S-3

As filed with the Securities and Exchange Commission on April 25, 2006

Registration No. 333-                                        

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-3

REGISTRATION STATEMENT
Under
The Securities Act of 1933

ORTHOLOGIC CORP.

(Exact name of registrant as specified in its charter)

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

1275 West Washington Street
Tempe, Arizona 85281
(602) 286-5520

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

John M. Holliman, III, Executive Chairman
and principal executive officer
OrthoLogic Corp.
1275 West Washington Street
Tempe, Arizona 85281
(602) 286-5520

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copy to:

Steven P. Emerick, Esq.
Quarles & Brady Streich Lang, LLP
One Renaissance Square, Two North Central Avenue
Phoenix, Arizona 85004
(602) 230-5517

     Approximate date of commencement of proposed sale to the public: From time to time after the effective date of this registration statement.

     If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. o

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. þ

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act, check the following box. o

     If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. o

CALCULATION OF REGISTRATION FEE

Proposed

Proposed

maximum

Amount

maximum

aggregate

Amount of

Title of each class of

to be

offering price

offering

registration

securities to be registered

registered

per unit

price

fee

Common Stock, par value $.0005 per share (with attached Preferred Stock Purchase Rights)

1,355,000

(1)

$

1.77

(2)

$

2,398,350

(2)

$

256.62

(3)

(1) Any additional shares of common stock to be issued as a result of stock splits, stock dividends, or similar transactions shall be covered by this registration statement as provided in Rule 416.

(2) Estimated pursuant to Rule 457(c) of the Securities Act of 1933, based on the average of the high and low prices reported on the NASDAQ National Market on April 21, 2006, solely for the purpose of calculating the registration fee.

(3) The filing fee of $256.62 has been previously paid. In connection with our registration statement on Form S-3 filed August 9, 2005, as amended on August 17, 2005, Commission File No. 333-127356, OrthoLogic Corp. paid a total of $11,770 in filing fees. The offering was later withdrawn, no securities having been sold thereunder, leaving a balance of $11,770. We applied $708.91 of this balance to our registration statement on Form S-3 filed April 13, 2006, Commission File no. 333-133273, leaving a balance of $11,061.09. It is from this balance that we wish to pay the filing fee for this registration statement on Form S-3.

     The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer, solicitation or sale is not permitted.

PROSPECTUS

SUBJECT TO COMPLETION, DATED APRIL 24, 2006

ORTHOLOGIC CORP.

1,355,000 shares of common stock

     This prospectus relates to the offer and sale from time to time of up to an aggregate of 1,355,000 shares of our common stock by the selling security holders identified in the section titled “Selling Security Holders” starting on page 21 of this prospectus. We issued these shares in connection with our acquisition of substantially all of the assets and certain liabilities of AzERx, Inc. on February 27, 2006.

     The prices at which the selling security holders may sell their shares will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive any of the proceeds from the resale by the selling security holders of any of the securities covered by this prospectus.

     Our common stock is quoted on The NASDAQ National Market, under the symbol “OLGC.” Our preferred stock is not listed or quoted on any exchange. On April 24, 2006, the last reported sale price of our common stock on The NASDAQ National Market was $1.78 per share.

     You should carefully consider the risk factors described under the heading “Risk Factors and Forward-Looking Statements” in this prospectus, in addition to any risk factors which may be included in any supplement, or which are incorporated by reference into this prospectus.

     Investing in our securities involves a high degree of risk. Before buying any of our common stock, you should carefully read the discussion of material risks of investing in our securities under the heading “Risk Factors and Forward-Looking Statements” beginning on page 3 in this prospectus.

     Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of the disclosures in this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is                     , 2006.

TABLE OF CONTENTS

	Page
ABOUT THIS PROSPECTUS		2
RISK FACTORS AND FORWARD-LOOKING STATEMENTS		3
THE COMPANY		14
MATERIAL CHANGES		20
USE OF PROCEEDS		21
SELLING SECURITY HOLDERS		21
PLAN OF DISTRIBUTION		25
DESCRIPTION OF CAPITAL STOCK		27
LEGAL MATTERS		30
EXPERTS		30
WHERE YOU CAN FIND MORE INFORMATION		30
INFORMATION INCORPORATED BY REFERENCE		31
EX-5.1
EX-10.1
EX-10.5
EX-23.1

* * *

ABOUT THIS PROSPECTUS

     You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the selling security holders have not, authorized anyone to provide you with different information. No one is making offers to sell or seeking offers to buy these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only and that any information we have incorporated by reference is accurate as of the date of the document incorporated by reference only, regardless of the time of delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

     The information in this prospectus may not contain all of the information that may be important to you. You should read the entire prospectus as well as the documents incorporated by reference into this prospectus before making an investment decision. To obtain additional information that may be important to you, you should also read the exhibits to the registration statement of which this prospectus is a part and the additional information described below under the heading “Where You Can Find More Information.”

     When used in this prospectus, the terms “OrthoLogic,” “we,” “our,” “us” and the “Company” refer to OrthoLogic Corp.

The address and telephone number of our principal executive offices are 1275 West Washington Street, Tempe, Arizona 85281; telephone (602) 286-5520.

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RISK FACTORS AND FORWARD-LOOKING STATEMENTS

Risks Related to Our Business

We are a biopharmaceutical company with no revenue generating operations and high investment costs.

     We expect to incur losses for a number of years as we continue our research and development projects. There is no assurance that our current level of funds will be sufficient to support all research expenses to achieve commercialization of any of our product candidates. On November 26, 2003, we sold all of our revenue generating operations. We are now focused on developing and testing the product candidates in our Chrysalin Product Platform and have allocated most of our resources to bringing these product candidates to the market. However, on February 27, 2006 we acquired the rights to AZX100, and we also intend to continue preclinical activities on AZX100 in 2006. We may invest in other peptide or small molecule-based therapeutics in the future, but there can be no assurance that opportunities of this nature will occur at acceptable terms, conditions or timing. We currently have no pharmaceutical products being sold or ready for sale and do not expect to be able to introduce any pharmaceutical products for at least several years. As a result of our significant research and development, clinical development, regulatory compliance and general and administrative expenses and the lack of any products to generate revenue, we expect to incur losses for at least the next several years and expect our losses will increase as we continue our research and development activities and incur significant expenses for clinical trials. Our cash reserves, including the cash received from the sale of our bone growth stimulation device business in November 2003, are the primary source of our working capital. There can be no assurance that our cash resources will be sufficient to cover our future operating requirements, or should there be a need, other sources of cash will be available, or if available, at acceptable terms.

     We do not expect to receive any revenue from product sales until we receive regulatory approval and begin commercialization of our product candidates. We cannot predict when that will occur or if it will occur.

     We caution that our future cash expenditure levels are difficult to forecast because the forecast is based on assumptions about the number of research projects we pursue, the pace at which we pursue them, the quality of the data collected and the requests of the FDA to expand, narrow or conduct additional clinical trials and analyze data. Changes in any of these assumptions can change significantly our estimated cash expenditure levels.

Our product candidates are in various stages of development and may not be successfully developed or commercialized.

     If we fail to commercialize our product candidates, we will not be able to generate revenue. We currently do not sell any products. Our product candidates are at the following stages of development:

•	Acceleration of Fracture Repair	Phase 3 / Phase 2b human clinical trials
•	Diabetic Foot Ulcer Healing	Phase 1/2 human clinical trials
•	Spine Fusion Phase	1/2 pilot human clinical trials
•	Cartilage Defect Repair	Late stage pre-clinical trials
•	Tendon Repair	Early stage pre-clinical trials
•	Cardiovascular Repair	Pre-clinical trials
•	Dental Bone Repair	Pre-clinical trials
•	AZX100	Pre-clinical testing

     We are subject to the risk that:

• the FDA finds some or all of our product candidates ineffective or unsafe;

• we do not receive necessary regulatory approvals;

• we are unable to get some or all of our product candidates to market in a timely manner;

• we are not able to produce our product candidates in commercial quantities at reasonable costs;

• our products undergo post-market evaluations resulting in marketing restrictions or withdrawal of our products; or

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• the patients, insurance and/or physician community does not accept our products.

     In addition, our product development programs may be curtailed, redirected or eliminated at any time for many reasons, including:

• adverse or ambiguous results;

• undesirable side effects which delay or extend the trials;

• inability to locate, recruit, qualify and retain a sufficient number of patients for our trials;

• regulatory delays or other regulatory actions;

• difficulties in obtaining sufficient quantities of the particular product candidate or any other components needed for our pre-clinical testing or clinical trials;

• change in the focus of our development efforts; and

• re-evaluation of our clinical development strategy.

     We cannot predict whether we will successfully develop and commercialize any of our product candidates. If we fail to do so, we will not be able to generate revenue.

Certain results from a Phase 3 clinical trial showed that the differences in the primary endpoint analyses between our lead compound, Chrysalin, and the placebo were not statistically significant.

     On March 15, 2006, we reported results of our Phase 3 fracture repair human clinical trial. For the primary endpoint, immobilization removal, no statistically significant difference between placebo and a single injection of Chrysalin were achieved. Consistent with the Phase 1/2 human clinical trial results, a statistically significant difference for a secondary endpoint, radiographic evidence of radial cortical bridging, was achieved. However, no statistically significant difference was noted in the study’s other secondary endpoints. These results may make it more difficult to achieve regulatory approval of Chrysalin. On March 15, 2006, we temporarily interrupted enrollment in our Phase 2b fracture repair dosing clinical trial to perform an interim analysis of the data of the 273 patients enrolled to that date. We plan to announce the results of the interim analysis and our future fracture repair indication plans by the 3rd Quarter of 2006.

The results of our late stage clinical trials may be insufficient to obtain FDA approval, which could result in a substantial delay in our ability to generate revenue.

     Positive results from pre-clinical studies and early clinical trials do not ensure positive results in more advanced clinical trials. If we are unable to demonstrate that a product candidate will be safe and effective in advanced clinical trials involving larger numbers of patients, we will be unable to submit the NDA necessary to receive approval from the FDA to commercialize that product.

     On March 15, 2006, as discussed in the risk factor above, we reported results of our Phase 3 fracture repair human clinical trial. For the primary endpoint, immobilization removal, no statistically significant difference between placebo and a single injection of Chrysalin were achieved. Consistent with the Phase 1/2 human clinical trial results, a statistically significant difference for a secondary endpoint, radiographic evidence of radial cortical bridging, was achieved. However, no statistically significant difference was noted in the study’s other secondary endpoints. These results may make it more difficult to achieve regulatory approval of Chrysalin. On March 15, 2006, we temporarily interrupted enrollment in our Phase 2b fracture repair dosing clinical trial to perform an interim analysis of the 273 patients enrolled up to that date. We plan to announce the results of the interim analysis and our future fracture repair indication plans by the 3^rd Quarter of 2006.

     Upon receipt of the interim analysis of the results of our Phase 2b fracture repair dosing clinical trial we will have to determine whether to redesign our Chrysalin fracture repair product candidate and our protocols and continue with additional testing, or cease activities in this area. Redesigning the product candidate could be extremely costly and time-consuming. A substantial delay in obtaining FDA approval or termination of the Chrysalin fracture repair product candidate could result in a delay in our ability to generate revenue and could have a material adverse effect on our business going forward.

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The majority of our product candidates are based on the same chemical peptide, Chrysalin. If one of our Chrysalin product candidates reveals safety or fundamental inefficacy issues in clinical trials, it could impact the development path for all our other current Chrysalin product candidates.

     The development of each of our product candidates in the Chrysalin Product Platform is based on our knowledge and understanding of how the human thrombin molecule contributes to the repair of soft tissue and bone. While there are important differences in each of the product candidates in terms of their purpose (fracture repair, diabetic foot ulcer, etc.), each product candidate is focused on accelerating the repair of soft tissue and bone and is based on the ability of Chrysalin to mimic specific attributes of the human thrombin molecule to stimulate the body’s natural healing processes.

     Since we are developing the product candidates in the Chrysalin Product Platform in parallel, we expect to learn from the results of each trial and apply some of our findings to the development of the other product candidates in the platform. The fact that the results from the Phase 3 fracture repair human clinical trial showed no statistical significance between Chrysalin and the placebo for the primary endpoint in the study will likely impact the development path or future development of the other product candidates in the platform, the impact of which will depend on the results of our interim analysis. In addition, if we find that one of our biopharmaceutical product candidates is unsafe in the future, it could impact the development of our other product candidates in clinical trials.

Patients may discontinue their participation in our clinical studies, which may negatively impact the results of these studies and extend the timeline for completion of our development programs.

     As with all clinical trials, we are subject to the risk that patients enrolled in our clinical studies may discontinue their participation at any time during the study as a result of a number of factors, including, withdrawing their consent or experiencing adverse clinical events, which may or may not be judged related to our product candidates under evaluation. We are subject to the risk that if a large number of patients in any one of our studies discontinue their participation in the study, the results from that study may not be positive or may not support an NDA for regulatory approval of our product candidates.

     In addition, the time required to complete clinical trials is dependent upon, among other factors, the rate of patient enrollment. Patient enrollment is a function of many factors, including:

• the size of the patient population;

• the nature of the clinical protocol requirements;

• the diversion of patients to other trials or marketed therapies;

• our ability to recruit and manage clinical centers and associated trials;

• the proximity of patients to clinical sites; and

• the patient eligibility criteria for the study.

Even if we obtain marketing approval, our products will be subject to ongoing regulatory oversight, which may affect our ability to successfully commercialize any products we may develop.

     Even if we receive regulatory approval of a product candidate, the approval may be subject to limitations on the indicated uses for which the product is marketed or require costly post-marketing follow-up studies. After we obtain marketing approval for any product, the manufacturer and the manufacturing facilities for that product will be subject to continual review and periodic inspections by the FDA and other regulatory agencies. The subsequent discovery of previously unknown problems with the product, or with the manufacturer or facility, may result in restrictions on the product or manufacturer, including withdrawal of the product from the market.

     If we fail to comply with applicable regulatory requirements, we may be subject to fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.

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If we cannot protect the Chrysalin patents, the AZX100 license and patents, or our intellectual property generally, our ability to develop and commercialize our products will be severely limited.

     Our success will depend in part on our ability to maintain and enforce patent protection for Chrysalin and AZX100 and each product resulting from Chrysalin or AZX100. Without patent protection, other companies could offer substantially identical products for sale without incurring the sizable discovery, development and licensing costs that we have incurred. Our ability to recover these expenditures and realize profits upon the sale of products would then be diminished.

     Chrysalin and AZX100 are patented and there have been no successful challenges to the patents. However, if there were to be a challenge to these patents or any of the patents for product candidates, a court may determine that the patents are invalid or unenforceable. Even if the validity or enforceability of a patent is upheld by a court, a court may not prevent alleged infringement on the grounds that such activity is not covered by the patent claims. Any litigation, whether to enforce our rights to use our or our licensors’ patents or to defend against allegations that we infringe third party rights, will be costly, time consuming, and may distract management from other important tasks.

     As is commonplace in the biotechnology and pharmaceutical industry, we employ individuals who were previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. To the extent our employees are involved in research areas which are similar to those areas in which they were involved at their former employers, we may be subject to claims that such employees and/or we have inadvertently or otherwise used or disclosed the alleged trade secrets or other proprietary information of the former employers. Litigation may be necessary to defend against such claims, which could result in substantial costs and be a distraction to management and which may have a material adverse effect on us, even if we are successful in defending such claims.

     We also rely in our business on trade secrets, know-how and other proprietary information. We seek to protect this information, in part, through the use of confidentiality agreements with employees, consultants, advisors and others. Nonetheless, we cannot assure that those agreements will provide adequate protection for our trade secrets, know-how or other proprietary information and prevent their unauthorized use or disclosure. The risk that other parties may breach confidentiality agreements or that our trade secrets become known or independently discovered by competitors, could adversely affect us by enabling our competitors, who may have greater experience and financial resources, to copy or use our trade secrets and other proprietary information in the advancement of their products, methods or technologies.

Our success also depends on our ability to operate and commercialize products without infringing on the patents or proprietary rights of others.

     Third parties may claim that we or our licensors or suppliers are infringing their patents or are misappropriating their proprietary information. In the event of a successful claim against us or our licensors or suppliers for infringement of the patents or proprietary rights of others, we may be required to, among other things:

• pay substantial damages;

• stop using our technologies;

• stop certain research and development efforts;

• develop non-infringing products or methods; and

• obtain one or more licenses from third parties.

     A license required under any such patents or proprietary rights may not be available to us, or may not be available on acceptable terms. If we or our licensors or suppliers are sued for infringement, we could encounter substantial delays in, or be prohibited from, developing, manufacturing and commercializing our product candidates.

Some of our product candidates are in early stages of development and may never be commercialized.

     Research, development and pre-clinical testing are long, expensive and uncertain processes. Other than indications for fracture repair, spine fusion, and diabetic ulcer healing, none of our other Chrysalin or AZX100

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product candidates has reached clinical trial testing. Our development of Chrysalin for the repair of cartilage defects, tendons and cardiovascular repair is currently in pre-clinical testing or the research stage and AZX100 is currently in the pre-clinical testing stage. Our future success depends, in part, on our ability to complete pre-clinical development of these and other product candidates and advance them to the clinical trials.

     If we are unsuccessful in advancing our early stage product candidates into clinical testing for any reason, our business prospects will be harmed.

Acquisition of New Class of Molecules, ICARMs™

     On February 23, 2006, we entered into an agreement to purchase certain assets and assume certain liabilities of AzERx, Inc. for $390,000 in cash and the issuance of 1,355,000 shares of our common stock, with a market value of $7.7 million determined by the closing share price on the date the agreement was entered into. The transaction was completed (closed) on February 27, 2006. Under the terms of the transaction, OrthoLogic acquired an exclusive license for the core intellectual property relating to AZX100, and will continue to develop the new class of compounds in the field of smooth muscle relaxation called Intracellular Actin Relaxing Molecules, or ICARMs™, based on the unique technology developed by AzERx. The acquisition provides us with a new technology platform that diversifies the portfolio, and may provide more than one potential product. AzERx’s lead compound is AZX100, a 24-amino acid peptide. AZX100 is currently being investigated for medically important and commercially significant applications such as the treatment of vasospasm associated with subarachnoid hemorrhage, prevention of keloid scarring, and the treatment of asthma. Preclinical and human in vitro studies have shown that this novel compound has the ability to relax smooth muscle in multiple tissue types. While we performed a reasonable level of due diligence on AZX100 and the rights acquired, there can be no assurances that we will recover the costs of our investment from the future development of AZX100 or that commercially significant applications will be developed.

The loss of our key management and scientific personnel may hinder our ability to execute our business plan.

     As a small company our success depends on the continuing contributions of our management team and scientific personnel, and maintaining relationships with the network of medical and academic centers in the United States that conduct our clinical trials. On April 5, 2006, James M. Pusey resigned as our President and Chief Executive Officer and as a director. The resignation or retirement of additional members of senior management or scientific personnel could materially adversely affect our business prospects.

Reliance on Outside Suppliers and Consultants

     We rely on outside suppliers and consultants for the manufacture of Chrysalin and AZX100 and technical assistance in our research and development efforts. The inability of our suppliers to meet our production quality requirements in a timely manner, or the lack of availability of experienced consultants to assist in our research and development efforts, could have a material effect on our ability to perform research or clinical trials.

We face an inherent risk of liability in the event that the use or misuse of our products results in personal injury or death.

     The use of our product candidates in clinical trials, and the sale of any approved products, may expose us to product liability claims, which could result in financial losses. Our clinical liability insurance coverage may not be sufficient to cover claims that may be made against us. In addition, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope to protect us against losses. Any claims against us, regardless of their merit, could severely harm our financial condition, strain our management and other resources and adversely impact or eliminate the prospects for commercialization of the product which is the subject of any such claim.

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Risks of our Industry

We are in a highly regulated field with high investment costs and high risks.

     Our Chrysalin Product Platform is currently in the human testing phase for three potential products and earlier pre-clinical testing phases for two other potential products. AZX100 is currently in pre-clinical testing. The FDA and comparable agencies in many foreign countries impose substantial limitations on the introduction of new pharmaceuticals through costly and time-consuming laboratory and clinical testing and other procedures. The process of obtaining FDA and other required regulatory approvals is lengthy, expensive and uncertain. Chrysalin and AZX100 are new drugs and subject to the most stringent level of FDA review.

     Even after we have invested substantial funds in the development of our three Chrysalin products and AZX100 and even if the results of our current clinical trials are favorable, there can be no guarantee that the FDA will grant approval of Chrysalin and/or AZX100 for the indicated uses or that it will do so in a timely manner.

     If we successfully bring one or more products to market, there is no assurance that we will be able to successfully manufacture or market the products or that potential customers will buy them if, for example, a competitive product has greater efficacy or is deemed more cost effective. In addition, the market in which we will sell any such products is dominated by a number of large corporations that have vastly greater resources than we have, which may impact our ability to successfully market our products or maintain any technological advantage we might develop. We also would be subject to changes in regulations governing the manufacture and marketing of our products, which could increase our costs, reduce any competitive advantage we may have and/or adversely affect our marketing effectiveness.

The pharmaceutical industry is subject to stringent regulation, and failure to obtain regulatory approval will prevent commercialization of our products.

     Our research, development, pre-clinical and clinical trial activities and the manufacture and marketing of any products that we may successfully develop are subject to an extensive regulatory approval process by the FDA and other regulatory agencies in the United States and abroad. The process of obtaining required regulatory approvals for drugs is lengthy, expensive and uncertain, and any such regulatory approvals may entail limitations on the indicated usage of a drug, which may reduce the drug’s market potential.

     In order to obtain FDA approval to commercialize any product candidate, an NDA must be submitted to the FDA demonstrating, among other things, that the product candidate is safe and effective for use in humans for each target indication. Our regulatory submissions may be delayed, or we may cancel plans to make submissions for product candidates for a number of reasons, including:

• negative or ambiguous pre-clinical or clinical trial results;

• changes in regulations or the adoption of new regulations;

• unexpected technological developments; and

• developments by our competitors that are more effective than our product candidates.

     Consequently, we cannot assure that we will make our submissions to the FDA in the timeframe that we have planned, or at all, or that our submissions will be approved by the FDA. Even if regulatory clearance is obtained, post-market evaluation of our products, if required, could result in restrictions on a product’s marketing or withdrawal of a product from the market as well as possible civil and criminal sanctions.

     Clinical trials are subject to oversight by institutional review boards and the FDA to ensure compliance with the FDA’s good clinical practice regulations, as well as other requirements for good clinical practices. We depend, in part, on third-party laboratories and medical institutions to conduct pre-clinical studies and clinical trials for our products and other third-party organizations, usually universities, to perform data collection and analysis, all of which must maintain both good laboratory and good clinical practices. If any such standards are not complied with in our clinical trials, the FDA may suspend or terminate such trial, which would severely delay our development and possibly end the development of a product candidate.

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     We also currently and in the future will depend upon third party manufacturers of our products, which are and will be required to comply with the applicable FDA Good Manufacturing Practice regulations. We cannot be certain that our present or future manufacturers and suppliers will comply with these regulations. The failure to comply with these regulations may result in restrictions in the sale of, or withdrawal of the products from the market. Compliance by third parties with these standards and practices are outside of our direct control.

     In addition, we are subject to regulation under state and federal laws, including requirements regarding occupational safety, laboratory practices, environmental protection and hazardous substance control, and may be subject to other local, state, federal and foreign regulation. We cannot predict the impact of such regulations on us, although they could impose significant restrictions on our business and require us to incur additional expenses to comply.

If our competitors develop and market products that are more effective than ours, or obtain marketing approval before we do, our commercial opportunities will be reduced or eliminated.

     Competition in the pharmaceutical and biotechnology industries is intense and is expected to increase. Several biotechnology and pharmaceutical companies, as well as academic laboratories, universities and other research institutions, are involved in research and/or product development for various treatments for or involving fracture repair, diabetic ulcer healing, and smooth muscle relaxation. Many of our competitors have significantly greater research and development capabilities, experience in obtaining regulatory approvals and manufacturing, marketing, financial and managerial resources than we have.

     Our competitors may succeed in developing products that are more effective than the ones we have under development or that render our proposed products or technologies noncompetitive or obsolete. In addition, certain of such competitors may achieve product commercialization before we do. If any of our competitors develops a product that is more effective than one we are developing or plan to develop, or is able to obtain FDA approval for commercialization before we do, we may not be able to achieve significant market acceptance for certain products of ours, which would have a material adverse effect on our business.

     For a summary of the competitive conditions relating to indications in which we are considering for our AZX100 and ICARMs research and development activities, see the section in this prospectus titled “The Company — AZX100 — ICARMs™ — Competition” and the reports we file with the Securities and Exchange Commission and incorporate by reference into the registration statement of which this prospectus is a part. For a summary of the competitive conditions relating to Chrysalin-based indications, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and other reports we file with the Securities and Exchange Commission and incorporate by reference into the registration statement of which this prospectus is a part.

Our product candidates may not gain market acceptance among physicians, patients and the medical community, including insurance companies and other third party payors. If our product candidates fail to achieve market acceptance, our ability to generate revenue will be limited.

Even if we obtain regulatory approval for our products, market acceptance will depend on our ability to demonstrate to physicians and patients the benefits of our products in terms of safety, efficacy, and convenience, ease of administration and cost effectiveness. In addition, we believe market acceptance depends on the effectiveness of our marketing strategy, the pricing of our products and the reimbursement policies of government and third-party payors. Physicians may not prescribe our products, and patients may determine, for any reason, that our product is not useful to them. Insurance companies and other third party payors may determine not to reimburse for the cost of the therapy. If any of our product candidates fails to achieve market acceptance, our ability to generate revenue will be limited.

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Healthcare reform and restrictions on reimbursements may limit our financial returns.

     Our ability to successfully commercialize our products may depend in part on the extent to which government health administration authorities, private health insurers and other third party payors will reimburse consumers for the cost of these products. Third party payors are increasingly challenging both the need for, and the price of, novel therapeutic drugs and uncertainty exists as to the reimbursement status of newly approved therapeutics. Adequate third party reimbursement may not be available for our drug products to enable us to maintain price levels sufficient to realize an appropriate return on our investments in research and product development, which could restrict our ability to commercialize a particular drug candidate.

Risks Related to Our Common Stock

Our stock price is volatile and fluctuates due to a variety of factors.

     Our stock price has varied significantly in the past (from a high of $8.96 to a low of $2.22 from January 1, 2004 to March 28, 2006) and may vary in the future due to a number of factors, including:

• announcement of the results of, or delays in, preclinical and clinical studies;

• fluctuations in our operating results;

• developments in litigation to which we or a competitor is subject;

• announcements and timing of potential acquisitions, divestitures, capital raising activities and conversions of preferred stock;

• announcements of technological innovations or new products by us or our competitors;

• FDA and other regulatory actions;

• developments with respect to our or our competitors’ patents or proprietary rights;

• public concern as to the safety of products developed by us or others; and

• changes in stock market analyst recommendations regarding us, other drug development companies or the pharmaceutical industry generally.

In addition, the stock market has from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our stock.

Additional authorized shares of our common stock available for issuance may have dilutive and other material effects on our stockholders.

     We are authorized to issue 100,000,000 shares of common stock. As of March 28, 2006, there were 40,673,489 shares of common stock issued and outstanding. However, the total number of shares of our common stock issued and outstanding does not include shares reserved in anticipation of the exercise of options, warrants or additional investment rights. As of March 28, 2006 we had stock options outstanding to purchase approximately 2,713,096 shares of our common stock, the exercise price of which range between $2.43 per share to $17.38 per share, warrants outstanding to purchase 286,706 shares of our common stock with an exercise price of $6.39, and we have reserved shares of our common stock for issuance in connection with the potential exercise thereof. Additionally, at our Annual Stockholder Meeting on May 12, 2006, we are requesting that our stockholders approve the OrthoLogic 2005 Equity Incentive Plan, which provides an additional 2,000,000 shares of our common stock for incentive awards.

     As disclosed in the Registration Statement on Form S-3 we filed on April 13, 2006, on February 27, 2006 (the “Closing Date”), we closed the initial transactions relating to our Common Stock and Warrant Purchase Agreement (the “Purchase Agreement”) dated February 24, 2006 with PharmaBio Development Inc. (“PharmaBio”), an affiliate of Quintiles Transactional Corp. and Quintiles, Inc., which provides for the purchase of shares of our common stock in three tranches. On the Closing Date, PharmaBio purchased 359,279 shares of our common stock for a purchase price of $2,000,000 based on the average closing stock price for the 15-day period prior to that date. In addition, we also entered into a Class A Warrant Agreement with PharmaBio on the same date, whereby we issued PharmaBio a fully vested warrant to purchase 46,706 shares of our common stock at $6.39 a share. At our

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election, PharmaBio will purchase an additional amount of our common stock for a purchase price of $1,500,000 on each of June 30, 2006 and September 29, 2006 with the number of shares to be determined by the 15-day average closing stock price prior to each such date. Each additional stock purchase will include the issuance of fully vested warrants, exercisable for a ten-year period from the date of issuance, for an amount of shares equal to 13% of the shares purchased on the date of issuance, with the exercise price set at 115% of the share price of each respective share purchase (each, an “Additional Class A Warrant,” and collectively, the “Additional Class A Warrants”). We are also parties to a Class B Warrant Agreement (the “Class B Warrant”), Class C Warrant Agreement (the “Class C Warrant”) and a Class D Warrant Agreement (the “Class D Warrant”) with PharmaBio to purchase in the aggregate up to 240,000 shares of our common stock at $6.39 a share (the Class B Warrant, Class C Warrant and Class D Warrant are collectively referred to in this prospectus as the “Milestone Warrants”). The Milestone Warrants, all dated as of February 24, 2006, will be exercisable for a ten-year period from that date, and will vest based on the achievement of certain milestones.

          To the extent such options or warrants are exercised or additional stock is issued, the holders of our common stock will experience further dilution. In addition, in the event that any future financing or consideration for a future acquisition should be in the form of, be convertible into or exchangeable for, equity securities, investors will experience additional dilution.

Certain provisions of our amended and restated certificate of incorporation and bylaws will make it difficult for stockholders to change the composition of our board of directors and may discourage takeover attempts that some of our stockholders may consider beneficial.

          Certain provisions of our amended and restated certificate of incorporation and bylaws may have the effect of delaying or preventing changes in control if our board of directors determines that such changes in control are not in the best interests of OrthoLogic Corp. and our stockholders. These provisions include, among other things, the following:

• a classified board of directors with three-year staggered terms;

• advance notice procedures for stockholder proposals to be considered at stockholders’ meetings;

• the ability of our board of directors to fill vacancies on the board;

• a prohibition against stockholders taking action by written consent; and

• super majority voting requirements for the stockholders to modify or amend our bylaws and specified provisions of our amended and restated certificate of incorporation.

          These provisions are not intended to prevent a takeover, but are intended to protect and maximize the value of our stockholders’ interests. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our board of directors, they could enable our board of directors to prevent a transaction that some, or a majority, of our stockholders might believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and replace incumbent directors. In addition, we are subject to the provisions of Section 203 of the Delaware General Corporation Law, which prohibits business combinations with interested stockholders. Interested stockholders do not include stockholders whose acquisition of our securities is pre-approved by our board of directors under Section 203.

We may issue additional shares of preferred stock that have greater rights than our common stock and also have dilutive and anti-takeover effects.

          We are permitted by our amended and restated certificate of incorporation to issue up to 2,000,000 shares of preferred stock. We can issue shares of our preferred stock in one or more series and can set the terms of the preferred stock without seeking any further approval from our common stockholders or other security holders. Any preferred stock that we issue may rank ahead of our common stock in terms of dividend priority or liquidation rights and may have greater voting rights than our common stock.

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          In connection with the Rights Agreement dated as of March 4, 1997 between us and the Bank of New York, as amended (the “Rights Agreement”), our board approved the designation of 500,000 shares of Series A Preferred Stock. The Rights Agreement and the exercise of rights to purchase Series A Preferred Stock pursuant to the terms thereof may delay, defer or prevent a change in control because the terms of any issued Series A Preferred Stock would potentially prohibit our consummation of certain extraordinary corporate transactions without the approval of the Board. In addition to the anti-takeover effects of the rights granted under the Rights Agreement, the issuance of preferred stock, generally, could have a dilutive effect on our stockholders.

We have not previously paid dividends on our common stock and we do not anticipate doing so in the foreseeable future.

          We have not in the past paid any dividends on our common stock and do not anticipate that we will pay any dividends on our common stock in the foreseeable future. Any future decision to pay a dividend on our common stock and the amount of any dividend paid, if permitted, will be made at the discretion of our board of directors.

Future sales or the potential for sale of a substantial number of shares of our common stock could cause the trading price of our common stock to decline and could impair our ability to raise capital through subsequent equity offerings.

          Sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could cause the market price of our stock to decline and could materially impair our ability to raise capital through the sale of additional equity securities. This prospectus covers the resale of shares that previously were restricted. As a result, the number of our securities eligible to be sold in the market will increase upon the effectiveness of this registration statement. If the selling security holders sell a significant amount of this common stock, or if there is a perception that such sales will be effected, the prices of those securities could drop.

          We caution that the foregoing list of important factors is not exhaustive and may not be up to date. Developments in any of these areas could cause our results to differ materially from results that have been or may be projected by us.

Forward-Looking Statements

          All statements other than statements of historical facts included or incorporated by reference into this prospectus, including statements regarding our future financial position, business strategy, budgets, projected costs, and plans and objectives for future operations are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this prospectus. Forward-looking statements generally can be identified by the use of forward-looking 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. Some of the factors that could cause such a variance may be disclosed in a “Risk Factors” section elsewhere in this prospectus and documents incorporated by reference into this prospectus, and include the following:

• 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.

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          We urge you to consider these factors and to review carefully the description of risks in this section titled “Risk Factors and Forward-Looking Statements” for a more complete discussion of the risks of an investment in our securities. The forward-looking statements included in this prospectus or incorporated by reference into this prospectus are made only as of the date of this prospectus or the date of the incorporated document, and we undertake no obligation to publicly update these statements to reflect subsequent events or circumstances.

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THE COMPANY

Overview of the Business

CHRYSALIN®

          OrthoLogic is a biotechnology company focused on the development and commercialization of the novel synthetic peptide Chrysalin® (TP508) in two lead indications, both of which represent areas of significant unmet medical need – fracture repair and diabetic foot ulcer healing. 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 – both soft tissue and bone.

          On March 15, 2006, we reported results of our Phase 3 fracture repair human clinical trial. For the primary endpoint, immobilization removal, no statistically significant difference between placebo and a single injection of Chrysalin were achieved. Consistent with the Phase 1/2 human clinical trial results, a statistically significant difference for a secondary endpoint, radiographic evidence of radial cortical bridging, was achieved. However, no statistically significant difference was noted in the study’s other secondary endpoints. On March 15, 2006, we temporarily interrupted enrollment in our Phase 2b fracture repair dosing clinical trial to perform an interim analysis of the 273 patients enrolled up to that date. We plan to announce the results of the interim analysis and our future fracture repair indication plans by the 3^rd Quarter of 2006.

AZX100 — ICARMs™

          On February 23, 2006 we entered into an agreement to purchase certain assets and assume certain liabilities of AzERx, Inc. The transaction was completed (closed) on February 27, 2006. Under the terms of the transaction, OrthoLogic acquired an exclusive license for the core intellectual property relating to AZX100, and will continue to develop the new class of compounds in the field of smooth muscle relaxation called Intracellular Actin Relaxing Molecules, or ICARMs™, based on the unique technology developed by AzERx. The acquisition provides us with a new technology platform that diversifies the portfolio, and may provide more than one potential product. AzERx’s lead compound is AZX100, a 24-amino acid peptide. AZX100 is currently being investigated for medically important and commercially significant applications such as the treatment of vasospasm associated with subarachnoid hemorrhage (SAH), prevention of keloid scarring, and the treatment of asthma. Preclinical and human in vitro studies have shown that this novel compound has the ability to relax smooth muscle in multiple tissue types. We will continue pre-clinical activities on AZX100 in 2006.

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

Additional Information about OrthoLogic

          OrthoLogic Corp. was incorporated as a Delaware corporation in July 1987 as IatroMed, Inc. We changed our name to OrthoLogic Corp. in July 1991. Our executive offices are located at 1275 West Washington Street, Tempe, Arizona 85281, and our telephone number is (602) 286-5520.

          Our website address is www.orthologic.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as any amendments to those reports, are available free of charge through our website as soon as reasonably practical after we file or furnish them to the U.S. Securities and Exchange Commission. Once at our website, go to the “Investors” section to locate these filings.

          In March 2004, we adopted a code of conduct that applies to all of our employees and has particular sections that apply only to our principal executive officer and senior financial officers. We posted the text of our code of conduct on our website in the “Investors” section of our website under “Code of Conduct.” In addition, we will promptly disclose on our website (1) the nature of any amendment to our code of conduct that applies to our principal executive officer and senior financial officers, and (2) the nature of any waiver, including an implicit

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waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such officer who is granted the waiver and the date of the waiver.

Chrysalin Product Platform

          Chrysalin, or TP508, is a 23-amino acid synthetic peptide representing a receptor-binding domain of the human thrombin molecule, a naturally occurring molecule in the body responsible for both blood clotting and initiating many of the cellular events responsible for tissue repair. Chrysalin mimics specific attributes of the thrombin molecule, stimulating the body’s natural healing processes. Drugs based on the Chrysalin peptide can be used to mimic part of the thrombin response without stimulating the events associated with blood clotting and therefore has the potential to accelerate the natural cascade of healing events. The Chrysalin molecule serves as the basis for a group of potential therapeutic products we refer to collectively as the “Chrysalin Product Platform.” We have initiated or are conducting clinical trials for three potential Chrysalin products: one trial for acceleration of fracture repair, a second trial for diabetic foot ulcer, and a third pilot study for spine fusion. We have conducted pre-clinical testing for cartilage defect repair, cardiovascular repair, dental bone repair, and tendon repair. As of December 31, 2005 we have focused our efforts on the development and commercialization of fracture repair and diabetic foot ulcer healing indications.

          The development of each of our potential product candidates in the Chrysalin Product Platform is based on our collective knowledge and understanding of how the human thrombin molecule contributes to the repair of soft tissue and bone. While there are important differences in each of the product candidates in terms of purpose (fracture repair, diabetic foot ulcer healing, etc.) each product candidate is focused on accelerating and enhancing tissue repair and is based on the ability of Chrysalin to mimic specific attributes of the human thrombin molecule to stimulate the body’s natural healing process.

          We are developing the Chrysalin-based product candidates in parallel. We expect to learn from the results of each trial and apply the findings to the development of the other product candidates. We believe there are distinct research activities within the product candidates whose outcomes and results will apply across the product platform in terms of safety and efficacy. All of our potential products in research and development are subject to extensive regulation by the U.S. Food and Drug Administration, whose approval we must obtain before we can bring our products to the market.

          Acceleration of Fracture Repair

          Every broken bone is called a fracture and approximately 30 million fractures are treated every year throughout the developed world, as reported by medical reimbursement records in countries with national healthcare systems. The treatment of a fracture depends on the severity of the break. Simple fractures often heal themselves, with more complex closed fractures potentially amenable to treatment by manipulation (also called “reduction”) without requiring surgery. Fractures that break the skin (or “open fractures”) or where the fragments cannot be lined up correctly usually require surgery. Sometimes plates, screws or pins are used for mechanical stabilization, occasionally with the use of bone grafts, all of which are invasive, expensive and time consuming procedures.

          Chrysalin is a substance that, when injected through the skin into the fracture site at the time of fracture reduction, was shown in a preliminary clinical trial to accelerate the healing of the fracture. Chrysalin does this by mimicking certain stimulatory aspects of the thrombin molecule. Fractures that heal faster lead to earlier return of function for the patient and potentially improved clinical outcomes.

          In pre-clinical animal studies, a single injection of Chrysalin into the fracture gap accelerated fracture healing by up to 50% as measured by mechanical testing. In late 1999, we initiated a combined Phase 1/2 human clinical trial to evaluate the safety of Chrysalin and its effect on the rate of healing in adult subjects with unstable distal radius fractures (fractures around and in the wrist joint). We presented the results of this Phase 1/2 human clinical trial for fracture repair at the 57th Annual Meeting of the American Society for Surgery of the Hand in October 2002. The data from x-ray evaluations revealed that a single injection of Chrysalin into the fracture gap resulted in a trend toward accelerated fracture healing compared with the saline placebo control. There were no reportable adverse events attributable to Chrysalin in the study.

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          We completed patient enrollment in our pivotal Phase 3 human clinical trial evaluating the efficacy of Chrysalin in patients with unstable and/or displaced distal radius (wrist) fractures in May 2005. We enrolled a total of 503 study patients in 27 health centers throughout the United States. The primary efficacy endpoint in the trial is to measure how quickly wrist fractures in patients injected with Chrysalin heal, as measured by the removal of immobilization. Accelerated removal of immobilization allows patients to initiate hand therapy and regain full function of their wrists and hands sooner. The clinical trial’s secondary efficacy endpoints include radiographic analysis of healing, as well as clinical, functional, and patient outcome parameters. On March 15, 2006, we reported results of our Phase 3 fracture repair human clinical trial. For the primary endpoint, immobilization removal, no statistically significant difference between placebo and a single injection of Chrysalin were achieved. Consistent with the Phase 1/2 human clinical trial results, a statistically significant difference for a secondary endpoint, radiographic evidence of radial cortical bridging, were achieved. However, no statistically significant difference was noted in the study’s other secondary endpoints. To date, there have been no adverse events related to Chrysalin reported in this Phase 3 trial.

          We are also conducting a Phase 2b human clinical trial to establish the lower dose range of Chrysalin versus a placebo control, as well as to provide information to support our potential future fracture repair new drug application (“NDA”). Our enrollment goal was 500 patients in approximately 60 sites. On March 15, 2006, we temporarily interrupted enrollment in our Phase 2b fracture repair dosing clinical trial to perform an interim analysis of the 273 patients enrolled up to that date. We plan to announce the results of the interim analysis and our future fracture repair indication plans by the 3^rd Quarter of 2006.

          Dermal Wound Healing

          Our dermal wound healing studies are focused on healing diabetic foot ulcers, a common problem for diabetic patients. Diabetic patients suffer from open wound foot ulcers because diabetes related nerve damage causes the patient to lose sensation. Patients thus may not notice an injury to the foot and neglect the injury. This fact and the diminished blood flow to extremities caused by diabetes cause a diabetic patient’s wounds to heal more slowly or not at all.

          Current standard treatment for diabetic foot ulcer wounds focuses on sanitation of the wound and non-use of the foot (off loading) to allow for the body’s natural healing processes to occur. These treatments require high patient compliance and effectively heal only approximately 33% of these ulcers. Wounds that do not respond to treatment can sometimes result in amputation of the affected limb.

          We believe topical treatment of the wound with Chrysalin will promote new tissue growth necessary for healing of a diabetic foot ulcer. CBI conducted a multicenter Phase 1/2 double blind human trial with 60 patients, the results of which were presented at the Wound Healing Society in May of 2002. We found no drug related adverse events or patient sensitivity to Chrysalin in the trial and complete wound closure occurred in 70% of Chrysalin-treated ulcers relative to 33% in placebo controls, a statistically significant difference.

          Our pre-clinical studies and the initial Phase 1/2 human clinical trial evaluated Chrysalin in a saline formulation. We are currently evaluating various gel formulations of Chrysalin that will make Chrysalin easier for patients to use. We have developed a gel formulation for this indication and our plan is to test the gel formulation in human clinical trials for diabetic ulcer wound healing starting in the second half of fiscal 2006.

          Spine Fusion

          Spine fusion surgery is most commonly performed to treat degenerative disk disease, spinal instability and other disorders of the spine that are believed to be the cause of back and neck pain. The surgery involves the fusing of one or more vertebrae of the spine by placement of bone graft material around the targeted area of the spine during surgery. The body then heals the grafts over several months, which fuses the vertebrae together with newly formed bone so there is no longer movement between the vertebrae.

          The bone used for the graft in this procedure is taken from another bone in the patient, usually from the iliac crest (hip bone) and is called “autograft bone.” In some procedures the patients and physicians elect to use “allograft” bone which is bone processed from cadavers. Autograft bone is currently the primary type of bone graft

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used in spinal fusion surgery and is considered the “gold standard.” Allograft bone is often used but has not been an effective stand-alone substitute for autograft bone because it has no bioactive component to stimulate bone growth. The benefit of using allograft bone is it does not require a separate surgical procedure from the same patient to harvest the bone for the graft.

          Our potential solution to this problem is to combine Chrysalin, either in saline or in a sustained release formulation, with commercially available allograft bone for use in spinal fusion surgery as an alternative to autograft. A completed pre-clinical study, which was presented at the North American Spine Society meeting in October 2004 in Chicago, showed that Chrysalin, in several different formulations combined with allograft bone, caused varying degrees of bone formation in spinal fusion models.

          In addition, we completed enrollment in a small pilot Phase 1/2 human clinical trial evaluating Chrysalin for spine fusion in the spring of 2004. This pilot study included approximately 50 patients and no adverse events related to Chrysalin have been reported in this study.

          Cartilage Defect Repair

          Cartilage tissue is the smooth, slippery cushion that exists where two bones meet to make a joint. Because damaged cartilage generally does not heal but slowly breaks down over time, the result can lead to a complete wearing away of the cartilage, leading to osteoarthritis.

          The primary purpose of exploring Chrysalin’s potential role in cartilage defect repair is to develop a technique to restore, rather than entirely replace, the original cartilage damaged due to acute traumatic events. These techniques, if successful, may also provide a novel approach for partial resurfacing of damaged joint (or “articular”) cartilage due to osteoarthritis. Our potential solution to cartilage defects is to deliver Chrysalin within a sustained-release matrix to the damaged cartilage.

          We have completed several pre-clinical studies evaluating Chrysalin in sustained release formulations for cartilage defect repair. The results to date have been presented at two major international conferences on cartilage repair.

          Cardiovascular Repair

          Coronary artery disease is the narrowing of the arteries that carry blood through the heart and is a leading cause of mortality in the United States and other parts of the western world. The narrowing is usually caused by fatty deposits inside the artery walls that restrict the passage of blood carrying oxygen to the heart muscle. This oxygen insufficiency is the primary cause of chest pain (commonly referred to as “angina”) and, if left untreated, can lead to heart failure and, ultimately, death. The most common treatments for the disease are a regimen of pharmaceuticals that reduce the patient’s cholesterol (slowing the buildup of deposits along artery walls) and surgical procedures to increase the blood flow through the arteries. Up to 15% of patients, however, either cannot undergo the treatments or do not achieve sufficient blood flow after the treatment.

          A potentially new treatment for coronary artery disease is therapeutic angiogenesis, the growing of new blood vessels to deliver blood to the diseased heart. In pre-clinical animal studies conducted over the last two years, Chrysalin injections into the damaged heart appear to trigger a complex sequence of events that culminates in the body’s growth of new blood vessels, enhancing blood delivery to the heart muscle.

          Dental Bone Repair

          We’ve focused on the use of Chrysalin in two dental bone repair situations: dental implants and maxillo-facial reconstruction. For some patients who need dental implants to replace missing teeth, the patient’s bones in the jaw are not strong enough to hold the implanted teeth or supporting structure. The standard treatment in these cases is to insert bone graft material into or above the jaw bones and wait for the body to naturally grow bone around the graft material. This process can take a year or longer, during which a patient must use a temporary external plate with the temporary teeth. In a 2004 pre-clinical study done by CBI in conjunction with Louisiana State University, the incorporation of Chrysalin together with a commercially available bone graft material into the space above the

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rabbit jaw bones resulted in a significant increase in new bone formation. This could translate in a shorter wait for patients to complete their dental implant surgery.

          Tendon Repair

          Tendons are the soft tissue that connects muscles to bone. Tendons are crucial to the biomechanical functions of the body. Injuries to tendons are very common, and typically these injuries are treated either conservatively with rehabilitation techniques or with surgical techniques. These injuries are often slow to heal or do not heal completely. We have conducted preliminary research focused on whether Chrysalin accelerates tendon tissue repair which may result in better restoration of function.

          We are focusing our efforts on the fracture repair and diabetic foot ulcer healing product candidates. The results of our efforts in these two product candidates will determine when and what future actions are taken on the other product candidates described above.

AZX100 — ICARMs™

          AZX100, a 24 amino acid peptide, is one of a new class of compounds in the field of smooth muscle relaxation called Intracellular Actin Relaxing Molecules, or ICARMs™.

          AZX100 relaxes smooth muscle, which modulates the function of blood vessels, sphincters, the gastrointestinal tract, the genitourinary tract, and the airways. 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, including:

• Subarachnoid hemorrhage (SAH) induced spasm of the intracranial blood vessels

• Spasm of vein grafts after harvest

• Spasm of the portal vein (PHT)

• Spasm of airway smooth muscle (asthma)

• Spasm of lung vessels, which causes pulmonary (lung) hypertension

• Male and female sexual dysfunction

• Toxemia of pregnancy (pre-eclampsia/eclampsia)

• Pre-term labor

• Reynaud’s disease or phenomenon

• Achalasia (spasm of the lower esophageal sphincter)

• Non-occlusive mesenteric ischemia

• Hemolytic-uremia

• Prinzmetal’s angina (a form of coronary spasm that causes angina), and

• Anal fissure.

          AZX100 may also reverse 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 currently evaluating AZX100 for applications such as the treatment of vasospasm associated with subarachnoid hemorrhage, prevention of keloid scarring, and the treatment of asthma. Preclinical and human in vitro studies have shown that this novel compound has the ability to relax smooth muscle in multiple tissue types. We plan to continue pre-clinical activities in support of AZX100 in 2006.

          Competition

          The following provides a summary of the competitive conditions relating to indications for which we are considering for our AZX100 and ICARMs research and development activities. For a summary of the competitive conditions relating to Chrysalin-based indications, please see our Annual Report on Form 10-K for the fiscal year

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ended December 31, 2005, and other reports we file with the Securities and Exchange Commission and incorporate by reference into the registration statement of which this prospectus is a part.

          Subarachnoid Hemorrhage (SAH)

Approved

          The only current pharmacological treatment for SAH is the calcium channel antagonist Nimotop (nimodipine). Although Nimotop significantly improves the outcome of surviving patients through a neuroprotective effect, it has not been shown to alter the incidence or magnitude of vasospasm or to decrease mortality. Nimotop carries in the label a “black box” warning regarding i.v. or other parenteral administration.

In Development

          The other potential competing products currently under development for SAH are endothelin antagonists (endothelin has been implicated in SAH-induced vasospasm). Elevated plasma levels of endothelin-1 (ET-1) have been shown to occur in patients with SAH-induced vasospasm, although the timing of endothelin elevation has varied from as early as three days after SAH to 8 – 14 days after SAH. Such differences indicate endothelin may not induce vasospasm, but rather may play a role in vasospasm progression. Conflicting results have also been reported regarding the cerebrospinal fluid levels of ET-1. Taken together, these studies indicate that endothelin may contribute to SAH-induced vasospasm. Thus, clinical trials have been conducted for Acetelion’s endothelial antagonists, clazosentan (specific ET_A receptor antagonist) and bosentan (Tracleer®, dual ET_A and ET_B receptor antagonist). Although bosentan appears effective for pulmonary arterial hypertension, the trial for SAH was discontinued because of a lack of efficacy.

          Roche is developing a follow-up compound from bosentan, Ro 61-1790, to improve water solubility and ET_A potency and has demonstrated in vivo efficacy with a canine double hemorrhage model. In the double hemorrhage model two blood clots must be placed to cause vasospasm. While vasospasm can be demonstrated angiographically, it does not typically result in cerebral infarction. Thus, Ro 61-1790 must be tested in humans to determine whether its improvements will increase efficacy.

          The primary disadvantage of endothelin antagonists is that they act on a single vasoconstrictor, although additional mediators have been implicated in SAH. Therefore, targeting downstream vasorelaxing pathways with administration of AZX100 may be more effective. In addition, the ET receptor is internalized once it interacts with the ET peptide. Thus, this drug may only be effective as a prevention measure, not treatment.

          In addition, the recombinant haemostatic agent NovoSeven (activated factor VIIa) is currently registered for treatment of bleeding of hemophelia patients, but has also been shown to be effective against the intracerebral hemorrhage (ICH) in phase 2b clinical trials. NovoSeven accelerates the coagulation process at the site of ICH limiting hematoma.

Keloid Scarring

Approved

          There is no approved pharmacologic treatment for scarless healing. In the setting of keloid formation, the scars are often excised and treated with steroids with variable results.

In Development

          The potential competing products are recombinant transforming growth ß-3 (TGF- ß-3) and antiTGF- ß-1. Renovo is conducting phase 3 clinical trials in Europe on recombinant hTGF- ß-3 (Justiva). While preliminary efficacy has been shown in healing in healthy individuals, like other therapeutics, rhTGF- ß-3 addresses only part of the pathway that end in phosphorylation of our target molecule and results in scar inhibition. The potential of the AZX100 to completely inhibit the entire scarring pathways suggests that AZX100 may be more effective than rhTGF- ß-3 at scarless healing, Renovo has also begun clinical trials on antihTGF- ß-1, which like rhTGF- ß-3 also

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blocks part of the signaling cascade resulting in scar formation. AZX100 may be more effective than antihTGF- ß-1 through more complete inhibition of the scarring cascade.

          While many other companies are investigating therapeutics for wound healing, these therapeutics will be synergistic with and not competitive with AZX100 as they are targeting more rapid healing and not scar inhibition.

Asthma

          Asthma ranks as the third highest reason for preventable hospitalizations in the U.S. with 470,000 hospitalizations and more than 5,000 deaths each year (American Academy of Allergy Asthma and Immunology Report). Acute asthma accounts for an estimated two-million emergency department visits annually. There are many competitors with asthma products approved or in development. AZX100 has been shown to relax airway smooth muscle and may be developed for the treatment of asthmatic attacks. Specific markets include severe acute asthma and asthma that is refractory to current therapies. Severe asthma has been defined as asthma that is refractory to current therapeutic approaches in clinical use (anti-inflammatory agents and bronchodilators). The current approach is to use ß-adrenergic agonists, which activate the cAMP/PKA pathway. AZX100 is a mimetic of the molecule downstream of this pathway and hence may be more sensitive and specific for the treatment of severe asthma. In addition, patients with severe asthma present to the emergency room for treatment, hence efficacy can be closely monitored and outcomes will be apparent in a short time frame after treatment. Recent data has demonstrated that one out of every six asthmatics has a mutation in the ß-adrenergic receptor. These patients do not respond to ß-adrenergic agonists and in fact do worse when treated with ß-adrenergic agonists. This patient population would be potentially treated with the AZX100 compound in that it acts downstream of the receptors.

          For more information about the status of our drug development efforts, see “Chrysalin Product Platform” above and review our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, and other reports we file with the Securities and Exchange Commission and incorporate by reference into the registration statement of which this prospectus is a part. Chrysalin, ICARMs and OrthoLogic are registered United States domestic trademarks of OrthoLogic Corp.

MATERIAL CHANGES

          On April 5, 2006, James M. Pusey, MD resigned as our President and Chief Executive Officer and as a Class I director of the company. John M. Holliman, III, a director of OrthoLogic since September 1987 and Chairman of the Board of Directors since August 1997, assumed the title of Executive Chairman on that date. In that position, Mr. Holliman will serve as our principal executive officer and will lead our business and corporate strategic activities. Randolph C. Steer, MD, Ph.D. was named our President on April 5, 2006, and will be responsible for directing our strategy and operations in all clinical development and regulatory areas.

          On March 15, 2006, we reported results of our Phase 3 fracture repair human clinical trial. For the primary endpoint, immobilization removal, no statistically significant difference between placebo and a single injection of Chrysalin were achieved. Consistent with the Phase 1/2 human clinical trial results, a statistically significant difference for a secondary endpoint, radiographic evidence of radial cortical bridging, was achieved. However, no statistically significant difference was noted in the study’s other secondary endpoints. On March 15, 2006, we temporarily interrupted enrollment in our Phase 2b fracture repair dosing clinical trial to perform an interim analysis of the 273 patients enrolled up to that date. We plan to announce the results of the interim analysis and our future fracture repair indication plans by the 3^rd Quarter of 2006.

          As disclosed in the Registration Statement on Form S-3 we filed on April 13, 2006, on February 27, 2006 (the “Closing Date”), we closed the initial transactions relating to our Common Stock and Warrant Purchase Agreement (the “Purchase Agreement”) dated February 24, 2006 with PharmaBio Development Inc. (“PharmaBio”), an affiliate of Quintiles Transactional Corp. and Quintiles, Inc., which provides for the purchase of shares of our common stock in three tranches. On the Closing Date, PharmaBio purchased 359,279 shares of our common stock for a purchase price of $2,000,000 based on the average closing stock price for the 15-day period prior to that date. In addition, we also entered into a Class A Warrant Agreement with PharmaBio on the same date, whereby we issued PharmaBio a fully vested warrant to purchase 46,706 shares of our common stock at $6.39 a share. At our election, PharmaBio will purchase an additional amount of our common stock for a purchase price of $1,500,000 on

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each of June 30, 2006 and September 29, 2006 with the number of shares to be determined by the 15-day average closing stock price prior to each such date. Each additional stock purchase will include the issuance of fully vested warrants, exercisable for a ten-year period from the date of issuance, for an amount of shares equal to 13% of the shares purchased on the date of issuance, with the exercise price set at 115% of the share price of each respective share purchase (each, an “Additional Class A Warrant,” and collectively, the “Additional Class A Warrants”). We are also parties to a Class B Warrant Agreement (the “Class B Warrant”), Class C Warrant Agreement (the “Class C Warrant”) and a Class D Warrant Agreement (the “Class D Warrant”) with PharmaBio to purchase in the aggregate up to 240,000 shares of our common stock at $6.39 a share (the Class B Warrant, Class C Warrant and Class D Warrant are collectively referred to in this prospectus as the “Milestone Warrants”). The Milestone Warrants, all dated as of February 24, 2006, will be exercisable for a ten-year period from that date, and will vest based on the achievement of certain milestones.

          In connection with our entry into the Purchase Agreement, we also entered into a Master Services Agreement with Quintiles, Inc. (“Quintiles”) whereby Quintiles will become our exclusive clinical research organization service provider for our Chrysalin Product Platform and will provide certain other technical assistance. As consideration for entry into the Master Services Agreement, we have granted Quintiles the right of first negotiation to promote Chrysalin if it is approved by the U.S. Food and Drug Administration.

          On February 23, 2006, we entered into an agreement to purchase certain assets and assume certain liabilities of AzERx, Inc. The transaction closed on February 27, 2006. Under the terms of the agreement, we acquired an exclusive license for the core intellectual property relating to AzERx’s lead compound, AZX100, a 24-amino acid peptide. AZX100 is currently being investigated for several applications, including the treatment of vasospasm associated with subarachnoid hemorrhage, prevention of keloid scarring, and treatment of asthma. We will continue to develop the new class of compounds in the field of smooth muscle relaxation called Intracellular Actin Relaxing Molecules, or ICARMs™, based on the AZX100 technology.

USE OF PROCEEDS

          The shares of our common stock offered by this prospectus will be sold by the selling security holders, and the selling security holders will receive all of the proceeds from the sale of such shares. We will not receive any proceeds from sales of the shares offered by this prospectus.

SELLING SECURITY HOLDERS

          On February 27, 2006 (the “Closing Date”), pursuant to an Asset Purchase Agreement and Plan of Reorganization (the “Purchase Agreement”), we acquired certain assets and assumed certain liabilities of AzERx, Inc. (“AzERx”) for $390,000 in cash and the issuance of 1,325,000 shares of our common stock (the “AzERx Transaction”). In connection with the AzERx Transaction, on the Closing Date, we also issued 30,000 shares of our common stock to Arizona Science and Technology Enterprises, LLC (“AzTE”), the licensor of AzERx’s core technology patents, for certain modifications of the license. In accordance with the Purchase Agreement, of the 1,325,000 shares originally issued to AzERx, 132,500 shares were deposited in an escrow account for twelve months with Wells Fargo Bank, N.A., as escrow agent, to secure AzERx’s potential indemnification obligations under the Purchase Agreement (the “Escrow Shares”). As part of a plan of reorganization, AzERx distributed to its stockholders 1,192,500 shares, consisting of the 1,325,000 shares of our common stock it received from the sale of its assets to us, less the Escrow Shares. The 1,192,500 shared issued to AzERx and subsequently distributed to its stockholders, the 132,500 Escrow Shares, and the 30,000 additional shares issued to AzTE are being registered for resale under this prospectus.

          The selling security holders will not have the right to sell the Escrow Shares until they are released from the escrow account in accordance with the terms of our escrow agreement with AzERx and the escrow agent (the “AzERx Escrow Agreement”). In the event we are entitled to indemnification under the Purchase Agreement, the indemnification will be satisfied with the Escrow Shares. In that event, the selling security holders will no longer beneficially own the shares of common stock used to satisfy the indemnification obligations and such shares may not be offered pursuant to this prospectus. We will file a prospectus supplement or file any required amendment to the registration statement of which this prospectus is a part in the event any shares of common stock held in escrow

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pursuant to the AzERx Escrow Agreement are used to satisfy indemnification obligations under the Purchase Agreement.

          The registration statement including this prospectus is filed pursuant to our requirement under the Purchase Agreement to register for resale the shares paid to AzERx. The terms of our obligations, which also include our agreement to register for resale the 30,000 shares we issued to AzTE as part of the AzERx Transaction, are evidenced in a registration rights agreement, which is filed as Exhibit 10.2 to the registration statement of which this prospectus is a part. This prospectus also covers any additional shares of our common stock that become issuable in connection with the shares being registered by reason of any stock splits, stock dividends or similar transactions.

          The following table provides certain information as of the date hereof regarding the beneficial ownership of our common stock by the selling security holders prior to and after the issuance of our common stock to the selling security holders in connection with the AzERx Transaction. Beneficial ownership is determined under the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. To our knowledge, except under applicable community property laws, or as otherwise indicated, each person named in the table has sole voting and investment control with regard to all shares beneficially owned by such person. To our knowledge, except as otherwise indicated in footnotes to the table, and other than as a result of each selling security holder’s beneficial ownership of our common stock as a result of the AzERx Transaction, we are not aware of any material relationship between us and any of the selling security holders within the past three years, and none of the selling security holders currently has or had a position or office with us within the past three years.

          Our registration of shares does not necessarily mean that the selling security holders will sell all or any of these securities. We have assumed for purposes of the table below that the selling security holders will sell all of the shares offered for sale. The selling security holders may have sold, transferred or otherwise disposed of all or a portion of their shares, or acquired additional shares, since the date on which they provided information regarding their securities.

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						Shares of
	Shares of					Common Stock
	Common Stock					Beneficially
	Beneficially			Shares to be		Owned Upon
	Owned Before			Sold		Completion of
Selling Security Holder	Offering			in the Offering		the Offering
						Number		% (1)(2)
Arizona Science & Technology Enterprises, LLC (3)		96,250	(4)		96,250		0		*
Colleen M. Brophy (7)		277,488	(5)(6)		277,488		0		*
Charles Robert Flynn		2,781	(8)		2,781		0		*
Elizabeth Furnish (7)		41,720	(6)(9)		41,720		0		*
Dennis Goldberg		32,251	(6)(10)		27,815		0		*
Adam Hansen		1,391	(11)		1,391		0		*
Lokesh Joshi		166,887	(12)		166,887		0		*
Padmini Komalavilas		6,954	(13)		6,954		0		*
Elisabeth McLemore		278	(14)		278		0		*
Alyssa Panitch (7)		246,360	(6)(15)		246,360		0		*
Catherine Parmiter Dreiza		278	(16)		278		0		*
Brandon Seal		2,781	(17)		2,781		0		*
Randolph Steer (18)		20,299	(19)		15,299		0		*
Deron Tessier		1,391	(20)		1,391		0		*
Jeffrey Thresher		6,954	(21)		6,954		0		*
Valley Ventures III, L.P. (22)		397,513	(6)(23)		397,513		0		1.0
Terry E. Winters		62,582	(6)(24)		62,582		0		*
David Woodrum		278	(25)		278		0		*
Total Shares to be Sold in the Offering					1,355,000		0		3.3

*	Less than 1%
(1)	Applicable percentage of ownership is based on 40,673,489 shares of common stock outstanding as of March 28, 2006.

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(2)	Percentage calculation assumes that all of the shares are sold by the selling security holders.
(3)	In connection with the AzERx Transaction, we entered into an Amended and Restated License Agreement (the “License Agreement”) with Arizona Science and Technology Enterprises, LLC (“AzTE”) pursuant to which we hold an exclusive license for the core intellectual property relating to AzERx’s lead compound, AZX100, a 24-amino acid peptide.
(4)	Includes 30,000 shares issued in connection with the execution of the License Agreement and 6,625 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(5)	Includes 27,749 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(6)	Pursuant to the terms of a lock-up agreement with us, the selling security holder has agreed to not sell or otherwise dispose of more than 10% of the shares received and beneficially owned by such selling security holder in connection with the AzERx Transaction in any calendar month until the second anniversary of the Closing Date.
(7)	In connection with the AzERx Transaction, on February 23, 2006, the selling security holder entered into a consulting agreement with us, whereby she will perform certain consulting services relating to the AZX100 technology and certain other research and development work requested by us.
(8)	Includes 278 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(9)	Includes 4,172 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(10)	Includes 2,782 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(11)	Includes 139 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(12)	Includes 16,689 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(13)	Includes 695 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(14)	Includes 28 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(15)	Includes 24,636 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(16)	Includes 28 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(17)	Includes 278 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(18)	Dr. Steer was named our President on April 5, 2006. Pursuant to the terms of a lock-up agreement with us, Dr. Steer has agreed to not sell or otherwise dispose of more than 10% of the shares received and

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	beneficially owned by him in connection with the AzERx Transaction in any calendar month until the second anniversary of the Closing Date.
(19)	Includes 1,530 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement and 5,000 shares issuable upon exercise of options.
(20)	Includes 139 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(21)	Includes 695 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(22)	Mr. Holliman, a director since September 1987 and the chairman of our board of directors since August 1997, is a member of the AzERx board of directors and is affiliated with the selling security holder, an investment fund that owned approximately 30% of AzERx’s fully diluted equity at the time of the AzERx Transaction. In addition, on April 5, 2006, Mr. Holliman became our Executive Chairman.
(23)	Includes 39,751 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(24)	Includes 6,258 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.
(25)	Includes 28 shares currently held in escrow by Wells Fargo Bank, N.A. to secure potential indemnification obligations of AzERx under the Purchase Agreement.

PLAN OF DISTRIBUTION

          We will not receive any of the proceeds from the resale by the selling security holders of any of the securities covered by this prospectus. The aggregate proceeds to the selling security holders from the sale of our common stock will be the purchase price of the common stock less any discounts and commissions. The selling security holders reserve the right to accept and, together with their agents, to reject, any proposed purchase of common stock to be made directly or through agents. As used in this prospectus, to the extent applicable, “selling security holders” includes holders of shares of our common stock received from the selling security holders after the date of this prospectus and who received such shares by gift, partnership distribution or by other non-sale related transfer by the selling security holders, including transfers to an immediate family member of such stockholder, by will or through operation of the laws of descent and distribution, and their respective administrators, guardians, receivers, executors or other persons acting in a similar capacity.

          The common stock may be sold from time to time to purchasers:

• directly by the selling security holders and their successors, which includes their transferees, pledgees or donees or their successors; or

• through underwriters, broker-dealers or agents who may receive compensation in the form of discounts, concessions or commissions from the selling security holders or the purchasers of the common stock. These discounts, concessions or commissions may be in excess of those customary in the types of transactions involved.

          The shares held by the selling security holders listed on the selling security holder table above that are currently held in escrow pursuant to the AzERx Escrow Agreement may not be sold by the selling security holders until February 28, 2007 when they are released from escrow, to the extent any such shares have not been used to satisfy indemnification obligations under the Purchase Agreement.

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          Pursuant to lock-up agreements with Alyssa Panitch, Colleen Brophy, Elizabeth Furnish, Terry Winters, Dennis Goldberg, Randolph Steer and Valley Ventures III, the resale of the shares of our common stock received and beneficially owned by such selling security holders and permitted transferees in connection with the AzERx Transaction is limited to no more than 10% of such shares in any calendar month until February 27, 2008.

          The selling security holders and any underwriters, broker-dealers or agents who participate in the distribution of the common stock may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended. As a result, any profits on the sale of the common stock by the selling security holders and any discounts, commissions or concessions received by any such broker-dealers or agents may be deemed to be underwriting discounts, and “underwriters” within the meaning of the Securities Act will be subject to prospectus delivery requirements of the Securities Act. If any of the selling security holders are deemed to be underwriters, such selling security holders may be subject to certain statutory liabilities, including, without limitation, liabilities under Sections 11, 12 and 17 of the Securities Act and Rule 10b-5 under the Securities Exchange Act of 1934, as amended. If the common stock is sold through underwriters, broker-dealers or agents, the selling security holders will be responsible for underwriting discounts or commissions or agent’s commissions.

          The common stock may be sold in one or more transactions at:

• fixed prices;

• prevailing market prices at the time of sale;

• prices related to such prevailing market prices;

• varying prices determined at the time of sale; or

• negotiated prices.

          These sales may be effected in transactions:

• on any national securities exchange or quotation service on which the common stock may be listed or quoted at the time of the sale;

• in the over-the-counter market;

• otherwise than on such exchanges or services or in the over-the-counter market;

• through the writing and exercise of options, whether such options are listed on an options exchange or otherwise; or

• through the settlement of short sales.

          These transactions may include block transactions or crosses. Crosses are transactions in which the same broker acts as an agent on both sides of the trade.

          In connection with the sales of the common stock or otherwise, the selling security holders may enter into hedging transactions with broker-dealers or other financial institutions. These broker-dealers or other financial institutions may in turn engage in short sales of the common stock in the course of hedging their positions. The selling security holders may also sell the common stock short and deliver common stock to close out short positions, or loan or pledge common stock to broker-dealers that in turn may sell the common stock.

          Broker-dealers engaged by the selling security holders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling security holders do not expect these commissions and discounts to exceed what is customary in the types of transactions involved.

          The selling security holders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling security holders to include the pledgee, transferee or other successors in interest as selling security holders under this prospectus.

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          At the time a particular offering is made, if required, a prospectus supplement will be distributed, which will set forth the names of the selling security holders, the aggregate amount and type of securities being offered, the price at which the securities are being sold and other material terms of the offering, including the name or names of any underwriters, broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling security holders and any discounts, commissions or concessions allowed or reallowed to broker-dealers.

          We cannot be certain that the selling security holders will sell any or all of the common stock pursuant to this prospectus. Further, we cannot assure you that the selling security holders will not transfer, devise or gift the common stock by other means not described in this prospectus, including sales under Rule 144 of the Securities Act. The common stock may be sold in some states only through registered or licensed brokers or dealers. In addition, in some states the common stock may not be sold unless it has been registered or qualified for sale or an exemption from registration or qualification is available and complied with.

          The selling security holders and any other person participating in the sale of the common stock will be subject to the Exchange Act. The Exchange Act rules include, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the common stock by the selling security holders and any other such persons. In addition, Regulation M may restrict the ability of any person engaged in the distribution of the common stock and the ability of any person or entity to engage in market-making activities with respect to the common stock.

          We have agreed to pay substantially all expenses incidental to the registration, offering and sale of the common stock to the public, other than commissions, fees and discounts of underwriters, brokers, dealers and agents. We have also agreed to indemnify the selling security holders and related persons against specified liabilities, including liabilities under the Securities Act.

          Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling persons, we have been informed that in the opinion of the Securities and Exchange Commission, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

DESCRIPTION OF CAPITAL STOCK

          Our restated certificate of incorporation provides that we have the authority to issue 100 million shares of $0.0005 par value common stock and 2 million shares of $0.0005 par value preferred stock.

          The following is a summary of the material provisions of our common stock and preferred stock. This summary does not purport to be exhaustive and is qualified in its entirety by reference to applicable Delaware law and our restated certificate of incorporation and bylaws.

Common Stock

          The holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Stockholders are not entitled to cumulate their votes for the election of directors. Subject to preferences that may be applicable to any outstanding shares of preferred stock, the holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued upon completion of this offering will be fully paid and nonassessable.

          The transfer agent for our common stock is Bank of New York.

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Preferred Stock

          Under our restated certificate of incorporation, our board of directors has the authority, without further action by our stockholders, to issue up to 2 million shares of preferred stock in one or more series and to fix the variations in the powers, preferences, rights, qualifications, limitations or restrictions of the preferred stock, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights of our common stock. Our board of directors, without stockholder approval, can issue preferred stock with voting, conversion or other rights that could adversely affect the voting power and other rights of the holders of our common stock. As a result, preferred stock could be issued quickly with terms that will delay or prevent a change of control or make removal of management more difficult. In addition, the issuance of preferred stock may have the effect of decreasing the market price of our common stock and may adversely affect the voting and other rights of our common stock. At present, there are no shares of preferred stock outstanding and we have no current plans to issue any shares of preferred stock.

Preferred Stock Purchase Rights

          We have entered into a Rights Agreement, dated as of March 4, 1997, as amended, with Bank of New York, pursuant to which each outstanding share of our common stock has attached one preferred stock purchase right. Each share of our common stock subsequently issued prior to the expiration of the Rights Agreement will likewise have attached one right. Under specified circumstances involving a merger, an acquisition of 15% or more of our outstanding common stock, a tender offer or exchange offer resulting in ownership of 20% or more of our common stock by an acquiring person or a sale of 50% or more of our assets or earning power, the rights will entitle the holder thereof to purchase 1/100 of a share of our Series A preferred stock for a purchase price of $25.00 (subject to adjustment), and to receive, upon exercise, common shares having a value equal to two times the exercise price of the right. In this prospectus, unless the context requires otherwise, all references to our common stock include the accompanying rights.

          Currently, the rights are not exercisable and trade with our common stock.

Delaware Law

          We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, this statute prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date that the person became an interested stockholder unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation’s voting stock.

Certain Anti-Takeover Provisions

          Stockholders’ rights and related matters are governed by Delaware corporate law, our restated certificate of incorporation (the “Restated Certificate”) and our bylaws. Certain provisions of the Restated Certificate and bylaws which are summarized below may discourage or have the effect of delaying or deferring potential changes in control of OrthoLogic Corp. Our board of directors believes that these provisions are in the best interests of stockholders because they will encourage a potential acquirer to negotiate with the board of directors, which will be able to consider the interests of all stockholders in a change-in-control situation. However, the cumulative effect of these terms may be to make it more difficult to acquire and exercise control of OrthoLogic Corp. and to make changes in our management.

          The Restated Certificate provides for the approval of the holders of two-thirds of our outstanding voting stock for a merger or a consolidation with, or a sale by us of all or substantially all of our assets to, any person, firm or corporation, or any group thereof, which owns, directly or indirectly, 5% or more of any class of our voting securities (an “Interested Person”). In addition, two-thirds approval is required with respect to other transactions

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involving any such Interested Person, including among other things, purchase by us or any of our subsidiaries of all or substantially all of the assets or stock of an Interested Person and any other transaction with an Interested Person which requires stockholder approval under Delaware law. The two-thirds voting requirement is not applicable to any transaction approved by our board of directors if a majority of the members of the board of directors voting to approve such transaction were elected prior to the date on which the other party became an Interested Person or certain other conditions are met (the “Continuing Directors”).

     The Restated Certificate provides that each director will serve for a three-year term and that approximately one-third of the directors are to be elected annually. Candidates for directors shall be nominated only by the board of directors or by a stockholder who gives us written notice no later than 20 days before the annual meeting or, in the case of a special meeting, the close of business on the 15^th day following the date on which notice of such special meeting is first given to the stockholders. We may have three to nine directors as determined from time to time by our Board, which currently consists of six members. Between stockholder meetings, our Board may appoint new directors to fill vacancies or newly created directorships. The Restated Certificate does not provide for cumulative voting at stockholder meetings for the election of directors. Stockholders controlling at least 50% of the outstanding common stock can elect the entire board of directors, while stockholders controlling 49% of the outstanding common stock may not be able to elect any directors. A director may be removed from office only for cause and only by the affirmative vote of a majority of the combined voting power of the then outstanding shares of capital stock entitled to vote generally in the election of directors.

     The Restated Certificate further provides that stockholder action must be taken at a meeting of stockholders and may not be effected by any consent in writing. Special meetings of stockholders may be called only by the President, a majority of the board of directors or the holders of at least 35% of the outstanding shares of capital stock entitled to vote.

     The Restated Certificate provides further that the foregoing provisions of the Restated Certificate and bylaws may be amended or repealed only with the affirmative vote of at least two-thirds of the shares entitled to vote, unless the amendment is recommended for stockholder approval by a majority of the Continuing Directors. These provisions exceed the usual majority vote requirement of Delaware law and are intended to prevent the holders of less than two-thirds of the voting power from circumventing the foregoing terms by amending the Restated Certificate or bylaws. These provisions, however, enable the holders of more than one-third of the voting power to prevent amendments to the foregoing anti-takeover provisions of the Restated Certificate or bylaws even if they were favored by the holders of a majority of the voting power.

     The effect of such provisions of our Restated Certificate and bylaws may be to make more difficult the accomplishment of a merger or other takeover or change in control of OrthoLogic Corp. To the extent that these provisions have this effect, removal of our incumbent board of directors and management may be rendered more difficult. Furthermore, these provisions may make it more difficult for stockholders to participate in a tender or exchange offer for common stock and in so doing may diminish the market value of the common stock.

Limitations on Personal Liability of Directors

     Delaware law authorizes a Delaware corporation to eliminate or limit the personal liability of a director to the corporation and its stockholders for monetary damages for breach of certain fiduciary duties as a director. We believe that such a provision is beneficial in attracting and retaining qualified directors, and accordingly the Restated Certificate includes a provision eliminating liability for monetary damages for any breach of fiduciary duty as a director, except: (1) for any breach of the duty of loyalty to OrthoLogic Corp. or our stockholders; (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) for any transaction from which the director derived an improper personal benefit; or (4) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law. Thus, pursuant to Delaware law, our directors are not insulated from liability for breach of their duty of loyalty (requiring that, in making a business decision, directors act in good faith and in the honest belief that the action was taken in the best interest of the corporation). The foregoing provisions of the Restated Certificate may reduce the likelihood of derivative litigation against directors and may discourage or deter stockholders or management from bringing a lawsuit against directors for breaches of the fiduciary duties, even though an action, if successful, might otherwise have benefited us and our stockholders. Further, we have entered into indemnity agreements with all of

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our directors and officers for the indemnification of and advancing of expenses to such persons to the fullest extent permitted by law. We have also obtained insurance for the benefit of our officers and directors insuring such persons against certain liabilities, including liabilities under the securities laws.

LEGAL MATTERS

     The validity of the securities to be sold pursuant to this prospectus is being passed upon for us by our counsel, Quarles & Brady Streich Lang LLP, Phoenix, Arizona.

EXPERTS

     The financial statements, the related financial statement schedule and management’s report on the effectiveness of internal control over financial reporting incorporated in this prospectus by reference from the OrthoLogic Corp. Annual Report on Form 10-K for the year ended December 31, 2005 have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their reports (which reports (1) express an unqualified opinion on the financial statements and financial statement schedule and include an explanatory paragraph referring to the fact that OrthoLogic Corp. is in the development stage at December 31, 2005, (2) express an unqualified opinion on management’s assessment regarding the effectiveness of internal control over financial reporting, and (3) express an unqualified opinion on the effectiveness of internal control over financial reporting, which are incorporated herein by reference, and have been so incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

REGISTRATION STATEMENT AND OTHER GOVERNMENT FILINGS

Securities and Exchange Commission

     We have filed with the Securities and Exchange Commission (the “SEC”) a registration statement on Form S-3 under the Securities Act with respect to our common stock offered in this prospectus. This prospectus does not contain all of the information set forth in the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete and, in each instance, reference is made to the copy of that contract or document filed as an exhibit to the registration statement, each of these statements being qualified in all respects by that reference.

     We are subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended. As such, we file annual, quarterly and special reports, proxy statements and other documents with the SEC. These reports, proxy statements and other documents, as well as the registration statement of which this prospectus is a part and the exhibits to such registration statement, may be inspected and copied at the public reference facilities maintained by the SEC at its Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of such material by mail from the public reference facilities of the SEC’s Washington, D.C. offices, at prescribed rates. Please call the SEC at 1-800-SEC-0330 for further information on its public reference facilities. The SEC also maintains a website that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC at the address “http://www.sec.gov.” The registration statement of which this prospectus is a part, including all exhibits and amendments to such registration statement, is available on that website.

Nasdaq

     Our common stock is listed on The NASDAQ National Market. Material filed by us can also be inspected and copied at the offices of the National Association of Securities Dealers, Inc. at 1735 K Street, N.W., Washington, D.C. 20006.

30

OrthoLogic Corp.

     Most of our SEC filings also are available at our website at “http://www.orthologic.com.” Information contained on our website is not part of this prospectus. We will provide you without charge, upon your oral or written request, with a copy of any or all reports, proxy statements and other documents we file with the SEC, as well as any or all of the documents incorporated by reference in this prospectus or the registration statement of which it is a part (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Requests for such copies should be directed to:

OrthoLogic Corp.
Attention: Corporate Secretary
1275 West Washington Street
Tempe, Arizona 85281
Telephone number: (602) 286-5520

INFORMATION INCORPORATED BY REFERENCE

     The SEC allows us to “incorporate by reference” in this prospectus certain information we file with the SEC, which means that:

• incorporated documents are considered a part of this prospectus;

• we can disclose important information to you by referring you to those documents; and

• certain information that we file after the date of this prospectus with the SEC will automatically update and supersede information contained in this prospectus and the registration statement.

     We incorporate by reference into this prospectus the following documents, and filings we make after the initial filing of the registration statement but before it becomes effective, and any future filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of this prospectus (other than current reports or portions thereof furnished under Item 2.02 or Item 7.01 of Form 8-K) until we sell all of the securities that we have registered under the registration statement of which this is a part:

• Our Annual Report on Form 10-K for the year ended December 31, 2005;

• Our Current Reports on Form 8-K filed with the SEC on January 19, 2006, January 31, 2006, February 16, 2006, March 1, 2006, March 3, 2006, March 7, 2006, March 13, 2006, March 15, 2006 and April 11, 2006;

• The description of our common stock contained in our Registration Statement on Form 8-A dated January 28, 1993, and any further amendment or report updating that description; and

• The description of our Series A preferred stock purchase rights contained in our Registration Statement on Form 8-A filed with the SEC on March 6, 1997, as amended as described in Forms 8-K filed with the SEC on August 24, 1999 and October 20, 2003, and any further amendment or report updating that description.

31

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 14. Other Expenses of Issuance and Distribution.

     The estimated expenses in connection with the issuance and distribution of the securities covered by this registration statement, all of which will be paid by the registrant, are as follows:

SEC registration fee (actual)	$	256.62	(1)
Printing and engraving expenses		1,000
Legal fees and expenses		10,000
Accounting fees and expenses		10,000
Miscellaneous		1,000
Total	$	22,256.62

(1) The filing fee of $256.62 has been previously paid.

Item 15. Indemnification of Directors and Officers.

     Section 145 of the General Corporation Law of the State of Delaware, or DGCL, empowers a Delaware corporation to indemnify any person who was or is a party, or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was an officer or director of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful.

     A Delaware corporation may indemnify past or present officers and directors of such corporation or of another corporation or other enterprise at the former corporation’s request, in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in defense of any action referred to above, or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys’ fees) which such person actually and reasonably incurred in connection therewith. Section 145 further provides that any indemnification shall be made by the corporation only as authorized in each specific case upon a determination that indemnification of such person is proper because he has met the applicable standard of conduct (i) by the stockholders, (ii) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (iii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iv) by independent legal counsel in a written opinion, if there are no such disinterested directors, or if such disinterested directors so direct. Section 145 further provides that indemnification pursuant to its provisions is not exclusive of other rights of indemnification to which a person may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

     We have directors’ and officers’ insurance which provides for indemnification of our officers and directors and certain other persons against liabilities and expenses incurred by any of them in certain stated proceedings and

II-1

under certain stated conditions. We have also entered into separate indemnification agreements with each of our directors and certain officers that may require us, among other things, to indemnify such directors and officers against certain liabilities that may arise by reason of their status or service as directors or officers to the maximum extent permitted under Delaware law.

     Our restated certificate of incorporation provides that indemnification shall be available to the fullest extent permitted by the DGCL for all current or former directors or officers. Reference is made to Item 17 for OrthoLogic’s undertakings with respect to indemnification for liabilities arising under the Securities Act.

Item 16. Exhibits.

     See the Exhibit Index following the Signatures page in this registration statement, which Exhibit Index is incorporated herein by reference.

Item 17. Undertakings.

     (a) The undersigned registrant hereby undertakes:

          (1) to file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) to include any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and (iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

provided, however, that clauses (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) above do not apply if the registration statement is on Form S-3 and the information required to be included in a post-effective amendment by those clauses is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement;

          (2) that, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;

          (3) to remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering;

          (4) that, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:

(i)	each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(ii)	each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act of

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1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which the prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; and

(iii)

each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use;

          (5) that, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

(i)	Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii)	Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)	The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of an undersigned registrant; and
(iv)	Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

     (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-3

     (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 15 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

II-4

SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Tempe, State of Arizona, on April 25, 2006.

ORTHOLOGIC CORP.
By:	/s/ John M. Holliman, III
	John M. Holliman, III
	Executive Chairman

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John M. Holliman, III, Les M. Taeger, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and to sign any registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the following persons in the capacities and on the date indicated.*

Signature	Title
/s/ John M. Holliman, III	Executive Chairman (Principal Executive Officer),
John M. Holliman, III	Chairman of the Board and Director
/s/ Les M. Taeger	Senior Vice President and Chief Financial Officer
Les M. Taeger	(Principal Financial and Accounting Officer)
/s/ Augustus A. White III	Director
Augustus A. White III, MD, Ph.D.
/s/ Frederic J. Feldman	Director
Frederic J. Feldman, Ph.D.
/s/ Michael D. Casey	Director
Michael D. Casey
/s/ William M. Wardell	Director
William M. Wardell, MD, Ph.D.
/s/ Elwood D. Howse, Jr.	Director
Elwood D. Howse, Jr.

* Each of the above signatures is affixed as of April 25, 2006.

S-1

ORTHOLOGIC CORP.
(the “Company”)

EXHIBIT INDEX
TO
FORM S-3 REGISTRATION STATEMENT

     The following exhibits are filed with or incorporated by reference in this registration statement:

		Incorporated Herein	Filed
Exhibit	Description	By Reference To	Herewith
2.1	Asset Purchase Agreement and Plan of Reorganization by and between OrthoLogic Corp. and Chrysalis Biotechnology, dated April 28, 2004*	Exhibit 2.1 to the Company’s Registration Statement on Form S-4 filed with the SEC on June 3, 2004 (“June 2004 S-4”)
2.2	Amendment No. 1 to Asset Purchase Agreement and Plan of Reorganization by and between OrthoLogic Corp. and Chrysalis Biotechnology, dated June 1, 2004*	Exhibit 2.2 to the Company’s June 2004 S-4
2.3	Amendment No. 2 to Asset Purchase Agreement and Plan of Reorganization between OrthoLogic Corp. and Chrysalis Biotechnology, Inc., dated August 5, 2004*	Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on August 6, 2004
4.1	Rights Agreement dated as of March 4, 1997, between the Company and Bank of New York, and Exhibits A, B and C thereto	Exhibit 4.1 to the Company’s Registration Statement on Form 8-A filed with the SEC on March 6, 1997
4.2	First Amendatory Agreement to March 4, 1997 Rights Agreement	Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 24, 1999
4.3	Amendment No. 2 to March 4, 1997 Rights Agreement	Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 20, 2003
4.4	Class A Warrant Agreement dated February 24, 2006, between OrthoLogic Corp. and PharmaBio Development Inc.	Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on March 3, 2006 (the “March 3rd 8-K”)
4.5	Class B Warrant Agreement dated February 24, 2006, between OrthoLogic Corp. and PharmaBio Development Inc. (asterisks located within exhibit denote information that has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)	Exhibit 4.2 to the March 3rd 8-K
4.6	Class C Warrant Agreement dated February 24, 2006, between OrthoLogic Corp. and PharmaBio Development Inc. (asterisks located within exhibit denote information that has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)	Exhibit 4.3 to the March 3rd 8-K

		Incorporated Herein	Filed
Exhibit	Description	By Reference To	Herewith
4.7	Class D Warrant Agreement dated February 24, 2006, between OrthoLogic Corp. and PharmaBio Development Inc. (asterisks located within exhibit denote information that has been deleted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission)	Exhibit 4.4 to the March 3rd 8-K
4.8	Form of Class A Warrant Agreement for Additional Class A Warrants	Exhibit 4.8 to Company’s Registration Statement on Form S-3 filed with the SEC on April 13, 2006 (the “April 13th S-3”)
5.1	Opinion of Quarles & Brady LLP		X
10.1	Asset Purchase Agreement and Plan of Reorganization dated February 23, 2006, by and between the Company and AzERx, Inc.		X
10.2	Registration Rights Agreement dated February 27, 2006, by and among the Company, AzERx, Inc. and the stockholders identified therein	Exhibit 10.3 to the April 13th S-3
10.3	Common Stock and Warrant Purchase Agreement dated February 24, 2006, by and between the Company and PharmaBio Development Inc.	Exhibit 10.1 to the April 13th S-3
10.4	Registration Rights Agreement dated February 24, 2006, between PharmaBio Development Inc. and the Company	Exhibit 10.2 to the April 13th S-3
10.5	Amended and Restated License Agreement dated February 23, 2006 between the Company and Arizona Science & Technology Enterprises, LLC		X
23.1	Consent of Deloitte & Touche LLP		X
23.2	Consent of Quarles & Brady LLP		(Included in Exhibit 5.1)
24.1	Powers of Attorney		(Included in the Signature Page)

* Upon the request of the Securities and Exchange Commission, OrthoLogic Corp. agrees to furnish supplementally a copy of any schedule to the Asset Purchase Agreement and Plan of Reorganization between the Company and Chrysalis Biotechnology, Inc., dated as of April 28, 2004, as amended.

EX-5.1

Exhibit 5.1

Renaissance One

Two North Central Avenue

Phoenix, Arizona 85004-2391

602.229.5200

Fax 602.229.5690

www.quarles.com

April 24, 2006

OrthoLogic Corp.
1275 West Washington Street
Tempe, Arizona 85281

Ladies and Gentlemen:

     We are providing this opinion in connection with the Registration Statement of OrthoLogic Corp. (the “Company”) on Form S-3 (the “Registration Statement”) to be filed with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Act”). This opinion is being furnished in accordance with the requirements of Item 601(b)(5) of Regulation S-K under the Act.

     The Registration Statement relates to the offer and resale of up to an aggregate of 1,355,000 shares (the “Shares”) of the Company’s common stock, par value $.0005 per share by the selling security holders identified in the Registration Statement. The Shares were issued in connection with the transactions contemplated by the Asset Purchase Agreement and Plan of Reorganization by and between the Company and AzERx, Inc., dated February 23, 2006 (the “Asset Purchase Agreement”) and a Side Letter Agreement dated February 23, 2006 between the Company, AzERx, Inc. and Arizona Science and Technology Enterprises, LLC (the “Side Letter”).

     We have examined (i) the Registration Statement; (ii) the Registration Rights Agreement dated February 27, 2006, by and among the Company, AzERx, Inc. and the stockholders identified therein (the “Registration Rights Agreement”); (iii) the Asset Purchase Agreement; (iv) the Side Letter; (v) the Company’s Restated Certificate of Incorporation and By-Laws, as amended to date; (vi) corporate proceedings of the Company relating to the Registration Statement and the transactions contemplated thereby; and (vii) such other documents and such matters of law as we have deemed necessary in order to render this opinion.

     In rendering the opinion set forth below, we have assumed that: (i) all information contained in all documents reviewed by us is true and correct; (ii) all signatures on all documents examined by us are genuine; (iii) all documents submitted to us as originals are authentic and all documents submitted to us as copies conform to the originals of those documents; (iv) each natural person signing any document reviewed by us had the legal capacity to do so; (v) each person signing in a representative capacity (other than on behalf of the Company) any document reviewed by us had authority to sign in such capacity; (vi) the Registration Statement, and any amendments thereto (including post-effective amendments) will have become effective and

Ortho Logic Corp.
April 24,2006
Page 2

comply with all applicable laws; (vii) the Shares covered by the Registration Statement were issued by the Company and will be resold by the selling security holders identified in the Registration Statement (and permitted transferees) in compliance with applicable federal and state securities laws and in the manner stated in the Registration Statement and in accordance with the Registration Rights Agreement; (viii) the Asset Purchase Agreement and the Side Letter are enforceable in accordance with their terms; (ix) the certificates representing the Shares have been duly executed and delivered; and (x) the Company’s Restated Certificate of Incorporation and By-Laws as amended to date and resolutions of the Company’s Board of Directors specifically authorizing the issuance and sale of the Shares in accordance with the Asset Purchase Agreement and the Side Letter remain in effect and unmodified, except as may be required as set forth in this opinion.

     On the basis and subject to the foregoing, we advise you that, in our opinion:

(1)	The Company is a corporation validly existing under the laws of the State of Delaware.
(2)	The Shares issued pursuant to the Asset Purchase Agreement and Side Letter are validly issued, fully paid, and non-assessable.

     We consent to the filing of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to our firm under the caption “Legal Matters” in the prospectus constituting a part thereof. In giving our consent, we do not admit that we are “experts” within the meaning of Section 11 of the Act, or that we come within the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission thereunder.

Very truly yours,

/s/ Quarles & Brady Streich Lang

QUARLES & BRADY STREICH LANG LLP

EX-10.1

Exhibit 10.1
Execution Copy

ASSET PURCHASE AGREEMENT AND

PLAN OF REORGANIZATION

BY AND BETWEEN

ORTHOLOGIC CORP.

AND

AzERx, Inc.

February 23, 2006

Table of Contents

			Page
ARTICLE I		DEFINITIONS		1
	1.1	Definitions		1
ARTICLE II		BASIC TRANSACTION		7
	2.1	Purchase and Sale of Assets		7
	2.2	Excluded Assets		8
	2.3	Assumption of Liabilities		8
	2.4	Purchase Price		9
	2.5	Ancillary Documents		9
	2.6	The Closing		10
	2.7	No Actions to Affect Tax Free Reorganization		10
ARTICLE III		REPRESENTATIONS AND WARRANTIES OF AZERX		10
	3.1	Organization of AzERx		10
	3.2	Authorization of Transaction		10
	3.3	Capital Stock		11
	3.4	Noncontravention		11
	3.5	Brokers’ Fees		11
	3.6	Title to Assets		12
	3.7	Financial Statements		12
	3.8	Events Subsequent to Fiscal Quarter ended December 31, 2005		12
	3.9	Undisclosed Liabilities		14
	3.10	Legal Compliance		14
	3.11	Pharmaceutical Regulation		14
	3.12	Ethical Practices		15
	3.13	Tax Matters		15
	3.14	Real Property		16
	3.15	Intellectual Property		16
	3.16	Tangible Assets		18
	3.17	Inventory		18
	3.18	Contracts		18
	3.19	[Intentionally Omitted]		20

i

Table of Contents
(continued)

			Page
	3.20	Powers of Attorney		20
	3.21	Insurance		20
	3.22	Litigation		20
	3.23	Product Claims		20
	3.24	Product Liability		20
	3.25	Employees		21
	3.26	Employee Benefits		21
	3.27	Guaranties		21
	3.28	Environmental, Health, and Safety Matters		21
	3.29	Certain Business Relationships With AzERx		22
	3.30	Investment		22
ARTICLE IV		REPRESENTATIONS AND WARRANTIES OF ORTHOLOGIC		22
	4.1	Organization of OrthoLogic		23
	4.2	Authorization of Transaction		23
	4.3	Noncontravention		23
	4.4	Capitalization		23
	4.5	Reservation of Shares; Private Offering		24
	4.6	Information		24
	4.7	Brokers’ Fees		24
	4.8	Tax Matters		25
ARTICLE V		PRE-CLOSING COVENANTS		25
	5.1	General		25
	5.2	Operation of Business		25
	5.3	Preservation of Business		25
	5.4	Preservation of Intellectual Property		26
	5.5	Full Access		26
	5.6	Notice of Developments		26
	5.7	Exclusivity		26
	5.8	Stockholder Approval		26
	5.9	Notices and Consents		27

ii

Table of Contents
(continued)

			Page
ARTICLE VI		CONDITIONS TO OBLIGATIONS TO CLOSE		27
	6.1	General Conditions to Execution of Agreement		27
	6.2	General Conditions to Closing		28
	6.3	Conditions to Obligation of OrthoLogic		28
	6.4	Conditions to Obligation of AzERx		29
ARTICLE VII		INDEMNIFICATION		30
	7.1	Indemnity by AzERx		30
	7.2	Indemnity by OrthoLogic		31
	7.3	Provisions Regarding Indemnities		31
	7.4	Indemnification Procedure		32
	7.5	Dispute Resolution Mechanisms		34
	7.6	Representative		37
	7.7	Exclusive Remedy		37
ARTICLE VIII		TERMINATION		37
	8.1	Termination of Agreement		37
	8.2	Effect of Termination		38
ARTICLE IX		POST-CLOSING COVENANTS; MISCELLANEOUS		38
	9.1	Compliance with HIPAA Privacy Rules		38
	9.2	Covenant Not to Compete		38
	9.3	Survival of Representations and Warranties		38
	9.4	Confidentiality and Public Announcements		38
	9.5	Material Nonpublic Information		39
	9.6	No Third-Party Beneficiaries		39
	9.7	Entire Agreement		39
	9.8	Succession and Assignment		39
	9.9	Counterparts		39
	9.10	Headings		39
	9.11	Notices		40
	9.12	Governing Law		41
	9.13	Amendments and Waivers		41

iii

Table of Contents
(continued)

		Page
9.14	Severability		41
9.15	Expenses		41
9.16	Construction		41
9.17	Incorporation of Exhibits and Schedules		42
9.18	Specific Performance		42
9.19	Bulk Transfer Laws		42

EXHIBITS

Exhibit A	Escrow Agreement
Exhibit B	Certain Excluded Assets
Exhibit C	Certain Assumed Liabilities
Exhibit D	Lockup Agreement
Exhibit E	Tangible Assets
Exhibit F	Assumed Contracts
Exhibit G	Registration Rights Agreement
Exhibit H	Financial Statements
Exhibit I	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure Agreement (Brophy)
Exhibit J	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure Agreement (Panitch)
Exhibit K	Consulting Agreement and Intellectual Property, Confidentiality and Non-Disclosure Agreement (Furnish)
Exhibit L	Confidentiality and Noncompetition Agreement
Exhibit M	Form of AzERx Opinion
Exhibit N	Form of OrthoLogic Opinion

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ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION

     THIS ASSET PURCHASE AGREEMENT AND PLAN OF REORGANIZATION is entered into as of the 23rd day of February, 2006, by and between OrthoLogic Corp., a Delaware corporation (“OrthoLogic”), and AzERx, Inc., a Delaware corporation (“AzERx”). OrthoLogic and AzERx are referred to collectively herein as the “Parties” and individually as “Party.”

RECITALS

     WHEREAS, AzERx is a biopharmaceutical company engaged in the development of peptide drugs for disorders involving smooth muscle tone and fibrosis (the “Business”);

     WHEREAS, AzERx desires to sell to OrthoLogic, and OrthoLogic desires to purchase from AzERx, substantially all of the assets and properties of AzERx, and in connection therewith, OrthoLogic is willing to assume certain specified liabilities of AzERx relating thereto, all upon the terms and subject to the conditions and provisions set forth herein; and

     WHEREAS, for United States federal income tax purposes, it is intended that the purchase contemplated by this Agreement will qualify as a reorganization under the provisions of Section 368(a)(1)(C) of the Code (as defined below), and that this Agreement constitutes a plan of reorganization within the meaning of Section 1.368-2(g) of the income tax regulations promulgated under the Code (the “Treasury Regulations”).

AGREEMENT

     NOW THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth, and in consideration of the representations, warranties and covenants herein contained, the Parties hereby agree as follows.

ARTICLE I

DEFINITIONS

     1.1 Definitions.

     “AAA” has the meaning set forth in Section 7.5(c).

     “Accredited Investor” has the meaning set forth in Rule 501 of Regulation D, promulgated under the Securities Act.

     “Acquired Assets” has the meaning set forth in Section 2.1.

     “Affiliate” has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.

     “Affiliated Group” means any affiliated group within the meaning of Code §1504(a) or any similar group defined under a similar provision of state, local or foreign law.

     “Agreement” means this Asset Purchase Agreement and Plan of Reorganization, as amended or supplemented from time to time, together with all exhibits and schedules delivered pursuant hereto.

     “Assumed Contracts” has the meaning set forth in Section 2.1(e).

     “Assumed Liabilities” has the meaning set forth in Section 2.3(a).

     “AzERx” has the meaning set forth in the preface above.

     “AzERx’s Knowledge” means actual knowledge of Terry Winters, Colleen Brophy, Alyssa Panitch, Elizabeth Furnish, Ellen Shaver, Randolph Steer and Dennis Goldberg.

     “AzTE” has the meaning set forth in Section 2.1(c).

     “AzTE Agreement” has the meaning set forth in Section 2.1(c).

     “AzTE License” has the meaning set forth in Section 2.1(c).

     “AzTE Option Agreement” has the meaning set forth in Section 2.1(c).

     “Basis” means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act or transaction that forms or could form the basis for any specified consequence.

     “Business” has the meaning set forth in the recitals above.

     “Business Day” shall mean any day other than a Saturday, a Sunday or a day on which banks in New York, New York are authorized or obligated by law or executive order to close.

     “Cash” means cash and cash equivalents (including marketable securities and short term investments) calculated in accordance with GAAP and applied on a basis consistent with the preparation of the Financial Statements.

     “Closing” has the meaning set forth in Section 2.6.

     “Closing Date” has the meaning set forth in Section 2.6.

     “Closing Date Shares” has the meaning set forth in Section 2.4(b).

     “Closing Date Stock Price” shall mean the average closing sale price of OrthoLogic’s common stock as reported by the Nasdaq National Market for the 15 trading days immediately preceding the Closing Date.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Consent Action” shall have the meaning set forth in Section 5.8.

     “DEA” means the United States Drug Enforcement Administration.

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     “Debt” with respect to a Person means all liabilities or obligations of such Person, whether primary or secondary or absolute or contingent: (a) for borrowed money; (b) that are evidenced by notes, bonds, debentures or similar instruments; or (c) relating to the guaranty, creation or assumption of any liability or obligation of any other Person.

     “Disclosure Schedule” has the meaning set forth in ARTICLE III.

     “Dispute” has the meaning set forth in Section 7.5.

     “Employee Benefit Plan” means any “employee benefit plan” (as such term is defined in ERISA §3(3)) and any other employee benefit plan, program or arrangement of any kind.

     “Employee Pension Benefit Plan” has the meaning set forth in ERISA §3(2).

     “Employee Welfare Benefit Plan” has the meaning set forth in ERISA §3(1).

     “Environmental, Health and Safety Requirements” shall mean all federal, state, local and foreign statutes, regulations, ordinances and other provisions having the force or effect of law, all judicial and administrative orders and determinations, all contractual obligations and all common law concerning public health and safety, worker health and safety, and pollution or protection of the environment, including without limitation all those relating to the presence, use, production, generation, handling, transportation, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, release, threatened release, control or cleanup of any hazardous materials, substances or wastes, chemical substances or mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum products or byproducts, asbestos, polychlorinated biphenyls, noise or radiation, each as amended and as now or hereafter in effect.

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Escrow Agent” means Wells Fargo Bank, N.A., a national banking association.

     “Escrow Agreement” means the agreement between OrthoLogic, AzERx, Representative and the Escrow Agent in substantially the form of Exhibit A.

     “Excluded Assets” has the meaning set forth in Section 2.2.

     “FDA” means the United States Food and Drug Administration.

     “Financial Statements” has the meaning set forth in Section 3.7.

     “GAAP” means United States generally accepted accounting principles as in effect from time to time.

     “HIPAA” means the Health Insurance Portability and Accountability Act of 1996, as amended.

     “HIPAA Privacy Rules” has the meaning set forth in Section 9.1.

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     “Intellectual Property” means (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, patent applications and patent disclosures, together with all reissuances, continuations, continuations-in-part, revisions, extensions and reexaminations thereof, (b) all trademarks, service marks, trade dress, logos, trade names and corporate names, together with all translations, adaptations, derivations and combinations thereof, and including all goodwill associated therewith, and all applications, registrations and renewals in connection therewith, (c) all copyrightable works, all copyrights and all applications, registrations, and renewals in connection therewith, (d) all trade secrets and confidential business information (including ideas, research and development, know-how, formulas, compositions, manufacturing, production and research processes and techniques, technical data, designs, drawings, specifications, customer and supplier lists, pricing and cost information and business and marketing plans and proposals), (e) all computer software (including data and related documentation), (f) all licenses through which any person holds rights to any technology or other intellectual property, and in the case of AzERx, including but not limited to the AzTE Agreement and the Washington University Agreement, (g) all other proprietary rights and (h) all copies and tangible embodiments of the foregoing (in whatever form or medium).

     “Inventory” has the meaning set forth in Section 2.1(b).

     “Leased Real Property” means all leasehold or subleasehold estates and other rights to use or occupy any land, buildings, structures, improvements, fixtures or other interest in real property held by AzERx.

     “Leases” means all leases, subleases, licenses, concessions and other agreements (written or oral), including all amendments, extensions, renewals, guaranties and other agreements with respect thereto, pursuant to which AzERx holds any Leased Real Property, including the right to all security deposits and other amounts and instruments deposited by or on behalf of AzERx thereunder.

     “Liability” means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated and whether due or to become due), including any liability for Taxes.

     “Lockup Agreement” shall mean a Lockup Agreement substantially in the form of Exhibit D attached hereto.

     “Lockup Stockholder” shall have the meaning set forth in Section 2.5(c).

     “Losses” has the meaning set forth in Section 7.1.

     “Material Adverse Change” with respect to a Party means any adverse event, condition, change, circumstance or effect that, individually or in the aggregate, is or is reasonably likely to materially adversely affect (i) the condition (financial or otherwise), properties, business, results of operations, assets (including intangible assets), or Liabilities of such Party, taken as a whole, or (ii) the ability of such Party to consummate the transactions contemplated hereby.

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     “Most Recent Balance Sheet” means the audited balance sheet of AzERx dated as of December 31, 2005.

     “Most Recent Fiscal Month End” means the month ended prior to the date of this Agreement.

     “Most Recent Fiscal Year End” has the meaning set forth in Section 3.7.

     “Multiemployer Plan” has the meaning set forth in ERISA §4001(a)(3).

     “NDA” means a new drug application with the FDA.

     “Non-Compete Area” has the meaning set forth in Section 9.2(c).

     “Non-Compete Term” has the meaning set forth in Section 9.2(b).

     “Notes and Accounts Receivable” means all notes and accounts receivable of AzERx, including, without limitation, all amounts receivable from the stockholders of AzERx and amounts receivable through the Closing Date pursuant to agreements with respect to the Small Business Technology Transfer (STTR) Program.

     “Ordinary Course of Business” means the ordinary course of business consistent with past custom and practice of AzERx as a biopharmaceutical research company.

     “OrthoLogic” has the meaning set forth in the preface above.

     “OrthoLogic Common Stock” means OrthoLogic common stock, par value $.0005 per share.

     “OrthoLogic Reports” has the meaning set forth in Section 4.6(a).

     “Owned Real Property” means all land, together with all buildings, structures, improvements and fixtures located thereon, including all electrical, mechanical, plumbing and other building systems, fire protection, security and surveillance systems, telecommunications, computer, wiring and cable installations, utility installations, water distribution systems and landscaping, together with all easements and other rights and interests appurtenant thereto (including air, oil, gas, mineral and water rights) owned by AzERx.

     “Parties” has the meaning set forth in the preface above.

     “Party” has the meaning set forth in the preface above.

     “PBGC” means the Pension Benefit Guaranty Corporation.

     “Person” means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof).

     “Phase 3 Trial” has the meaning set forth in Section 9.5.

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     “PHI” has the meaning set forth in Section 9.1.

     “Purchase Price” has the meaning set forth in Section 2.4.

     “Registration Rights Agreement” has the meaning set forth in Section 2.5(b).

     “Replacement” has the meaning set forth in Section 7.5(e)(vii).

     “Representative” has the meaning set forth in Section 7.6.

     “Request” has the meaning set forth in Section 7.5(c).

     “Securities Act” means the Securities Act of 1933, as amended.

     “Securities Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “Security Interest” means any mortgage, pledge, lien, encumbrance, charge or other security interest, other than (a) mechanics’, materialmen’s, and similar liens or (b) liens for Taxes not yet due and payable.

     “Special Meeting” has the meaning set forth in Section 5.8.

     “Tax” means any federal, state, local or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code §59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not.

     “Tax Return” means any return, declaration, report, claim for refund or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.

     “Treasury Regulations” has the meaning set forth in the recitals above.

     “Washington University Agreement” has the meaning set forth in Section 2.1(d).

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ARTICLE II

BASIC TRANSACTION

     2.1 Purchase and Sale of Assets. On and subject to the terms and conditions of this Agreement, OrthoLogic hereby agrees to purchase from AzERx and AzERx hereby agrees to sell, transfer, convey, assign and deliver to OrthoLogic, free and clear of any Security Interest, all of the Acquired Assets at the Closing for the consideration specified in Section 2.4 below. The Acquired Assets shall mean all of the assets specified below in this Section and all other tangible and intangible assets owned by AzERx, other than the Excluded Assets, including, without limitation:

          (a) Tangible Assets. Subject to Section 2.2, all of the tangible assets of AzERx, including, without limitation, the items described in Exhibit E;

          (b) Inventory. All of the inventories and supplies of AzERx, as of the Closing Date (the “Inventory”);

          (c) Rights in AzTE Agreement. All of AzERx’s rights in, under and pursuant to and relating to the Option Agreement dated March 25, 2004, between Arizona Science and Technology Enterprises, LLC (“AzTE”) and AzERx, as amended, revised or supplemented in connection with the consummation of the transactions contemplated hereby (the “AzTE Option Agreement”), and any license or other agreement arising therefrom or pursuant thereto or contemplated thereby, as amended and restated in accordance with the terms of the side letter referred to in Section 6.1(b) of this Agreement (the “AzTE License” and together with the AzTE Option Agreement, the “AzTE Agreement”);

          (d) Rights in Washington University Agreement. All of AzERx’s rights in, under and pursuant to the Nonexclusive License Agreement between The Washington University and AzERx, dated August 1, 2004 (the “Washington University Agreement”);

          (e) Contracts. All of AzERx’s rights in, to and under the additional contracts set forth on Exhibit F, together with the AzTE Agreement and the Washington University Agreement, as well as such other contracts as AzERx may subsequently enter into prior to the Closing, which OrthoLogic shall elect to assume (the “Assumed Contracts”);

          (f) Intellectual Property. All of AzERx’s rights, title and interest in and to any Intellectual Property as of the Closing Date, goodwill associated therewith, licenses and sublicenses granted and obtained with respect thereto, and rights thereunder, remedies against infringements thereof, rights to protection of interests therein under the laws of all jurisdictions and the right to sue for past infringement thereof; and

          (g) Miscellaneous. To the extent transferable, any and all approvals, permits, licenses, orders, registrations, certificates, variances and similar rights obtained from governments and governmental agencies related to the Business. Subject to Section 2.2, any and all books, records, ledgers, files, documents, correspondence, lists, plats, architectural plans, drawings and specifications, creative materials, advertising and promotional materials, studies, evaluations, study results, reports and other printed or written materials related to the Business.

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     2.2 Excluded Assets. On and subject to the terms and conditions of this Agreement, the Parties hereby agree that OrthoLogic will not purchase and AzERx will retain all right, title and interest in and to the following (collectively, the “Excluded Assets”):

          (a) AzERx’s rights under this Agreement and any other agreement ancillary hereto and delivered by AzERx to OrthoLogic in connection herewith;

          (b) All of AzERx’s Cash;

          (c) AzERx’s bank accounts, checkbooks and cancelled checks;

          (d) AzERx’s insurance policies;

          (e) AzERx’s corporate charter (not including the corporate name), minute and stock record books, corporate seal, accounting records and tax returns;

          (f) All Notes and Accounts Receivable; and

          (g) the assets, if any, listed on Exhibit B.

     2.3 Assumption of Liabilities. At the Closing, on and subject to the terms and conditions of this Agreement, OrthoLogic hereby agrees to assume and become responsible for all of the Assumed Liabilities.

          (a) The Assumed Liabilities shall mean:

               (i) all liabilities, obligations and commitments of AzERx pursuant to or relating to the Assumed Contracts arising after the Closing Date;

               (ii) all liabilities, obligations and commitments of AzERx pursuant to or relating to the AzTE Agreement and the Washington University Agreement arising after the Closing Date; and

               (iii) the liabilities, if any, listed on Exhibit C.

          (b) Assumed Liabilities shall not include (by way of example and without limitation):

               (i) any Liabilities of AzERx not assumed as part of the Assumed Liabilities under Section 2.3(a) above;

               (ii) any Debt of AzERx not assumed as part of the Assumed Liabilities under Section 2.3(a) above;

               (iii) any Liability of AzERx for Taxes;

               (iv) any Liability of AzERx for income, transfer, sales, use, and other Taxes arising in connection with the consummation of the transactions contemplated hereby (including any income Taxes arising because AzERx is transferring the Acquired Assets);

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               (v) any Liability of AzERx for the unpaid Taxes of any Person (other than AzERx) under Treas. Reg. §1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise;

               (vi) any obligation of AzERx to indemnify any Person by reason of the fact that such Person was a director, manager, officer, employee or agent of AzERx or was serving at the request of AzERx as a partner, manager, trustee, director, officer, employee or agent of another entity (whether such indemnification is for judgments, damages, penalties, fines, costs, amounts paid in settlement, losses, expenses or otherwise, and whether such indemnification is pursuant to any statute, charter document, bylaw, agreement or otherwise);

               (vii) any Liability of AzERx for costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby;

               (viii) any Liability or obligation of AzERx under this Agreement (or under any other agreement between AzERx on the one hand and OrthoLogic on the other hand entered into on or after the date of this Agreement); or

               (ix) any Liability or obligation of AzERx arising out of AzERx’s Employee Benefit Plans or severance agreements with its employees.

     2.4 Purchase Price. On and subject to the terms and conditions of this Agreement, OrthoLogic hereby agrees to pay to AzERx the following consideration (the “Purchase Price”):

          (a) on the Closing Date, OrthoLogic will pay to AzERx $390,000 in cash, payable by wire transfer or delivery of other immediately available funds; and

          (b) on the Closing Date, subject to Sections 2.5 and 2.6 hereof, OrthoLogic will issue and deliver to AzERx 1,325,000 shares of OrthoLogic Common Stock (the “Closing Date Shares”).

     2.5 Ancillary Documents.

          (a) On the Closing Date, OrthoLogic shall deposit in escrow with the Escrow Agent 10% of the Closing Date Shares, all of which will be held subject to and released in accordance with the Escrow Agreement.

          (b) On the Closing Date, OrthoLogic will have evidenced its agreement hereunder to register for resale the OrthoLogic Common Stock issued to AzERx as part of the Purchase Price in accordance with, and subject to, the terms and conditions specified in the Registration Rights Agreement in the form attached hereto as Exhibit G (the “Registration Rights Agreement”).

          (c) AzERx agrees that it will not resell or otherwise dispose of (except for distribution of Closing Date Shares to its stockholders) more than 10% of the Closing Date Shares, in any calendar month prior to the second anniversary of the Closing Date. AzERx further agrees that as a condition to the distribution of Closing Date Shares to AzERx’s stockholders in accordance with the terms hereof, AzERx shall cause each of Alyssa Panitch,

9

Colleen Brophy, Elizabeth Furnish, Terry Winters, Dennis Goldberg, Randolph Steer and Valley Ventures III, L.P., a Delaware limited partnership (each, a “Lockup Stockholder”) to first enter into a Lockup Agreement, pursuant to which each Lockup Stockholder will agree to resell no more than 10% of the Closing Date Shares received by such stockholder in any calendar month prior to the second anniversary of the Closing Date.

     2.6 The Closing. The closing of the purchase and sale transactions contemplated by this Agreement (the “Closing”) shall take place at the offices of Quarles & Brady Streich Lang LLP, located at One Renaissance Square, Two North Central Avenue, Phoenix, Arizona, 85004, commencing at 10:00 a.m. local time on February 28, 2006, or such other date as the Parties may mutually determine (the “Closing Date”).

     2.7 No Actions to Affect Tax Free Reorganization. The Parties intend, by executing this Agreement, to adopt a plan of reorganization within the meaning of Treasury Regulation §1.368-2(g), and to cause the transactions contemplated hereby to qualify as a “reorganization” under the provisions of Code §368(a)(1)(C). Neither party shall take any action that is inconsistent with the characterization of the transactions contemplated hereby, or would otherwise cause such transactions to fail to qualify as a “reorganization” within the meaning of Code §368(a)(1)(C). Notwithstanding the foregoing, no Party makes any representations as to the Tax consequences of the transactions contemplated by this Agreement.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF AZERX

     AzERx represents and warrants to OrthoLogic that the statements contained in this ARTICLE III are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE III), except as set forth in the disclosure schedule accompanying this Agreement (the “Disclosure Schedule”). Except where an exhibit is provided for the disclosure of information required under this ARTICLE III, any disclosures to be made on the Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this ARTICLE III. If a disclosure is not provided under a paragraph so numbered, it shall be presumed that AzERx has no such items to disclose in respect of the corresponding section.

     3.1 Organization of AzERx. AzERx is a corporation duly organized, validly existing and in good standing under the laws of Delaware. AzERx has no subsidiaries.

     3.2 Authorization of Transaction. AzERx has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. Without limiting the generality of the foregoing, to the extent required by law or under the governing documents of AzERx, the board of directors of AzERx and AzERx’s stockholders have duly authorized the execution, delivery and performance of this Agreement by AzERx and the consummation of the transactions contemplated hereby. This Agreement constitutes the valid and legally binding obligation of AzERx, enforceable in accordance with its terms and conditions.

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     3.3 Capital Stock. Section 3.3 of the Disclosure Schedule accurately and completely sets forth a complete list of AzERx’s capital structure by listing thereon the number of shares of capital stock of AzERx and rights to acquire such capital stock that are authorized and that are issued and outstanding. All of the issued and outstanding shares of capital stock of AzERx (a) are duly authorized, validly issued, fully paid and nonassessable, (b) free and clear of all mortgages, liens, pledges, Security Interests, charges, claims, restrictions and encumbrances of any nature whatsoever and defects of title whatsoever, (c) are held of record and beneficially owned as set forth on Section 3.3 of the Disclosure Schedule, and (d) were not issued in violation of the preemptive rights of any person or any agreement or laws, statutes, orders, decrees, rules, regulations or judgments of any governmental entity by which AzERx, at the time of issuance, was bound. Except as set forth in Section 3.3 of the Disclosure Schedule, no shares of capital stock of AzERx are reserved for issuance or are held as treasury shares, and except as disclosed on Section 3.3 of the Disclosure Schedule: (i) there are no outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, subscriptions, claims of any character, agreements, obligations, convertible or exchangeable securities or other plans or commitments, contingent or otherwise, relating to the capital stock or other similar interests of AzERx or that could require AzERx to issue, sell or otherwise cause to become outstanding any of its capital stock, other than as contemplated by this Agreement; (ii) there are no outstanding contracts or other agreements of AzERx or any other Person to purchase, redeem or otherwise acquire any outstanding shares of the capital stock of AzERx, or securities or obligations of any kind convertible into any shares of the capital stock of AzERx; (iii) there are no dividends which have accrued or been declared but are unpaid on the capital stock of AzERx; (iv) there are no outstanding or authorized stock appreciation, phantom stock, stock plans or similar rights with respect to AzERx; and (v) there are no voting trusts or similar agreements relating to the voting of AzERx stock in effect with respect to AzERx.

     3.4 Noncontravention. Except as set forth in Section 3.4 of the Disclosure Schedule, neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby (with or without notice or the lapse of time) will: (i) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any agreement, contract, Lease, license, instrument or other arrangement to which AzERx is a party or by which it is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets); (ii) accelerate, terminate, modify or cancel any contract or agreement related to the patents, patent rights, licenses or license rights underlying the AzTE Agreement and the Washington University Agreement; or (iii) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency, or court to which AzERx is subject or any provision of the charter, bylaws or resolutions of the Board of Directors or stockholders of AzERx. AzERx does not need to give any notice to, make any filing with or obtain any authorization, consent or approval of, any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement.

     3.5 Brokers’ Fees. AzERx has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement for which OrthoLogic could become liable or obligated.

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     3.6 Title to Assets. AzERx has good and marketable title to, or a valid license or leasehold interest in, the properties and assets used by it, located on its premises, or shown on the Most Recent Balance Sheet or acquired after the date thereof, free and clear of all Security Interests, except for the Excluded Assets and properties and assets disposed of in the Ordinary Course of Business since the Most Recent Fiscal Year End. Without limiting the generality of the foregoing, AzERx has good and marketable title to all of the Acquired Assets, free and clear of any Security Interest or restriction on transfer.

     3.7 Financial Statements. Attached hereto as Exhibit H are the following financial statements (collectively, the “Financial Statements”): (i) unaudited balance sheets and statements of income, as of and for the fiscal years ended December 31, 2004 and 2005 (the fiscal year ended December 31, 2005 being referred to herein as the “Most Recent Fiscal Year End”) for AzERx. The Financial Statements have been prepared in accordance with AzERx’s customary practices applied on a consistent basis throughout the periods covered thereby, (which are not in accordance with GAAP, due to absence of footnotes and customary accruals, among other things) present fairly in all material respects in accordance with such practices the financial condition of AzERx as of such dates and the results of operations of AzERx for such periods, are correct and complete in all material respects in accordance with such practices and are consistent with the books and records of AzERx (which books and records are correct and complete in all material respects).

     3.8 Events Subsequent to Fiscal Quarter ended December 31, 2005. Since December 31, 2005, there has not been any Material Adverse Change and no event has occurred or circumstances exist that may result in a Material Adverse Change. Without limiting the generality of the foregoing, except as set forth in Section 3.8 of the Disclosure Schedule, since that date:

          (a) AzERx has not sold, leased, transferred or assigned any of its assets, tangible or intangible, other than for a fair consideration in the Ordinary Course of Business;

          (b) AzERx has not entered into any agreement, contract, Lease or license (or series of related agreements, contracts, Leases and licenses) either involving more than $10,000 or outside the Ordinary Course of Business;

          (c) no party (including AzERx) has accelerated, terminated, modified or cancelled any agreement, contract, Lease or license (or series of related agreements, contracts, Leases and licenses) involving more than $10,000 to which AzERx is a party or by which any of them is bound;

          (d) AzERx has not imposed any Security Interest upon any of its assets, tangible or intangible;

          (e) AzERx has not made any capital expenditure (or series of related capital expenditures) either involving more than $10,000 or outside the Ordinary Course of Business;

          (f) AzERx has not made any capital investment in, any loan to, or any acquisition of, the securities or assets of, any other Person (or series of related capital

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investments, loans and acquisitions) either involving more than $5,000 or outside the Ordinary Course of Business;

          (g) AzERx has not issued any note, bond or other debt security or created, incurred, assumed or guaranteed any indebtedness for borrowed money or capitalized lease obligation either involving more than $10,000 singly or $20,000 in the aggregate;

          (h) AzERx has not delayed or postponed the payment of accounts payable and other Liabilities involving more than $10,000 singly or $20,000 in the aggregate;

          (i) AzERx has not cancelled, compromised, waived or released any right or claim (or series of related rights and claims) either involving more than $10,000 or outside the Ordinary Course of Business;

          (j) AzERx has not transferred, encumbered nor granted any license or sublicense of, any rights under or with respect to any Intellectual Property of AzERx;

          (k) AzERx has not licensed or entered into joint development agreements regarding any Intellectual Property owned by or licensed to AzERx, or incurred any material expense, entered into any material transaction or otherwise taken any action outside the Ordinary Course of Business;

          (l) there has been no change made or authorized in the charter or bylaws of AzERx;

          (m) AzERx has not issued, sold or otherwise disposed of any of its capital stock, or granted any options, warrants or other rights to purchase or obtain (including upon conversion, exchange or exercise) any of its capital stock;

          (n) AzERx has not declared, set aside or paid any dividend or made any distribution with respect to its capital stock (whether in cash or in kind) or redeemed, purchased or otherwise acquired any of its capital stock;

          (o) AzERx has not made any loan to, or entered into any other transaction with, any of its directors, officers, managers or employees;

          (p) AzERx has not entered into any employment contract or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement;

          (q) AzERx has not granted any increase in the base compensation of any of its directors, officers, managers or employees;

          (r) AzERx has not made any other change in employment terms for any of its directors, managers, officers or employees;

          (s) AzERx has not made or pledged to make any charitable or other capital contribution;

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          (t) there has not been any other material occurrence, event, incident, action, failure to act or transaction outside the Ordinary Course of Business involving AzERx; and

          (u) AzERx has not committed to any of the foregoing.

     3.9 Undisclosed Liabilities. AzERx has no Liability (and there is to AzERx’s Knowledge no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against it giving rise to any Liability), except for Liabilities set forth in the Financial Statements or Section 3.9 of the Disclosure Schedule.

     3.10 Legal Compliance.

          (a) AzERx and its respective predecessors and Affiliates have complied in all respects with all applicable laws (including rules, regulations, codes, plans, injunctions, judgments, orders, decrees, rulings and charges thereunder) of federal, state, local and foreign governments (and all agencies thereof), and no action, suit, proceeding, hearing, investigation, charge, complaint, claim, demand or notice has been filed or commenced against any of them alleging any failure so to comply.

          (b) Without limiting the generality of the foregoing Section 3.10(a), AzERx is currently in compliance with all applicable provisions of HIPAA and all regulations pertinent to HIPAA, including HIPAA regulations and requirements effective through the date of this Agreement.

     3.11 Pharmaceutical Regulation. Except as set forth in Section 3.11 of the Disclosure Schedule:

          (a) AzERx possesses all required registrations, licenses and other permits from the FDA, United States Drug Enforcement Administration (“DEA”), relevant foreign and state agencies, institutional review boards and any other relevant agencies to conduct its business as presently conducted;

          (b) To the extent applicable, AzERx is in compliance with the Prescription Drug Marketing Act, the Federal Controlled Substances Act, the Food, Drug and Cosmetic Act, as amended, applicable state, FDA, DEA and equivalent foreign or state agencies’ regulations, including, but not limited to, requirements for the receipt, security, inventory, and distribution of pharmaceutical products, and record-keeping and reporting requirements;

          (c) No regulatory agency forms, reports (including establishment, rating and inspection reports) or correspondence have been received by AzERx from or with the FDA, DEA or equivalent foreign or state regulatory agencies;

          (d) No warning letters, other regulatory letters, notices of violation, notices of hearing or adverse findings have been received by AzERx identifying potential violations of, or deviations from, FDA, DEA or equivalent foreign or state agency regulatory requirements;

          (e) No regulatory audits have been performed with respect to AzERx by any outside auditor; and

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          (f) AzERx has not received any warning letter regarding potential adverse findings involving any drug that currently is or was at any time under development by AzERx, or any of AzERx’s Intellectual Property from the FDA or the equivalent state regulatory agency nor, to AzERx’s Knowledge is there any reasonable Basis for AzERx to receive a warning letter or other regulatory letter, other adverse regulatory communication or become named in an action, or civil or criminal investigation or action.

     3.12 Ethical Practices. Neither AzERx nor any representative thereof has offered or given, and to AzERx’s Knowledge, no Person has offered or given on their behalf, anything of value to: (i) any official of a governmental entity, any political party or official thereof, or any candidate for political office; (ii) any customer or member of a governmental entity; or (iii) any other Person, in any such case where such payment would violate any applicable law or ethical guideline or would constitute a bribe, kickback or illegal or improper payment to assist AzERx in obtaining or retaining business for, or with, or directing business to, any Person.

     3.13 Tax Matters.

          (a) AzERx has timely filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all applicable laws and regulations. All Taxes owed by AzERx (whether or not shown on any Tax Return) have been paid. AzERx is not currently the beneficiary of any extension of time within which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where AzERx does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets (whether Acquired Assets or Excluded Assets) of AzERx that arose in connection with any failure (or alleged failure) to pay any Tax.

          (b) AzERx has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party and all Forms W-2 and 1099 required with respect thereto have been properly completed and timely filed.

          (c) No stockholder, director or officer (or employee responsible for Tax matters) of AzERx expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of AzERx either (i) claimed or raised by any authority in writing or (ii) as to which any of the stockholders and the directors and officers (and employees responsible for Tax matters) of AzERx has Knowledge based upon personal contact with any agent of such authority. Section 3.13(c) of the Disclosure Schedule lists all federal, state, local, and foreign income Tax Returns filed with respect to AzERx for taxable periods since January 1, 2003, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. AzERx has delivered to OrthoLogic correct and complete copies of all federal income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by AzERx since January 1, 2003.

          (d) AzERx has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.

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          (e) The unpaid Taxes of AzERx (i) did not, as of the Most Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto) and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of AzERx in filing its Tax Returns.

          (f) None of the Assumed Liabilities is an obligation to make a payment that will not be deductible under Code Section 280G. AzERx has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. AzERx is not a party to any Tax allocation or sharing agreement. AzERx (i) has not been a member of an Affiliated Group filing a consolidated federal income Tax Return (other than a group the common parent of which was AzERx) or (ii) has no Liability for the Taxes of any Person under Reg. §1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise.

          (g) Section 3.13(g) of the Disclosure Schedule sets forth the basis of AzERx in its assets as of the most recent practicable date.

          (h) AzERx will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period (or portion thereof) ending after the Closing Date as a result of (i) a change in method of accounting for a taxable period (or portion thereof) ending on or prior to the Closing Date, (ii) any “closing agreement,” as described in Code Section 7121 (or any corresponding provision of state, local or foreign income Tax law), (iii) any Intercompany Transaction (as defined in Treasury Regulation Section 1.1502-13) or any Excess Loss Account (as defined in Treasury Regulation Section 1.1502-19) (or any corresponding or similar provision or administrative rule of federal, state, local or foreign income Tax law), (iv) any installment sale or open transaction made on or prior to the Closing Date or (v) as a result of any prepaid amount received on or prior to the Closing Date.

          (i) AzERx has not distributed stock of any Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Code Section 355 or Code Section 361.

     3.14 Real Property.

          (a) AzERx has no Owned Real Property and has never had any Owned Real Property.

          (b) AzERx has no Leased Real Property and has never had any Leased Real Property.

     3.15 Intellectual Property.

          (a) AzERx owns or has the right to use pursuant to license, sublicense, agreement or permission all Intellectual Property necessary or desirable for the operation of the Business as presently conducted. Each item of Intellectual Property (including, specifically, the AzTE Agreement and the Washington University Agreement) owned or used by AzERx

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immediately prior to the Closing will be owned or available for use by OrthoLogic on identical terms and conditions immediately subsequent to the Closing. AzERx has taken all necessary and desirable action to maintain and protect each item of Intellectual Property that it owns or uses.

          (b) The AzTE Agreement and the Washington University Agreement have been executed and delivered by the relevant parties, are binding on such parties in accordance with their terms and are effective as of the date hereof.

          (c) AzERx has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of third parties, and AzERx has never received any charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation or violation (including any claim that AzERx must license or refrain from using any Intellectual Property rights of any third party) by AzERx. To AzERx’s Knowledge, no third party has interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property rights of AzERx.

          (d) No patent or registration has been issued to AzERx with respect to any of its Intellectual Property, and no patent application or application for registration is pending with respect to any of its Intellectual Property. Section 3.15(d) of the Disclosure Schedule identifies each license, agreement or other permission which AzERx has granted to any third party with respect to any of its Intellectual Property (together with any exceptions). AzERx has delivered to OrthoLogic correct and complete copies of all such licenses, agreements and permissions (as amended to date). Section 3.15(d) of the Disclosure Schedule identifies each trade name or trademark used in connection with the Business. With respect to each item of Intellectual Property required to be identified in Section 3.15(d) of the Disclosure Schedule:

               (i) AzERx possesses all right, title, and interest in and to the item, free and clear of any Security Interest, license, or other restriction;

               (ii) the item is not subject to any outstanding injunction, judgment, order, decree, ruling or charge;

               (iii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to AzERx’s Knowledge, is threatened which challenges the legality, validity, enforceability, use or ownership of the item; and

               (iv) except as set forth in Section 3.15(d)(iv) of the Disclosure Schedule, AzERx has never agreed to indemnify any Person for or against any interference, infringement, misappropriation or other conflict with respect to the item.

          (e) Section 3.15(e) of the Disclosure Schedule identifies each item of Intellectual Property that any third party owns and that AzERx uses pursuant to license, sublicense, agreement or permission. AzERx has delivered to OrthoLogic correct and complete copies of all such licenses, sublicenses, agreements and permissions (as amended to date). With respect to each item of Intellectual Property required to be identified in Section 3.15(e) of the Disclosure Schedule, except as disclosed therein:

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               (i) the license, sublicense, agreement or permission covering the item is legal, valid, binding, enforceable in accordance with its terms and in full force and effect;

               (ii) the license, sublicense, agreement or permission will continue to be legal, valid, binding, enforceable and in full force and effect (as assigned to OrthoLogic, including the AzTE Agreement and the Washington University Agreement) on identical terms following the consummation of the transactions contemplated by this Agreement;

               (iii) AzERx is not, and to AzERx’s Knowledge, no other party to the license, sublicense, agreement or permission is in breach or default thereof, and no event has occurred which, with notice or lapse of time or both, would constitute a breach or default by AzERx, or to AzERx’s Knowledge, such other party, or permit termination, modification or acceleration thereunder by AzERx, or to AzERx’s Knowledge, such other party;

               (iv) no party to the license, sublicense, agreement or permission has repudiated any provision thereof;

               (v) with respect to each sublicense, the representations and warranties set forth in subsections 3.15(e)(i) through 3.15(e)(iv) above are true and correct with respect to the underlying license;

               (vi) the underlying item of Intellectual Property is not subject to any outstanding injunction, judgment, order, decree, ruling or charge;

               (vii) no action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending or, to AzERx’s Knowledge, is threatened which challenges the legality, validity or enforceability of the underlying item of Intellectual Property; and

               (viii) AzERx has not granted any sublicense or similar right with respect to the license, sublicense, agreement or permission, which is currently in effect.

          (f) AzERx has delivered to OrthoLogic all reports, studies, opinions, evaluations, tests, research, studies and any other material from any source within AzERx’s Knowledge which AzERx reasonably believes would be a material factor in the evaluation of the validity and value of, and rights with respect to, the AzERx Intellectual Property.

     3.16 Tangible Assets. AzERx owns or leases the tangible assets set forth in Section 3.16 of the Disclosure Schedule, all of which are included in the Acquired Assets and does not own or lease any other material tangible assets. Each tangible asset listed in Section 3.16 of the Disclosure Schedule has been maintained in accordance with manufacturer’s suggested practice, is in good operating condition and repair (subject to normal wear and tear), and is suitable for the purposes for which it presently is used.

     3.17 Inventory. The Inventory of AzERx consists of seven (7) grams of AZX100.

     3.18 Contracts. Section 3.18 of the Disclosure Schedule lists the following contracts and other agreements to which AzERx is a party:

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          (a) any agreement (or group of related agreements) for the lease of personal property to or from any Person providing for lease payments in excess of $5,000 per annum;

          (b) any agreement (or group of related agreements) for the purchase or sale of raw materials, commodities, supplies, products or other personal property, or for the furnishing or receipt of services, the performance of which will extend over a period of more than one year, result in a material loss to AzERx, or involve consideration in excess of $5,000;

          (c) any license, sublicense or other similar agreement entered into by AzERx or otherwise used in connection with any of AzERx’s Intellectual Property;

          (d) any agreement concerning a partnership or joint venture;

          (e) any agreement (or group of related agreements) under which AzERx has created, incurred, assumed or guaranteed any indebtedness for borrowed money, or any capitalized lease obligation, in excess of $5,000 or under which it has imposed a Security Interest on any of its assets, tangible or intangible;

          (f) any agreement concerning noncompetition and any agreement which will, or by its terms purports to, subject OrthoLogic to any non-disclosure or confidentiality obligations upon the consummation of the transactions contemplated in this Agreement;

          (g) any agreement with or involving any of AzERx’s stockholders and their Affiliates (other than AzERx);

          (h) any profit sharing, stock option, stock purchase, stock appreciation, deferred compensation, severance or other plan or arrangement for the benefit of AzERx’s current or former directors, officers or employees;

          (i) any collective bargaining agreement;

          (j) any agreement for the employment of any individual on a full-time, part-time, consulting, or other basis providing annual compensation or providing severance benefits;

          (k) any agreement under which AzERx has advanced or loaned any amount to any of its directors, officers, or employees;

          (l) any agreements covering “work made for hire” as defined under the United States copyright laws, Title 17 of the United States Code, or any agreements with independent contractors;

          (m) any agreement under which the consequences of a default or termination could have a material adverse effect on the Business, financial condition, operations, results of operations or future prospects of AzERx;

          (n) any agreement for the cleanup, abatement or other actions in connection with any Environmental, Health and Safety Requirements, the remediation of any existing environmental condition or relating to the performance of any environmental audit or study; and

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          (o) any other agreement (or group of related agreements) the performance of which involves total annual consideration in excess of $5,000.

          (p) AzERx has delivered to OrthoLogic a correct and complete copy of each written agreement listed in Section 3.18 of the Disclosure Schedule (as amended to date) and a written summary setting forth the terms and conditions of each oral agreement referred to in Section 3.18 of the Disclosure Schedule. With respect to each such agreement that is an Assumed Contract: (i) the agreement is legal, valid, binding, enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding, enforceable and in full force and effect on identical terms following the consummation of the transactions contemplated by this Agreement; (iii) AzERx is not, and to AzERx’s Knowledge, no other party is, in breach or default, and no event has occurred which, with notice or lapse of time or both, would constitute a breach or default by AzERx, or, to AzERx’s Knowledge, by such other party, or permit termination, modification or acceleration by AzERx, or to AzERx’s Knowledge, any other party, under the agreement; and (iv) no party has repudiated any provision of the agreement.

     3.19 [Intentionally Omitted]

     3.20 Powers of Attorney. Except as provided in Section 3.20 of the Disclosure Schedule, there are no outstanding powers of attorney executed on behalf of AzERx.

     3.21 Insurance. AzERx does not have and has not maintained in the past, any insurance policies, including, without limitation, any policies providing property, casualty, health, liability or workers’ compensation coverage.

     3.22 Litigation. AzERx (i) has not been subject to any outstanding injunction, judgment, order, decree, ruling or charge, or (ii) has not been a party or, to AzERx’s Knowledge, is threatened to be made a party to any action, suit, proceeding, hearing, or investigation of, in, or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator. To AzERx’s Knowledge, there is no reason to believe that any such action, suit, proceeding, hearing or investigation may be brought or threatened against AzERx.

     3.23 Product Claims. AzERx has never commercially manufactured, sold, leased, delivered or used any product and AzERx’s development activities with respect to products have been in conformity with all applicable contractual commitments, FDA and applicable institutional review board requirements and all express and implied warranties. AzERx has no Liability (and there is to AzERx’s Knowledge, no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against AzERx giving rise to any Liability) in connection therewith.

     3.24 Product Liability. AzERx has no Liability (and there is to AzERx’s Knowledge no Basis for any present or future action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand against AzERx giving rise to any Liability) arising out of any injury to individuals or property as a result of the ownership, possession or use of any product manufactured, sold, leased, delivered or used by AzERx.

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     3.25 Employees. Section 3.25 of the Disclosure Schedule lists all of AzERx’s current employees. AzERx is not a party to nor is it bound by any collective bargaining agreement, nor has it experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. AzERx has not committed any unfair labor practice. No organizational effort is presently being made or threatened by or on behalf of any labor union with respect to employees of AzERx.

     3.26 Employee Benefits. AzERx does not fund or administer and has not in the past, funded or administered any Employee Benefit Plan, including, without limitation, any Employee Pension Benefit Plan, Multiemployer Plan or Employee Welfare Benefit Plan.

     3.27 Guaranties. AzERx is not a guarantor or otherwise liable for any Liability or obligation (including indebtedness) of any other Person.

     3.28 Environmental, Health, and Safety Matters.

          (a) AzERx, its predecessors and its Affiliates have complied and are in compliance with all Environmental, Health, and Safety Requirements.

          (b) Without limiting the generality of the foregoing, AzERx, its predecessors and its Affiliates have obtained and complied with, and are currently in compliance with, all permits, licenses and other authorizations that are required pursuant to Environmental, Health, and Safety Requirements for the occupation of its facilities and the operation of the Business. A list of all such permits, licenses and other authorizations is set forth in Section 3.28(b) of the Disclosure Schedule.

          (c) Neither AzERx, its predecessors nor its Affiliates have received any written or oral notice, report or other information regarding any actual or alleged violation of Environmental, Health, and Safety Requirements, or any Liabilities or potential Liabilities (whether accrued, absolute, contingent, unliquidated or otherwise), including any investigatory, remedial or corrective obligations relating to any of them or AzERx’s facilities arising under Environmental, Health, and Safety Requirements.

          (d) None of the following exists at any property or facility owned or operated by AzERx: (1) underground storage tanks; (2) asbestos-containing material in any form or condition; (3) materials or equipment containing polychlorinated biphenyls; or (4) landfills, surface impoundments or disposal areas.

          (e) Neither AzERx, nor any of its predecessors or its Affiliates have treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any substance, including without limitation any hazardous substance, or owned or operated any property or facility (and no such property or facility is contaminated by any such substance) in a manner that has given or would give rise to Liabilities, including any Liability for response costs, corrective action costs, personal injury, property damage, natural resources damages or attorney fees, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Solid Waste Disposal Act, as amended, or any other Environmental, Health, and Safety Requirements.

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          (f) Neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of government agencies or third parties, pursuant to any of the so-called “transaction-triggered” or “responsible property transfer” Environmental, Health, and Safety Requirements.

          (g) Neither AzERx, nor any of its predecessors or its Affiliates have expressly or by operation of law, assumed or undertaken any Liability, including without limitation any obligation for corrective or remedial action, of any other Person relating to Environmental, Health, and Safety Requirements.

          (h) No facts, events or conditions within AzERx’s Knowledge relating to the past or present facilities, properties or operations of AzERx or its respective predecessors or its Affiliates will prevent, hinder or limit continued compliance with Environmental, Health, and Safety Requirements, give rise to any investigatory, remedial or corrective obligations pursuant to Environmental, Health, and Safety Requirements, or give rise to any other Liabilities (whether accrued, absolute, contingent, unliquidated or otherwise) pursuant to Environmental, Health, and Safety Requirements, including without limitation any Liabilities relating to onsite or offsite releases or threatened releases of hazardous materials, substances or wastes, personal injury, property damage or natural resources damage.

     3.29 Certain Business Relationships With AzERx. Except as otherwise disclosed in Section 3.29 of the Disclosure Schedule, none of AzERx’s stockholders or their Affiliates has been involved in any business arrangement or relationship with AzERx within the past twelve (12) months (except as an employee, director, officer or consultant of AzERx), and none of AzERx’s stockholders or their Affiliates owns any asset, tangible or intangible, which is used in AzERx’s Business.

     3.30 Investment. AzERx (i) understands that the OrthoLogic Common Stock granted pursuant to the terms of this Agreement has not been registered under the Securities Act, or under any state securities laws, and is being offered and sold in reliance upon federal and state exemptions for transactions not involving any public offering, (ii) is acquiring OrthoLogic Common Stock solely for its own account for investment purposes, and not with a view to the distribution thereof (except to its stockholders), (iii) is a sophisticated investor with knowledge and experience in business and financial matters, (iv) has received certain information concerning OrthoLogic and has had the opportunity to obtain additional information as desired in order to evaluate the merits and the risks inherent in holding OrthoLogic Common Stock, (v) is able to bear the economic risk and lack of liquidity inherent in holding OrthoLogic Common Stock, and (vi) is an Accredited Investor.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF ORTHOLOGIC

     OrthoLogic represents and warrants to AzERx that the statements contained in this ARTICLE IV are correct and complete as of the date of this Agreement and will be correct and

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complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this ARTICLE IV.

     4.1 Organization of OrthoLogic. OrthoLogic is a corporation validly existing and in good standing under the laws of Delaware.

     4.2 Authorization of Transaction. OrthoLogic has full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. Without limiting the generality of the foregoing, to the extent required by law or under the governing documents of OrthoLogic, the board of directors of OrthoLogic has duly authorized the execution, delivery and performance of this Agreement by OrthoLogic and no further action is required to be taken by the stockholders of OrthoLogic to authorize the execution, delivery or performance of this Agreement. This Agreement constitutes the valid and legally binding obligation of OrthoLogic, enforceable in accordance with its terms and conditions.

     4.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby (with or without notice or the lapse of time) will (i) violate any constitution, statute, regulation, rule, injunction, judgment, order, decree, ruling, charge or other restriction of any government, governmental agency or court to which OrthoLogic is subject or any provision of the charter, bylaws or resolutions of the Board of Directors or stockholders of OrthoLogic, or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material agreement, contract, lease, license, instrument or other arrangement to which OrthoLogic is a party or by which it is bound or to which any of its assets is subject. OrthoLogic does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of, any government or governmental agency in order for the Parties to consummate the transactions contemplated by this Agreement.

     4.4 Capitalization.

          (a) The authorized capital stock of OrthoLogic consists of 100,000,000 shares of common stock, par value $.0005 per share, and 2,000,000 shares of preferred stock, par value $.0005 per share. As of February 14, 2006, there are outstanding 38,648,810 shares of OrthoLogic Common Stock and no other shares of capital stock of any other class.

          (b) Assuming the truthfulness and accuracy of the representations and warranties made by AzERx in ARTICLE III hereof, at the Closing, the shares of OrthoLogic Common Stock issued pursuant to Section 2.4(b) hereof will be duly authorized, validly issued, fully paid and nonassessable, and not issued in violation of any preemptive rights of subscription or purchase. The authorization or consent of no other person or entity is required in order to consummate the transactions contemplated herein by virtue of such person or entity having an equitable or beneficial interest in OrthoLogic.

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     4.5 Reservation of Shares; Private Offering.

          (a) OrthoLogic will, prior to the Closing, in accordance with the terms hereof, have available shares of OrthoLogic Common Stock sufficient to deliver the Closing Date Shares.

          (b) Assuming the truthfulness and accuracy of the representations and warranties made by AzERx in ARTICLE III hereof; assuming the satisfaction of all information delivery requirements of the Parties set forth in Regulation D promulgated under the Securities Act; and upon receipt of evidence satisfactory to OrthoLogic from each stockholder of AzERx or person who has the right to acquire stock of AzERx at the time of AzERx’s approval of the Agreement and the transactions contemplated hereby, that each such stockholder or other person is an Accredited Investor or either alone or with a purchaser representative has such knowledge and experience in financial and business matters that such stockholder or such other person is capable of evaluating the merits and risks of the prospective investment contemplated in the Agreement (such evidence to include, but not be limited to, the execution and delivery of a purchaser suitability questionnaire and a purchaser representative questionnaire (if such stockholder or person is not an Accredited Investor), the form and substance of which shall be reasonably acceptable to OrthoLogic), no registration of the Closing Date Shares pursuant to the provisions of the Securities Act or any state securities or “blue sky” laws will be required by the offer, sale and issuance of the Closing Date Shares to AzERx pursuant to the terms of the Agreement. OrthoLogic agrees that neither it, nor anyone acting on its behalf, shall offer to sell the Closing Date Shares or any other securities of OrthoLogic so as to require the registration of the Closing Date Shares pursuant to the provisions of the Securities Act or any state securities or “blue sky” laws, unless such Closing Date Shares or other securities are so registered.

     4.6 Information.

          (a) In General. OrthoLogic had made available to AzERx each registration statement, schedule, report, proxy statement or information statement it has filed with the Securities and Exchange Commission since January 1, 2005 (collectively, the “OrthoLogic Reports”). The OrthoLogic Reports, at the time of filing, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein where necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. Since January 1, 2005, OrthoLogic has made all filings with the Securities and Exchange Commission in a timely manner as required by law and no event has occurred that requires an additional filing or any amendment to a prior filing.

          (b) Information Provided Under Confidential Disclosure Agreement. All of the information, data, documents and disclosures provided by OrthoLogic to AzERx pursuant to that certain Confidential Disclosure Agreement dated as of June 28, 2005, is true, correct and complete in all material respects.

     4.7 Brokers’ Fees. OrthoLogic has no Liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement, including any for which AzERx could become liable or obligated.

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     4.8 Tax Matters.

          (a) It is the present intention of OrthoLogic to continue at least one significant historic business line of AzERx, or to use at least a significant portion of AzERx’s historic business assets in a business, in each case within the meaning of Section 1.368-1(d) of the Treasury Regulations.

          (b) Neither OrthoLogic nor any related person under Section 1.368-1(e)(3) of the Treasury Regulations has a present plan or intention to, or will during the twelve months following the Closing Date, knowingly reacquire shares of OrthoLogic’s common stock from AzERx or AzERx’s stockholders, except in open market transactions through a broker.

          (c) OrthoLogic has no present plan or intention to sell or otherwise dispose of the Acquired Assets, except for: (i) dispositions made in the ordinary course of business; (ii) transfers described in Section 368(a)(2)(C) of the Code; (iii) transfers to any entity disregarded as an entity separate from OrthoLogic for federal income tax purposes under Section 301.7701-2(c)(2) of the Treasury Regulations; or (iv) other transfers permitted under Section 1.368-1(d) of the Treasury Regulations.

ARTICLE V

PRE-CLOSING COVENANTS

     The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing (except for Section 5.8, which shall be completed prior to the execution of this Agreement), unless the Agreement is terminated earlier pursuant to ARTICLE VIII hereof.

     5.1 General. Each of the Parties will use its reasonable best efforts to take all action and to do all things necessary, proper or advisable in order to consummate and make effective the transactions contemplated by this Agreement (including satisfaction, but not waiver, of the closing conditions set forth in ARTICLE VI below).

     5.2 Operation of Business. AzERx will not engage in any practice, take any action or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, AzERx will not (i) enter into or assume any material agreement, contract or instrument or enter into or permit any material amendment, supplement, waiver or other modification in respect thereof; (ii) sell or dispose or otherwise grant any interests in any of the Acquired Assets, except consumption of supplies and sales or dispositions of finished goods in the Ordinary Course of Business; (iii) fail to comply in all material respects with all applicable Laws and orders of any court or federal, state, municipal or other governmental authority; or (iv) otherwise engage in any practice, take any action or enter into any transaction of the sort described in Section 3.8 above. In addition, AzERx shall use its reasonable commercial efforts to confer with OrthoLogic on all operational matters of AzERx that are of a material nature.

     5.3 Preservation of Business. AzERx will keep the Business and the properties related thereto substantially intact, including its present operations, physical facilities, working conditions and relationships with lessors, landlords, creditors, licensors, suppliers, customers,

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employees, agents and others having business relationships with AzERx. AzERx will comply in all respects with the requirements of the AzTE Agreement and the Washington University Agreement, and cause such agreements to remain in full force and effect, and not take any actions in contravention thereof.

     5.4 Preservation of Intellectual Property. AzERx will take all actions reasonably necessary or appropriate to protect its rights in its Intellectual Property.

     5.5 Full Access. AzERx will permit representatives of OrthoLogic to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of AzERx, to all premises, properties, personnel, books, records (including Tax records), prior study results, contracts and other documents and materials of or pertaining to AzERx.

     5.6 Notice of Developments. Each Party shall give prompt written notice to the other Party of any material adverse development causing a breach of any of its own representations and warranties in ARTICLES III and IV hereof. No disclosure by either Party pursuant to this Section, however, shall be deemed to amend or supplement the Disclosure Schedule (in the case of AzERx) or to prevent or cure any misrepresentation, breach of warranty or breach of covenant of such Party.

     5.7 Exclusivity. Upon the execution of this Agreement by the Parties, AzERx shall immediately cease and desist and discontinue and cause to be terminated any and all existing activities with respect to any of the following and shall not, directly or indirectly (through any officer, director, former director, affiliate, employee, attorney, accountant, financial advisor, subsidiary, independent representative or independent agent or any other advisor or representative of AzERx), solicit, initiate, encourage or take any action to facilitate (including by way of furnishing information or engaging in discussions or negotiations) any inquiries, proposals or offers that constitute, or could reasonably be expected to lead to or relate to an acquisition proposal by another party. From and after the date hereof, AzERx will not (i) solicit, initiate or encourage the submission of any proposal or offer from any Person relating to the acquisition of any capital stock or other voting securities, or any substantial portion of the assets, of AzERx (including any acquisition structured as a merger, consolidation or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any Person to do or seek any of the foregoing. AzERx shall notify OrthoLogic promptly if any Person makes any proposal, offer, inquiry or contact with respect to any of the foregoing.

     5.8 Stockholder Approval. AzERx shall promptly take all steps necessary to either: (i) cause a special meeting of its stockholders (the “Special Meeting”) to be duly called, noticed, convened and held as soon as practicable for the purposes of voting to approve this Agreement, the transactions contemplated hereby and all matters related thereto; or (ii) obtain sufficient written consent of its stockholders to approve and adopt this Agreement, the transactions contemplated hereby and all matters related thereto (the “Consent Action”). In connection with the Special Meeting or the Consent Action, the board of directors of AzERx shall recommend to the stockholders that the stockholders vote in favor of the approval of this Agreement, the transactions contemplated hereby and all matters related thereto, and the board of directors of

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AzERx shall use reasonable commercial efforts to secure the required approval of the stockholders.

     5.9 Notices and Consents. AzERx will: (i) use its reasonable commercial efforts to give any required notices to third parties in connection with the transactions contemplated by this Agreement; (ii) use its reasonable commercial efforts to obtain any third party consents that OrthoLogic may reasonably require in connection with the matters referred to in Section 3.4 hereof or as may otherwise be required pursuant to this Agreement; and (iii) use its reasonable commercial efforts to take all other actions required to satisfy the closing conditions in Section 6.3 hereof. OrthoLogic will: (i) use its reasonable commercial efforts to give any required notices to third parties in connection with the transactions contemplated by this Agreement; and (ii) use its reasonable commercial efforts to fulfill all of the closing conditions in Section 6.4 hereof. Each of the Parties will give any notices to, make any filings with, and use its best efforts to obtain any authorizations, consents and approvals of governments and governmental agencies in connection with the matters referred to in Section 3.4 and Section 4.3 hereof.

ARTICLE VI

CONDITIONS TO OBLIGATIONS TO CLOSE

     6.1 General Conditions to Execution of Agreement. The obligations of the Parties to execute and deliver this Agreement will be subject to the following conditions, unless waived in writing by both Parties:

          (a) The requisite majorities of AzERx stockholders and members of the AzERx Board of Directors shall have approved the Agreement and the transactions contemplated hereby, including, but not limited to, the sale of the Acquired Assets as contemplated herein;

          (b) AzTE, AzERx and OrthoLogic shall have entered into a side letter agreement, pursuant to which the parties thereby agree that, subject to and conditioned upon the Closing hereof and the assignment of the AzTE Agreement by AzERx to OrthoLogic pursuant thereto, the AzTE Agreement shall be amended and restated in the form attached to the side letter agreement, which form shall be acceptable to OrthoLogic and effective immediately upon the Closing without any additional execution, consent or other action by any party;

          (c) Each of Colleen Brophy, Alyssa Panitch and Elizabeth Furnish shall have entered into consulting agreements with OrthoLogic and intellectual property, confidentiality and non-disclosure agreements in the forms of Exhibit I, Exhibit J, and Exhibit K, respectively, to be effective on the Closing Date;

          (d) each of Alyssa Panitch, Colleen Brophy, Dennis Goldberg and Terry Winters shall have entered into Confidentiality and Noncompetition Agreements in the form attached hereto as Exhibit L; and

          (e) Each stockholder of AzERx or person who has the right to acquire stock of AzERx at the time of AzERx’s approval of the Agreement and the transactions contemplated hereby, shall have executed and delivered a purchaser suitability questionnaire and a purchaser

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representative questionnaire (if such stockholder or person is not an Accredited Investor), the form and substance of which shall be reasonably acceptable to OrthoLogic.

          (f) AzERx shall have delivered to OrthoLogic an estoppel letter addressed to OrthoLogic from The Washington University stating that, with respect to the Washington University Agreement, as of the date of this Agreement, AzERx is not in breach or default thereof, and no event has occurred which, with notice or lapse of time or both, would constitute a breach or default or permit termination, modification or acceleration thereunder, as well as such other representations reasonably requested by OrthoLogic.

     6.2 General Conditions to Closing. The obligations of the Parties to effect the Closing will be subject to the following conditions, unless waived in writing by both Parties:

          (a) no law or order will have been enacted, entered, issued, promulgated or enforced by any governmental entity at what would otherwise be the Closing Date that prohibits or materially restricts consummation of the transactions contemplated by this Agreement; and

          (b) OrthoLogic, AzERx, the Escrow Agent and the Representative shall have entered into the Escrow Agreement.

     6.3 Conditions to Obligation of OrthoLogic. The obligation of OrthoLogic to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following additional conditions (in addition to those set forth in Sections 6.1 and 6.2 above):

          (a) the representations and warranties of AzERx set forth in ARTICLE III hereof shall be true and correct in all material respects at and as of the Closing;

          (b) there shall not have occurred a Material Adverse Change with respect to AzERx;

          (c) AzERx shall have performed and complied with all of its covenants hereunder in all material respects through the Closing;

          (d) AzERx shall have procured all of the third party consents required to be obtained by it as specified in Section 5.9 above;

          (e) AzERx shall have exercised its option under the AzTE Agreement, paid in full the option fee contemplated in the AzTE Agreement, and assigned the AzTE Agreement to OrthoLogic;

          (f) the Research Collaboration Agreement between Prolexys Pharmaceuticals, Inc. and Arizona State University, effective February 20, 2004 shall have been terminated pursuant to the terms thereof and shall be no longer in force and effect;

          (g) each of the Lockup Stockholders shall have entered into a Lockup Agreement substantially in the form attached hereto as Exhibit D;

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          (h) no action, suit or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement, (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (iii) affect adversely the right of OrthoLogic to own the Acquired Assets or to operate the former business of AzERx (and no such injunction, judgment, order, decree, ruling or charge shall be in effect);

          (i) AzERx shall have delivered to OrthoLogic a certificate to the effect that each of the conditions specified in this Section 6.3 has been satisfied in all material respects;

          (j) OrthoLogic shall have received from counsel to AzERx an opinion in substantially the form set forth in Exhibit M attached hereto, addressed to OrthoLogic, and dated as of the Closing Date;

          (k) AzERx shall have delivered a Bill of Sale, and an assignment of all Assumed Contracts, including the AzTE Agreement and the Washington University Agreement; and

          (l) all actions to be taken by AzERx in connection with the consummation of the transactions contemplated hereby and, when executed and delivered by AzERx at the Closing, all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby will be reasonably satisfactory in form and substance to OrthoLogic.

OrthoLogic may waive any condition specified in this Section 6.3 if it executes a writing so stating at or prior to the Closing.

     6.4 Conditions to Obligation of AzERx. The obligation of AzERx to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions:

          (a) the representations and warranties of OrthoLogic set forth in ARTICLE IV hereof shall be true and correct in all material respects at and as of the Closing;

          (b) there shall not have occurred a Material Adverse Change with respect to OrthoLogic;

          (c) OrthoLogic shall have performed and complied with all of its covenants hereunder in all material respects through the Closing;

          (d) no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling or charge would (i) prevent consummation of any of the transactions contemplated by this Agreement or (ii) cause any of the transactions contemplated by this Agreement to be rescinded

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following consummation (and no such injunction, judgment, order, decree, ruling or charge shall be in effect);

          (e) OrthoLogic shall have delivered a stock certificate representing the Closing Date Shares to the Escrow Agent pursuant to the Escrow Agreement and stock certificates representing the remainder of the Closing Date Shares to the AzERx stockholders in such denominations as specified by AzERx prior to the Closing;

          (f) OrthoLogic shall have executed and delivered to AzERx a certificate to the effect that each of the conditions specified in this Section 6.4 has been satisfied in all material respects;

          (g) OrthoLogic shall have executed and delivered the Registration Rights Agreement;

          (h) AxERx shall have received from counsel to OrthoLogic an opinion in substantially the form set forth in Exhibit N attached hereto, addressed to AzERx and dated as of the Closing Date; and

          (i) OrthoLogic shall have delivered an assumption of all Assumed Contracts, including the AzTE Agreement and the Washington University Agreement, and Assumed Liabilities, in a form reasonably satisfactory to AzERx.

          (j) all actions to be taken by OrthoLogic in connection with consummation of the transactions contemplated hereby and, when executed and delivered by OrthoLogic at the Closing, all certificates, opinions, instruments and other documents required to effect the transactions contemplated hereby, will be reasonably satisfactory in form and substance to AzERx.

AzERx may waive any condition specified in this Section 6.4 if it executes a writing so stating at or prior to the Closing.

ARTICLE VII

INDEMNIFICATION

     7.1 Indemnity by AzERx. To induce OrthoLogic to enter into this Agreement and to consummate the transactions contemplated hereby, AzERx agrees that, subject to the limitations set forth in Section 7.3, from and after the Closing Date AzERx shall indemnify and hold OrthoLogic harmless from and against, and agrees to promptly defend OrthoLogic from and reimburse OrthoLogic for, any and all losses, damages, costs, expenses, liabilities, obligations and claims of any kind (including, without limitation, reasonable attorneys’ fees and other reasonable legal costs and expenses, including without limitation, those incurred in connection with any suit, action or other proceeding; provided, that attorneys’ fees and other legal costs and expenses incurred in connection with the implementation of the dispute resolution mechanisms contemplated in Section 7.5 shall not be included as indemnifiable expenses in this Section or in Section 7.2 hereof) (“Losses”) which OrthoLogic may at any time, subject to the terms of Section 7.3 hereof, suffer or incur, or become subject to, as a result of or in connection with:

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          (a) any inaccuracy in or breach of any representation and warranty made by AzERx in this Agreement or in any closing document delivered to OrthoLogic in connection with this Agreement;

          (b) any breach by AzERx of, or failure by AzERx to comply with, any of its covenants or obligations under this Agreement (including, without limitation, its obligations under this ARTICLE VII);

          (c) the failure to discharge when due any Liability or obligation of AzERx other than the Assumed Liabilities, or any claim against OrthoLogic with respect to any such Liability or obligation or alleged Liability or obligation;

          (d) any claims by parties other than OrthoLogic to the extent caused by acts or omissions of AzERx on or prior to the Closing Date, including, without limitation, claims for damages which arise or arose out of AzERx’s operation of the Business or by virtue of AzERx’s ownership of the Acquired Assets on or prior to the Closing Date other than claims which are Assumed Liabilities;

          (e) any claims by third parties as to title for the Intellectual Property assigned to OrthoLogic as part of the Acquired Assets and any claims for royalty payments with respect thereto (other than royalty payments pursuant to the terms of any Assumed Contract); or

     7.2 Indemnity by OrthoLogic. To induce AzERx to enter into this Agreement and to consummate the transactions contemplated hereby, OrthoLogic agrees that, subject to the limitations set forth in Section 7.3, from and after the Closing Date, OrthoLogic shall indemnify and hold AzERx harmless from and against, and agrees to promptly defend AzERx from and reimburse it for, any and all Losses AzERx may at any time suffer or incur, or become subject to, as a result of or in connection with:

          (a) any inaccuracy in or breach of any representation and warranty made by OrthoLogic in this Agreement or in any closing document delivered to AzERx in connection with this Agreement;

          (b) any breach by OrthoLogic of, or failure by OrthoLogic to comply with, any of its covenants or obligations under this Agreement (including, without limitation, its obligations under this ARTICLE VII) or the Registration Rights Agreement;

          (c) OrthoLogic’s failure to pay, discharge and perform any of the Assumed Liabilities; or

          (d) any claims by parties other than AzERx to the extent caused by the acts or omissions of OrthoLogic after the Closing Date and not constituting a Liability excluded from the Assumed Liabilities.

     7.3 Provisions Regarding Indemnities.

          (a) Insurance Recoveries. The amounts for which an indemnifying party shall be liable under Sections 7.1 and 7.2 of this Agreement shall be net of any insurance proceeds

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actually received by the indemnified party in connection with the facts giving rise to the right of indemnification.

          (b) Termination of Rights to Indemnity. The right of the parties to receive indemnity as provided in Section 7.1 or 7.2 shall expire on the date that is 12 months (24 months in the case of the Registration Rights Agreement) after the Closing Date, except as to any claim for indemnity that has been described in a notice delivered to the other party pursuant to Section 7.4(a) or Section 7.4(c) of this Agreement prior to such time.

          (c) Rights on Termination. The termination under Section 7.3(b) of the rights of an indemnified party to receive indemnity shall not affect that person’s right to prosecute to conclusion any claim made by that person in accordance with this Agreement prior to the time that the relevant right of indemnity terminates.

          (d) Limitations on Liability of AzERx. The liability of AzERx under Section 7.1 of this Agreement shall be without deduction or limitation, except that (i) such liability shall be recoverable only if and to the extent that the cumulative Losses suffered by OrthoLogic exceed $25,000 and then only for the amount by which such Losses exceed $25,000 and (ii) such liability shall in no event exceed an amount equal to the escrow fund maintained pursuant to the Escrow Agreement and such liability shall be satisfied solely pursuant to Sections 7.3(f) and (g) of this Agreement and the Escrow Agreement, which, except in the case of fraud, willful misconduct or active concealment, shall be OrthoLogic’s sole and exclusive remedy.

          (e) Limitations on Liability of OrthoLogic. The liability of OrthoLogic under Section 7.2 of this Agreement shall be without deduction or limitation, except that such liability shall be recoverable only if and to the extent that the cumulative Losses suffered by AzERx exceed $25,000 and then only for the amount by which such Losses exceed $25,000.

          (f) General Limitations on Liability. Notwithstanding any provision of this Agreement to the contrary, except in the case of fraud, willful misconduct or active concealment, the liability of any Party under this ARTICLE VII shall not exceed an amount equal to the escrow fund maintained pursuant to the Escrow Agreement (for which purpose the Closing Date Shares shall be valued at the Closing Date Stock Price). AzERx may elect to satisfy any liability under this ARTICLE VII by delivering shares of OrthoLogic Common Stock to OrthoLogic, valued for this purpose at the Closing Date Stock Price.

          (g) Valuation of Shares Held in Escrow to Pay Indemnity by AzERx. For purposes of satisfying indemnification obligations under Section 7.1, each share of OrthoLogic Common Stock held pursuant to the Escrow Agreement shall be valued at the Closing Date Stock Price.

     7.4 Indemnification Procedure.

          (a) Notice. If an indemnified party shall claim to have suffered a Loss for which indemnification is available under Section 7.1 or 7.2, as the case may be, the indemnified party shall notify the indemnifying party in writing of such claim, which notice shall describe the nature of such claim, the facts and circumstances that give rise to such claim and the amount of

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such claim if reasonably ascertainable at the time such claim is made. In the case of a claim by OrthoLogic, a copy of such written notice shall also be provided by OrthoLogic to the Escrow Agent if the Escrow Agreement is still in effect. In the event that within 45 days after the receipt by the indemnifying party of such a written notice from the indemnified party, the indemnified party shall not have received from the indemnifying party a written objection to such claim, such claim shall be conclusively presumed and considered to have been assented to and approved by the indemnifying party following receipt by the indemnifying party (and, in the case of a claim by OrthoLogic, the Escrow Agent) of a written notice from the indemnified party to such effect.

          (b) Resolution. If within the 45 day period described in paragraph (a) above the indemnified party (and, in the case of a claim by OrthoLogic, the Escrow Agent) shall have received from the indemnifying party a notice setting forth the indemnifying party’s objections to such claim and the indemnifying party’s reasons for such objection, then the parties shall follow the procedures set forth in Section 7.5 below with respect to the resolution of such matter.

          (c) Third-Party Claims.

               (i) Any indemnified party seeking indemnification pursuant to this ARTICLE VII in respect of any third-party claim shall give the indemnifying party from whom indemnification with respect to such claim is sought (A) prompt (but in any event no later than 45 days after such indemnified party has received notice of such third party claim) written notice of such third-party claim and (B) copies of all documents and information provided by the third party to the indemnified party in connection with such claim. The failure of the indemnified party to so notify or provide copies to the indemnifying party shall not relieve the indemnifying party from any liability to the indemnified party for any liability hereunder except to the extent that such failure shall have prejudiced the defense of such third-party claim.

               (ii) The indemnifying party shall have the right to participate in the defense of such claim and at its option to assume the defense thereof using counsel reasonably acceptable to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim, the indemnified party may continue to participate in the defense of such claim, but, except as set forth in subsection (iii) below, the indemnifying party shall not be liable to the indemnified party under this ARTICLE VII for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense of such claim. If, following its assumption of the defense of a claim pursuant to this Section 7.4(c), the indemnifying party believes that the claim is not indemnifiable pursuant to Section 7.1 or Section 7.2, the indemnifying party shall promptly tender back to the indemnified party the defense of such claim. If the indemnifying party fails to assume or, if assumed, tenders back the defense of a claim pursuant to this Section 7.4(c) and thereafter concludes that it wishes to defend the claim, it shall be entitled to do so upon notice to the indemnified party of its decision; provided, however, that any assumption of defense pursuant to this sentence shall constitute an admission by the indemnifying party that the claim is indemnifiable pursuant to Section 7.1 or Section 7.2.

               (iii) Notwithstanding the foregoing, if: (A) the employment thereof is authorized by the indemnifying party in writing; (B) the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are

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different from or in addition to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for the indemnified party to employ such counsel; or (C) the indemnifying party has failed to assume defense of such claim within 45 days after it receives written notice of such claim or to employ counsel reasonably satisfactory to the indemnified party; the indemnified party may notify the indemnifying party in writing that it elects to employ separate counsel (which counsel shall be reasonably acceptable to the indemnifying party) at the expense of the indemnifying party and the indemnifying party shall not have the right to assume the defense of such claim, except as provided for by the last sentence of Section 7.4(c)(ii). The indemnifying party shall not, in connection with one claim or substantially similar claims in the same jurisdiction arising out of the same or substantially similar facts, be liable for the reasonable fees and expenses of more than one firm of attorneys, which firm shall be designated in writing by the indemnified party. Nothing contained in this Section 7.4(c) shall in any way restrict the indemnified party’s ability to defend a claim and, if such claim is otherwise indemnifiable pursuant to the provisions of this ARTICLE VII, to recover all costs associated with such defense while the indemnifying party is considering whether to assume the defense of a claim tendered to it.

               (iv) Each indemnifying party and indemnified party shall use commercially reasonable efforts to cooperate with the other in the defense of such claim. The indemnifying party shall not be liable for the settlement of any claim effected without its written consent, which consent shall not be unreasonably withheld. No such claim shall be settled by the indemnifying party without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. If a firm, written, bona fide offer is made by the third party to settle or resolve any third party claim and the indemnifying party proposes to accept such settlement and the indemnified party refuses to consent to such settlement, then: (A) the indemnifying party shall be excused from, and the indemnified party shall be solely responsible for all further defense of, such claim; (B) the maximum liability of the indemnifying party relating to such claim shall be the amount of the proposed settlement if the amount thereafter recovered from the indemnified party is greater than the amount of the proposed settlement; and (C) the indemnified party shall pay all attorneys’ fees and legal costs and expenses incurred after the rejection of such settlement, but if the amount thereafter recovered by the third party from the indemnified party is less than the amount of the proposed settlement, the indemnified party shall also be entitled to reimbursement for such fees and costs up to a maximum equal to the difference between the amount recovered by such third party and the amount of the proposed settlement.

     7.5 Dispute Resolution Mechanisms. As used in this Agreement, “Dispute” shall mean any post-Closing dispute or disagreement between AzERx or the Representative, as applicable, and OrthoLogic concerning the interpretation of this Agreement, the validity of this Agreement, any breach or alleged breach by any party under this Agreement or any other matter relating in any way to this Agreement.

          (a) Process. If a Dispute arises, the parties shall follow the procedures specified in Sections 7.5(b), 7.5(c), 7.5(d) and 7.5(e) of this Agreement.

          (b) Negotiations. The parties shall promptly attempt to resolve any Dispute by negotiations between AzERx or the Representative, as applicable, and OrthoLogic. AzERx or

34

the Representative, as applicable, and OrthoLogic may give the other Party written notice of any Dispute not resolved in the normal course of business. AzERx or the Representative, as applicable, and OrthoLogic shall meet at a mutually acceptable time and place within ten (10) calendar days after delivery of such notice, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to resolve the Dispute. If the Dispute has not been resolved by these Persons within thirty (30) calendar days of the disputing party’s notice, or if the parties fail to meet within such ten (10) calendar days, AzERx or the Representative, as applicable, or OrthoLogic may initiate mediation as provided in Section 7.5(c) of this Agreement. If a negotiator intends to be accompanied at a meeting by legal counsel, the other negotiator shall be given at least three (3) Business Days’ notice of such intention and may also be accompanied by legal counsel.

          (c) Mediation. If the Dispute is not resolved by negotiations pursuant to Section 7.5(b) of this Agreement, AzERx or the Representative, as applicable, and OrthoLogic shall attempt in good faith to resolve any such Dispute by nonbinding mediation. Either AzERx or the Representative, as applicable, or OrthoLogic may initiate a nonbinding mediation proceeding by a request in writing to the other party (the “Request”), and both parties will then be obligated to engage in a mediation. The proceeding will be conducted in Phoenix, Arizona in accordance with the then current mediation rules of the American Arbitration Association (“AAA”) applicable to commercial disputes, with the following exceptions:

               (i) if the parties have not agreed within thirty (30) calendar days of the Request on the selection of a mediator willing to serve, AAA, upon the request of either AzERx or the Representative, as applicable, or OrthoLogic, shall appoint a member from its panel of neutrals as the mediator; and

               (ii) efforts to reach a settlement will continue until the conclusion of the proceedings, which shall be deemed to occur upon the earliest of the date that: (w) a written settlement is reached; or (x) the mediator concludes and informs the parties in writing that further efforts would not be useful; or (y) AzERx or the Representative, as applicable, and OrthoLogic agree in writing that an impasse has been reached; or (z) is sixty (60) calendar days after the Request and none of the events specified in Sections 7.5(c)(ii)(w), (x), or (y) have occurred. No party may withdraw before the conclusion of the proceeding.

          (d) Submission to Arbitration. If a Dispute is not resolved by negotiation pursuant to Section 7.5(b) of this Agreement or by mediation pursuant to Section 7.5(c) of this Agreement within one hundred (100) calendar days after initiation of the negotiation process pursuant to Section 7.5(b) of this Agreement, such Dispute and any other claims arising out of or relating to this Agreement shall be resolved in a binding arbitration proceeding conducted by the AAA, employing its then current Commercial Dispute Resolution Procedures, or the equivalent arbitration rules of the AAA as may be in existence at such time. Such arbitration proceedings shall be held in Phoenix, Arizona, and all parties hereto waive any objection to that venue. Arbitration proceedings shall be conducted by a single arbitrator, appointed in accordance with the applicable AAA rules. The arbitrator shall render the award in writing, explaining the factual and legal basis for the decision as to each of the principal controverted issues, and the decision of the arbitrator shall be final and binding on the parties. The parties agree to submit to the jurisdiction of the courts in the State of Arizona, located in the County of Maricopa or the federal

35

court for the District of Arizona and waive any objections with respect to jurisdiction or venue thereto, and the parties may make an application to such courts to enforce the arbitration procedures under this Section 7.5(d), to enter judgment on the arbitral award, or to enforce the arbitral award.

          (e) General Provisions Regarding Dispute Resolution.

               (i) Provisional Remedies. At any time during the procedures specified in Sections 7.5(b) or 7.5(c) of this Agreement, a party may seek a preliminary injunction or other provisional judicial relief if in its judgment such action is necessary to avoid irreparable damage or to preserve the status quo. Despite such action, the parties will continue to participate in good faith in the procedures specified in this Section 7.5.

               (ii) Tolling Statutes of Limitations. All applicable statutes of limitation and defenses based upon the passage of time shall be tolled while the procedures specified in this Section 7.5 are pending. The parties will take such action, if any, as is required to effectuate such tolling.

               (iii) Performance to Continue. Each party is required to continue to perform its obligations under this Agreement pending final resolution of any Dispute.

               (iv) Extension of Deadlines. All deadlines specified in this Section 7.5 of this Agreement may be extended by mutual agreement between AzERx or the Representative, as applicable, and OrthoLogic.

               (v) Enforcement. The parties regard the obligations in this Section 7.5 to constitute an essential provision of this Agreement and one that is legally binding on them. In case of a violation of the obligations in this Section 7.5 by either AzERx or the Representative, as applicable, or OrthoLogic, the other party may bring an action to seek enforcement of such obligations in the courts in the State of Arizona, located in the County of Maricopa, or the federal court for the District of Arizona and the parties hereto waive any objections with respect to jurisdiction or venue thereto.

               (vi) Costs. The parties shall pay: (i) their own costs, fees, and expenses incurred in connection with the application of the provisions of this Section 7.5 of this Agreement; and (ii) fifty percent (50%) of the fees and expenses of AAA and the mediator in connection with the application of the provisions of Section 7.5(c) of this Agreement.

               (vii) Replacement. If AAA is no longer in business or is unable or refuses or declines to act or to continue to act under this Section 7.5 of this Agreement for any reason, then the functions specified in this Section 7.5 of this Agreement to be performed by AAA shall be performed by another Person engaged in a business equivalent to that conducted by AAA as is agreed to by AzERx or the Representative, as applicable, and OrthoLogic (the “Replacement”). If AzERx or the Representative, as applicable, and OrthoLogic cannot agree on the identity of the Replacement within ten (10) calendar days after a Request, the Replacement shall be selected by the Chief Judge of the United States District Court for the District of Arizona upon application. If a Replacement is selected by either means, this Section 7.5 shall be deemed appropriately amended to refer to such Replacement.

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     7.6 Representative. By approving this Agreement, the stockholders of AzERx shall be deemed to have irrevocably made, constituted and appointed Alyssa Panitch as their true and lawful attorney-in-fact to take all action required under this Agreement on behalf of them (such Person is referred to herein as the “Representative”), including without limitation: (a) to give and receive notices and communications; (b) to authorize delivery to OrthoLogic of OrthoLogic Common Stock from the Escrow Agent in satisfaction of claims by OrthoLogic; (c) to object to such deliveries; (d) to make claims on behalf of the stockholders of AzERx pursuant to this Agreement; (e) to agree to, negotiate, enter into settlements and compromises of, and comply with orders of courts with respect to such claims; and (f) to take all actions necessary or appropriate in the judgment of the Representative for the accomplishment of the foregoing. OrthoLogic shall not be obligated to pay any compensation to Representative for his or her services. Notices or communications to or from the Representative shall constitute notice to or from each of the stockholders of AzERx.

     7.7 Exclusive Remedy. Except in the case of fraud, willful misconduct or active concealment or where a Party is entitled to injunctive relief or other equitable remedies, this ARTICLE VII shall constitute the exclusive remedy of each Party for any breach or nonperformance of any representation, warranty, covenant or other obligation under this Agreement and with respect to any other action or omission of each Party in connection herewith.

ARTICLE VIII

TERMINATION

     8.1 Termination of Agreement. The Parties may terminate this Agreement as provided below:

          (a) OrthoLogic and AzERx may terminate this Agreement by mutual written agreement at any time prior to the Closing;

          (b) OrthoLogic may terminate this Agreement if AzERx has breached any representation, warranty or covenant contained in this Agreement in any material respect, OrthoLogic has notified AzERx of the breach, and the breach has continued without cure for a period of 5 days after the notice of breach;

          (c) AzERx may terminate this Agreement if OrthoLogic has breached any representation, warranty or covenant contained in this Agreement in any material respect, AzERx has notified OrthoLogic of the breach, and the breach has continued without cure for a period of 5 days after the notice of breach;

          (d) This Agreement may be terminated by OrthoLogic if the Closing has not occurred on or prior to February 24, 2006.

          (e) This Agreement will be terminated automatically without any action of any of the Parties if the Closing has not occurred on or prior to March 6, 2006. Notwithstanding the foregoing, the Parties may extend the termination date under this Section 8.1(e) by mutual agreement.

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     8.2 Effect of Termination. If the Parties terminate this Agreement pursuant to Section 8.1(a) above, all rights and obligations of the Parties hereunder shall terminate without any Liability of any Party to any other Party. If either Party terminates this Agreement pursuant to Section 8.1(b) through (e) above, all rights and obligations of the Parties hereunder shall terminate without any liability of any Party to any other Party (except for any Liability of any Party then in breach with respect to such breach).

ARTICLE IX

POST-CLOSING COVENANTS; MISCELLANEOUS

     9.1 Compliance with HIPAA Privacy Rules. In connection with the closing of the transactions contemplated by this Agreement, AzERx will transfer ownership of certain medical records to OrthoLogic. These medical records contain Protected Health Information (“PHI”), as defined in 45 C.F.R. §160.103. AzERx is permitted to disclose these medical records to OrthoLogic pursuant to 45 C.F.R. §164.501. OrthoLogic understands and acknowledges that these medical records contain PHI and that, upon consummation of the transactions contemplated by this Agreement, OrthoLogic will be the owner of the medical records and will be considered to be a Covered Entity under 45 C.F.R. Part 160 and Part 164, subparts A and E (the “HIPAA Privacy Rules”), and therefore will comply with applicable provisions of the HIPAA Privacy Rules.

     9.2 Covenant Not to Compete.

          (a) For the Non-Compete Term, AzERx will not engage directly or indirectly in any business involving the development of, or technology based in part upon, AZX100, any derivative thereof, any of the AzERx Intellectual Property, HSP20 and molecules based on the parent HSP20 entity that alter actin cytoskeletal dynamics, in the Non-Compete Area; provided, however, that no owner of less than 1% of the outstanding stock of any publicly traded corporation shall be deemed to engage solely by reason thereof in any of its businesses.

          (b) “Non-Compete Term” shall mean a period of three years after the Closing Date, unless a court of competent jurisdiction finds such definition to be unenforceable, in which case “Non-Compete Term” shall mean a period of two years after the Closing Date, unless a court of competent jurisdiction finds such definition to be unenforceable, in which case “Non-Compete Term” shall mean a period of one year after the Closing Date.

          (c) “Non-Compete Area” shall mean any geographic area in which OrthoLogic conducts its business as of the Closing Date, unless a court of competent jurisdiction finds such definition to be unenforceable, in which case “Non-Compete Area” shall mean the United States of America, unless a court of competent jurisdiction finds such definition to be unenforceable, in which case “Non-Compete Area” shall mean the State of Arizona.

     9.3 Survival of Representations and Warranties. All of the representations and warranties of the Parties contained in this Agreement shall survive the Closing.

     9.4 Confidentiality and Public Announcements. No Party shall issue nor permit any of its Affiliates, directors, officers, employees, representatives or agents to disclose, whether to

38

employees, customers, suppliers or otherwise, any information relating to the subject matter of this Agreement prior to the earlier of: (i) the Closing; or (ii) the termination of this Agreement in accordance with ARTICLE VIII, without the prior written approval of the other Party; provided, however, that any Party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (it being understood and agreed that each Party shall promptly provide the other party with copies of any such public disclosure and shall use best efforts to inform the other Party prior to making any such public disclosure).

     9.5 Material Nonpublic Information. The Parties hereby acknowledge that OrthoLogic has represented that (i) enrollment is complete in OrthoLogic’s Phase 3 trial in patients with unstable and/or displaced distal radius fractures (the “Phase 3 Trial”), (ii) the data relating to the Phase 3 Trial is currently being processed and, (iii) as of the date of this Agreement, OrthoLogic has no access to such data or any other non-public information relating to the results of the Phase 3 Trial. The Parties further acknowledge that OrthoLogic has advised AzERx that, subsequent to the execution of this Agreement, OrthoLogic will in the future have access to the data from the Phase 3 Trial for processing, analysis and evaluation and that once disclosed to the public in due course, the results of such data processing, analysis and evaluation will have a material effect on the price of OrthoLogic Common Stock. AzERx, by approval and execution of this Agreement, hereby agrees to assume the risk of investment in OrthoLogic Common Stock in light of the future events described in this Section 9.5 and the effects such events will have on the price of the Closing Date Shares received pursuant to this Agreement.

     9.6 No Third-Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any Person other than the Parties and their respective successors and permitted assigns.

     9.7 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement between the Parties and supersedes any prior understandings, agreements or representations by or between the Parties, written or oral, to the extent they related in any way to the subject matter hereof.

     9.8 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. Prior to the Closing Date, no Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Party; provided, however, that OrthoLogic may assign any or all of its rights and interests hereunder to one or more of its Affiliates.

     9.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which, when taken together, shall constitute one and the same instrument.

     9.10 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

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     9.11 Notices. All notices, requests, demands, claims and other communications hereunder will be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if (and then two business days after) it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below:

If to AzERx:	AzERx, Inc.
	Attn: Alyssa Panitch
	3863 West Park Avenue
	Chandler, AZ 85226
	Phone: (480) 540-0204
	Fax: (480) 965-0037
	Email: Alyssa.panitch@asu.edu
	Copy to:
	Osborn Maledon PA
	Attn: William M. Hardin
	2929 N. Central Ave., Ste. 2100
	Phoenix, AZ 85012
	Phone: 602-640-9322
	Fax: 602-640-6068
	Email: whardin@omlaw.com
If to OrthoLogic:	OrthoLogic Corp.
	Attn: James M. Pusey, M.D.
	1275 West Washington Street
	Tempe, AZ 85281
	Phone: (602) 286-5520
	Fax: (602) 470-7080
	Email: jpusey@olgc.com
	Copy to:
	Quarles & Brady LLP
	Attn: Steven P. Emerick
	Two North Central Avenue
	Phoenix, AZ 85004
	Phone: (602) 230-5517
	Fax: (602) 417-2980
	Email: emerick@quarles.com

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Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient. Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Party notice in the manner herein set forth.

     9.12 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Arizona without giving effect to any choice or conflict of law provision or rule (whether of the State of Arizona or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Arizona.

     9.13 Amendments and Waivers. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by OrthoLogic and AzERx. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

     9.14 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof, or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction.

     9.15 Expenses. Each of OrthoLogic and AzERx shall bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.

     9.16 Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word “including” shall mean including without limitation. Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein unless the Disclosure Schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) of a document or other item shall not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document or other item itself). The Parties intend that each representation, warranty and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of

41

the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant.

     9.17 Incorporation of Exhibits and Schedules. The exhibits and schedules identified in this Agreement are incorporated herein by reference and made a part hereof.

     9.18 Specific Performance. Each of the Parties acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having jurisdiction over the Parties and the matter (subject to the provisions set forth in Section 7.5 above), in addition to any other remedy to which it may be entitled, at law or in equity.

     9.19 Bulk Transfer Laws. OrthoLogic acknowledges that AzERx will not comply with the provisions of any bulk transfer laws of any jurisdiction in connection with the transactions contemplated by this Agreement.

[Signature page follows]

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          IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written.

ORTHOLOGIC:

OrthoLogic Corp., a Delaware corporation

          /s/ James M. Pusey

By: James M. Pusey, M.D.

Title: President and Chief Executive Officer

AZERX:

AzERx, Inc., a Delaware corporation

          /s/ Colleen M. Brophy

By: Colleen M. Brophy, M.D.

Title: Chief Executive Officer

[Signature page to Asset Purchase Agreement and Plan of Reorganization]

EX-10.5

Exhibit 10.5

AMENDED AND RESTATED LICENSE AGREEMENT

THIS AGREEMENT is made this 23^rd day of February, 2006, but effective only upon the Effective Date as set forth below, by and between the Arizona Science & Technology Enterprises, LLC, an Arizona limited liability company dba Arizona Technology Enterprises, LLC (“AzTE”) having its principal place of business at 699 South Mill Avenue, Tempe, Arizona 85281 and OrthoLogic Corp., a Delaware corporation and assignee of AzERx (“Licensee”), having its principal place of business at 1275 West Washington Street, Tempe, Arizona 85281.

This Agreement shall become effective immediately, and without further action by either party upon (i) the assignment by AzERx, Inc. (“AzERx”) of its rights under the License Agreement (as defined below) or the Option Agreement (as defined below) upon the closing of the Transaction (as defined below), (ii) payment by AzERx to AzTE of the amounts set forth in Exhibit C to the Side Letter Agreement of even date herewith, and (iii) issuance of the Shares (as defined in the Side Letter Agreement) by Licensee to AzTE and the delivery of the Put Option Agreement (as defined in the Side Letter Agreement), each as set forth in the Side Letter Agreement, whereupon the License Agreement will be automatically amended and restated as set forth herein. In the event that the closing of the Transaction does not occur on or before March 6, 2006, this Agreement shall be null and void and of no further effect.

RECITALS

A.	Arizona State University (“ASU”) is the owner of the Licensed Subject Matter (as defined below).
B.	AzTE is the exclusive intellectual property management company for ASU and the exclusive master licensee of all current and future Licensed Subject Matter pursuant to a license agreement between ASU and AzTE dated November 1, 2003, with full power and authority to sublicense and otherwise grants rights to third parties in the Licensed Subject Matter.
C.	AzERx and AzTE are parties to that certain Option Agreement dated March 25, 2004, as amended (the “Option Agreement”) pursuant to which AzERx has rights to that certain License Agreement (the “License Agreement”) contemplated thereby. Licensee and AzERx are currently negotiating a possible purchase by Licensee of all or substantially all of the assets of AzERx pursuant to that certain Asset Purchase Agreement dated as of the date hereof (the “Transaction”). In connection with Transaction, AzERx will assign to Licensee its rights to the License Agreement. However, Licensee has required as a condition to entering into the Transaction that AzTE enter into this amended and restated License Agreement upon the closing of the Transaction.
D.	This Agreement and the grant of the license described herein are subject to the terms of the Bayh-Dole Act, 35 U.S.C. Sections 200-212.

          NOW, THEREFORE, in consideration of the mutual covenants and premises herein contained, the parties agree as follows:

AGREEMENT

1. DEFINITIONS

1.1 “Affiliate” of a party shall mean any corporation or other entity which controls, is controlled by or is under common control with such party. For purposes of this definition, “control” shall mean beneficial ownership (direct or indirect) of at least a majority of the outstanding stock or other voting rights entitled to elect directors (or in the case of an entity that is not a corporation the election or appointment of the corresponding managing authority); provided, however, that in any country where the local law shall not permit foreign equity participation of at least a majority, then an “Affiliate” of Licensee shall include any company in which the Licensee shall own or control,

	directly or indirectly, the maximum percentage of such outstanding stock or voting rights permitted by local law and otherwise exercises control over the management of such company. With respect to ASU and AzTE, “Affiliate” shall also include AzTE, ASU and professors, employees, contractors and agents of ASU .
1.2	“Founders” shall mean the following ASU employees, who are the founders and shareholders of AzERx: Coleen Brophy and Alyssa Panitch.
1.3	“Improvements” shall mean any and all improvements, alterations, updates, modifications and enhancements to the Licensed Patents that are developed by Founders in their own respective laboratories, solely, or jointly with Licensee or other third-parties (including Sublicensees), or their respective employees, contractors, Affiliates or agents, or any other party utilizing ASU facilities or ASU resources. Improvements shall also include any such improvements, alterations, updates, modifications and enhancements to Licensed Patents that are produced by Licensee, any Sublicensee, or their respective employees, contractors, agents or Affiliates; provided, however, that Improvements shall not include improvements, alterations, updates, modifications or enhancements that are both (1) produced independently by Licensee (without inventive contribution of ASU or its employees, contractors, Affiliates or agents or through the use of any ASU resources or facilities) and (2) are not based on any Confidential Information in the Licensed Subject Matter. Further, Improvements shall not include rights to improvements, alterations, updates, modifications or enhancements derived from research funded from third party government or industry sponsors, granting agencies, or any third party research partners, which are granted to such parties in connection with such funding.
1.4	[INTENTIONALLY OMITTED.]
1.5	“Know-How” shall mean all unpatented or unpatentable technical data, information, materials and technical expertise that relates to the Licensed Patents and Improvements for use in the Licensed Field of Use, that are developed by the Founders (and persons working under their direct supervision) in the Founders’ respective laboratories, including without limitation, chemical and physical data and techniques, regulatory plans, clinical data, medical uses, product forms, formulations, recorded notes, studies, ideas, inventions and specifications, which are not generally known, in which AzTE or ASU has an ownership or licensable interest during the Term. “Know-How” shall not include any of such technical data, information, materials or technical expertise that (i) is or becomes in the public domain or (ii) is produced independently by Licensee (without inventive contribution of ASU or its employees, contractors, Affiliates or agents or through the use of any ASU resources or facilities) and is not based on any Confidential Information in the Licensed Subject Matter.
1.6	“Licensed Field of Use” shall mean all fields of use and applications of the Licensed Subject Matter.
1.7	“Licensed Patents” shall mean any and all of ASU’s rights in the United States or other international or foreign patents or patent applications, provisional, non-provisional, and continuing applications thereof that are listed on Schedule 1 hereto, including any U.S., international or foreign patents or the equivalent thereof issuing thereon or any addition, division, continuation, continuation-in-part, substitution, renewal, reissue, re-examination or extension thereof. With respect to ASU’s rights in patents and patent applications that will be and have been developed under the Research Collaboration Agreement between ASU and Prolexys Pharmaceuticals, Inc., a Delaware corporation dated February 20, 2004 (the “Prolexys Research Agreement”), the Licensed Patents shall include ASU’s rights (and only to the extent of such rights) under such patents and patent applications solely in the areas of: (a) small molecule memetics of HSP20; and (b) new proteins and peptides developed from existing Licensed Patents; provided, however, the rights of ASU (if any) are subject to any rights granted to Prolexys under the Prolexys Research Agreement, a correct and complete copy of which has been provided to Licensee by AzTE.

	Nothing contained in this Agreement shall be construed as giving Licensee any rights to any consideration ASU is permitted to receive other than such rights to patents and patent applications under the Prolexys Research Agreement. Licensed Patents shall not include any intellectual property not specifically set forth herein.
1.8	“Licensed Products” shall mean, with respect to Net Sales in a country, any method, system, material, composition, item, compound, device or embodiment, product, or part thereof, which is part of, or embodied in, the Licensed Subject Matter, and for which at the time of the occurrence of the relevant Net Sales in such country, the manufacture, use or sale is covered in whole or in part by any Valid Claim contained in the Licensed Patents under a patent issued by such country. “Licensed Products” shall include any services offered using any of the foregoing.
1.9	“Licensed Subject Matter” shall mean all of ASU’s rights to the Licensed Patents, Know-How and Improvements.
1.10	“Net Sales” means the total of the gross revenue recorded by the Licensee, its Affiliates, or any Sublicensee, from the import, sale, license, use, distribution, leasing or other disposition, transfer, for Licensed Products to third parties (including Affiliates), provided that Net Sales shall not include (i) reasonable and customary trade, cash or quantity discounts or rebates actually allowed; (ii) credits and rebates for damaged, rejected, or returned Licensed Products provided that such Licensed Product was sold not more than twelve (12) months prior to the date of such return, customary prepaid freight and insurance charges, and customs duties, tariffs, sales, use, privilege, excise and other similar use or sales taxes or other governmental charges actually paid in connection with sales or other dispositions of Licensed Products (but excluding what are commonly known as income taxes). Any adjustment to Net Sales resulting from returns of Licensed Products sold shall only be applied as an adjustment to Net Sales in succeeding periods. For transactions in Licensed Products between Licensee and an Affiliate or Sublicensee of Licensee for the sole purpose of resale to customers, royalties shall be based on Net Sales by the Affiliate or Sublicensee to its own customers.
1.11	“Option” shall mean the option granted by AzTE to AzERx pursuant to that Option Agreement between AzTE and AzERx dated March 25, 2004.
1.12	“Sublicensee” shall mean any person or entity that has a valid sublicense to any portion of the Licensed Subject Matter pursuant to a sublicense from Licensee after compliance with the provisions of Section 3 below. “Sublicensee” shall not include contractors who are licensed by Licensee solely to develop or manufacture Licensed Products on Licensee’s behalf.
1.13	“Territory” shall mean the world.
1.14	“Term” shall mean that period beginning on the Effective Date and expiring upon the expiration of the obligation of Licensee to pay royalties under this Agreement.
1.15	“VA” shall mean the United States Department of Veterans Affairs.
1.16	“VA Agreement” shall mean that certain Cooperative Technology Administration Agreement between ASU and VA dated November 18, 2003, a correct and complete copy of which has been provided to Licensee by AzTE.
1.17	“Valid Claim” shall mean a claim in any filed patent application or any issued and unexpired patent, which shall not have been withdrawn, cancelled or disclaimed, nor held invalid by a court of competent jurisdiction in an unapealled or unappealable decision (after all such statute limitations for such appeal have run) in the country where the product or process was made, used or sold by licensee, its Affiliates or Sublicensees.

2. GRANT

2.1	Subject to the terms and conditions of this Agreement, AzTE hereby grants to Licensee during the Term, a royalty-bearing, exclusive license, including the right to sublicense, under the Licensed Subject Matter (under the conditions described below), to develop, have developed, make, have made, use, offer for sale, sell, have sold, import, export and otherwise commercialize Licensed Products throughout the Territory solely in the Licensed Field of Use; provided, however, the rights to Know-How shall be exclusive only to the extent necessary to exercise Licensees rights under the Licensed Patents and Improvements.
2.2	AzTE expressly reserves the right for ASU to use the Licensed Subject Matter solely for noncommercial purposes such as for educational, teaching and research purposes. Further, AzTE and ASU shall have the right to make the Licensed Subject Matter available to other scientific institutions and researchers solely for non-commercial scientific and research purposes.
2.3	The grant of license set forth above is subject to any interest in the Licensed Subject Matter retained by the United States or state government granting agencies.

3. AFFILIATES; SUBLICENSES

3.1

Affiliates shall be deemed to be licensees under this Agreement provided that such Affiliates first consent in writing to be bound by the applicable terms of this Agreement to the same extent as Licensee and such consent has been delivered to AzTE. Each sublicense agreement shall contain confidentiality and non-use provisions no less burdensome than set forth in Section 7 herein and shall further require Sublicensees to maintain books and records consistent with the provisions of Section 9.5. Licensee shall provide AzTE with a copy of all documentation granting any such rights within 10 business days of the date such documentation is executed and delivered.

3.2

Upon termination of this Agreement for any reason, AzTE, at its reasonable discretion, may determine whether any or all sublicenses granted to Sublicensees shall be cancelled or assigned to AzTE.

4.	EQUITY GRANT AND RELATED RIGHTS
	[INTENTIONALLY OMITTED.]
5.	PAYMENTS AND ROYALTIES

5.1

AzERx has previously paid or agreed to pay to AzTE an initial non-refundable license fee of One Hundred Six Thousand One Hundred Twenty-Nine and 11/100 Dollars ($106,129.11), payable on the effective date hereof.

5.2

In further consideration for the rights, privileges and licenses granted by AzTE hereunder, Licensee shall pay AzTE royalties until the last expiration date of a Licensed Patent in the amount of 3% of Net Sales by Licensee, Sublicensees, or any Affiliates of Licensed Products (regardless of how many Licensed Patents are used in the Licensed Products), and 5% of any other consideration received by Licensee, Sublicensees and any Affiliates in connection with the grant of sublicense rights to Licensed Subject Matter (e.g., license issue fees, milestones, exclusivity fees, etc.) but excluding (i) royalty payments received (which shall be governed by the previous clause) by Licensee or (ii) payments received that are not received primarily for rights to the Licensed Subject or Licensed Products such as consideration received in connection with a sale of all or substantially all of the stock or assets of Licensee, until the expiration of the Term. It is understood and agreed by the parties that the payment of royalties pursuant to this Section 5.2 shall be made only on the first Net Sale of a Licensed Product by Licensee, a Subsidiary or a Sublicensee, and that subsequent Sales of the same Licensed Product or Licensed Process for

which royalties have been accrued pursuant to this Section 5.2 shall not be subject to any additional accrual of royalties (for example, and for illustration purposes only, if a royalty accrues due to a Sale by Licensee of a Licensed Product to a Sublicensee or a pharmaceutical distributor, a subsequent Sale by such Sublicensee or such pharmaceutical distributor shall not generate a royalty payable to AzTE).

5.3

Beginning on the date Licensee or any Sublicensee first records any revenue for Net Sales of Licensed Products for commercial use (“First Sale”), Licensee shall pay to AzTE until the last expiration date of a Licensed Patent a minimum annual royalty (the “Minimum Annual Royalty”), in the amounts set forth below, for the twelve-month period beginning on the date of First Sale and each succeeding twelve-month period during the Term (each, a “Minimum Royalty Year”). The Minimum Annual Royalty shall be paid to AzTE in two (2) equal installments, in arrears, semi-annually, on or before 30 days after each June 30 or December 31 semi-annual period; provided, that the first such installment shall be made within 30 days after the First Sale. The Minimum Annual Royalty shall be credited against all amounts payable under Section 5.2 hereto in the Minimum Royalty Year to which the installment of Minimum Annual Royalty relates. Licensee shall pay the Minimum Annual Royalty under this Agreement regardless of whether or not Licensee’s Net Sales for the relevant Minimum Royalty Year achieve an aggregate level sufficient to result in earned royalties equal to the Minimum Annual Royalty. The Minimum Annual Royalty amounts shall be as follows:

First Minimum Royalty Year	$	25,000
Second Minimum Royalty Year	$	50,000
Third Minimum Royalty Year	$	75,000
Each Minimum Royalty Year Thereafter	$	100,000

5.4	The Licensee shall be responsible for payment of all bank transfer charges, taxes, duties and other charges imposed by any taxing authority (other than AzTE’s income taxes) in connection with payments of royalties from Licensee to AzTE. All amounts payable to AzTE under this Agreement shall be grossed up for all required applicable withholdings related to such charges, taxes or duties.
5.5	Amounts payable under Section 5 hereof shall be paid, semi-annually in arrears, to AzTE within thirty (30) days after the semi-annual period in which such amounts are due, except as otherwise expressly provided herein. All payments will be paid to AzTE in U.S. dollars by check or wire transfer of immediately available funds, as directed by AzTE in writing.

6. PATENT EXPENSES AND PATENT PROSECUTION AND MAINTENANCE

6.1 Subject to the requirements, limitations and conditions set forth in this Agreement, AzTE shall direct, with the agreement of Licensee which shall not be unreasonably withheld or delayed, after consultation with Licensee and through counsel of Licensee’s choosing: (i) the preparation, filing, and prosecution of the United States and foreign patent applications within Licensed Subject Matter (including any interferences and foreign oppositions) and (ii) the maintenance and enforcement of the patents issuing therefrom. AzTE shall implement all reasonable requests made by Licensee with regard to the preparation, filing, prosecution and/or maintenance of the patent applications and/or patents within Licensed Subject Matter. AzTE and Licensee shall cooperate in good faith to determine the content and claims made with respect to such filings. Patent counsel shall be directed to provide both AzTE and Licensee copies of all relevant documentation sufficiently in advance of such filings so both parties have a reasonably sufficient amount of time to provide comments on such proposed filings and to otherwise be informed and apprised of the continuing prosecution and other status of all Licensed Patents. All legal fees and out-of-pocket

	expenses associated with the filing, prosecution and maintenance of Licensed Patents shall be paid by Licensee directly to such patent counsel when due.
6.2	All Licensed Patents shall be held in the name of ASU or AzTE, as determined by AzTE.
6.3	If either party receives notice or information pertaining to the actual or potential infringement of Licensed Patents, that party shall notify the other party promptly, but not later than thirty (30) days after receipt of such notice or information.
6.4	Licensee shall have the continuing responsibility to notify AzTE if Licensee is not a small entity under the provisions of 15 USC Section 632 as applied in 35 USC Section 41(h).
6.5	Promptly after the Effective Date and from time to time during the Term of this Agreement, Licensee, and its Affiliates shall disclose to AzTE all inventions, technical data, information, and materials relating to the Licensed Subject Matter that could reasonably be considered Improvements and (ii) to the extent that AzTE or ASU has the legal right to do so, AzTE shall disclose to Licensee all Know-How and Improvements that is known by AzTE or ASU and with respect to which AzTE or ASU has an ownership or licensable interest. For purposes of the foregoing provisions, information known or available to Founders shall be deemed to have satisfied any disclosure obligations of AzTE or ASU.

7. CONFIDENTIALITY

7.1 Each party undertakes during the Term of this Agreement, and for a period of seven (7) years following the termination of this Agreement, to hold in confidence and not to use or disclose to any third party, or to use for any purpose other than pursuant to this Agreement, the Know-How or other confidential information or materials (the “Confidential Information”) received from the other party. Information which is communicated orally shall be considered Confidential Information if such information is confirmed in writing as being Confidential Information within a reasonable time after the initial disclosure. Licensee shall require any Sublicensee to assume the same obligation in any sublicenses. The obligation under this Section 7.1 shall not apply to information which:

	is known to the receiving party or any of its Sublicensees prior to its receipt by the receiving party, and can be so proven by written records; or
	is received at any time by the receiving party or its Sublicensees in good faith from a third party lawfully in possession of it and having the right to disclose the same, and can be so proven by written records; or
7.1.3	is as of the date of receipt by the receiving party in the public domain or subsequently enters the public domain other than by reason of acts or omissions of the employees or agents of the receiving party or its sub-licensees which acts or omissions have not been consented to by the other party, and can be so proven by written records; or
7.1.4	is independently developed by or on behalf of the receiving party without resort to the other party’s Confidential Information as can be shown by reasonable documentary evidence.

7.2 AzTE and Licensee may also disclose Confidential Information to the extent required by applicable law, provided that the party required to make such disclosure cooperates with the other party’s efforts to limit such disclosure and promptly notifies such other party upon receipt of any order or request for such disclosure.

7.3

Notwithstanding the provisions of Section 7.1, each of the parties, ASU and their respective Affiliates reserve the right to publish (and teach) information of scientific importance. Each of Licensee and AzTE shall, and shall cause its Affiliates to, provide the other party with an advance copy of any proposed publication or other written disclosure with respect to Licensed Subject Matter (“Publication”) and the receiving party shall have ninety (90) days within which to recommend any changes it reasonably believes are necessary to preserve patent rights or Know-How belonging in whole or in part to Licensee or ASU or their respective Affiliates and the disclosing party shall cause the incorporation of such recommended changes not to be unreasonably refused. Further, if the receiving party informs the disclosing party, within ninety (90) days of receipt of an advance copy of a proposed Publication, that such Publication in the receiving party’s reasonable judgment could be expected to have a material adverse effect on any patent rights or Know-How belonging in whole or in part to Licensee or ASU, or their respective Affiliates, the disclosing party shall cause such Publication to be delayed for such period of time as shall be reasonably required to avoid such adverse effect. In the case of inventions, the delay shall be sufficiently long (but in not in excess of six (6) months) to permit the timely preparation and filing of patent application(s) or a certification of invention with respect to the information involved. Notwithstanding anything to the contrary in this Section 7.3, neither AzTE or ASU shall have any responsibility or obligation related to any Publication by any Founder.

7.4

Any press release or other public announcement regarding the transactions contemplated by this Agreement shall be mutually agreed by the parties unless AzTE or ASU reasonably determine such disclosure is necessary to satisfy any disclosure duties related to ASU being a public institution; provided, however, that prior to any such disclosure, AzTE shall first consult with Licensee to ensure that any such disclosure does not violate any strategic, securities or other legal requirements applicable to Licensee. AzTE and ASU shall further be entitled to publish the existence of this Agreement on their websites and as otherwise required by law without consent of Licensee, provided, however, that prior to such disclosure AzTE shall first consult with Licensee to ensure that any such disclosure does not violate any strategic, securities or other legal requirements applicable to Licensee. Licensee shall be entitled to publish the existence of this Agreement on its website and in business plans, financing and marketing materials and otherwise as required by law without consent of AzTE.

8. DUE DILIGENCE AND MARKETING OBLIGATIONS

8.1

Licensee, upon execution of this Agreement, shall use commercially reasonable efforts to proceed with the development, regulatory approval, manufacture and sale of Licensed Products, and shall use commercially reasonable efforts to market the same throughout the Territory. Licensee shall not use the name AzTE, ASU or that of an Affiliate of either of them without AzTE’s prior written consent. AzTE shall have the right to terminate this Agreement, or at its option, to convert any exclusive license granted hereunder to a non-exclusive license, in the event that Licensee has not filed an Investigational New Drug Application, or foreign equivalent, for HSP20 within thirty (30) months from the Effective Date. Notwithstanding the foregoing, if such milestone has not been met on the date specified due to a clinical failure or FDA delay that the parties reasonably mutually agree is curable within a reasonable period of time, and if Licensee can demonstrate that Licensee has used its best diligent efforts to meet the milestone, but the failure to meet the milestone was outside the control of Licensee, the parties shall agree in writing to extend the applicable milestone period for an amount of time necessary to account for such failure or delay.

8.2

Licensee shall in the performance of any investigation, testing and solicitation of government approvals pertaining to the use of the Licensed Subject Matter, exercise at least the same degree of diligence which any reasonable and prudent, similarly-situated discovery company exercises in the investigation, testing, and solicitation of government approvals for an invention of similar class or utility invented by employees of and owned by the discovery company.

9. REPORTS

9.1 Within ninety (90) days after the end of each calendar quarter after the Effective Date, Licensee shall submit to AzTE a progress report covering Licensee’s activities related to the testing and development of all Licensed Products and the obtaining of any governmental approvals necessary for marketing. The progress reports submitted under this Section 9.1 shall include, but not be limited to, the following topics:

• summary of work completed

• key scientific discoveries

• summary of work in progress

• current schedule of anticipated events or milestones

• market plans for introduction of Licensed Products, and

• a summary of resources (dollar value) spent in the reporting period.

9.2	The information described in Section 9.1 shall be provided to AzTE in a form reasonably determined by AzTE from time-to-time, and shall constitute Confidential Information.
9.3	The Licensee shall report to AzTE the date of first commercial sale or service offering of a Licensed Product in each country.
9.4	With each payment pursuant to Section 5 hereunder during the Term of this Agreement (including the last day of any such calendar quarter following the expiration date of this Agreement), Licensee shall provide AzTE with a report detailing: (i) all royalties and other revenue owed to AzTE hereunder with an itemization of the source of such revenue (e.g., whether due to sales of products (including model numbers), services, receipts from Sublicensees, etc.), (ii) gross and Net Sales on all Licensed Products sold, and (iii) other information reasonably requested by AzTE. If no payment is due for any period, Licensee shall so report.
9.5	Licensee shall keep, and it shall require its Sublicensees to keep, accurate records in sufficient detail as requested by AzTE from time-to-time, including reporting of sales and all appropriate deductions claimed, to enable the payments due under Section 5 to be determined. Upon the request of AzTE, Licensee and its Sublicensees shall permit an independent certified public accountant selected by AzTE to have access, not more than once in any twelve-month period, during regular business hours and upon reasonable notice to Licensee, to inspect and copy those records of Licensee and its Sublicensees as may be necessary or desirable to verify the accuracy of the reports given pursuant to this Agreement. Should the audit reveal an underpayment discrepancy of 5% or more between the payment reported and the payment actually due to AzTE, Licensee shall pay the reasonable fees and expenses incurred in conducting the audit; otherwise AzTE shall pay the fees and expenses incurred in conducting the audit and inspection. Underpayment discrepancies shall be paid promptly by Licensee to AzTE and overpayment discrepancies shall be credited to Licensee’s account in connection with the next subsequent payment of royalties.

10. WARRANTY AND INDEMNIFICATION

10.1 Licensee represents and warrants that the Founders have duly and validly assigned all of their respective right, title and interest in the Licensed Patents to ASU and/or VA. AzTE warrants and represents that ASU is the owner of the Licensed Patents, subject to the rights of Prolexys under the Prolexys Research Agreement, any interests or encumbrances created by the Founders, any interests of the United States Veteran’s Administration, and the possible government interest described above. Subject to the foregoing, AzTE warrants and represents that it has the full right and power, to grant the licenses hereunder. NEITHER AZTE, ASU NOR ITS REGENTS, FELLOWS, OFFICERS, EMPLOYEES OR AGENTS (COLLECTIVELY FOR THE PURPOSES OF THIS SECTION 10, “ASU”), MAKE ANY OTHER REPRESENTATION OR

	WARRANTY, EXPRESSED OR IMPLIED, REGARDING THE LICENSED SUBJECT MATTER OR THE USE THEREOF, AND ALL SUCH PARTIES SPECIFICALLY DISCLAIM ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY SUBJECT MATTER HEREUNDER OR USE THEREOF, AND NO SUCH PARTY ASSUMES ANY RESPONSIBILITIES WHATSOEVER WITH RESPECT TO THE DESIGN, DEVELOPMENT, MANUFACTURE, USE, SALE OR OTHER DISPOSITION BY LICENSEE, AFFILIATES, OR SUBLICENSEES OF LICENSED PRODUCTS.
10.2	Neither AzTE nor ASU shall have any liability or obligation in respect of any infringement of any patent or other right of third parties due to Licensee’s, or its Affiliate’s or Sublicensee’s activities under the license granted. LICENSEE, AFFILIATES AND SUBLICENSEES ASSUME THE ENTIRE RISK AS TO PERFORMANCE OR DISPOSITION OF LICENSED PRODUCTS OR USE OF THE LICENSED SUBJECT MATTER. In no event shall AzTE or ASU be responsible or liable for any direct, indirect, special, incidental, or consequential damages or lost profits or other economic loss or damage with respect to Licensed Products regardless of the legal theory. The limitations on liability contained in this Article apply even though AzTE or ASU may have been advised of the possibility of such damage.
10.3	Licensee hereby agrees to indemnify, defend, save and hold AzTE, its directors, officers, employees, and agents, ASU, the ASU Foundation, and their respective regents, directors, officers, employees and agents, and the State of Arizona, harmless from and against any third party claims, demands, or actions alleging or seeking recovery or other relief for any liability, cost, fee, expense, loss, or damage arising or resulting from the use of Licensed Subject Matter or Licensed Products by Licensee, its customers or end-users or its Sublicensees or their customers or end-users, however the same may arise. Licensee shall not, and shall require that its Affiliates and Sublicensees not, make any statements, representations or warranties whatsoever to any person or entity, or accept any liabilities or responsibilities whatsoever from any person or entity that, as to AzTE or ASU, are inconsistent with any disclaimer or limitation included in this Section 10.

11. OWNERSHIP AND PATENT ENFORCEMENT

11.1

ASU owns and shall own any and all right, title and interest in and to the Licensed Subject Matter and all Know-How regardless of whether developed prior to, or after the Effective Date. Licensee shall, and shall cause each of its employees and agents to, take all actions and to execute, acknowledge, and deliver all instruments or agreements reasonably requested by AzTE, at AzTE’s expense, and necessary for the perfection, maintenance, enforcement or defense of the rights of AzTE or ASU with respect to the Licensed Subject Matter or Know-How.

11.2

Licensee shall have the option to enforce rights of AzTE and Licensee to the Licensed Subject Matter against potential and actual infringers, and to defend against allegations of infringement, at its expense. AzTE shall permit, if legally necessary, the use of its name and shall execute any documents and do any acts as may be reasonably necessary for the purpose of taking such action, at Licensee’s expense. Licensee shall keep AzTE informed of the progress of the action, and AzTE shall be entitled to engage separate counsel at its own expense and AzTE may join any action by Licensee at its own expense. If Licensee recovers damages in any patent action, proceeding or litigation (or settlement thereof), the award shall be applied first to satisfy Licensee’s unreimbursed reasonable out-of-pocket legal expenses related to the litigation next to reimburse AzTE for its reasonable out-of-pocket legal expenses related to the litigation, and then the remaining recovery shall be split five percent (5%) to AzTE and ninety-five percent (95%) to Licensee. AzTE shall have the right to approve any such settlements, which shall not be unreasonably withheld or delayed. In the event Licensee does not provide timely notice to AzTE of its intent to enforce the rights described above, AzTE shall have the option to enforce rights of AzTE and Licensee to the Licensed Subject Matter against potential and actual infringers, and to defend against allegations of infringement, at its expense. Licensee shall permit, if legally necessary, the use of its name and shall execute any documents and do any acts as may be

	reasonably necessary for the purpose of taking such action, at AzTE’s expense. AzTE shall keep Licensee informed of the progress of the action, and Licensee shall be entitled to engage separate counsel at its own expense and Licensee may join any action by AzTE at its own expense. If AzTE recovers damages in any patent action, proceeding or litigation (or settlement thereof), the award shall be applied first to satisfy AzTE’s unreimbursed reasonable out-of-pocket legal expenses related to the litigation next to reimburse Licensee for its reasonable out-of-pocket legal expenses related to the litigation, and then the remaining recovery shall be split five percent (5%) to Licensee and ninety-five percent (95%) to AzTE.
11.3	Any infringement suit which either party may institute to enforce the Licensed Patents pursuant to this Agreement, or in a suit for patent infringement which is brought by a third party against AzTE or Licensee, which either party or both parties are required or elect to defend, the other party hereto shall, at the request and the expense of the party initiating such suit (or if any such party is defending such suit at the expense of the Licensee), cooperate in all reasonable respects and, to the extent reasonably possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.
11.4	AzTE shall use commercially reasonable efforts to advise Licensee of the grant, lapse, revocation, surrender, invalidation or abandonment of any of the Licensed Patents; provided, however, that the failure to provide such notice shall not constitute a breach of this Agreement unless Licensee can demonstrate that Licensee was materially prejudiced thereby.

12.	COMMUNICATION
	Any payment, notice, or other communication required or permitted to be made or given to either party pursuant to this Agreement shall be sufficiently made or given on the date of mailing if sent to the party by mail, postage prepaid (followed up by fax), addressed to it at its address set forth or to such other address as it shall be designated by written notice to the other party as follows:

In the case of AzTE:

Arizona Technology Enterprises
P.O. Box 873511
Tempe, Arizona 85287-3511
Attn: Peter Slate, Chief Executive Officer
Fax: 480-965-0421

With a copy to:

Rogers & Theobald LLP
2425 East Camelback Road
Suite 850
Phoenix, Arizona 85016
Attn: Michael Hool, Esq.
Fax: 602-852-5570

In the case of Licensee:

OrthoLogic Corp.
1275 West Washington Street
Tempe, Arizona 85281
Attn: James M. Pusey, M.D.
President and Chief Executive Officer
Fax: (602) 470-7080

With a copy to:

Quarles & Brady Streich Lang LLP
Two North Central Avenue
Phoenix, Arizona 85004-2391
Attn: Steven P. Emerick, Esq.
Fax: (602) 417-2980

13.	ASSIGNMENTS
	Except as set forth below and with respect to sublicenses granted in accordance with Section 3, this Agreement (or any rights, interests, or obligations set forth hereunder) shall not be assignable by either party (or transferred by operation of law) without the prior written consent of the other party, which will not be unreasonably conditioned, withheld, or delayed. Notwithstanding the foregoing, the parties agree that at any time, (i) AzTE may assign its rights and obligations to a successor intellectual property management company for ASU or to ASU; and (ii) either party may assign this Agreement without consent in connection with any merger, consolidation or sale of assets constituting a transfer of all or substantially all of Licensee’s business. In the case of any assignment not requiring AzTE’s consent as set forth above, the effectiveness of the assignment shall be conditioned on Licensee providing written notice of such proposed assignment to AzTE prior to the assignment.
14.	[INTENTIONALLY DELETED.]
15.	PATENT MARKING
	Licensee, Affiliates, and Sublicensees shall mark all packaging and documentation for Licensed Products, and when possible the Licensed Product itself, with permanent and legible designation of the number of applicable Licensed Patents in accordance with each country’s applicable patent laws.
16.	TERMINATION

16.1	Failure by AzTE or Licensee to comply with any of the material terms contained in this Agreement shall entitle the other party to give to such defaulting party written notice requiring it to cure the default. If the default is not cured within ninety (90) days after the receipt of the notice of such default, the notifying party shall be entitled (without prejudice to any of its other rights conferred on it by this Agreement of such notice) to terminate this Agreement by giving notice to take effect immediately upon receipt by the party in default; provided, however, that if the default is by reason of non-payment of amounts due, such non-payment shall constitute a default without further notice if not paid within thirty (30) days of notice of such non-payment, The right of either party to terminate this Agreement shall not be affected in any way by its waiver of, or failure to take action with respect to, any previous default
16.2	Either party shall be entitled to terminate this Agreement immediately upon written notice to the other party if (i) the other party shall voluntarily or involuntarily go into liquidation or bankruptcy, takes steps or prepare for such liquidation or bankruptcy, makes an assignment for the benefit of creditors, or have a receiver or a trustee appointed for its properties, in each case where such proceedings are not dismissed or revoked within 60 days, (ii) the other party is unable to pay its debts when due or ceases to continue material business operations, or (iii) if the other party otherwise unwinds or dissolves its business.
16.3	Any party is entitled to terminate this Agreement by providing thirty (30) days prior written notice if an uncured breach of this Agreement due to a Force Majeure Event (as defined in Section 19 below) has been in existence for more than one hundred eighty (180) days.

16.4	Licensee is entitled to terminate this Agreement by providing at least sixty (60) days’ prior written notice if Licensee determines that further development of Licensed Products is no longer in Licensee’s interests. AzTE is entitled to terminate this Agreement in the circumstances set forth in Section 3.4.5.3 of the VA Agreement if Licensee cannot reasonably satisfy the requirements set forth therein within one hundred eighty (180) days after written notice thereof. This Agreement shall terminate automatically in the circumstances set forth in Sections 3.4.5.4 and 3.4.5.5 of the VA Agreement.
16.5	If not sooner terminated as provided or permitted herein or extended by mutual agreement in writing, this Agreement shall automatically terminate upon expiration of the Term.
16.6	Upon termination of this Agreement for whatever reason, Licensee shall immediately deliver or cause to be delivered to AzTE copies of all patent applications, test results and protocols, procedures, investigator rosters and instructions, and any other document relevant to the procurement of patent protection or government approval for Licensed Subject Matter and shall do whatever is necessary to provide AzTE or AzTE’s designee full unconditional, and unrestricted access to all and use of such data including any related open investigational drug application file.

17. RIGHTS AND OBLIGATIONS FOLLOWING TERMINATION

17.1 Termination of this Agreement, by expiration or otherwise for any reason, shall be without prejudice to the following provisions, which shall expressly survive any termination of this Agreement:

AzTE’s right to receive all payments and royalties accrued and unpaid on the effective date of the termination; and

the rights and obligations provided for in Sections 4 (Equity Grant and Related Rights), 7 (Confidentiality), 10 (Warranty and Indemnification) and Section 23 (Miscellaneous);

17.2 Following any termination of this Agreement, by expiration or otherwise (other than termination by AzTE pursuant to Section 16.1 hereof), Licensee and its Sublicensees, may offer for sale, sell, have sold, import and export for a twelve (12) month period after termination in accordance with the terms of this Agreement, any Licensed Product which was in process of manufacture or finished on the Effective Date of the termination, but, with respect to these sales, Licensee shall continue to be bound by all of its obligations under this Agreement, including the obligation to render quarterly reports covering sales in accordance with the provision of Section 9 and the obligation to pay royalties at the rates set forth in Section 5.

18.	INSURANCE
	Licensee agrees to maintain the following minimum insurance coverages during the term of this Agreement:

18.1

Commercial general liability insurance, with a broad form general liability endorsement, with contractual liability included, against claims for bodily injury, death or property damage in connection with its operations contemplated by this Agreement, to afford protection in the amount of not less than $1,000,000, combined single limit per occurrence, and general aggregate minimum limits of $2,000,000. If such coverage is on a “claims made” basis rather than an “occurrence” basis, Licensee shall continue coverage, whether by tail coverage or otherwise, for a period of not less than two years following expiration of this Agreement.

18.2

Business automobile liability with a minimum combined single limit of $1,000,000 per occurrence including coverage for owned, if any, non-owned and hired vehicles; Worker’s Compensation insurance in forms and amounts required by law; and Employer’s liability

	insurance at: $500,000 each accident, $500,000 each employee/disease, $1,000,000 policy limit/disease.
18.3	The coverage will not be invalidated due to any act or omission on the part of AzTE, ASU, the ASU Foundation or the State of Arizona, or its board, officers, employees or agents. Licensee will provide certificates of insurance showing required coverages to:

Risk Management
Arizona State University
P. O. Box 875505
Tempe, AZ 85287-5505

18.4 Licensee’s coverage obligation shall include, without limitation, the acts and omissions of Licensee and its directors, officers, employees and agents and:

The insurance policy must require the insurer to notify AzTE in writing at least thirty (30) days prior to any cancellation, alteration or nonrenewal.

If the Licensee fails to carry and maintain the required insurance or to deliver certificates of insurance, then Licensee will be in default under this Agreement.

Upon request by AzTE, the Licensee will provide AzTE with copies of all insurance policies and endorsements.

All insurance required hereby shall be affected under policies issued by responsible insurers authorized to do business within the State of Arizona. All insurers must posses a current A.M. Best, Inc. rating of a least A VII.

18.5	Licensee shall procure such other policies of insurance from time to time as is reasonably requested by AzTE (such as Directors’ & Officers’ Insurance, Products Liability Insurances, and Errors & Omissions Insurance).
18.6	With respect to foregoing policies, AzTE, ASU, the ASU Foundation and the State of Arizona shall be named insured under such third party liability policies.

19.	FORCE MAJEURE
	The parties shall not be liable for failure or delay upon fulfillment of all or part of this Agreement (other than for payments due hereunder), directly owing to acts of Nature, Governmental orders or restriction, war, warlike condition, revolution, riot, looting, terrorism, fire, or flood (each, a “Force Majeure Event”).

20.	LATE PAYMENTS
	In the event royalty payments, re-billings or other amounts are not received by AzTE when due, the Licensee shall pay to AzTE interest charges at a rate of ten percent (10%) per annum. Interest shall be calculated from the date payment was due until the date payment was actually received by AzTE.
21.	FOREIGN GOVERNMENT APPROVAL OR REGISTRATION
	If the law of any nation requires that this Agreement or any associated transaction be either approved or registered with any governmental agency, the Licensee shall assume all legal obligations and costs to do so.
22.	EXPORT CONTROL LAWS
	The Licensee shall observe all applicable United States and foreign laws with respect to the transfer of Licensed Products and related technical data to foreign countries, including, without limitation, the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.

23. MISCELLANEOUS

23.1	No amendment or modification of this Agreement or waiver of any right hereunder shall be valid or binding upon the parties unless made in writing and signed by each party. This Agreement embodies the entire understanding of the parties and shall supersede all previous communications, representations, or undertakings, whether verbal or written, between the parties relating to its subject matter.
23.2	Licensee shall have no right to use the name or other designation of the Arizona Board of Regents or Arizona State University in connection with any sale or promotion of Licensed Products without the express written consent of the Arizona Board of Regents or AzTE respectively, which shall not be unreasonably withheld. Licensee shall be entitled to identify the source, but not the content, of the Licensed Subject Matter in a factual manner.
23.3	If any provision of this Agreement shall be held to be invalid, illegal, or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired; provided that the essential benefits to the parties hereunder remain intact.
23.4	To the extent required by applicable United States laws, if at all, Licensee agrees that Licensed Products will be manufactured in the United States, or its territories, subject to such waivers as may be required, or obtained, if at all, from the United States Department of Health and Human Services, or its designee or such other authorized U.S. agency or instrumentality.
23.5	The headings of the sections are inserted for convenience of reference only, and are not intended to influence the interpretation of this Agreement. All recitals, exhibits and schedules are incorporated by reference into the body of this Agreement.
23.6	ASU is a public institution and only those obligations imposed upon ASU and AzTE which can be lawfully undertaken by the Board of Regents in accordance with its legislative charter shall be enforceable. To the best knowledge of AzTE, there are no provisions of this Agreement which are unenforceable by virtue of the foregoing restriction.
23.7	If ASU’s or AzTE’s performance of an obligation under this Agreement depends upon the appropriation of funds by the Arizona Legislature and if the Legislature fails to appropriate the necessary funds (an “Unappropriated Obligation”), then upon thirty (30) days prior written notice, either Licensee or AzTE may cancel this Agreement, unless within such thirty (30) day period, Licensee waives in writing the Unappropriated Obligation. Cancellation will not terminate any obligation based on events occurring prior to cancellation, although until the Legislature appropriates funds, AzTE may not be able to pay the obligation. Appropriation is a legislative act and is beyond the control of AzTE.
23.8	Licensee agrees that the employees, consultants, and agents of Licensee will not for any purpose be considered employees, consultants, or agents of AzTE or ASU and that Licensee assumes full responsibility for the actions of such parties while performing services under this Agreement, and shall be solely responsible for their supervision, daily direction and control, payment of salary (including withholding income taxes and social security), worker’s compensation and disability benefits. AzTE agrees that the employees, consultants, and agents of AzTE and ASU will not for any purpose be considered employees, consultants, or agents of Licensee and that AzTE and ASU assume full responsibility for the actions of such parties while performing services under this Agreement, and shall be solely responsible for their supervision, daily direction and control, payment of salary (including withholding income taxes and social security), worker’s compensation and disability benefits.
23.9	The parties agree to comply with all applicable state and federal laws, rules, regulations and executive orders governing equal employment opportunity, immigration, nondiscrimination,

	including the Americans with Disabilities Act, and affirmative action. Licensee certifies that it is in good standing to do business with the federal government regarding debarment, suspension, proposed debarment or other matters rendering organizations ineligible to do such business. This Agreement is subject to all applicable Arizona Board of Regents (ABOR) policies in effect on the Effective Date.
23.10	Any disputes under or relating to this Agreement between AzTE and the Licensee would best be, and therefore shall be, resolved pursuant to the dispute resolution procedure set forth in Schedule 2 hereto subject to ABOR policies. Notwithstanding the foregoing, nothing herein shall prohibit or limit either party’s right to injunctive relief in connection with this Agreement or any dispute arising in connection with the relationship contemplated hereby.
23.11	No waiver by either party to this Agreement of any breach or default of any of the covenants or agreements set forth in this Agreement shall be deemed a waiver as to any subsequent and/or similar breach or default.
23.12	If it becomes necessary for either party to undertake legal action against the other because of a failure of performance due under the terms of this Agreement, then the prevailing party shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements.
23.13	SUBJECT TO THE DISPUTE RESOLUTION PROVISIONS HEREIN, THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS AND WITHIN THE JURISDICTION OF THE STATE OF ARIZONA, without regard to conflicts of laws principles and each party hereby submits to the personal jurisdiction of the courts of the State of Arizona, Maricopa County, for the purposes of any dispute between the parties.
23.14	Each party represents that the execution and delivery of this Agreement by such party, and the consummation by it of all transactions contemplated hereby, have been duly authorized by all requisite action on its part, and this Agreement constitutes the valid and legally binding obligation of such party, enforceable against it in accordance with its terms; and that the execution, delivery and performance of this Agreement by such party will not violate the provisions of any law, rule, regulation or policy applicable to such party or conflict with or result in the breach or termination or constitute a default under any agreement, instrument, right or obligation to which such party is a party.
23.15	If, and to the extent that A.R.S. § 38-511 is applicable to this Agreement, the parties acknowledge and agree that none of the Founders, nor any of their Affiliates, employees, contractors or agents has been significantly involved in initiating, negotiating, securing, drafting or creating this Agreement on behalf of AzTE or any of its Affiliates, including but not limited to ASU.

IN WITNESS WHEREOF, AzTE and Licensee have caused this Agreement to be signed as of the Effective Date.

Arizona Science & Technology Enterprises, LLC dba		OrthoLogic Corp., a Delaware corporation
Arizona Technology Enterprises, LLC, an Arizona
limited liability company
By:	/s/ Peter Slate	By:	/s/ Les M. Taeger
Name:	Peter Slate	Name:	Les M. Taeger
Title:	CEO	Title:	CFO

SCHEDULE 1 — INTELLECTUAL PROPERTY (Section 1.5)

SCHEDULE 2 – DISPUTE RESOLUTION PROCEDURE (Section 23.10)

SCHEDULE 1

INTELLECTUAL PROPERTY

Tech ID: M1-061 Title: Reagents and Methods for Smooth Muscle Therapies

Serial No	Legal Ref No	File Date	App Type	Country
60/314,535	03-223	08/23/2001	Provisional	United States
10/226,956	03-223-US	08/23/2002	Non-Provisional	United States
PCT/US02/26918	03-223-PCT	08/23/2002	PCT	PCT
2,458,574	03-223-CA	08/23/2002	Nationalized PCT	CANADA
2002324777	03-223-AU	08/23/2002	Nationalized PCT	AUSTRALIA
02759442.3	03-223-EP	08/23/2002	Nationalized PCT	EPO
2003-523609	03-223-JP	02/20/2004	Nationalized PCT	JAPAN
11/078,256	03-223-USD1	03/11/2005	Divisional	United States

Tech ID: M3-052 Title: Methods for Promoting Wound Healing and Reducing Scar Formation

Serial No	Legal Ref No	File Date	App Type	Country
60/448,954	03-228	02/21/2003	Provisional	United States
PCT/US04/004999	03-228-PCT	02/20/2004	PCT	PCT
	03-228-AU	02/20/2004	Nationalized PCT	AUSTRALIA
04713307.9	03-228-EP	02/20/2004	Nationalized PCT	EPO
10/545,518	03-228-US	08/15/2005	Nationalized PCT	United States

Tech ID: M4-025 Title: Novel Heat Shock Protein 20-Related Polypeptides and Uses Thereof

Title: Transduction of HSP20 Phosphopeptides Alters Actin Cytoskeleton via Interaction

Tech ID: M4-042 with 14-3-3 Proteins and Cofilin

Serial No	Legal Ref No	File Date	App Type	Country
60/512,211	03-956	10/17/2003	Provisional	United States
60/530,306	03-228-P3	12/16/2003	Provisional	United States
PCT/US04/34989	03-956-PCT	10/15/2004	PCT	PCT

Tech ID: M4-058 Title: Vasoactive Compounds and Use Thereof

Serial No	Legal Ref No	File Date	App Type	Country
60/547,158	PRLX-P60-003	02/23/2004	Provisional	United States

Tech ID: M5-038 Title: Peptidomimetics for Inhibition of Vasospasm

Serial No	Legal Ref No	File Date	App Type	Country
	05-664		Provisional	United States

Tech ID: M5-101 Title: HSP20 Mediates Airway Smooth Muscle Relaxation

Serial No Legal Ref No File Date App Type Country

Tech ID: M6-089 Title: HSP20 Phosphopeptide Reverses Subarachnoid Hemorrhage-Induce Vasospasm

Serial No Legal Ref No File Date App Type Country

SCHEDULE 2

DISPUTE RESOLUTION PROCEDURE

     Section 1. The parties hereto deem it to be in their respective best interests to settle any dispute as expeditiously and economically as possible. Therefore, the parties expressly agree to submit any dispute between them arising out of or relating to this Agreement (“Dispute”) to mediation and, if necessary, arbitration, as set forth below. The parties hereto thus expressly waive any rights they may have to trial by jury with respect to such dispute. The dispute resolution proceedings shall be conducted in Phoenix, Arizona, in the English language. The parties agree to use the following procedure in good faith to resolve any Dispute:

          a. A meeting shall be held among the parties within ten (10) days after any party gives written notice of the Dispute to each other party (the “Dispute Notice”) attended by a representative of each party having decision-making authority regarding the Dispute (subject to board of directors or equivalent approval, if required), to attempt in good faith to negotiate a resolution of the Dispute.

          b. If, within thirty (30) days after the Dispute Notice, the parties have not succeeded in negotiating a written resolution of the Dispute, upon written request by any party to each other party all parties will promptly negotiate in good faith to jointly appoint a mutually acceptable neutral person not affiliated with any of the parties (the “Neutral”). If all parties so agree in writing, a panel of two or more individuals (such panel also being referred to as the “Neutral”) may be selected by the parties. The parties shall seek assistance in such regard from the American Arbitration Association (the “AAA”) or the Center for Public Resources if they have been unable to agree upon such appointment within forty (40) days after the Dispute Notice. The fees and costs of the Neutral and of any such assistance shall be shared equally among the parties.

          c. In consultation with the Neutral, the parties will negotiate in good faith to select or devise a nonbinding alternative dispute resolution procedure (“Mediation”) by which they will attempt to resolve the Dispute, and a time and place for the Mediation to be held, with the Neutral (at the written request of any party to each other party) making the decision as to the procedure if the parties have been unable to agree on any of such matters in writing within ten (10) days after selection of the Neutral.

          d. The parties agree to participate in good faith in the Mediation to its conclusion; provided, however, that no party shall be obligated to continue to participate in the Mediation if the parties have not resolved the Dispute in writing within one hundred twenty (120) days after the Dispute Notice and any party shall have terminated the Mediation by delivery of written notice of termination to each other party following expiration of said 120-day period. Following any such termination notice after selection of the Neutral, and if any party so requests in writing to the Neutral (with a copy to each other party), then the Neutral shall make a recommended resolution of the Dispute in writing to each party, which recommendation shall not be binding upon the parties; provided, however, that the parties shall give good faith consideration to the settlement of the Dispute on the basis of such recommendation, and if the parties are unable to resolve the Dispute on the basis of such recommendation, then at the election of either party the Dispute shall be submitted to binding arbitration as provided below. In the event of binding arbitration, the party seeking further resolution shall pay the reasonable attorneys‘‘ fees, costs and other expenses (including expert witness fees) of the other party incurred in connection with the pursuit of (and defense against) such arbitration, if the result thereof is less favorable to the party pursuing the arbitration than the recommendation of the Neutral.

          e. Notwithstanding anything herein to the contrary, nothing in this Section shall preclude any party from seeking interim or provisional relief, in the form of a temporary restraining order, preliminary injunction or other interim equitable relief concerning the Dispute, either prior to or during the Mediation if necessary to protect the interests of such party, or to obtain specific performance of obligations under this Agreement. Further, this Section shall be specifically enforceable. Bringing or defending an action for such relief shall not constitute waiver of the right or avoid the obligation to mediate or arbitrate contained in this Agreement.

          f. Subject to the foregoing, a party may seek arbitration of an unresolved Dispute in Phoenix, Arizona, in accordance with the Rules of the AAA governing commercial transactions. The arbitration tribunal shall consist of three (3) arbitrators. The party initiating arbitration shall nominate one arbitrator (who shall

be knowledgeable in the industry but not be affiliated with such party) in the request for arbitration and the other party shall nominate a second arbitrator (who shall be knowledgeable in the industry but not be affiliated with such party) in the answer thereto. The two arbitrators so named will then jointly appoint the third arbitrator (who shall be knowledgeable in the industry but shall not be affiliated with either party) as chairman of the arbitration tribunal. If either party fails to nominate its arbitrator, or if the arbitrators named by the parties fail to agree on the person to be named as chairman within sixty (60) days, the office of the AAA in Phoenix, Arizona shall make the necessary appointments of an arbitrator or the chairman of the arbitration tribunal. The award of the arbitration tribunal shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such an award and an order of enforcement.

     Section 2. At the reasonable request of either party, the mediator or arbitration tribunal shall adopt rules and procedures designed to expedite the dispute resolution process.

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in this Registration Statement on Form S-3 of our reports dated March 9, 2006 relating to the financial statements and financial statement schedule of OrthoLogic Corp., and management’s report on the effectiveness of internal control over financial reporting (which report on the financial statements expresses an unqualified opinion and includes an explanatory paragraph regarding the fact that OrthoLogic Corp. is in the development stage at December 31, 2005), appearing in the Annual Report on Form 10-K of OrthoLogic Corp. for the year ended December 31, 2005 and to the reference to us under the heading “Experts” in the Prospectus, which is part of this Registration Statement.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona
April 24, 2006