<PAGE>
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    Form 10-Q

                   Quarterly Report Under Section 13 or 15 (d)
                     of the Securities Exchange Act of 1934

For Quarter Ended March 31, 1999
                  --------------

Commission File Number 0-10832
                       -------

                             AFP Imaging Corporation
                             -----------------------
             (Exact name of registrant as specified in its charter)

          New York                                      13-2956272
-------------------------------             ------------------------------------
(State or other jurisdiction of                   (IRS Employer ID No.)
incorporation or organization)

250 Clearbrook Road, Elmsford, New York                   10523
-----------------------------------------                ------
(Address of principal executive offices)               (Zip Code)

Registrant's telephone number, including area code:   (914) 592-6100
                                                      --------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X  No
                                      ---    ---

The registrant had 9,271,054 shares of Common Stock outstanding as of May
1,1999.


                                        1

<PAGE>


The consolidated financial statements included herein have been prepared by AFP
Imaging Corporation (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. While certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, the Company believes that the
disclosures made herein are adequate to make the information presented not
misleading. It is recommended that these consolidated financial statements be
read in conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended June 30,
1998.

In the opinion of the Company, all adjustments necessary to present fairly the
financial position of AFP Imaging Corporation as of March 31, 1999 and June 30,
1998, and the results of its operations for the three and nine month periods
ended March 31, 1999 and 1998, and its cash flows for the nine month periods
then ended, have been included. In addition to the adjustments for normal
recurring accruals, the Company recorded charges in this quarter of
approximately $750,000 associated with the impairment of goodwill related to its
ProDen systems product line. During the nine months ended March 31, 1998, the
Company had recorded special charges of approximately $3.3 million associated
with the restructuring of its Swedish operations and the allocation of
acquisition costs to acquired in process research and development in connection
with the Company's acquisition of ProDen (see Note 8 to Consolidated Financial
Statements).


                                        2

<PAGE>
Item 1:  FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                              AFP Imaging Corporation and Subsidiaries
                                   Consolidated Balance Sheets - March 31, 1999 and June 30, 1998

Assets                                  March 31,     June 30,   Liabilities and Stockholders' Equity      March 31,      June 30,
------                                    1999         1998      ------------------------------------        1999           1998
                                       -----------  -----------                                           -----------   -----------
<S>                                    <C>          <C>          <C>                                      <C>           <C>
Current Assets:                                                  Current Liabilities:
  Cash and cash equivalents               $625,192     $594,992     Current portion of long-term debt      $1,596,254    $  770,834
  Accounts receivable, less allowance                               Accounts payable                        1,473,051     1,266,127
    for doubtful accounts of $687,600                               Accrued expenses                        1,537,553     1,861,354
    and $422,200 respectively            3,831,397    4,755,093                                           -----------   -----------
  Inventories                            7,084,568    6,607,441     Total current liabilities               4,606,858     3,898,315
  Prepaid expenses and other               100,128      293,989                                           -----------   -----------
                                       -----------  -----------
                                                                 Long Term Debt                             6,755,883     6,968,609
    Total current assets                11,641,285   12,251,515                                           -----------   -----------
                                       -----------  -----------
                                                                 Shareholders' Equity
Property and Equipment, (at cost)        8,262,897    8,112,721     Common Stock, $.01 par value, 30,000,000
                                                                    shares authorized, 9,271,054 and
Less accumulated depreciation           (6,859,301)  (6,474,878)    9,767,949 shares issued and
                                       -----------  -----------     outstanding at March 31, 1999 and
                                         1,403,596    1,637,843     June 30, 1998, respectively                92,710        97,679
                                       -----------  -----------  Paid-in capital in excess of par          11,491,001    11,858,704
                                                                 Accumulated deficit                       (6,181,511)   (4,153,889)
Intangible Assets,                                               Accumulated other comprehensive loss         (14,581)       (8,509)
    net of accumulated amortization      3,421,071    4,390,461                                           -----------   -----------
                                       -----------  -----------     Total shareholders' equity              5,387,619     7,793,985
                                                                                                          -----------   -----------
Other Assets                               284,408      381,090
                                       -----------  -----------
                                       $16,750,360  $18,660,909                                           $16,750,360   $18,660,909
                                       ===========  ===========                                           ===========   ===========

</TABLE>

The accompanying notes to financial statements are an integral part of these
consolidated balance sheets.


                                        3

<PAGE>


<TABLE>
<CAPTION>
                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Operations
                      -------------------------------------

                                                     Three Months Ended                    Nine Months Ended
                                                     March 31,                             March 31,

                                                   1999              1998                1999             1998
                                                   ----              ----                ----             ----

<S>                                             <C>               <C>               <C>                <C>
Net Sales                                       $6,700,297        $8,548,583        $21,829,122        $26,313,956

Cost of Sales                                    4,572,562         6,006,719         15,189,640         17,792,499
                                                 ---------         ---------         ----------         ----------

     Gross Profit                                2,127,735         2,541,864          6,639,482          8,521,457
                                                 ---------         ---------          ---------          ---------
Selling, General and
  Administrative Expenses                        2,092,965         2,244,093          6,479,423          6,945,638
Research and Development                           340,607           256,146            933,522            648,865
Special Charges                                    750,000         1,700,000            750,000          3,320,983
                                                   -------         ---------            -------          ---------

                                                 3,183,572         4,200,239          8,162,945         10,915,486
                                                 ---------         ---------          ---------         ----------

     Operating loss                            (1,055,837)       (1,658,375)        (1,523,463)        (2,394,029)
                                                ---------         ---------          ---------          ---------

Interest, net                                      178,993            99,738            501,476            258,286
                                                   -------            ------            -------            -------

Loss before provision for taxes                (1,234,830)       (1,758,113)        (2,024,939)        (2,652,315)

Provision (Benefit) for Income Taxes              (21,317)                 -              2,683             50,480
                                                   ------           --------              -----             ------

Net Loss                                      ($1,213,513)      ($1,758,113)       ($2,027,622)       ($2,702,795)
                                               ==========        ==========         ==========         ==========

NET LOSS PER SHARE
     Basic                                         ($ .13)           ($ .18)            ($ .21)            ($ .31)
                                                    =====             =====              =====              =====
     Diluted                                       ($ .13)           ($ .18)            ($ .21)            ($ .31)
                                                    =====             =====              =====              =====

Weighted average outstanding
     Common stock                                9,271,054         9,767,949          9,436,686          8,594,533
                                                 =========         =========          =========          =========

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these statements.


                                        4


<PAGE>


<TABLE>
<CAPTION>

                                              AFP Imaging Corporation and Subsidiaries
                           Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
                                          For the Nine Months Ended March 31, 1999 and 1998
                                          -------------------------------------------------

                                                                    Convertible     Convertible        Common
                                                Comprehensive         Preferred       Preferred         Stock      Common
                                                         Loss         Stock (A)       Stock (B)      Warrants       Stock
                                                         ----         ---------       ---------      --------       -----

<S>                                               <C>               <C>                <C>        <C>          <C>
Balance June 30, 1997                                     $--        $2,171,071        $854,247       $25,314     $74,327

  Issuance of  152,027 shares
    of common stock in connection with
    the conversion of common stock
    warrants                                              ---               ---             ---       (15,000)      1,520

    Expiration of 103,138 common stock
     warrants                                             ---               ---             ---       (10,314)        ---

  Issuance of  24,500 shares
   of common stock in connection with
   the conversion of stock options                        ---               ---             ---           ---         245

  Conversion of 1,396,798 shares of
    Preferred Stock, Series A to 1,430,036,
    shares of common stock                                ---        (2,171,071)            ---           ---      14,300

  Conversion of 711,872 shares of
    Preferred Stock, Series B to 728,672
    shares of common stock                                ---               ---        (854,247)          ---       7,287

  Foreign currency translation
    adjustment                                         (1,304)              ---             ---           ---         ---

  Net loss for nine months
    ended March 31, 1998                           (2,702,795)              ---             ---           ---         ---
                                                   ----------

Comprehensive Loss                                $(2,704,099)              ---             ---           ---         ---
                                                  ===========        ----------      ----------    ----------  ----------
Balance March 31, 1998                                               $      ---      $      ---    $      ---  $   97,679
                                                                     ==========      ==========    ==========  ==========
Balance June 30, 1998                                    $---              $---            $---          $---  $   97,679

  Retirement of 496,895 shares of
    common stock at $.75 per share                        ---               ---             ---           ---      (4,969)

  Foreign currency translation
    Adjustment                                         (6,072)              ---             ---           ---         ---

  Net loss for nine months
    ended March 31, 1999                          $(2,027,622)              ---             ---           ---         ---
                                                  -----------
Comprehensive Loss                                $(2,033,694)              ---             ---           ---         ---
                                                  ============       ----------      ----------    ----------  ----------
Balance March 31, 1999                                               $      ---      $      ---    $      ---  $   92,710
                                                                     ==========      ==========    ==========  ==========

<CAPTION>
                                                                                    Accumulated
                                                      Paid-in                             Other
                                                   Capital In       Accumulated   Comprehensive
                                                Excess of Par           Deficit            Loss        Total
                                                -------------           -------            ----        -----

<S>                                               <C>               <C>                <C>        <C>
Balance June 30, 1997                              $8,578,549         $(826,324)        $(3,800)  $10,873,384

  Issuance of  152,027 shares
    of common stock in connection with
    the conversion of common stock
    warrants                                          238,480               ---             ---       225,000

    Expiration of 103,138 common stock
     warrants                                          10,314               ---             ---           ---

  Issuance of  24,500 shares
   of common stock in connection with
   the conversion of stock options                    27,630                ---             ---        27,875

  Conversion of 1,396,798 shares of
    Preferred Stock, Series A to 1,430,036,
    shares of common stock                          2,156,771               ---             ---           ---

  Conversion of 711,872 shares of
    Preferred Stock, Series B to 728,672
    shares of common stock                            846,960               ---             ---           ---

  Foreign currency translation
    adjustment                                            ---               ---          (1,304)       (1,304)

  Net loss for nine months
    ended March 31, 1998                                  ---        (2,702,795)            ---    (2,702,795)


Comprehensive Loss                                        ---               ---             ---           ---
                                                  -----------       -----------         -------    ----------
Balance March 31, 1998                            $11,858,704       $(3,529,119)        $(5,104)   $8,422,160
                                                  ===========       ===========         =======    ==========
Balance June 30, 1998                             $11,858,704       $(4,153,889)        $(8,509)   $7,793,985

  Retirement of 496,895 shares of
    common stock at $.75 per share                   (367,703)              ---             ---      (372,672)

  Foreign currency translation
    Adjustment                                            ---               ---          (6,072)       (6,072)

  Net loss for nine months
    ended March 31, 1999                                  ---        (2,027,622)            ---    (2,027,622)

Comprehensive Loss                                        ---               ---             ---           ---
                                                  -----------      ------------        --------    ----------
Balance March 31, 1999                            $11,491,001       $(6,181,511)       $(14,581)   $5,387,619
                                                  ===========      ============        ========    ==========

</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.


                                        5

<PAGE>


<TABLE>
<CAPTION>

                                              AFP Imaging Corporation and Subsidiaries
                                                Consolidated Statements of Cash Flows
                                          For the Nine Months Ended March 31, 1999 and 1998
                                          -------------------------------------------------

                                                                                       1999                       1998
                                                                                       ----                       ----
<S>                                                                               <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                        ($2,027,622)              ($2,702,795)
  Adjustments to reconcile net loss to net cash (used in) provided
   by operating activities-
     Non-cash effect of Special Charges                                               750,000                 2,991,983
     Accretion of Imputed interest on note payable                                    116,190                       ---
     Depreciation and amortization                                                    636,495                   686,159
     Change in assets and liabilities:
      Decrease in accounts receivable                                                 923,696                   319,187
      (Increase) in inventories                                                      (477,127)                 (517,508)
      Decrease (Increase) in prepaid expenses and other assets                        257,861                  (349,120)
      Increase (Decrease) in accounts payable                                         206,924                  (425,884)
      (Decrease) in accrued expenses                                                 (323,801)               (1,364,350)
                                                                                    ---------                 ---------

      Total adjustments                                                             2,090,238                 1,340,477
                                                                                    ---------
      Net cash provided by (used in) operating activities                              62,616                (1,362,318)
                                                                                       ------                 ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
      Investment in ProDen Systems, Inc.                                                  ---                (3,483,229)
      Proceeds from collection of Notes Receivable                                        ---                   300,000
      Capital expenditures                                                           (150,176)                 (282,934)
                                                                                      -------                   -------

      Net cash (used by) investing activities                                        (150,176)               (3,466,163)
                                                                                      -------                 ---------

CASH FLOW FROM FINANCING ACTIVITIES:
  Borrowing of debt                                                                    739,744                 3,284,659
  Repayment of debt                                                                   (243,240)                      ---
  Exercise of common stock warrants                                                       ---                    225,000
  Exercise of common stock options                                                        ---                     27,875
  Retirement of Company stock                                                        (372,672)                       ---
                                                                                      -------                    -------

         Net cash provided by financing activities                                    123,832                  3,537,534
                                                                                      -------                  ---------
EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS                                     (6,072)                    (1,304)
                                                                                        -----                      -----
         Net increase (decrease) in cash and cash equivalents                          30,200                 (1,292,251)

CASH AND CASH EQUIVALENTS, at beginning of period                                     594,992                  1,858,287
                                                                                      -------                  ---------
CASH AND CASH EQUIVALENTS, at end of period                                          $625,192                   $566,036
                                                                                     ========                   ========
</TABLE>

The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.



                                        6


<PAGE>


                    APF Imaging Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                                 March 31, 1999
                                 --------------

(1)  General:
     --------

The accounting policies followed during the interim periods reported on herein
are in conformity with generally accepted accounting principles and are
consistent with those applied for annual periods, as described in the Company's
financial statements included in the Company's Annual Report on Form 10-K for
the year ended June 30, 1998.

(2)  Net earnings per common share:
     ------------------------------

The diluted weighted average number of shares outstanding does not include
24,442 and 532,611 shares of common stock issuable upon exercise of outstanding
stock options and warrants in fiscal 1999 and 1998, respectively, as such
amounts are anti-dilutive when there is a loss.

(3)  Long and Short Term Debt:
     -------------------------

On January 4, 1999, the sum of $500,000 became due under the Company's
$2,500,000 Promissory Note ("Promissory Note") issued to the former owner
("Holder") of a recently acquired business in connection with such purchase. The
Company believes that the Holder has breached the Asset Purchase Agreement dated
December 24, 1997 ("Asset Purchase Agreement") pursuant to which such business
was acquired, and accordingly has not made such $500,000 payment. On April 14,
1999, the Holder declared the Promissory Note in default and elected to
accelerate the payment of the entire $2,500,000 unpaid principal of the
Promissory Note. As per the Asset Purchase Agreement, the involved parties will
attempt to resolve the controversy through mediation. If the controversy cannot
be resolved through mediation, the dispute will be settled through binding
arbitration. The Promissory Note is subordinated to, among other things, the
Company's revolver and term loan facility described below. No assurance can be
given that the Company will be successful in defending Holder's action. The
Company has continued to classify as current the $500,000 payment due January 4,
1999, and any other payments on the Promissory Note, contractually due within
the next twelve months, assuming no acceleration thereof.

In July 1997, the Company renewed its $9.85 million revolver and term loan
facility with its senior lender for an additional three years. The interest rate
was reduced to 3/4% above prime and the term loan was increased to $1.45
million. The loan is collateralized by tangible and intangible assets, provides
for restrictions on borrowings and requires that certain financial ratios and
net worth be maintained. The Company is currently in compliance with all the
terms and conditions of its credit facility with the exception of the debt
service coverage ratio covenant. Its senior lender has orally waived compliance
with such coverage ratio for the quarter ended March 31, 1999. Such waiver is
subject to negotiating more restrictive terms and conditions relating to certain
areas, including documentation and reporting, revised formula borrowing, and
limitations on payments to subordinated noteholders. Failure to meet such ratio
resulted from the significant operating expenses associated with the Company's
new digital dental product lines.


(4)  Inventory:
     ----------

The Company uses the gross margin method related to labor and overhead costs
during interim periods for inventory valuation.


(5)  Income Taxes:
     -------------

The Company's income tax provision for fiscal 1999 and 1998 relates to state and
foreign income or capital taxes net of any refunds received. No income tax
benefits related to the losses reported in fiscal 1999 and 1998 have been
recorded, in accordance with Statement of Financial Accounting Standards Board
Statement 109.


(6)  Adoption of New Accounting Pronouncement:
     -----------------------------------------

Effective July 1, 1998, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income".
This pronouncement requires the inclusion of a new basic financial statement
which outlines the significant components of the Company's comprehensive income.
Other than net income, foreign currency translation adjustments associated with
the Company's Swedish subsidiary are the only components of the Company's
comprehensive income for all periods presented.


                                        7


<PAGE>

(7)  Common Stock Retirement:
     ------------------------

On October 16, 1998, Robert Rosen resigned his directorship of the Company.
Effective with such resignation, the term of his one year consulting agreement,
dated September 19, 1997, commenced. On October 19, 1998, the Company agreed to
extend his consulting agreement through October 16, 2001, whereby he would
receive cash compensation of $8,333.33 per month, for a period of three years
and his existing stock options granted pursuant to the consulting agreement were
modified by increasing the term from three years to four years, increasing the
number of shares underlying the option from 150,000 to 300,000 common shares,
and reducing the exercise price from $2.636545 to $0.75 per share. On October
19, 1998, the Company repurchased (and subsequently retired) 496,895 shares of
the Company's common stock owned by the former director for an aggregate
consideration of $372,672.

(8)  Special Charges
     ---------------

During the third quarter fiscal 1999, the Company recorded a special charge of
$750,000 to reduce the goodwill amount associated with the acquisition of ProDen
Systems, Inc., due to the recognized impairment in the value of this product
line. Such write-down was based on the revised sales forecasts, historical
operating results, and the progression of the Company's dispute in regard to
payment due to the former owner (See Note 3). The amount of the charge was
calculated using the anticipated future discounted cash flows, as a proxy for
fair value, of this product line. The Company does not anticipate any additional
write-offs of this product line in fiscal 1999. The anticipated discounted cash
flows will continue to be monitored.

During the second quarter fiscal 1998, the Company implemented a restructuring
and integration program, associated with its Swedish business, acquired in April
1997, which reduced operating income by $1.6 million. These charges included
$329,000 of non-recurring costs to close down the Swedish plant and transfer all
the manufacturing activities to the US and a charge of $1.3 million to reduce
the original goodwill due to the recognized impairment in the value of the
Swedish operations. Such write-down was based on anticipated discounted cash
flows of this product line. During the third quarter ended March 31, 1998, the
Company re-allocated a portion of the purchase price of the ProDen acquisition
to in-process research and development expenditures, which reduced operating
income by $1.7 million. Such re-allocation was recorded based on management's
estimate of the value of the in-process research and development projects
acquired for which the commercial application was indeterminable as of the
acquisition date.

Item 2:  Management's Discussion and Analysis of Fiscal 1999 Financial
         Condition and Results of Operation

Capital Resources and Liquidity
-------------------------------

The Company's working capital at March 31, 1999, decreased approximately
$1,318,800 from June 30, 1998. The Company financed the repurchase of its common
stock from a former director through available cash funds and has also recorded
the current portion of the Promissory Note to the former owner of an acquired
business.

The Holder of the Promissory Note has declared such Promissory Note in default
for non-payment of $500,000 due on January 4, 1999 and elected to accelerate the
full principal unpaid balance thereof of $2.5 million. The Company believes it
has a variety of counterclaims and is not in default. As per the Asset Purchase
Agreement dated December 24, 1997, this dispute will be resolved through
mediation and then binding arbitration. Currently all parties are seeking an
amicable resolution through the mediation process. No specific dates or location
have been determined for the mediation process. The Promissory Note is
subordinated to the terms of the Company's senior credit facility.

The Company has a senior credit facility consisting of a $9.85 million revolver
and term loan facility. This credit line is sufficient to finance ongoing
working capital requirements assuming that the Company's losses from operations
do not continue for a material period of time, and, the Company is not required
to make current payments on a Promissory Note to the former owner of a recently
acquired business. The revolver loan is secured by available and eligible
inventory, accounts receivable, and specific intangibles. This facility requires
that certain financial ratios and net worth amounts be maintained. The Company
is currently in compliance with all of its covenants and terms, with the
exception of the debt service coverage ratio. Its senior lender has orally
waived compliance with such coverage ratio for the quarter ended March 31, 1999.
Such waiver is subject to negotiating more restrictive terms and conditions
relating to certain areas, including documentation and reporting, revised
formula borrowing, and limitations on payments to subordinated noteholders. The
lender has orally agreed to this waiver after noting that fiscal 1999 operations
were negatively impacted by the significant operating expenses associated with
the Company's new digital dental product lines. This facility was renewed in
July 1997 and expires in July 2000. The Company is dependent upon its existing
credit facilities to finance its overall operations. At March 31, 1999, the
Company currently has available $1.7 million of unused lines of credit for
short-term financing needs plus cash and cash equivalents of $625,000.

                                        8
<PAGE>

Capital expenditures for fiscal 1999 consisted of computer workstation upgrades,
production tooling, molds and other appropriate replacements in the normal
course of operations. In fiscal 1998, the Company acquired a new Business
Information System including the upgrade and replacement of existing computer
hardware and a new fully integrated manufacturing software package. The Company
committed to a three year lease for the hardware and software costs, which has
been recorded as a capital lease. All implementation costs have been capitalized
and are being amortized over three years. This system was fully implemented
during the third quarter of fiscal year 1998 and fully satisfies all Year 2000
compliance issues.

The Company expects its need for working capital will continue to be financed by
operations and from borrowings on its credit facility. The Company is presently
unaware of any other demands, commitments or contingencies which are reasonably
likely to result in a material increase or decrease in its liquidity in the
foreseeable future, except for any ongoing losses from its operations, and in
the event it is unsuccessful in its defenses against the claim of the Holder
under the Promissory Note, or as otherwise set forth herein. No assurances can
be given that the Company will have favorable cash flow in the near term, that
the Company and its senior lender will complete the negotiations to revise the
terms and conditions of its borrowing facility, that the senior lender will
grant further waivers to the Company, or that the Company will prevail on its
defenses against the Holder.

Year 2000 Compliance
--------------------

The Company has developed and substantially implemented a plan to ensure its
systems are compliant with the requirements to process transactions in the year
2000. As described above, all of the Company's internal information systems have
been replaced with fully compliant new software and systems. The total cost of
the software, implementation and hardware were capitalized as incurred. The
Company continues to upgrade its internal information systems as part of an
overall operational plan to replace older systems with more efficient current
technology. The Company believes that all significant costs related to the Year
2000 compliance issue have been incurred.

The Company also consulted with its processing banks and payroll service
provider to ensure that their services are Year 2000 compliant. The Company has
been advised by these service providers that all of these external information
services and systems are Year 2000 compliant. The Company is in the process of
contacting its vendors, on whom it relies, to assure that their systems are or
will be Year 2000 compliant. The Company will evaluate these responses and
ensure that critical vendors are Year 2000 compliant, or review alternate
sourcing of these materials to Year 2000 compliant vendors. The Company has
reviewed their own plant equipment and has determined that such equipment is
either Year 2000 compliant or not affected by the Year 2000 issues.

The Company is in the process of developing contingency plans to address the
most reasonably likely worst case scenarios from the potential Year 2000
disruption. The Company's Year 2000 efforts are ongoing and will continue to
evolve as new information becomes available. The Company does not anticipate a
major interruption of its business activities, however, this will be dependent
in part upon the ability of third party vendors to be Year 2000 compliant.
Although the Company has implemented the actions described above to address
these third party issues, it has no direct ability to influence compliance
actions by such parties. Accordingly, while the Company believes its actions
should help reduce the possible effects of the Year 2000 risks, it is unable to
eliminate the ultimate effects on the Company's operating results.

Euro Conversion
---------------

A single currency called the euro was introduced in Europe on January 1, 1999.
Eleven of the fifteen member countries of the European Union agreed to adopt the
euro as their common legal currency on that date. Fixed conversion rates between
these participating countries' existing currencies and the euro were established
as of that date, to remain legal tender as denominations until at least January
1, 2002. Beginning in January 2002, new euro-denominated bills and coins will be
issued. The Company has addressed the issues raised by the euro currency
conversion. All third-party computer and financial systems have the ability to
process euro-denominated transactions. The Company has also addressed the issue
of the impact of one common currency on pricing.

Comparison of Nine Months Fiscal 1999 Versus Nine Months Fiscal 1998
--------------------------------------------------------------------

Sales decreased $4,484,800 or 17% between the two periods. The Company's product
lines experienced a general decrease in sales volume. The most significant was
in the graphic arts business. The Company continues to explore and develop
potential distribution channels and new products through engineering efforts,
aggressive marketing, as well as repositioning its product pricing in the
marketplace. Fluctuating world markets, combined with the strong US dollar,
continue to adversely effect the Company's export sales. Gross profit as a
percent of sales decreased 3.8 percentage points. There was a slight increase in
material costs due to the product mix, in addition to certain fixed overhead
costs being distributed over the lower sales volume.

                                        9

<PAGE>


Selling, general and administrative costs decreased $466,200 or 7% due to lower
sales commissions directly related to the lower sales volumes, and a general
reduction in expenses, based on management cost elimination/reduction programs.
The Swedish facility was shutdown in November 1997 (fiscal 1998), which
eliminated approximately $200,000 of costs directly incurred in Sweden in the
prior year.

Research and development costs increased $284,600 or 44%. The Company has
committed to the continued refinement of its digital dental products in order to
reduce costs and maintain market share. Additionally, the Company continues to
invest in sustaining engineering and related costs for its analog products.
Where applicable, the Company is acting as master import distributors for
products developed by others.

Special charges of $750,000 were recorded in Fiscal year 1999, due to the
write-down of the goodwill associated with the ProDen acquisition to its net
realizable value, based on the recognized impairment in the value of the
operations. The remaining goodwill is being amortized over thirteen years on a
straight line basis. Special charges of $3.3 million incurred in FY 1998
included $1.7 million to reallocate a portion of the purchase price of the
ProDen acquisition to in-process research and development expenditures, and the
write-down of $1.3 million of the goodwill associated with the Regam acquisition
to its net realizable value, based on the recognized impairment in the value of
the operations. The remaining goodwill is being amortized over fourteen years on
a straight-line basis. Also included are $329,000 of costs to shutdown and
relocate the manufacturing operations, marketing, technical service and customer
support operations from Sweden to the US. These costs also include severance and
required social tax payments to former employees.

Interest expense net, increased $243,200, or 94% due to the $2.5 million of debt
acquired in December 1997 to finance a digital dental product line acquisition.
Additionally, borrowings on the Company's revolver were approximately $612,000
higher in the current fiscal year due to current production, development and
distribution requirements for the digital dental product lines.

Comparison of Third Quarter Fiscal 1999 Versus Third Quarter Fiscal 1998
------------------------------------------------------------------------

Net sales decreased $1,848,300 or 22%. All product lines experienced a decline
in volume as discussed above. Gross profit as a percent of sales increased 2
percentage points due to a shift in the product mix. Excluding the costs
included in Special Charges, as previously explained, the aggregate of the
expense items decreased $66,600 or 3%. This increase is due to additional
research and development costs associated with the new product lines, offset by
management's cost reduction/elimination programs. Interest expense net,
increased $79,200 or 79%, in this quarter, to fund the required working capital
and engineering investment.

Other
-----

On October 29, 1998, the Company received a letter from NASDAQ that the
Company's shares over the past 30 days did not maintain a closing bid price
greater than $1.00. Accordingly, NASDAQ indicated that the Company's common
stock would be delisted from the NASDAQ SmallCap Exchange, and would trade on
the NASDAQ Bulletin Board System. On March 19, 1999, the Company lost its
listing on the NASDAQ SmallCap Exchange and is now listed on the NASDAQ Over The
Counter Bulletin Board.

This Quarterly Report on Form 10Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. These
forward-looking statements involve risks and uncertainties that could cause
actual results to differ materially from those in any such forward-looking
statements. Such factors include, but are not limited to, adverse changes in
general economic conditions, including changes in the specific markets for the
Company's services, adverse business conditions, increased competition, pricing
pressures, risk associated with foreign operations and other factors.


                                       10


<PAGE>


                            Part II Other Information
                            -------------------------


Item 4:


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

(a)      None

(b)      Reports on Form 8-K

         A Report on Form 8K was filed on April 16, 1999 to report that the
         Holder of the Note Payable to the former owner of ProDen had declared
         such Note in default (for non-payment of $500,000 due January 4, 1999)
         and accelerated the balance due thereunder. As per the Asset Purchase
         Agreement dated December 24, 1997, all parties will next attempt to
         resolve the controversy through mediation.


Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



AFP Imaging Corporation


                                             /s/ David Vozick
                                             ------------------------
                                             David Vozick
                                             Chairman of the Board
                                             Secretary, Treasurer
                                             Date:  May 24, 1999


                                             /s/ Donald Rabinovitch
                                             -------------------------
                                             Donald Rabinovitch
                                             President and Director
                                             Date:  May 24, 1999


                                             /s/ Elise Nissen
                                             -------------------------
                                             Elise Nissen
                                             Chief Financial Officer
                                             Date:  May 24, 1999

                                       11