<PAGE>

                                  UNITED STATES
                       Securities and Exchange Commission
                             Washington, D.C. 20549

                                    Form 10-Q

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

For Quarterly Period Ended March 31, 2002

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
 incorporation or organization)                   Identification No.)



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

Registrant's telephone number: 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,
2002.



                                       1
<PAGE>


This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. Forward-looking
statements involve known and unknown risks and uncertainties and other factors
that could cause actual results of AFP Imaging Corporation (collectively with
its subsidiaries, the "Company") or achievements expressed or implied by such
forward-looking statements to not occur, not be realized or differ materially
from that stated in such forward-looking statements. Forward-looking statements
may be identified by terminology such as "may", "will", "could", "project",
"expect", "believe", "estimate", "anticipate", "intend", "continue",
"potential", "opportunity" or similar terms, variations of such terms, or the
negative of such terms or variations. Potential risks, uncertainties and factors
include, but are not limited to:

         o        adverse changes in general economic conditions,
         o        the economic, political and social impact of the September
                  2001 terrorist attacks on the United States, o the Company's
                  ability to repay its loans when due,
         o        changes in the markets for the Company's products and
                  services,
         o        the ability of the Company to successfully design, develop,
                  manufacture and sell new products,
         o        the Company's ability to successfully market its existing and
                  new products,
         o        adverse business conditions,
         o        increased competition,
         o        pricing pressures,
         o        risks associated with foreign operations,
         o        the Company's ability to attract and retain key personnel,
         o        difficulties in obtaining adequate long-term financing to meet
                  the Company's obligations,
         o        changes in the nature or enforcement of laws and regulations
                  concerning the Company's products, services, suppliers, or the
                  Company's customers, o changes in currency exchange rates and
                  regulations,
         o        and other factors set forth in this Quarterly Report on Form
                  10-Q, and the Company's Annual Report on Form 10-K, for the
                  year ended June 30, 2001, and from time to time in the
                  Company's other filings with the Securities and Exchange
                  Commission.

 Readers are urged to carefully review and consider the various disclosures made
 by the Company In this Form 10-Q, the Company's Annual Report on Form 10-K for
 the year ended June 30, 2001, and the Company's other filings with the SEC.
 These reports attempt to advise interested parties of the risks and factors
 that may affect the Company's business, financial condition and results of
 operations and prospects. The forward looking statements made in the Form 10-Q
 speak only as of the date hereof and we disclaim any obligation to provide
 updates, revisions or amendments to any forward looking statements to reflect
 changes in the Company's expectations or future events.



                          PART I. Financial Information


The consolidated financial statements included herein have been prepared by 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 in the United States 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 Company's consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001.

In the opinion of the Company, all adjustments necessary to present fairly the
Company's consolidated financial position as of March 31, 2002, and the results
of its operations for the three and nine month periods ended March 31, 2002 and
2001, and its cash flows for the nine months periods then ended, have been
included.





                                       2

<PAGE>

Item 1:  FINANCIAL STATEMENTS

                    AFP Imaging Corporation and Subsidiaries
         Consolidated Balance Sheets - March 31, 2002 and June 30, 2001

<TABLE>
<CAPTION>
Assets                                                 March 31,             June 30,
------                                                   2002                 2001
                                                      -----------          -----------
                                                      (Unaudited)
<S>                                                   <C>                  <C>
CURRENT ASSETS:
          Cash and cash equivalents                   $   235,600          $   198,276
          Accounts receivable, less allowance
             for doubtful accounts of $82,000
             and $110,000, respectively                 2,198,801            2,676,546
Inventories                                             2,551,207            3,488,217
Prepaid expenses and other                                 70,745              130,720
                                                      -----------          -----------

          Total current assets                          5,056,353            6,493,759
                                                      -----------          -----------


PROPERTY, PLANT AND EQUIPMENT,
          At cost                                       3,024,138            3,359,204
Less accumulated depreciation                          (2,561,358)          (2,748,726)
                                                      -----------          -----------
                                                          462,780              610,478

GOODWILL,
          net of accumulated amortization
                                                        1,333,069            1,441,069

OTHER ASSETS                                              223,952               89,908
                                                      -----------          -----------

                                                      $ 7,076,154          $ 8,635,214
                                                      ===========          ===========
</TABLE>

<TABLE>
<CAPTION>

       Liabilities and Shareholders' Equity             March 31,             June 30,
                                                          2002                  2001
                                                      ------------          ------------
                                                      (Unaudited)
<S>                                                   <C>                   <C>
  CURRENT LIABILITIES:
    Current portion of long-term debt                 $    283,333          $    141,667
    Accounts payable                                     1,022,134               982,825
    Accrued expenses                                       656,527               920,518
                                                      ------------          ------------
         Total current liabilities                       1,961,994             2,045,010
                                                      ------------          ------------

 LONG TERM DEBT                                          2,466,739             3,872,981
                                                      ------------          ------------

 SHAREHOLDERS' EQUITY

     Common stock, $.01 par value, 30,000,000
           shares authorized, 9,271,054 shares
           issued and outstanding at March 31,
           2002, and June 30, 2001, respectively            92,710                92,710
Common stock warrants                                       19,800                  --
Paid-in capital in excess of par                        11,545,883            11,545,883
Accumulated deficit                                     (8,998,753)           (8,907,059)
Cumulative translation adjustment                          (12,219)              (14,311)
                                                      ------------          ------------
           Total shareholders' equity                    2,647,421             2,717,223
                                                      ------------          ------------

                                                      $  7,076,154          $  8,635,214
                                                      ============          ============
</TABLE>
         The accompanying notes to financial statements are an integral
                            part of these statements.

                                       3
<PAGE>


                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Operations
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                  Three Months Ended                               Nine Months Ended
                                                      March 31,                                        March 31,
                                                      ---------                                        ---------

                                             2002                     2001                   2002                      2001
                                             ----                     ----                   ----                      ----
<S>                                      <C>                      <C>                      <C>                      <C>
NET SALES                                $  4,952,221             $  5,541,201             $ 14,694,000             $ 18,664,923

COST OF SALES                               3,272,473                3,800,059                9,655,592               12,765,113
                                         ------------             ------------             ------------             ------------

     Gross profit                           1,679,748                1,741,142                5,038,408                5,899,810

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                   1,578,550                1,909,541                4,480,489                5,543,143
RESEARCH AND DEVELOPMENT                      146,633                  144,350                  396,886                  347,900
                                         ------------             ------------             ------------             ------------
                                            1,725,183                2,053,891                4,877,375                5,891,043
                                         ------------             ------------             ------------             ------------
     Operating income (loss)                  (45,435)                (312,749)                 161,033                    8,767
INTEREST EXPENSE, net                          63,845                  104,234                  238,776                  342,959
                                         ------------             ------------             ------------             ------------
     Loss before income taxes                (109,280)                (416,983)                 (77,743)                (334,192)
PROVISION FOR INCOME TAXES                      5,234                    4,499                   13,951                   12,317
                                         ------------             ------------             ------------             ------------
NET LOSS                                 ($   114,514)            ($   421,482)            $    (91,694)            $   (346,509)

NET LOSS PER SHARE
     Basic                                      ($.01)                   ($.05)                   ($.01)                   ($.04)
     Diluted                                    ($.01)                   ($.05)                   ($.01)                   ($.04)
WEIGHTED AVERAGE OUTSTANDING
  COMMON STOCK
     Basic                                  9,271,054                9,271,054                9,271,054                9,271,054
     Diluted                                9,271,054                9,271,054                9,271,054                9,271,054
</TABLE>



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


                                       4
<PAGE>


                    AFP Imaging Corporation and Subsidiaries
     Consolidated Statements of Shareholders' Equity and Comprehensive Loss
                For the Nine Months Ended March 31, 2002 and 2001

                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                                    Common       Paid-in
                                              Comprehensive          Common         Stock       Capital In
                                                    Loss             Stock         Warrants    Excess of Par
                                                    ----             -----         --------    -------------

<S>                                          <C>                <C>                <C>         <C>
Balance June 30, 2000                        $        --       $    92,710               --     $ 11,545,883

     Foreign currency translation
       adjustment                                    630                --               --               --

     Net loss for nine months
       ended March 31, 2001                     (346,509)               --               --               --

Comprehensive Loss                              (345,879)               --               --               --
                                             -----------       -----------      -----------      ------------
Balance March 31, 2001                                         $    92,710               --      $ 11,545,883
                                                               ===========      ===========      ============


Balance June 30, 2001                        $        --       $    92,710               --      $ 11,545,883

     Issuance of common stock warrants                --                --           19,800               --

     Foreign currency translation
       adjustment                                  2,092                --               --               --

     Net loss for nine months
       ended March 31, 2002                      (91,694)               --               --               --

Comprehensive Loss                           $   (89,602)               --               --               --
                                             -----------       -----------      -----------      ------------
Balance March 31, 2002                                              92,710      $    19,800      $11,545,883
                                                               ===========      ===========      ============
</TABLE>


<TABLE>
<CAPTION>
                                                              Foreign
                                                              Currency
                                            Accumulated      Translation
                                              Deficit         Adjustment           Total
                                              -------         ----------           -----

<S>                                        <C>               <C>               <C>
Balance June 30, 2000                      $(7,168,713)      $   (14,941)      $ 4,454,939

    Foreign currency translation
      adjustment                                    --               630               630

    Net loss for nine months
      ended March 31, 2001                    (346,509)               --          (346,509)

Comprehensive Loss                                  --                --                --
                                           -----------       -----------       -----------

Balance March 31, 2001                     $(7,515,222)      $   (14,311)      $ 4,109,060
              === ====                     ===========       ===========       ===========


Balance June 30, 2001                      $(8,907,059)      $   (14,311)      $ 2,717,223
    Issuance of common stock warrants               --                --            19,800

    Foreign currency translation
      adjustment                                    --             2,092             2,092

    Net loss for nine months
      ended March 31, 2002                     (91,694)               --           (91,694)

Comprehensive Loss                                  --                --                --
                                           -----------       -----------       -----------

Balance March 31, 2002                     $(8,998,753)      $   (12,219)      $ 2,647,421
                                           ===========       ===========       ===========
</TABLE>


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

                                       5
<PAGE>


                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                For the Nine Months Ended March 31, 2002 and 2001
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   2002                    2001
                                                                                   ----                    ----

<S>                                                                            <C>                     <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                                  $   (91,694)            $  (346,509)
     Adjustments to reconcile net income to net cash provided
       by operating activities-
         Depreciation and amortization                                             270,000                 602,816
         Change in assets and liabilities:
           Decrease in accounts receivable                                         477,745                 783,053
           Decrease in inventories                                                 596,195                 151,530
           (Increase) decrease in prepaid expenses and other assets                (54,270)                211,475
           Increase (decrease) in accounts payable                                  39,309                (289,557)
           (Decrease) in accrued expenses                                         (263,991)               (239,252)
                                                                               -----------             -----------

         Total adjustments                                                       1,064,988               1,220,065
                                                                               -----------             -----------
         Net cash provided by operating activities                                 973,294                 873,556
                                                                               -----------             -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
           Proceeds from sale of graphic arts business                             340,815                    --
           Capital expenditures                                                    (14,301)               (166,129)
                                                                               -----------             -----------

         Net cash provided by (used by) investing activities                       326,514                (166,129)
                                                                               -----------             -----------

CASH FLOW FROM FINANCING ACTIVITIES:
         Borrowing of debt                                                       1,801,065                    --
         Repayment of debt                                                      (3,065,641)               (990,521)
                                                                               -----------             -----------

         Net cash used by financing activities                                  (1,264,576)               (990,521)
                                                                               -----------             -----------

EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS                                   2,092                     630
                                                                               -----------             -----------

         Net Increase (decrease) in cash and cash equivalents                       37,324                (282,464)

CASH AND CASH EQUIVALENTS, at beginning of period                                  198,276                 433,620
                                                                               -----------             -----------

CASH AND CASH EQUIVALENTS, at end of period                                    $   235,600             $   151,156
                                                                               ===========             ===========

</TABLE>

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

                                       6
<PAGE>


                    AFP Imaging Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                                 March 31, 2002
                                   (Unaudited)

(1) General:
The accounting policies followed during the interim periods reported on herein
are in conformity with accounting principles generally accepted in the United
States 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, 2001.

(2) Net Earnings Per Common Share:
The diluted weighted average number of shares outstanding does not include 697
and 88,606 shares of common stock issuable upon exercise of outstanding stock
options in the nine months Fiscal 2002 and nine months Fiscal 2001,
respectively, as such amounts are anti-dilutive when there is a loss.

(3) Long and Short Term Debt:
On September 21, 2001, the Company established a new senior secured credit
facility (the "Revolving Credit Loan"), consisting of a $3.5 million revolving
line of credit, to replace its then current senior secured credit facility,
which would have expired on October 31, 2001. The Revolving Credit Loan is
secured by all of the Company's inventory, accounts receivable, equipment, life
insurance policies and proceeds thereof, trademarks, licenses, patents and
general intangibles. The Revolving Credit Loan requires that certain financial
ratios and net worth amounts be maintained. As of March 31, 2002, the Company
was in compliance with all the terms and conditions of the Revolving Credit
Loan, with the exception of the tangible net worth covenant and the EBITDA ratio
covenant for the quarter ended March 31, 2002. The Company's senior secured
lender has waived compliance with these covenants as of March 31, 2002. This new
Revolving Credit Loan resulted in a decrease in the maximum amount of loan
available under the revolving line of credit, an interest rate increase to
1-3/4% over the prime rate, currently at 6 1/2%, a stricter formula to calculate
available funds based on eligible accounts receivable and inventory, and
additional reporting requirements to the senior secured lender, than under the
Company's former credit facility. In connection with the Revolving Credit
Facility, the Company issued a 5-year warrant to the lender for the purchase of
100,000 shares of the Company's common stock at $.32 per share, subject to an
adjustment for all issuances of stock. The Black-Scholes method was used to
account for these warrants, and the stock price was based on the stock price the
day prior to closing, plus 10%, as stipulated in the Loan and Security Agreement
for the Revolving Credit Loan.

Upon execution of the new Revolving Credit Loan, the Company utilized the
proceeds to repay the former credit facility's revolver balance of $1,801,000 as
of September 21, 2001. The Company is dependent upon the Revolving Credit Loan
to finance its overall operations. It is believed that the new Revolving Credit
Loan is sufficient to finance the Company's ongoing working capital requirements
for the foreseeable future. At May 1, 2002, the Company had available $747,900
of unused credit under the Revolving Credit Loan.

(4) Inventory:
The Company uses a standard cost accounting system in conjunction with an actual
perpetual inventory system to properly account for, control, and maintain the
movement of all inventory components. All standard costs are reviewed
periodically and updated accordingly, to verify that the standard costs
approximate the actual costs. Inventory is stated at the lower of cost
(first-in, first-out) or market (net realizable value).

(5) Income Taxes:
The Company's income tax provision for the Fiscal 2002 and 2001 nine-month
periods relate to state or foreign income and capital taxes, net of any refunds
received. No income tax benefits related to the losses reported in Fiscal 2002
and 2001 have been recorded, in accordance with SFAS No. 109.

(6) Sale of Graphic Arts Division:
On July 30, 2001, the Company sold its graphic arts business and selected
related assets to a third party for approximately $350,000, comprised of cash
and a note receivable. Included in these assets was approximately $329,000 of
fully depreciated assets. All costs associated with the disposition of this
product line were accrued as of June 30, 2001, and paid as of August 2001.

                                       7
<PAGE>

(7) Segment Information:
As of March 31, 2002, the Company only had one business segment, Medical/Dental.
The segment information for the three and nine months ended March 31, 2001 is
shown below. Segment information related to operating income includes costs
directly attributable to each segment's operations.

<TABLE>
<CAPTION>
                                                     Operating                  Depreciation                    Net
                                                       Income                        &           Capital      Interest
                                       Net Sales       (Loss)        Assets     Amortization  Expenditures    Expense
                                       ---------       ------        ------     ------------  ------------    -------
<S>                                    <C>            <C>           <C>           <C>            <C>           <C>
        For the three months ended
           March 31, 2001
           Medical/Dental              $4,803,531     $(301,184)    $9,000,647    $200,409       $71,207       $84,234
           Graphic Arts                   737,670       (11,565)       742,049           0             0        20,000
                                       ----------     ---------     ----------    --------       -------      --------
           Consolidated                $5,541,201     $(312,749)    $9,742,696    $200,409       $71,207      $104,234
                                       ==========     =========     ==========    ========       =======      ========

        For the nine months ended
           March 31, 2001
           Medical/Dental             $16,478,665       $97,940     $9,000,647    $602,816      $166,129      $282,959
           Graphic Arts                 2,186,258       (89,173)       742,049           0             0        60,000
                                      -----------       -------     ----------    --------      --------      --------
           Consolidated               $18,664,923        $8,767     $9,742,696    $602,816      $166,129      $342,959
                                      ===========        ======     ==========    ========      ========      ========

======================================================================================================================
</TABLE>


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

Capital Resources and Liquidity

The Company's working capital at March 31, 2002 decreased by approximately
$1,354,400 from June 30, 2001. The Company sold inventory as well as selected
other assets associated with its graphic arts business for cash and a note
receivable and used the proceeds of the transaction to reduce its long-term
revolver debt. The Company also significantly reduced its long-term debt by
reductions in accounts receivable, inventory (other than the graphic arts sale),
prepaid expenses and other assets, which were offset by decreases in accrued
expenses. Additionally, as of March 31, 2002, in accordance with GAAP, included
in the current portion of long-term debt is twelve months of principal payments
due under a subordinated note, as opposed to six months of principal payments
included at June 30, 2001.

As of September 21, 2001, the Company established a new senior secured credit
facility (the "Revolving Credit Loan") consisting of a $3.5 million revolving
line of credit, to replace its then current senior secured credit facility,
which would have expired on October 31, 2001. The Revolving Credit Loan is
secured by all of the Company's inventory, accounts receivable, equipment, life
insurance policies and proceeds thereof, trademarks, licenses, patents and
general intangibles. The Revolving Credit Loan requires that certain financial
ratios and net worth amounts be maintained. As of March 31, 2002, the Company
was in compliance with all the terms and conditions of the Revolving Credit
Loan, with the exception of the tangible net worth covenant and the EBITDA ratio
covenant for the quarter ended March 31, 2002. The Company's senior secured
lender has waived compliance with these covenants as of March 31, 2002. This new
Revolving Credit Loan resulted in a decrease in the maximum amount of loan
available under the revolving line of credit, an interest rate increase to
1-3/4% over the prime rate, currently at 6 1/2% per year, a stricter formula to
calculate available funds based on eligible accounts receivable and inventory,
and additional reporting requirements to the senior secured lender, than under
the Company's former credit facility. In connection with the Revolving Credit
Facility, the Company issued a 5-year warrant to the lender for the purchase of
100,000 shares of the Company's common stock at $.32 per share, subject to an
adjustment for all issuances of stock.

Upon execution of the new Revolving Credit Loan, the Company utilized the
proceeds to repay the former credit facility's revolver balance of $1,801,000 as
of September 21, 2001. The Company is dependent upon the Revolving Credit Loan
to finance its overall operations. It is believed that the new Revolving Credit
Loan is sufficient to finance the Company's ongoing working capital
requirements.

The Company's historical operating cash flows have been positive; however, the
Company is dependent upon the Revolving Credit Facility to finance its ongoing
operations. The Company expects its working capital requirements will continue
to be financed by operations and from borrowings. The Company currently believes
that there are no significant trends, demands, commitments or contingencies,
other than a material decline in sales and/or the ongoing litigation cases,
which are reasonably likely to result in a material increase or decrease in its
liquidity or capital resources in the foreseeable future. At May 1, 2002, the
Company had available $747,900 of unused credit under the Revolving Credit Loan.

                                       8
<PAGE>

Capital expenditures for the first nine months of Fiscal 2002 were $14,301,
consisting of computer workstation upgrades for engineering applications and
some minor tooling charges. The Company did not defer the purchase of any
significant capital items, and capital expenditures during the balance of Fiscal
2002 will be utilized for the finalization of masks and tooling for a new
digital imaging product. Where practical, the Company continues to conserve its
cash expenditures. The Company expects to continue to finance any future capital
requirements, principally from internally generated funds. Future capital
expenditures are limited under the terms of the Revolving Credit Loan.

Results of Operations - Nine Months Fiscal 2002 Versus Nine Months Fiscal 2001

Sales decreased approximately $3,970,900 or 21% between the Fiscal 2002 and
Fiscal 2001 nine-month periods. Sales of graphic arts products showed a decrease
from the prior year's corresponding nine-month period of approximately
$2,130,000 due to the sale of this product line on July 30, 2001. The dental
product sales decreased approximately 15.7%, as the Fiscal 2001 nine-month
period included approximately $1.0 million more in sales to the U.S. military
than the Fiscal 2002 nine-month period. Dental x-ray equipment sales decreased
approximately $648,000 due to the postponement of orders attributable to
continued uncertainty and recessionary pressures in the market place, and a
reduction in export sales. The Company's medical product sales showed a slight
decrease of approximately 2.7%, due to approximately $890,000 lower sales from
the Company's medical ultrasound and film recording cameras, mainly due to
technological changes in the marketplace. This decrease was offset by an
increase of $710,000 in medical and veterinary x-ray equipment sales. The
domestic veterinary x-ray market continues to show growth potential, as does the
European market for the Company's equipment. Other products did not show any
significant variances from the prior fiscal year's nine-month period.

Gross profit as a percent of sales increased approximately 2.7 percentage points
between the Fiscal 2002 and Fiscal 2001 nine-month periods, due to efficiencies
in the product mix, as well as some cost reductions from certain suppliers.
There were less distributor sales and more Company manufactured products in the
current nine-month period. Distributor product sales tend to have lower margins
than Company manufactured products. Labor and overhead costs, as a percent of
sales, were approximately the same for the nine-month periods ended March 31,
2002 and 2001.

Selling, general, and administrative costs decreased approximately $1,062,600 or
19.2% between the Fiscal 2002 and Fiscal 2001 nine-month periods. Approximately
$671,000 of the decrease is due to costs associated with the graphic arts
product line sold in July 2001. There was approximately $213,000 less in
amortization costs in the current nine-month period due to lower intangibles in
Fiscal 2002. Approximately $76,000 relates to the collection, in the first
quarter Fiscal 2002, of a portion of a large receivable, which had been written
off in 1993. Approximately $35,000 relates to the favorable settlement, in the
third quarter Fiscal 2002, of an intellectual property infringement suit. The
balance of approximately $67,000 is attributable to the cost reduction programs
which management instituted in the fourth quarter of Fiscal 2001. The work force
was downsized, low margin products were discontinued, and all low priority
expenditures were reduced. The associated benefits were initially realized in
the first quarter of Fiscal 2002. Management continues to seek ways to reduce
fixed overhead costs and eliminate potential redundancies.

Research and development costs increased approximately $49,000 or 14.1% between
the Fiscal 2002 and Fiscal 2001 nine-month periods. This increase is mainly
attributable to the timing of expenditures relating to the Company's continued
investment in the design, development and refinement of its digital imaging
products. The Company continues to invest in sustaining engineering and related
costs for its existing analog products. Where applicable, the Company is acting
as an import distributor for new products developed by others.

Interest expense, net decreased approximately $104,100 or 30.4% between the
Fiscal 2002 and Fiscal 2001 nine-month periods primarily due to there being
approximately $1,329,000 less in total debt at March 31, 2002 compared to March
31, 2001. Additionally, the prime rate of borrowing, which all senior debt is
based upon, was several points lower in the current nine-month period.

                                       9
<PAGE>

The income tax provisions for Fiscal 2002 and Fiscal 2001, respectively,
primarily reflect the nominal state taxes due. No tax benefit has been
recognized for the losses incurred in prior years.


Results of Operations - Third Quarter Fiscal 2002 Versus Third Quarter Fiscal
2001

Sales decreased approximately $589,000 or 10.6% between the Fiscal 2002 and
Fiscal 2001 third quarters. The graphic arts product sales decreased
approximately $741,000 in the current quarter due to the sale of this business
segment on July 30, 2001. The Company's medical products showed an increase of
approximately 18.5% in the current quarter, with domestic growth in veterinary
x-ray sales and international growth in medical x-ray equipment. The dental
product sales decreased approximately 4.8%, in the current quarter mainly due to
lower export sales. The Company's other products did not show any significant
variances from the prior fiscal year's third quarter.

Gross profit as a percent of sales increased approximately 2.5 percentage points
between the Fiscal 2002 and Fiscal 2001 third quarters, due to changes in the
product mix, additional cost reductions received from key suppliers in the
current third quarter, and the reduction of certain overhead costs. There were
less imported distributor sales and more Company manufactured products in the
current three-month period. Additionally, labor and overhead costs, as a percent
of sales, were approximately 2.8 percentage points lower in the current third
quarter compared to the third quarter Fiscal 2001, due to improved efficiencies.

Selling, general, and administrative costs decreased approximately $331,000 or
17.3 % between the Fiscal 2002 and Fiscal 2001 third quarters. Approximately
$183,000 of the decrease is due to costs associated with the graphic arts
product line sold in July 2001. There was approximately $70,000 less in
amortization costs in the current three-month period due, to lower intangibles
in Fiscal 2002. Approximately $35,000 relates to the favorable settlement, in
the third quarter Fiscal 2002, of a trademark infringement suit. The balance
represents less expenditures in the marketing department for advertising and
trade show attendance, as the economic value of these costs are continuing to be
evaluated.

Research and development costs basically stayed the same between the Fiscal 2002
and Fiscal 2001 third quarters. As reported for the nine-month period analysis,
the Company continues to invest in the design, development and the refinement of
its digital products in order to generate new revenue sources, reduce costs and
maintain market share. The Company also continues to invest in sustaining
engineering and related costs for its analog products. Where applicable, the
Company is acting as a master import distributor for new products developed by
others.

Interest expense, net decreased approximately $40,400 or 38.8% between the
Fiscal 2002 and Fiscal 2001 third quarters. The Company reduced all of its debt
by approximately $706,000 in the current third quarter, and reduced its debt in
the third quarter Fiscal 2001 by $258,000. Additionally, the prime rate of
borrowing, which all senior debt is based upon, was several points lower in the
current third quarter than the previous third quarter.


Other

Adoption of New Financial Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 ("SFAS No. 141"), "Business Combinations" and SFAS No. 142 ("SFAS No. 142"),
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, and prohibits the use of the pooling-of-interests method after that
date. SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment only approach. The amortization of goodwill from past
business combinations will cease upon adoption of this statement (July 1, 2002
for companies with a June 30th year end). Goodwill and intangible assets
acquired in business combinations completed after June 30, 2001 must comply with
the provisions of this statement. The Company will also be required to evaluate
all existing goodwill for impairment by comparing the fair value of each
reporting unit to its carrying value at the date of adoption. Any transitional
impairment losses will be recognized in the first interim period in the year of
adoption and will be recognized as the effect of a change in accounting
principle. At the present time, in accordance with existing accounting
principles, the Company does not believe there has been impairment to their
goodwill and intangibles. The Company is evaluating the potential impact of
adopting these pronouncements on the results of operations and financial
position. Further, the Company is currently assessing all previously recorded
goodwill and intangibles, as well as their useful lives. The methodology for
this asset impairment review will be in accordance with SFAS No. 142, in which
the Company will compare the fair value of its reporting units to the carrying
amounts. The fair value will likely be determined using a discounted cash flow
analysis. The Company will implement these new pronouncements in FY 2003.

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<PAGE>

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). SFAS No. 143 requires that legal obligations
associated with the retirement of tangible long-lived assets be recorded at fair
value when incurred and is effective beginning on July 1, 2002 for the Company.
The Company is currently reviewing the provisions of SFAS No. 143 to determine
the statement's impact upon adoption but does not expect it to have a material
effect on the Company's results of operations or financial position.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No. 144 requires that one
accounting model be used for long-lived assets to be disposed of by sale.
Discontinued operations will be measured similar to other long-lived assets
classified as held for sale at the lower of its carrying amount or fair value
less cost to sell. Future operating losses will no longer be recognized before
they occur. SFAS No. 144 also broadens the presentation of discontinued
operations to include a component entity when operations and cash flows can be
clearly distinguished, and establishes criteria to determine when a long-lived
asset is held for sale. The provisions of this statement will be effective
beginning July 1, 2002 for the Company. The Company is currently reviewing the
provisions of SFAS No. 144 to determine the statement's impact upon adoption but
does not expect it to have a material effect on the Company's results of
operations or financial position.

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

                            Part II Other Information

Item 1: Legal Proceedings

Reference is made to Item 3 in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001, and to Item 1, Part II in the Company's
Quarterly Report on Form 10-Q for the six months ended December 31, 2001, and to
the references therein, for a discussion of all material pending legal
proceedings to which the Company and its subsidiaries are parties.

Item 2: Changes in Securities and Use of Proceeds.

None

Item 3: Defaults Upon Senior Securities.

None

Item 4: Submission of Matters to a Vote of Security Holders.

None

Item 5: Other Information.

None

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

 (a)    Exhibits:
        None
 (b)    Reports on Form 8-K:
        None


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<PAGE>



                                   Signatures


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



                                 AFP IMAGING CORPORATION



                                 /s/
                                 ---------------------------------
                                 David Vozick
                                 Chairman of the Board
                                 Secretary, Treasurer
                                 Date: May 20, 2002



                                 /s/
                                 ---------------------------------
                                 Donald Rabinovitch
                                 President
                                 (Principal Executive Officer)
                                 Date: May 20, 2002



                                 /s/
                                 ---------------------------------
                                 Elise Nissen
                                 Chief Financial Officer
                                 (Principal Financial and Accounting Officer)
                                 Date: May 20, 2002








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