**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**




**FORM
      10-Q**


(Mark
      One)





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





For
                the quarterly period ended
            September
                30, 2007





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
                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.          TYes£No





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 £
            Accelerated
                filer T
            Non-accelerated
                filer £





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





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.





41,670,650
      shares of common stock outstanding as of October 31, 2007.







1





**ORTHOLOGIC
      CORP.**


**(A
      Development Stage Company)**


**INDEX**





Page
                No.Part
                I
            Financial
                InformationItem
                1.
            Financial
                Statements (Unaudited)Condensed
                Balance Sheets as of September 30, 2007 and December
                31, 2006
            3Condensed
                Statements of Operations for the three and nine months
                ended September
                30, 2007 and 2006
            4Condensed
                Statements of Cash Flow for the nine months ended
                September
                30, 2007 and 2006
            5Notes
                to Condensed Financial Statements
            6Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and
                Results
                of Operations
            12Item
                4.
            Controls
                and Procedures
            16Part
                II
            Other
                InformationItem
                1A.
            Risk
                Factors
            17Item
                6.
            Exhibits
            17EXHIBIT 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 and per share data)***





**September 30,**
            
            
            **December 31,****2007**
            
            
            **2006****(Unaudited)****ASSETS**Current
                assetsCash
                and cash equivalents
            
            $
            18,183
            
            
            $
            18,047Short-term
                investments
            
            
            17,157
            
            
            
            35,977Prepaids
                and other current assets
            
            
            903
            
            
            
            1,950Total
                current assets
            
            
            36,243
            
            
            
            55,974Furniture
                and equipment, net
            
            
            360
            
            
            
            409Long-term
                investments
            
            
            27,301
            
            
            
            16,206**Total
                assets**
            
            $
            63,904
            
            
            $
            72,589**LIABILITIES
                AND STOCKHOLDERS' EQUITY**Current
                liabilitiesAccounts
                payable
            
            $
            608
            
            
            $
            1,621Accrued
                compensation
            
            
            568
            
            
            
            584Accrued
                clinical
            
            
            10
            
            
            
            133Accrued
                severance and other restructuring costs
            
            
            166
            
            
            
            366Other
                accrued liabilities
            
            
            490
            
            
            
            737Total
                current liabilities
            
            
            1,842
            
            
            
            3,441**Stockholders'
                Equity**Common
                Stock  $.0005 par value; 100,000,000 shares authorized;
                41,670,650 and 41,564,291 shares issued and outstanding
            
            
            21
            
            
            
            21Additional
                paid-in capital
            
            
            188,828
            
            
            
            188,236Accumulated
                deficit
            
            
            (126,787
            )
            
            
            (119,109
            )Total
                stockholders' equity
            
            
            62,062
            
            
            
            69,148**Total
                liabilities and stockholders' equity**
            
            $
            63,904
            
            
            $
            72,589





*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 September 30,
            
            
            Nine
                months ended September 30,
            
            
            Stage
                Company2007
            
            
            2006
            
            
            2007
            
            
            2006
            
            
            8/5/2004 - 9/30/2007OPERATING
                EXPENSESGeneral
                and administrative
            
            $
            889
            
            
            $
            1,414
            
            
            $
            2,797
            
            
            $
            5,567
            
            
            $
            16,143Research
                and development
            
            
            2,369
            
            
            
            5,651
            
            
            
            7,439
            
            
            
            16,575
            
            
            
            60,624Purchased
                in-process research and development
            
            
            -
            
            
            
            2
            
            
            
            -
            
            
            
            8,471
            
            
            
            34,311Other
                gains
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (375
            )Total
                operating expenses
            
            
            3,258
            
            
            
            7,067
            
            
            
            10,236
            
            
            
            30,613
            
            
            
            110,703Interest
                and other income, net
            
            
            (833
            )
            
            
            (1,250
            )
            
            
            (2,558
            )
            
            
            (2,879
            )
            
            
            (9,832
            )Loss
                from continuing operations before taxes
            
            
            2,425
            
            
            
            5,817
            
            
            
            7,678
            
            
            
            27,734
            
            
            
            100,871Income
                tax expense
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,106
            
            
            
            356Loss
                from continuing operations
            
            
            2,425
            
            
            
            5,817
            
            
            
            7,678
            
            
            
            28,840
            
            
            
            101,227Discontinued
                operations - net gain on sale of the bone device business, net of
                taxes ($267)
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (2,202
            )NET
                LOSS
            
            $
            2,425
            
            
            $
            5,817
            
            
            $
            7,678
            
            
            $
            28,840
            
            
            $
            99,025Per
                Share Information:Net
                loss, basic and diluted
            
            $
            0.06
            
            
            $
            0.14
            
            
            $
            0.18
            
            
            $
            0.71Basic
                and diluted shares outstanding
            
            
            41,671
            
            
            
            41,545
            
            
            
            41,634
            
            
            
            40,496





*See
      notes to unaudited condensed financial statements*





4
 *Index*





**ORTHOLOGIC
      CORP.**


**(A
      Development Stage Company)**


**CONDENSED
      STATEMENTS OF CASH FLOW**


***(in
      thousands)***


**(Unaudited)**





As a DevelopmentNine
                months ended
            
            
            Stage CompanySeptember 30,
            
            
            August 5th 2004
                -2007
            
            
            2006
            
            
            September 30, 2007OPERATING
                ACTIVITIESNet
                loss
            
            $
            (7,678
            )
            
            $
            (28,840
            )
            
            $
            (99,025
            )Non
                cash items:Deferred
                tax expense
            
            
            -
            
            
            
            1,106
            
            
            
            770Depreciation
                and amortization
            
            
            107
            
            
            
            2,790
            
            
            
            3,372Non-cash
                stock compensation
            
            
            591
            
            
            
            2,252
            
            
            
            3,534Gain
                on sale of bone device business
            
            
            -
            
            
            
            -
            
            
            
            (2,298
            )In-process
                research and development
            
            
            -
            
            
            
            8,471
            
            
            
            34,311Change
                in other operating items:Prepaids
                and other current assets
            
            
            1,048
            
            
            
            374
            
            
            
            807Accounts
                payable
            
            
            (1,013
            )
            
            
            (184
            )
            
            
            (363
            )Accrued
                liabilities
            
            
            (486
            )
            
            
            (1,225
            )
            
            
            (1,419
            )Cash
                flows used in operating activities
            
            
            (7,431
            )
            
            
            (15,256
            )
            
            
            (60,311
            )INVESTING
                ACTIVITIESExpenditures
                for furniture and equipment, net
            
            
            (158
            )
            
            
            (86
            )
            
            
            (673
            )Proceeds
                from sale of assets
            
            
            -
            
            
            
            -
            
            
            
            7,000Cash
                paid for assets of AzERx/CBI
            
            
            -
            
            
            
            (390
            )
            
            
            (4,058
            )Cash
                paid for patent assignment rights
            
            
            -
            
            
            
            (100
            )
            
            
            (650
            )Purchases
                of investments
            
            
            (33,077
            )
            
            
            (34,432
            )
            
            
            (178,971
            )Maturities
                of investments
            
            
            40,802
            
            
            
            45,705
            
            
            
            192,451Cash
                flows provided by investing activities
            
            
            7,567
            
            
            
            10,697
            
            
            
            15,099FINANCING
                ACTIVITIESNet
                proceeds from stock option exercises
            
            
            -
            
            
            
            2,962
            
            
            
            4,612Net
                proceeds from sale of stock
            
            
            -
            
            
            
            3,376
            
            
            
            3,376Cash
                flows provided by financing activities
            
            
            -
            
            
            
            6,338
            
            
            
            7,988NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
            
            
            136
            
            
            
            1,779
            
            
            
            (37,224
            )CASH AND CASH
                EQUIVALENTS, BEGINNING OF PERIOD
            
            
            18,047
            
            
            
            35,111
            
            
            
            55,407CASH AND CASH
                EQUIVALENTS, END OF PERIOD
            
            $
            18,183
            
            
            $
            36,890
            
            
            $
            18,183**Supplemental
                Disclosure of Non-Cash Investing Activities**
            
            
            
            
            
            **AzERx**
            
            
            **AzERx
                and CBI****AzERx/CBI
                Acquisitions**Current
                assets acquired
            
            
            
            
            
            $
            -
            
            
            $
            29Patents
                acquired
            
            
            
            
            
            
            -
            
            
            
            2,142Liabilities
                acquired, and accrued acquisition costs
            
            
            
            
            
            
            (317
            )
            
            
            (457
            )Original
                investment reversal
            
            
            
            
            
            
            -
            
            
            
            (750
            )In-process
                research and development acquired
            
            
            
            
            
            
            8,471
            
            
            
            34,311Common
                stock issued for acquisitions
            
            
            
            
            
            
            (7,764
            )
            
            
            (31,217
            )Cash
                paid for acquisitions
            
            
            
            
            
            $
            390
            
            
            $
            4,058





*See
      notes to unaudited condensed financial statements*





5
 *Index*





**ORTHOLOGIC
      CORP.**


**(A
      Development Stage Company)**


**NOTES
      TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**


**September
      30, 2007**








**OVERVIEW
      OF BUSINESS**





**Description
      of the business**





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





Chrysalin
      (TP508), is a novel synthetic 23-amino acid peptide, is believed to produce
      angiogenic and other tissue repair effects by activating or upregulating nitric
      oxide synthase (NOS) and the production of nitric oxide in endothelial cells,
      and if so, it may have potential therapeutic value in tissues and diseases
      exhibiting endothelial dysfunction.  We have primarily investigated
      Chrysalin in two indications, fracture repair and diabetic foot ulcer healing
      and we are initiating study of other potential vascular
      indications.  The Company owns exclusive worldwide rights to
      Chrysalin.





AZX100 is
      a novel synthetic pre-clinical 24-amino acid peptide and is believed to have
      smooth muscle relaxation and anti-fibrotic properties. AZX100 is currently
      being
      evaluated for medically and commercially significant applications, such as
      prevention of dermal scarring, pulmonary fibrosis, the treatment of asthma,
      and
      vascular intimal hyperplasia.  OrthoLogic has an exclusive worldwide
      license to AZX100.





We
      continue to explore other biopharmaceutical compounds that can complement our
      research activity internally and broaden our potential pipeline for successful
      products.





**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 devices including 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, for $2.5 million in cash
      and
      $25.0 million in OrthoLogic common stock, with an additional $7.0 million
      in OrthoLogic common stock due should certain triggering events
      occur.  We became a development stage company commensurate with the
      acquisition.  Subsequently,  our efforts were focused on
      research and development of our Chrysalin Product Platform, with the goal of
      commercializing our products.





6
 *Index*





On
      February 27, 2006, the Company purchased certain assets and assumed certain
      liabilities of AzERx, Inc.  Under the terms of the transaction, OrthoLogic
      acquired an exclusive license for the core intellectual property relating to
      AZX100.





Our
      development activities for the Chrysalin Product Platform and AZX100 represent
      a
      single operating segment as 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 September 30, 2007, we have incurred $99 million in net losses as 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 the United States of America requires 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’s
      assumptions regarding current 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, 2006 are those
      that depend most heavily on these judgments and estimates.  As of
      September 30, 2007, there have been no material changes to any of the critical
      accounting policies contained therein.





Certain
      information and footnote disclosures normally included in financial statements
      prepared in accordance with generally accepted accounting principles have been
      condensed or omitted pursuant to Securities and Exchange Commission rules 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,
      2006.  Information presented as of December 31, 2006 is derived from
      audited statements.





New
      Accounting Pronouncement:  We adopted the provisions of Financial
      Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for
      Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109” (“FIN
      48”), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in
      income taxes recognized in an enterprise’s financial statements in accordance
      with FASB Statement 109, “Accounting for Income Taxes”, and prescribes a
      recognition threshold and measurement process for financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. FIN 48 also provides guidance on derecognition, classification,
      interest and penalties, accounting in interim periods, disclosure and
      transition.





7
 *Index*





Based
      on
      our evaluation, we have concluded that there are no significant uncertain tax
      positions requiring recognition in our financial statements or adjustments
      to
      our deferred tax assets and related valuation allowance. Our evaluation was
      performed for the tax years ended December 31, 2003, 2004, 2005 and 2006, the
      tax years which remain subject to examination by major tax jurisdictions as
      of
      September 30, 2007.




We
      may
      from time to time be assessed interest or penalties by major tax jurisdictions,
      although any such assessments historically have been minimal and immaterial
      to
      our financial results. In the event we have received an assessment for interest
      and/or penalties, it has been classified in the financial statements as selling,
      general and administrative expense.





**A.           STOCK
      BASED COMPENSATION**





Effective
      January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment”,
      (SFAS 123(R)).  SFAS 123(R) requires all share-based payments,
      including grants of stock options, restricted stock units and employee stock
      purchase rights, to be recognized in our financial statements based on their
      respective grant date fair values. Under this standard, the fair value of each
      employee stock option and employee stock purchase right is estimated on the
      date
      of grant using an option pricing model that meets certain
      requirements.  We currently use the Black-Scholes option pricing model
      to estimate the fair value of our share-based payments.  The
      determination of the fair value of share-based payment awards utilizing the
      Black-Scholes model is affected by our stock price and a number of assumptions,
      including expected volatility, expected life, risk-free interest rate and
      expected dividends.  We use historical volatility adjusted for future
      expectations. The expected life of stock options is based on historical data
      and
      future expectations.  The risk-free interest rate assumption is based
      on observed interest rates appropriate for the terms of our stock options and
      stock purchase rights.  The dividend yield assumption is based on our
      history and expectation of dividend payouts.  The fair value of our
      restricted stock units is based on the fair market value of our common stock
      on
      the date of grant.  Stock-based compensation expense recognized in our
      financial statements in 2006 and thereafter is based on awards that are
      ultimately expected to vest.  We recognize compensation cost for an
      award with only service conditions that has a graded vesting schedule on a
      straight line basis over the requisite service period as if the award was,
      in-substance, a multiple award.  However, the amount of compensation
      cost recognized at any date must at least equal the portion of grant-date fair
      value of the award that is vested at that date. The amount of stock-based
      compensation expense in 2006 and thereafter will be reduced for estimated
      forfeitures.  Forfeitures are required to be estimated at the time of
      grant and revised, if necessary, in subsequent periods if actual forfeitures
      differ from those estimates.  We evaluate the assumptions used to
      value stock awards on a quarterly basis.  If factors change and we
      employ different assumptions, stock-based compensation expense may differ
      significantly from what we have recorded in the past.  The Company
      chose the modified-prospective transition alternatives in adopting SFAS
      123(R).  Under the modified-prospective transition method,
      compensation cost is recognized in financial statements issued subsequent to
      the
      date of adoption for all stock-based payments granted, modified or settled
      after
      the date of adoption, as well as for any unvested awards that were granted
      prior
      to the date of adoption.  Because the Company previously adopted only
      the pro forma disclosure provisions of SFAS 123, we recognize compensation
      cost
      relating to the unvested portion of awards granted prior to January 1, 2006,
      the
      date of adoption, using the same estimate of the grant-date fair value and
      the
      same attribution method used to determine the pro forma disclosure under SFAS
      123, except that a forfeiture rate has been estimated for all options, as
      required by SFAS 123(R).





8
 *Index*








**Stock
      Options issued prior to December 31, 2005**





Unrecognized
      non-cash stock compensation expense related to unvested options outstanding
      as
      of December 31, 2005 was approximately $1 million (includes 328,124 shares
      valued at $500,000 unvested and cancelled on April 5, 2006 upon the resignation
      of James M. Pusey, MD). Because of the significant expected forfeiture rate
      (54%) caused by the options cancelled at the time of Dr. Pusey’s resignation,
      the expected compensation cost for unvested options at December 31, 2005, was
      approximately $388,000.  At September 30, 2007,  the
      remaining compensation cost related to unvested options outstanding at December
      31, 2005, is approximately $26,000, which will be recognized over the remaining
      vesting period of approximately two years, with an estimated weighted average
      period of one year.





**2006
      Stock Options**





Using
      an
      estimated forfeiture rate of 12%, compensation cost recorded for the nine months
      ended September 30, 2007, for options issued in 2006 was $299,000. The
      options granted generally vest over a two to four-year period from the date
      of
      grant and, accordingly, the remaining unamortized cost at September 30, 2007
      of
      approximately $365,000 will be amortized ratably over the period ending December
      31, 2009, with an estimated weighted average period of one year.





**2007
      Stock Options**





On
      January 1, 2007, 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 $1.43.  Additionally, during the three months ended March 31,
      2007, the Company granted a fully vested option to purchase 13,889 shares of
      the
      Company’s common stock to a consultant at an exercise price of $1.44 and an
      option to purchase 5,000 shares that vests over a four-year period, to an
      employee, at an exercise price of $1.45.  On May 21, 2007, the Company
      granted an option to Dr. Steer to purchase 50,000 shares of the Company’s common
      stock at $1.53, which vests pro-rata over a two-year period.





During
      the three months ended September 30, 2007, the Company granted options to
      purchase 86,000 shares of the Company’s common stock to the members of its
      Scientific Advisory Board at an average exercise price of $1.43 per
      share.  The options vested 25% on the date of grant, with the
      remaining options vesting pro-rata over a three year period.





The
      Company used the Black-Scholes model with the following assumptions, to
      determine the total fair value of $52,000 for options to purchase 78,889 shares
      of the Company’s common stock issued during the three months ended March 31,
      2007, the fair value of $33,000 for options to purchase 50,000 shares of the
      Company’s common stock issued during the three months ended June 30, 2007, and
      the fair value of $87,000 for options to purchase 86,000 shares of the Company’s
      common stock issued during the three months ended September 30,
      2007.





Three
                months ended
            Three
                months ended
            Three
                months endedMarch 31,
                2007
            June 30,
                2007
            September 30,
                2007Risk
                free interest rate
            4.6%
            4.87%
            4.24%Volatility
            66%
            61%
            59%Expected
                term from vesting
            2.8
                Years
            2.8
                Years
            2.9
                YearsDividend
                yield
            0%
            0%
            0%





9
 *Index*





Using
      an
      estimated forfeiture rate of 20%, compensation cost recorded for the nine months
      ended September 30, 2007, for options issued in 2007, was
      $99,000.  The options granted, that did not vest on the grant date,
      vest over two to four-year periods from the date of grant and, accordingly,
      the
      remaining unamortized cost at September 30, 2007 of approximately $34,000 will
      be amortized ratably over the period ending December 31, 2010, with an estimated
      weighted average period of one year.





**2007 Awards
      of Shares of Common Stock**





On
      January 1, 2007, the Board of Directors of the Company awarded 104,898 shares
      of
      restricted stock (17,843 shares to each director), which vest on January 1,
      2008.  The total fair value of the grants, determined using the
      closing price of the Company’s common stock on the date of grant, was $150,000,
      which included $25,000 (17,843 shares) that were subsequently forfeited due
      to
      Mr. Casey’s decision to not seek re-election to the Board of Directors on May
      10, 2007.  Of the net fair value of the awards of $125,000, $89,000
      has been recognized as compensation cost in the nine months ended September
      30,
      2007.





On
      May
      10, 2007, the Board of Directors of the Company awarded total compensation
      of
      $115,000 to various executives, to be paid through the issuance of shares of
      the
      Company’s common stock.  The total number of shares of stock issued
      was 76,159.





**Summary**





Non-cash
      stock compensation cost for the nine months ended September 30, 2007, totaled
      $591,000.  In the condensed Statements of Operations for the nine
      months ended September 30, 2007, non-cash stock compensation expense of $394,000
      was recorded as a general and administrative expense and $197,000 was recorded
      as research and development expense.





Non-cash
      stock compensation cost for the nine months ended September 30, 2006, totaled
      $2,252,000 of which $607,000 related to stock awards.  In the
      condensed Statements of Operations for the nine months ended September 30,
      2006,
      non-cash stock compensation expense of $1,649,000 was recorded as a general
      and
      administrative expense and $603,000 was recorded as a research and development
      expense.





During
      the nine months ended September 30, 2006, options to purchase 670,400 shares
      of
      the Company’s common stock were exercised resulting in the receipt by the
      Company of net cash proceeds of $2,962,000.  The intrinsic value of
      options exercised during the nine months ended September 30, 2006 was
      $689,000.  No options were exercised in the nine months ended
      September 30, 2007.





A
      summary
      of option activity under our stock option plans for the nine months ended
      September 30, 2007, is as follows:





10
 *Index*




Number
                of Options
            
            
            Weighted
                average exercise price
            
            
            Weighted
                average remaining contractual term
              (years)Options
                outstanding December 31, 2006
            
            
            3,438,126
            
            
            $
            3.69Plus:  Options
                granted
            
            
            214,889
            
            
            
            1.45Less:Options
                exercised
            
            
            -Options
                expired/forfeited
            
            
            (328,390
            )
            
            
            4.60Options
                outstanding at September 30, 2007
            
            
            3,324,625
            
            
            
            3.46
            
            
            
            6.50Options
                exercisable at September 30, 2007
            
            
            2,520,621
            
            
            
            3.66
            
            
            
            5.82Options
                vested and expected to vest at September 30, 2007
            
            
            3,093,494
            
            
            
            3.48
            
            
            
            6.34





A
      summary
      of the status of the Company’s unvested shares as of September 30, 2007, and
      changes during the nine months ended September 30, 2007, is presented
      below:





WeightedaverageNumber
                of
            
            
            Grant
                dateUnvested
                Shares
            
            Options
            
            
            Fair
                ValueUnvested
                shares at December 31, 2006
            
            
            -
            
            
            $
            -Granted
            
            
            181,057
            
            
            $
            1.46Vested
            
            
            (76,159
            )
            
            $
            1.51Canceled/forfeited
            
            
            (17,483
            )
            
            $
            1.43Unvested
                shares at September 30, 2007
            
            
            87,415
            
            
            $
            1.43





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.  The options granted 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 September 30, 2007, of $1.41, stock options exercisable or
      expected to vest at September 30, 2007 have no intrinsic value. At September
      30,
      2007, 436,026 shares remain available to grant under the Company’s 2005 Equity
      Incentive Plan.




**Warrants**





At
      September 30, 2007, 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.





11
 *Index*





Additionally,
      (as described in Note 15 to our Annual Report on Form 10-K for the year ended
      December 31, 2006), 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 September 30, 2007.  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
      performance based warrants using the Black-Scholes model, 59% volatility, 0%
      dividend yield, expected term of 8.4 years, and 4.24% interest rate was $209,000
      at September 30, 2007.  No costs were charged to expense at September
      30, 2007 as it is not yet probable that any performance based warrants will
      vest.






**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 nine months
      ended September 30, 2007 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” and Item 1A. Risk Factors included in our
      Annual Report on Form 10-K for the year ended December 31, 2006, 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 Chrysalin® (TP508) and AZX100.





**Chrysalin®
      (TP508)**





Chrysalin,
      or TP508, is a 23-amino acid synthetic peptide representing a receptor-binding
      domain of the human thrombin molecule, a naturally occurring agent responsible
      for blood clotting and initiating the natural healing cascade of cellular events
      responsible for tissue repair in both soft tissue and bone. Chrysalin is
      believed to produce angiogenic and other tissue repair effects by activating
      or
      upregulating nitric oxide synthase (NOS) and the production of nitric oxide
      in
      endothelial cells, and if so, it may have potential therapeutic value in tissues
      and diseases exhibiting endothelial dysfunction.  We have primarily
      investigated Chrysalin in two indications, fracture repair and diabetic foot
      ulcer healing, and we are initiating study of other potential vascular
      indications.




During
      the first quarter of 2006, we announced topline results of the Chrysalin Phase
      3
      clinical trial in distal radius fracture.  While the study showed that
      Chrysalin did not meet its primary endpoint in the overall evaluable patient
      population, it did demonstrate that Chrysalin is safe and has biologic activity,
      as evidenced by statistically significant results observed along key
      radiographic secondary endpoints.





We
      interrupted enrollment in a concurrent Chrysalin Phase 2b dose-ranging study
      during the first quarter of 2006 in order to perform an interim analysis of
      subjects enrolled to that date.  Given the equivocal information
      obtained from this interim analysis we chose to terminate the
      study.





12
 *Index*





In
      December 2006 we announced during an American Society for Cell Biology
      presentation, results of an experiment demonstrating that TP508 increases the
      ability of endothelial cells to produce nitric oxide and that TP508 prevents
      negative effects caused by oxygen deprivation, a condition found in myocardial
      ischemia and chronic wounds.  This discovery raises the possibility
      that TP508 could be useful in treating a number of vascular
      diseases.  Laboratory-based validation work continues in this
      area.





In
      January 2007 we announced publication in the journal *Wound Repair and
      Regeneration* the results of a randomized, double-blind, placebo-controlled
      60-subject Phase 1/2 study of Chrysalin in diabetic foot ulcers.  The
      article described statistically and clinically significant results achieved
      with
      twice-weekly topical application of Chrysalin, combined with good wound care
      and
      standard off-loading, in subjects with chronic diabetic foot
      ulcers.  The study was conducted by Chrysalis Biotechnology prior to
      its acquisition by OrthoLogic in 2004.





On
      February 16, 2007 we announced findings of a *post hoc* subgroup analysis
      of data from the Phase 3 clinical trial showingthat within
      the subset of 157 female osteopenic subjects, treatment with 10 μg
      Chrysalin demonstrated a statistically significant benefit compared to
      placebo in the primary efficacy endpoint of time to removal of
      immobilization.  Secondary endpoints including clinical assessment of
      fracture healing (pain or motion at the fracture site), time to radial cortical
      bridging and time to overall radiographic healing also showed a significant
      effect of Chrysalin treatment.  These data are part of a *post
      hoc* subgroup analysis, and therefore provide only supporting - rather than
      pivotal - evidence of safety and efficacy.





On
      August
      2, 2007 we announced the formation of a Scientific Advisory Board (SAB) with
      the
      appointments of Michael E. Mendelsohn, M.D., Tufts-New England Medical Center
      and Charles A. Dinarello, M.D., University of Colorado School of
      Medicine.  The SAB will provide independent scientific advice and
      counsel to OrthoLogic management and Board of Directors regarding key
      development decisions for the Company’s novel synthetic peptides Chrysalin®
(TP508) and AZX100.  Dr. Mendelsohn will serve as Chairman of the
      SAB.





**Chrysalin
      Product Platform Status**





·
            We
                believe that the results of our efforts to date support that Chrysalin
                may
                have potential therapeutic value in tissues and diseases exhibiting
                endothelial dysfunction.





·
            We
                are continuing laboratory experiments tying Chrysalin to potential
                modulation of the health of endothelial tissue in blood vessels and
                other
                mechanism-of-action studies.





·
            Although
                we do not currently plan to re-enter clinical trials with Chrysalin,
                evaluations are ongoing as to the appropriate pre-clinical and clinical
                studies which would serve to strengthen our portfolio and partnering
                possibilities in orthopaedic, wound healing and vascular
                indications.





13
 *Index*





**AZX100**





We
      strengthened and diversified our development pipeline during the first quarter
      of 2006 with the acquisition of the 24-amino acid synthetic peptide
      AZX100.  AZX100 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 disease states in the dermis,
      blood vessels, lungs, liver and other organs.





We
      are executing a development plan for this peptide, with the goal of filing
      an
      IND by year-end 2007.  We continue to make progress with respect to
      toxicology, pharmacology and cGMP manufacturing efforts.  We have
      chosen to explore partnering opportunities for pulmonary and vascular
      indications, and will continue to pursue in-house development of other selected
      indications.




**Results
      of Operations Comparing Three-Month Period Ended September 30, 2007 to the
      Corresponding Period in 2006**





*General
      and Administrative (“G&A”) Expenses:*  G&A expenses
      related to our ongoing development operations decreased by $525,000 from
      $1,414,000 in the third quarter of 2006 to $889,000 in the third quarter of
      2007.  Our administrative expenses during the third quarter of 2007
      were lower than the same period of 2006 primarily as a result of a decrease
      of
      non-cash stock compensation expense of $196,000, reduced costs in 2007
      reflecting management changes and staff reductions which occurred in the first
      half of 2006, and general cost containment efforts.





*Research
      and Development Expenses:*  Research and development expenses were
      $2,369,000 for the three months ended September 30, 2007 compared to $5,651,000
      for the same period in 2006.  Our research and development expenses
      were $3,282,000 lower in the third quarter of 2007 compared to the same period
      in 2006 primarily due to a decline in clinical costs related to our fracture
      repair Phase 3 and Phase 2b clinical trials, which were substantially completed
      as of December 31, 2006 and a Chrysalin product platform patent impairment
      loss
      of $2.1 million recorded in 2006.





*Interest
      and Other Income, Net*:  Interest and Other Income Net was
      $833,000 in the third quarter of 2007 compared to $1,250,000 in the third
      quarter of 2006.  The decrease is due to the decrease in cash and
      investments available for investment during 2007, partially offset by an
      increase in interest rates between the two periods, and the inclusion in 2006
      of
      STTR grant income of $341,000.





*Net
      Loss*:  We incurred a net loss in the three months ended September
      30, 2007 of $2.4 million compared to a net loss of $5.8 million in same period
      in 2006.  The $3.4 million decrease in the net loss in the three
      months ended September 30, 2007 compared to the same period in 2006, results
      primarily from a decrease of $363,000 in non-cash stock compensation expense,
      reduced costs in 2007 reflecting management changes and staff reductions which
      occurred in the first half of 2006, a decline in clinical costs related to
      our
      fracture repair Phase 3 and Phase 2b clinical trials, which were substantially
      completed as of December 31, 2006, and a Chrysalin product platform patent
      impairment loss of $2.1 million recorded in 2006.





14
 *Index*





**Results
      of Operations Comparing Nine-Month Period Ended September 30, 2007 to the
      Corresponding Period in 2006**





*General
      and Administrative (“G&A”) Expenses:*  G&A expenses
      related to our ongoing development operations decreased by $2,770,000 to
      $2,797,000 in the nine months ended September 30, 2007 from $5,567,000 in the
      same period in 2006.  Our administrative expenses during the nine
      months ended September 30, 2007 were lower than the same period of 2006
      primarily as a result of a decrease of non-cash stock compensation expense
      of
      $1,255,000, reduced costs in 2007 reflecting management changes and staff
      reductions which occurred in the first half of 2006, and general cost
      containment efforts.





*Research
      and Development Expenses:*  Research and development expenses were
      $7,439,000 for the nine months ended September 30, 2007 compared to $16,575,000
      in the same period of 2006.  Our research and development expenses
      decreased $9,136,000 in the nine months ended September 30, 2007 compared to
      the
      same period in 2006 primarily due to a decline in clinical costs related to
      our
      fracture repair Phase 3 and Phase 2b clinical trials, which were substantially
      completed as of December 31, 2006 and a Chrysalin product platform patent
      impairment loss of $2.1 million recorded in 2006.   Given the
      overlapping nature of our research efforts it is not possible to clearly
      separate research expenditures between Chrysalin and AZX100; however, currently
      we anticipate that the substantial majority of our research and development
      expenses in 2007 will be directed towards AZX100 development
      efforts.





*Interest
      and Other Income, Net*:  Interest and Other Income Net decreased
      from $2,879,000 in the nine months ended September 30, 2006 to $2,558,000 in
      the
      same period in 2007, due to a reduction in the cash and investments available
      for investment during 2007 and STTR grant income of $341,000 recorded in
      2006.





*Net
      Loss*:  We incurred a net loss in the first nine months of 2007 of
      $7.7 million compared to a net loss of $28.8 million in the first nine months
      of
      2006.  The $21.1 million decrease in the net loss in the nine months
      ended September 30, 2007 compared to the same period in 2006, results primarily
      from $8.5 million purchased in-process research and development costs in 2006,
      a
      decrease of $1.7 million in non-cash stock compensation expense, reduced costs
      in 2007 reflecting management changes and staff reductions which occurred in
      the
      first half of 2006,  a decline in clinical costs related to our
      fracture repair Phase 3 and Phase 2b clinical trials, which were substantially
      completed as of December 31, 2006, a Chrysalin product platform patent
      impairment loss of $2.1 million recorded in 2006, and  the recognition
      in 2006 of income tax expense related to the recording of a valuation allowance
      of $1.1 million for a deferred tax asset related to a Alternative Minimum Tax
      credit carryover.




**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, 2006), 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. At September
      30,
      2007, we had cash and cash equivalents of $18.2 million, short-term investments
      of $17.2 million and long-term investments of $27.3 million.





15
 *Index*





On
      November 2, 2006, the Company announced that it has no immediate plans to
      re-enter clinical trials for Chrysalin-based product candidates and a strategic
      shift in its development approach to its Chrysalin Product
      Platform.  The Company currently intends to pursue development
      partnering or licensing opportunities for its Chrysalin-based product
      candidates, a change from its previous development history of independently
      conducting clinical trials necessary to advance its 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 for
      AZX100 with the goal of filing an IND for a scarring indication by the end
      of
      2007.




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.





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 we enter into new
      clinical 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, which may include raising capital through the sales
      of securities or entering into 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.






**Item4.  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.





16
 *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, 2006, 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, 2006.





**Item
      6.**Exhibits





See
      Exhibit List following this report





17
 *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
            November
                5, 2007John
                M. Holliman, III
            (Principal
                Executive Officer)/s/
                Les M. Taeger
            Senior
                Vice-President and Chief
            November
                5, 2007Les
                M. Taeger
            Financial
                Officer(Principal
                Financial and Accounting Officer)





18
 *Index*





**OrthoLogic
      Corp.**


**(the
      “Company”)**


**Exhibit
      Index to Quarterly Report on Form 10-Q**


**For
      the Period Ended September 30, 2007**





**Exhibit
                No.**
            **Description**
            **Incorporated
                by Reference To:**
            **Filed
                Herewith**10.1
            Lease
                Agreement dated July 19, 2007 by and between the Company and Phoenix
                Investors #13, L.L.C.
            Exhibit
                10.1 to the Company’s Current Report on Form 8-K filed with the SEC on
                July 23, 200731.1
            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 herewith