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, 2004

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             (I.R.S. Employer Identification No.)
 incorporation or organization)


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


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

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____

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ____   No__X__

The registrant had 9,271,054 shares of Common Stock outstanding as of May 10,
2004.

                                       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," "would,"
"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 Company's ability to repay its debts 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    changing industry and competitive conditions,
     o    maintaining operating efficiencies,
     o    pricing pressures,
     o    risks associated with foreign operations,
     o    the Company's ability to attract and retain key personnel,
     o    difficulties in maintaining 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    determinations in various outstanding legal matters,
     o    changes in currency exchange rates and regulations, and
     o    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, 2003,
          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, 2003, 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 this 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, 2003.

In the opinion of the Company, all adjustments necessary to present fairly the
Company's consolidated financial position as of March 31, 2004, and the results
of its operations for the three and nine month periods ended March 31, 2004 and
2003, and its cash flows for the nine months periods then ended, consisting of
normal recurring adjustments, have been included.

                                       2
<PAGE>

<TABLE>
<CAPTION>
<S>                                    <C>           <C>           <C>                                    <C>           <C>
Item 1:  FINANCIAL STATEMENTS

                                         AFP Imaging Corporation and Subsidiaries
                              Consolidated Balance Sheets - March 31, 2004 and June 30, 2003
                              --------------------------------------------------------------

Assets                                   March 31,     June 30,     Liabilities and Shareholders' Equity    March 31,      June 30,
                                           2004          2003                                                 2004          2003
                                       ------------  ------------                                         ------------  ------------
                                        (Unaudited)                                                        (Unaudited)
CURRENT ASSETS:                                                     CURRENT LIABILITIES:
 Cash and cash equivalents                $635,188      $658,138    Current portion of long-term debt      $1,124,575    $2,141,931
 Accounts receivable, less allowance                                Accounts payable                        1,147,215       998,710
  for doubtful accounts of $100,000                                 Accrued expenses                        1,002,584       952,729
  and $95,200, respectively              2,089,561     2,249,481                                          ------------  ------------
 Inventories                             2,508,976     2,482,004    Total current liabilities               3,274,374     4,093,370
                                                                                                          ------------  ------------
 Prepaid expenses and other current                                 LONG TERM DEBT                            288,889       630,556
  assets                                   112,810        99,092                                          ------------  ------------
                                       ------------  ------------

     Total current assets                5,346,535     5,488,715    SHAREHOLDERS' EQUITY
                                       ------------  ------------    Common stock, $.01 par value,
                                                                      30,000,000 shares authorized,
PROPERTY, PLANT AND EQUIPMENT,                                        9,271,054 shares issued and
 At cost                                 2,121,186     2,034,964      outstanding at March 31, 2004,
 Less accumulated depreciation          (1,703,067)   (1,582,697)     and June 30, 2003                        92,710        92,710
                                       ------------  ------------
                                           418,119       452,267     Common stock warrants                     19,800        19,800
                                                                     Paid-in capital in excess of par      11,545,883    11,545,883
                                                                     Accumulated deficit                   (9,400,453)  (10,338,464)
                                                                                                          ------------  ------------
OTHER ASSETS                                56,549       102,873     Total shareholders' equity             2,257,940     1,319,929
                                       ------------  ------------                                         ------------  ------------

                                        $5,821,203    $6,043,855                                           $5,821,203    $6,043,855
                                       ============  ============                                         ============  ============



                 The accompanying notes to financial statements are an integral part of these statements.
</TABLE>

                                       3
<PAGE>


<TABLE>
<CAPTION>
<S>                                                                  <C>            <C>               <C>            <C>
                                                                        AFP Imaging Corporation and Subsidiaries
                                                                          Consolidated Statements of Operations
                                                                          -------------------------------------
                                                                                       (Unaudited)


                                                                          Three Months Ended                Nine Months Ended
                                                                                March 31,                        March 31,
                                                                          2004          2003               2004           2003
                                                                      ------------  ------------      -------------  -------------
NET SALES                                                              $5,476,342    $4,316,261        $14,191,778    $13,202,210

COST OF SALES                                                           3,385,645     2,901,628          8,695,005      8,751,186
                                                                      ------------  ------------      -------------  -------------

  Gross profit                                                          2,090,697     1,414,633          5,496,773      4,451,024

SELLING, GENERAL AND ADMINISTRATIVE
 EXPENSES                                                               1,497,066     1,381,106          4,044,428      4,175,272
RESEARCH AND DEVELOPMENT EXPENSES                                          97,571       125,772            298,168        418,314
                                                                      ------------  ------------      -------------  -------------
                                                                        1,594,637     1,506,878          4,342,596      4,593,586
                                                                      ------------  ------------      -------------  -------------

  Operating income (loss)                                                 496,060       (92,245)         1,154,177       (142,562)

INTEREST EXPENSE, net                                                      36,491        48,979            119,632        160,724
                                                                      ------------  ------------      -------------  -------------
  Income (loss) before income taxes                                       459,569      (141,224)         1,034,545       (303,286)

PROVISION FOR INCOME TAXES                                                 35,062         4,620             96,534         13,240

INCOME (LOSS) BEFORE CUMULATIVE EFFECT
 OF CHANGE IN ACCOUNTING PRINCIPLE                                        424,507      (145,844)           938,011       (316,526)

CUMULATIVE EFFECT OF CHANGE IN
 ACCOUNTING PRINCIPLE                                                        ----          ----               ----     (1,297,069)
                                                                      ------------  ------------      -------------  -------------

NET INCOME (LOSS)                                                        $424,507     ($145,844)          $938,011    ($1,613,595)
                                                                      ============  ============      =============  =============
INCOME (LOSS) PER SHARE BEFORE
 CUMULATIVE EFFECT OF CHANGE IN
 ACCOUNTING PRINCIPLE
        Basic                                                                $.05         ($.02)              $.10          ($.03)
                                                                      ============  ============      =============  =============
        Diluted                                                              $.04         ($.02)              $.10          ($.03)
                                                                      ============  ============      =============  =============

NET INCOME (LOSS) PER COMMON SHARE
        Basic                                                                $.05         ($.02)              $.10          ($.17)
                                                                      ============  ============      =============  =============
        Diluted                                                              $.04         ($.02)              $.10          ($.17)
                                                                      ============  ============      =============  =============

WEIGHTED AVERAGE OUTSTANDING COMMON STOCK
        Basic                                                           9,271,054     9,271,054          9,271,054      9,271,054
                                                                      ============  ============      =============  =============
        Diluted                                                         9,822,026     9,271,054          9,542,032      9,271,054
                                                                      ============  ============      =============  =============






           The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       4
<PAGE>


<TABLE>
<CAPTION>
<S>                           <C>            <C>       <C>        <C>          <C>            <C>           <C>
                                                       AFP Imaging Corporation and Subsidiaries
                                   Consolidated Statements of Shareholders' Equity and Comprehensive Income (Loss)
                                                  For the Nine Months Ended March 31, 2004 and 2003
                                                  -------------------------------------------------
                                                                   (Unaudited)

                                                                                                 Foreign
                               Comprehensive            Common       Paid-in                     Currency
                                   Income     Common     Stock     Capital In    Accumulated   Translation
                                   (Loss)      Stock    Warrants  Excess of Par    Deficit      Adjustment     Total
                               ------------- --------- ---------- ------------- -------------- -----------  ------------

Balance June 30, 2002                  $---   $92,710    $19,800   $11,545,883    $(8,823,057)   $(12,619)   $2,822,717

  Foreign currency translation
   adjustment                         1,470       ---        ---           ---            ---       1,470         1,470

  Net loss for nine months
   ended March 31, 2003          (1,613,595)      ---        ---           ---     (1,613,595)        ---    (1,613,595)
                               -------------
Comprehensive Loss              $(1,612,125)      ---        ---           ---            ---         ---           ---
                               ============= ---------------------------------------------------------------------------
Balance March 31, 2003                        $92,710    $19,800   $11,545,883   $(10,436,652)   $(11,149)   $1,210,592
                                             ========= ========== ============= ============== ===========  ============



Balance June 30, 2003                  $---   $92,710    $19,800   $11,545,883   $(10,338,464)       $---    $1,319,929

  Net income for nine months
   ended March 31, 2004             938,011       ---        ---           ---        938,011         ---       938,011
                               -------------
Comprehensive Income               $938,011       ---        ---           ---            ---         ---           ---
                               ============= ---------------------------------------------------------------------------
Balance March 31, 2004                        $92,710    $19,800   $11,545,883    $(9,400,453)       $---    $2,257,940
                                             ========= ========== ============= ============== ===========  ============


                              The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>

                                       5
<PAGE>


<TABLE>
<CAPTION>
<S>                                                                                                        <C>          <C>
                                                   AFP Imaging Corporation and Subsidiaries
                                                    Consolidated Statements of Cash Flows
                                                For the Nine Months Ended March 31, 2004 and 2003
                                                -------------------------------------------------
                                                                  (Unaudited)

                                                                                                              2004          2003
                                                                                                           -----------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net Income (loss)                                                                                          $938,011   ($1,613,595)
  Adjustments to reconcile net income (loss) to net cash provided by operating activities-
      Depreciation and amortization                                                                           159,964       205,042
      Cumulative effect of change in accounting principle                                                         ---     1,297,069
      Change in assets and liabilities:
         Decrease in accounts receivable                                                                      159,920       698,924
         (Increase)/decrease in inventories                                                                   (26,972)      353,402
         (Increase)/decrease in prepaid expenses and other assets                                              (6,988)        5,036
         Increase/(decrease) in accounts payable                                                              148,505      (576,790)
         Increase/(decrease) in accrued expenses                                                               49,855        (3,255)
                                                                                                           -----------  ------------

         Total adjustments                                                                                    484,284     1,979,428
                                                                                                           -----------  ------------

         Net cash provided by operating activities                                                          1,422,295       365,833
                                                                                                           -----------  ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures                                                                                 (86,222)     (182,978)
                                                                                                           -----------  ------------
         Net cash used in investing activities                                                                (86,222)     (182,978)
                                                                                                           -----------  ------------

CASH FLOW FROM FINANCING ACTIVITIES:
         Borrowing of debt                                                                                        ---        89,355
         Repayment of debt                                                                                 (1,359,023)     (212,500)
                                                                                                           -----------  ------------
         Net cash used by financing activities                                                             (1,359,023)     (123,145)
                                                                                                           -----------  ------------

EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS                                                                ---         1,470
                                                                                                           -----------  ------------
         Net (decrease)/increase in cash and cash equivalents                                                 (22,950)       61,180

CASH AND CASH EQUIVALENTS, at beginning of period                                                             658,138       516,494
                                                                                                           -----------  ------------

CASH AND CASH EQUIVALENTS, at end of period                                                                  $635,188      $577,674
                                                                                                           ===========  ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
    Cash paid during the year for-
              Interest                                                                                       $126,580      $168,394
              Income taxes net of refunds                                                                     $11,534       $13,240




         The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
</TABLE>

                                       6
<PAGE>


AFP Imaging Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2004
--------------
(Unaudited)

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

AFP Imaging Corporation (together with its subsidiaries, the "Company") was
organized on September 20, 1978, under the laws of the State of New York. The
Company is engaged in the business of designing, developing, manufacturing and
distributing equipment for generating, capturing or producing medical and dental
images through digital technology as well as the chemical processing of
photosensitive materials. Medical, dental, veterinary and industrial
professionals use these products. The Company's products are distributed to
worldwide markets through a network of independent and unaffiliated dealers.

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 consolidated financial statements included in the Company's Annual
Report on Form 10-K for the year ended June 30, 2003.

In September 2003, the Company completely dissolved two of its wholly-owned
subsidiaries: LogEtronics Corporation and Regam Medical Systems AB. The Company
sold selected assets of its graphic arts business in July 2001, which had been
distributed through LogEtronics Corporation. Upon completion of the transfer of
the manufacturing operations to the United States, the Company, in accordance
with Swedish Law, dissolved Regam Medical Systems AB.

The Company currently has two employee incentive stock option plans, under which
approximately 1,600,000 shares of Common Stock are authorized and available for
issuance. Under the terms of the plans, options to purchase common stock of the
Company may be granted at not less than 100% of the fair market value of the
stock on the date of grant, or 110% of the fair market value if granted to
persons owning more than 10% of the outstanding stock of the Company. The
Company accounts for these plans pursuant to Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees," under which no compensation
cost has been recognized. Had compensation cost for these plans been determined
based on the fair value at the grant dates consistent with SFAS No. 123,
"Accounting for Stock-Based Compensation" and SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an Amendment of FASB
Statement No. 123," the Company's net income and earnings per share would have
been reduced by an insignificant amount.

(2) Adoption of New Accounting Standards:
    -------------------------------------

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141, ''Business Combinations'' ("SFAS 141") and SFAS No. 142, ''Goodwill and
Other Intangible Assets'' (''SFAS 142''). These standards changed the accounting
for business combinations by, among other things, prohibiting the prospective
use of pooling-of-interests accounting and required companies to stop amortizing
goodwill and certain intangible assets with an indefinite useful life. Instead,
goodwill and intangible assets deemed to have an indefinite useful life will be
subject to an annual review for impairment. The new standards generally were
effective for the Company as of July 1, 2002 and for purchase business
combinations consummated after June 30, 2001. SFAS 142 requires that goodwill
and intangible assets deemed to have an indefinite useful life be reviewed for
impairment upon adoption of SFAS 142 (July 1, 2002) and at least annually
thereafter.

Under SFAS 142, goodwill impairment is deemed to exist if the net book value of
a reporting unit exceeds its estimated fair value. The Company has one reporting
unit, which comprises its entire operating segment. This methodology differs
from the Company's previous policy, as permitted under accounting standards
existing at that time, of using undiscounted cash flows to determine if goodwill
is recoverable.

Upon adoption of SFAS 142 in the first quarter of Fiscal 2003, the Company
recorded a one-time, non-cash charge of approximately $1,297,069 ($.14 basic and
diluted loss per share), to reduce the carrying value of its goodwill. Such
charge was non-operational in nature and is reflected as a cumulative effect of
a change in accounting principle in the accompanying consolidated statement of
operations. In calculating the impairment charge, the fair value of its
reporting unit was estimated by comparison to the Company's quoted market
capitalization at July 1, 2002 since the reporting unit represents all of the
Company's operations.

                                       7
<PAGE>


In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
150"). SFAS No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. SFAS No. 150 was effective July 1, 2003 for the Company. The Company
has determined that the provisions of SFAS No. 150 did not have a material
effect on the Company's results of operations or financial position.

In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
Disclosures About Pensions and Other Postretirement Benefits-an Amendment of
SFAS Nos. 87, 88 and 106". This revision to SFAS No. 132 requires additional
disclosures about the assets, obligations, cash flows, and net periodic benefit
cost of defined benefit pension plans and other defined benefit postretirement
plans. The Company has determined that the provisions of Revised SFAS No. 132
did not have a material effect on the Company's results of operations or
financial position.

(3) Basic and Diluted Income (Loss) Per Common Share:
    ------------------------------------------------

The computation of net income (loss) per common share is based upon the weighted
average number of common shares outstanding during the period, plus, in periods
in which they have a dilutive effect, the effect of shares contingently
issuable. The diluted weighted average number of shares outstanding includes
484,656 and 238,728 shares of common stock issuable upon exercise of outstanding
stock options in the three months and nine months ended March 31, 2004
respectively; but does not include 462 and 309 shares of common stock issuable
upon exercise of outstanding options in the three months and nine months ended
March 31, 2003 respectively, as such amounts are antidilutive when there is a
loss. The diluted weighted average number of shares outstanding includes 66,316
and 32,250 shares of common stock issuable upon the exercise of outstanding
warrants in the three months and nine months ended March 31, 2004.

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

On September 21, 2001, the Company established a new three-year senior secured
credit facility (the "Revolving Credit Loan"), consisting of a $3.5 million
revolving line of credit, which replaced its then existing senior secured credit
facility. The Revolving Credit Loan is secured by all of the Company's
inventory, accounts receivable, equipment, officer 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, 2004, the amount outstanding under the
Revolving Credit Loan was $645,408 and the Company was in compliance with all
the terms and conditions of the Revolving Credit Loan, as amended. The Revolving
Credit Loan has an interest rate of 1 3/4% over the prime rate, currently at 5
3/4%, a specific formula to calculate available funds based on eligible accounts
receivable and inventory, and certain reporting requirements to the senior
secured lender. In connection with the Revolving Credit Loan, the Company issued
a 5-year warrant to the lender for the purchase of 100,000 shares of the
Company's common stock at an exercise price of $.32 per share, subject to an
adjustment for all issuances of stock. The Black-Scholes method was used to
value 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.

The Revolving Credit Loan is classified as a current liability in accordance
with EITF 95-22 (Balance Sheet Classification of Borrowings Outstanding Under
Revolving Credit Agreements That Include Both a Subjective Acceleration Clause
and a Lock-Box Arrangement) since the Loan and Security Agreement contains a
subjective acceleration clause and contractual provisions that require the cash
receipts of the Company be used to repay amounts outstanding under the revolving
credit facility.

Included in debt are two subordinated promissory notes related to prior
acquisitions. These notes total $768,056 at March 31, 2004, of which
approximately $479,000 has been classified as a current liability.

The Company is dependent upon the Revolving Credit Loan to finance its overall
operations. It is believed that the Revolving Credit Loan is sufficient to
finance the Company's ongoing working capital requirements for the foreseeable
future. At May 7, 2004, the Company had available approximately $1,690,000 of
unused credit under the Revolving Credit Loan.

(5) Inventory:
    ---------

Inventories, which include material, labor and manufacturing overhead, are
stated at the lower of cost (first-in, first-out) or market (net realizable
value). 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. At March 31, 2004 and June 30, 2003, inventories
consist of the following:


                                       8
<PAGE>


                                               March 31, 2004      June 30, 2003
                                               --------------      -------------
Raw materials and sub-component parts            $1,310,202          $1,455,164
Work-in-process and finished goods                1,198,774           1,026,840
                                                ------------        ------------
                                                 $2,508,976          $2,482,004
                                                ============        ============

(6) Income Taxes:
    ------------

Income taxes are accounted for under the asset and liability method. No income
tax benefits related to the losses reported in prior years have been recorded,
in recognition of the uncertainty regarding the ultimate amount of income tax
benefits to be derived from the net operating losses. As a result, income earned
in the current year is not subject to a tax provision for Federal or certain
state purposes, as the Company will utilize a portion of these prior year net
operating loss carryforwards. The Company's income tax provisions for the Fiscal
2004 and Fiscal 2003 nine-month periods relate to state or foreign income and
capital taxes, net of any refunds received.

(7) Segment Information:
    -------------------

As of March 31, 2004, the Company had only one business segment, medical/dental,
as the Company sold its graphic arts business to a third party in July 2001. All
costs, associated with the disposition of the graphic arts business, were
recorded in fiscal 2001. The medical/dental segment operations are conducted
under the AFP and Dent-X trade names and consist of the design, development,
manufacturing, marketing and sale of medical and dental film processors, imaging
systems and all related accessories.

                                       9
<PAGE>


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, 2004 increased by approximately
$676,800 from June 30, 2003. This increase is principally due to internally
generated funds, decreases in accounts receivable, an increase in accounts
payable offset by reductions in the revolver debt and subordinated debt. The
Company was able to obtain better credit terms from several vendors in Fiscal
2004, which increased the level of accounts payable.

On September 21, 2001, the Company established a new three-year senior secured
credit facility (the "Revolving Credit Loan"), consisting of a $3.5 million
revolving line of credit, which replaced its then existing senior secured credit
facility. The Revolving Credit Loan is secured by all of the Company's
inventory, accounts receivable, equipment, officer 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, 2004, the Company was in compliance with
all the terms and conditions of the Revolving Credit Loan, as amended. The
Revolving Credit Loan has an interest rate of 1-3/4% over the prime rate,
currently at 5 3/4 %, a specific formula to calculate available funds based on
eligible accounts receivable and inventory, and certain reporting requirements
to the senior secured lender. 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 an exercise price of $.32 per share,
subject to an adjustment for all issuances of stock. The Black-Scholes method
was used to value these warrants. The exercise price of these warrants was based
on the stock price on the day prior to the closing of the Revolving Credit Loan,
plus 10%, as provided in the Loan and Security Agreement for the Revolving
Credit Loan.

Included in debt are two subordinated promissory notes related to prior dental
company acquisitions. These notes total $768,056 in principal amount at March
31, 2004, of which approximately $479,000 has been classified as a current
liability. The Company is current on all principal and interest payments due the
note holders.

The Company's historical operating cash flows generally have been positive;
however, the Company is dependent upon the Revolving Credit Loan to finance its
ongoing operations. It is believed that the Revolving Credit Loan is sufficient
to finance the Company's ongoing working capital requirements for the
foreseeable future. The Company expects its working capital requirements will
continue to be financed by operations and from borrowings, including the
Revolving Credit Loan. The Company currently believes that there are no
significant trends, demands, commitments or contingencies, other than the
increase in sales levels and 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 7, 2004, the Company had available
approximately $1,690,000 of unused credit under the Revolving Credit Loan.

The Company's Revolving Credit Loan expires on September 21, 2004, at which time
the Company expects to refinance it with the existing lender or a comparable
lender with equivalent or improved terms and conditions.

Capital expenditures for the first nine months of Fiscal 2004 were $86,222
consisting of tooling, foundry and test equipment expenditures related to the
design, development and production of the new imaging products; improvements in
the Company's telephone system, computer system upgrades, and the purchase of a
new modular trade show booth for national dental exhibitions. Where practical,
the Company continues to conserve its cash. The Company expects to continue to
finance any future capital requirements principally from internally generated
funds. Capital expenditures are limited under the terms of the Revolving Credit
Loan.

Results of Operations - Nine Months Fiscal 2004 Versus Nine Months Fiscal 2003
------------------------------------------------------------------------------

In June 2003, management developed a significant cost reduction program, which
was implemented effective July 2003. These reductions included elimination of
non-productive product lines, a 7% decrease in the work force, and numerous cost
cutbacks throughout the Company. The Company expected to significantly reduce
both direct and non-direct overhead costs as a result of this program. In Fiscal
2004, the Company reorganized its marketing/sales department resulting in
increased operating efficiencies. Management was able to increase sales while
simultaneously reducing total expenditures. Management continues to search for
and develop new products that satisfy its niche markets in medical, dental and
veterinary diagnostic imaging.

The Company began shipments of its new digital dental sensor, "EVA" (R), during
November 2002, to international dealers and distributors. The Company received
FDA clearance for the EVA sensor in March 2003, which permitted the Company to
begin to market and distribute the product domestically. This digital sensor can
also be used in veterinary dental applications. The Company is continuing to
develop its sensors, accessories and related software, and anticipates both
domestic and international growth in this product line.

                                       10
<PAGE>


Sales increased approximately $989,600 or 7.5% between the Fiscal 2004 and
Fiscal 2003 nine-month periods. A significant portion of this increase is
attributable to the introduction of the Company's digital products to the
domestic marketplace. The balance of the increase in sales is attributable to
increased domestic x-ray sales. Sales of the Company's remaining medical and
dental products stayed relatively constant between the two nine month periods.
International sales declined by approximately by $230,000 in the current
nine-month period, mainly in medical equipment sales. The Company believes this
decline can be attributed to uncertainty in the global markets earlier in Fiscal
2004, fluctuating currency exchange rates, and changing technologies in the
marketplace.

Gross profit as a percent of sales increased 5.0 percentage points between the
Fiscal 2004 and Fiscal 2003 nine-month periods. All product lines showed
improvements in their margins, due to increased operating efficiencies. The
product mix between manufactured and distributor goods were relatively constant
between the two nine-month periods. Labor and overhead costs, which are included
in cost of sales, were approximately $276,200 or 3.2 percentage points lower in
the current nine-month period, due to the above-mentioned cost reductions.

Selling, general, and administrative costs decreased approximately $130,800 or
3.1%, between the Fiscal 2004 and Fiscal 2003 nine-month periods. Most of this
decrease is attributable to the cost reduction plan implemented as of July 2003,
offset by a 1% increase in marketing/selling costs to promote the new digital
sensor and attendance at several more veterinary exhibition shows. Management
reviewed all significant cost centers and eliminated or reduced many major
expenses, including payroll and related benefit costs, communication, and travel
and entertainment. Management will continue to monitor and control the level of
discretionary spending.

Research and development costs decreased, approximately $120,100 or 28.7%,
between the Fiscal 2004 and Fiscal 2003 nine-month periods. This decrease is
mainly attributable to the timing of expenditures relating to the Company's
continued investment in the design, development and refinement of its new
imaging products. The Company continues to invest in sustaining engineering and
related costs for its existing products. Research and development costs are
expected to continue to fluctuate between reporting periods.

Interest expense, net, decreased, approximately $41,100 or 25.6%, between the
Fiscal 2004 and Fiscal 2003 nine-month periods, primarily due to several
factors. There was approximately $546,000 less in average monthly revolving
credit borrowings for the current nine-month period ended March 31, 2004; the
prime rate of borrowing, upon which interest rates for all senior debt is based,
was slightly lower in the current nine-month period; and the LIBOR rate of
borrowing, upon which a subordinated note is based was significantly lower in
the current nine-month period.

The income tax provisions for the nine-month periods in Fiscal 2004 and Fiscal
2003 primarily reflect certain state income and capital taxes. No tax benefit
has been recognized for the losses incurred in prior years and therefore no tax
provision has been recorded in the current year as these losses are utilized for
income tax purposes.

In Fiscal 2003, in compliance with the FASB SFAS No. 142, "Goodwill and Other
Intangible Assets," the Company reviewed its remaining goodwill, which related
to the Swedish dental acquisition in April 1997, and determined that, under the
revised accounting valuation rules, such goodwill had significantly diminished
in value. Therefore, in compliance with SFAS No. 142, the Company took a
one-time charge of $1,297,069 to completely write-off the goodwill associated
with this acquisition. As the Company no longer has any goodwill, management
does not expect that future compliance with SFAS No. 142 will have a material
effect on the Company's financial position or results of operation, except for
any potential future acquisitions involving goodwill or other intangible assets.

Results of Operations - Third Quarter Fiscal 2004 Versus Third Quarter Fiscal
2003
-----------------------------------------------------------------------------

Sales increased approximately $1,160,000 or 26.9% between the third quarter
Fiscal 2004 and the third quarter Fiscal 2003. As with the nine-month analysis,
a significant portion of this increase is attributable to the introduction of
the Company's digital products to the domestic marketplace. Approximately
$630,000 of this increase is due to new dental sales. The other dental products
showed an approximate 10% increase through several varied product lines. The
Company's medical product sales stayed relatively constant between the two
three-month periods. International sales were relatively constant between the
third quarter Fiscal 2004 and the third quarter Fiscal 2003.

Gross profit as a percent of sales increased 5.4 percentage points between the
third quarter Fiscal 2004 and the third quarter Fiscal 2003. The dental products
showed improvement in their margins, due to increased operating efficiencies and
a slightly stronger US dollar. The product mix between manufactured and
distributor goods were relatively constant between the two three-month periods.
Labor and overhead costs, which are included in cost of sales, were
approximately the same dollar amount; however, due to the significantly higher
sales in the current third quarter, were 3.9 percentage points lower than the
third quarter fiscal 2003. Overhead costs showed a decrease in labor and related
benefit costs due to the cost reduction program implemented in July 2003.
However, transportation costs were approximately $70,000 higher in the current
third quarter due to the current volatility in the petroleum markets and the
importation of more distributor goods in anticipation of the product mix for the
fourth quarter of the current fiscal year.

                                       11
<PAGE>


Selling, general and administrative costs increased $116,000 or 8.4% between the
third quarter Fiscal 2004 and the third quarter Fiscal 2003. This increase is
due to several factors. The Company received approximately $40,000 in January
2003 (Fiscal 2003) as part of the final waste haulage settlement (for prior
years) in Westchester, NY. Communication costs were reduced approximately
$30,000 due to the elimination of unnecessary lines and equipment, and contract
renegotiations. Sales and marketing costs increased approximately $100,000 due
to payment of increased sales commissions based on the higher sales base and
higher trade show costs due to attendance at more national and regional
exhibitions. The Company also began to accrue funding for its profit sharing
plan, effective January 2004. Management is continuing to review and monitor all
significant cost centers and limit discretionary spending.

Research and developments costs decreased $28,200 or 22.4% between the third
quarter Fiscal 2004 and the third quarter Fiscal 2003. This decrease is mainly
attributable to the timing of expenditures relating to the Company's continued
investment in the design, development and refinement of its new imaging
products. The Company continues to invest in sustaining engineering and related
costs for its existing products.

Interest expense, net, decreased approximately $12,500 or 25.5% between the
third quarter Fiscal 2004 and the third quarter Fiscal 2003. There was
approximately $580,000 less in average monthly revolving credit borrowings for
the current three-month period ended March 31, 2004; the prime rate of
borrowing, upon which all senior debt is based, was slightly lower in the
current quarter; and the LIBOR rate of borrowing, upon which a subordinated note
is based was significantly lower in the current three-month period.

The income tax provisions for the three-month periods in Fiscal 2004 and Fiscal
2003 primarily reflect certain state income and capital taxes. No tax benefit
has been recognized for the losses incurred in prior years, and therefore no tax
provision has been recorded in the current year as these losses are utilized for
income tax purposes.


Item 3:   Quantitative and Qualitative Disclosures About Market Risk.
---------------------------------------------------------------------

Not Applicable.

Item 4:  Controls and Procedures.
---------------------------------

a) Evaluation of disclosure controls and procedures.
   -------------------------------------------------

Our co-chief executive officers and chief financial officer have reviewed and
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rule 13a - 15 (e) of the Securities Exchange Act of 1934 (the
"Act")). Based on their review and evaluation, the co-chief executive officers
and chief financial officer have concluded that, as of March 31, 2004, the
Company's disclosure controls and procedures were adequate and effective to
ensure that information required to be disclosed by the Company in the reports
that it files or submits under the Act is recorded, processed, summarized and
reported, within the time periods specified in the rules and forms of the
Securities and Exchange Commission.

(b) Changes in internal controls.
    -----------------------------

During the nine months and quarter ended March 31, 2004, there were no
significant changes in the Company's internal controls over financial reporting
or in other factors that could materially affect, or is reasonably likely to
materially affect, these internal controls, nor were there any significant
deficiencies or material weaknesses in these internal controls requiring
corrective actions. As a result, no corrective actions were taken.

                                       12
<PAGE>


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, 2003, and to the references therein, for a discussion
of all material pending legal proceedings to which the Company and its
subsidiaries are parties.

Reference is made to the product liability insurance action commenced in the
Court of Common Pleas, Summit County, Ohio in 2003 alleging that the Company's
equipment caused a fire on the plaintiff's premises in June 2001. The case was
settled in February 2004 for less than the originally claimed amount, and
included a release for any liability arising from this claim. The Company's
insurance carrier was responsible for the settlement. Therefore, such settlement
had no material effect on the Company.

As of March 31, 2004, there have been no significant changes to the status of
the two environmental matters relating to property in New Jersey owned by the
Company between August 1984 and June 1985.

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:
     --------

     31.1, 31.2, 31.3 - Certifications pursuant to Exchange Act Rule
     13a - 15 (e).

     32.1, 32.2, 32.3 - Certifications pursuant to 18 U.S.C. Section 1350 of the
     Sarbanes - Oxley Act of 2002.

(b)  Reports on Form 8-K:
     -------------------

     None

                                       13
<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
                                    --------------------------------------------
                                    David Vozick
                                    Chairman of the Board
                                    Secretary, Treasurer
                                    Date:  May 14, 2004



                                    /s/ Donald Rabinovitch
                                    --------------------------------------------
                                    Donald Rabinovitch
                                    President
                                    (Principal Executive Officer)
                                    Date:  May 14, 2004


                                    /s/ Elise Nissen
                                    --------------------------------------------
                                    Elise Nissen
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)
                                    Date:  May 14, 2004