors





Forward
looking statements





OrthoLogic
may from time to time make written or oral forward-looking statements, including
statements contained in our filings with the Securities and Exchange Commission
and our reports to stockholders.  The safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995
protects companies from liability for their forward looking statements if they
comply with the requirements of that Act.  This Quarterly Report on
Form 10-Q should be read in conjunction with the Company’s Annual Report on Form
10-K for the year ended December 31, 2007, and contains forward-looking
statements made pursuant to that safe harbor.  These forward-looking
statements relate to future events or to our future financial performance, and
involve known and unknown risks, uncertainties and other factors that may cause
our actual results, levels of activity, performance, or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking
statements.  In some cases, you can identify forward-looking
statements by the use of words such as “may,” “could,” “expect,” “intend,”
“plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”
“continue,” or the negative of these terms or other comparable
terminology.  You should not place undue reliance on forward-looking
statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond our control and which could materially
affect actual results, levels of activity, performance or
achievements.  Factors that may cause actual results to differ
materially from current expectations include, but are not limited
to:





·
            unfavorable results of our product
      candidate development
efforts;


·
            unfavorable results of our
      pre-clinical or clinical
testing;


·
            delays in obtaining, or failure to
      obtain FDA approvals;


·
            increased regulation by the FDA
      and other agencies;


·
            the introduction of competitive
      products;


·
            impairment of license, patent or
      other proprietary rights;


·
            failure to achieve market
      acceptance of our products;


·
            the impact of present and future
      collaborative agreements;
and


·
            failure to successfully implement
      our drug development
strategy.





If one or
more of these or other risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary significantly from
what we projected. Any forward-looking statement you read in this Quarterly
Report on Form 10-Q reflects our current views with respect to future events and
is subject to these and other risks, uncertainties and assumptions relating to
our operations, results of operations, business strategy and
liquidity.  We assume no obligation to publicly update or revise these
forward-looking statements for any reason, or to update the reasons actual
results could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the
future.





There are
no material changes from the risk factors disclosed in our Annual Report on Form
10-K for the year ended December 31, 2007.





13
 Index





Item 2.   Unregistered Sales of Equity Securities and
Use of Proceeds





The following table summarizes
information regarding shares purchased during the three months ended March 31,
2008.





Month
              
              Total
      Numberof
      sharespurchased
              
              
              Averageprice
      paidper
      share
              
              
              Total number
      ofshares
      purchasedas part of
      publiclyannounced
      program
              
              
              Maximum
      numberof shares that
      mayyet be purchasedunder the
      programMarch
      1 - 31, 2008
              
              
              190,000
              
              
              $
              0.88
              
              
              
              190,000
              
              
              
              1,900,000


On March
5, 2008, the Company announced that its Board of Directors has approved a stock
repurchase program for up to five percent of its currently outstanding common
shares.  The shares may be repurchased from time to time in open
market transactions or privately negotiated transactions at the Company’s
discretion, subject to market conditions and other factors.  There
were approximately 41.8 million shares of common stock outstanding at March 5,
2008.








Item 6.  Exhibits





See
Exhibit List following this report





14
 Index





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/ John M. Holliman,
      III
            
            Executive
      Chairman
            
            May
      7, 2008John M. Holliman, III
            
            (Principal
      Executive Officer)/s/ Les M.
      Taeger
            
            Senior
      Vice-President and Chief
            
            May
      7, 2008Les
      M. Taeger
            
            Financial
      Officer(Principal
      Financial and Accounting Officer)




15
 Index





OrthoLogic
Corp.


(the
“Company”)


Exhibit
Index to Quarterly Report on Form 10-Q


For
the Quarterly Period Ended March 31, 2008








Exhibit No.
            Description
            Incorporated by
      Reference To:
            FiledHerewith31.1
            Certification
      of Principal Executive Officer Pursuant to Securities Exchange Act Rule
      13a-14
            
            X31.2
            Certification
      of Chief Financial Officer Pursuant to Securities Exchange Act Rule
      13a-14
            
            X32
            Certification
      of Principal Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350*






* Furnished
herwith