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 September 30, 2005

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]


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



The registrant had 9,568,217 shares of its common stock outstanding as of
October 31, 2005.

                                       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    the effect of technological advancements on the marketability of the
     Company's products,
o    maintaining operating efficiencies,
o    pricing pressures,
o    risks associated with foreign sales,
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 and fund the Company's operations,
o    changes in the nature or enforcement of laws and regulations concerning the
     Company's products, services, suppliers, or 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, 2005, 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 Quarterly Report on Form 10-Q, the Company's Annual
Report on Form 10-K for the year ended June 30, 2005, 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 the Company disclaims 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, 2005.

In the opinion of the Company, all adjustments necessary to present fairly the
Company's consolidated financial position as of September 30, 2005, and its
results of operations for the three-month periods ended September 30, 2005 and
2004, and its cash flows for the three-months period ended September 30, 2005
and 2004, consisting of normal recurring adjustments, have been included. The
accompanying unaudited interim consolidated financial statements include all
adjustments (consisting only of those of a normal recurring nature) necessary
for a fair statement of the results of the interim period.

                                       2
<PAGE>


Item 1:  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                         AFP Imaging Corporation and Subsidiaries
                            Consolidated Balance Sheets - September 30, 2005 and June 30, 2005
                            ------------------------------------------------------------------


Assets                                 September 30,  June 30,      Liabilities and Shareholders' Equity  September 30,   June 30,
                                           2005         2005                                                  2005          2005
                                        -----------------------                                          ---------------------------
<S>                                    <C>          <C>                                                 <C>           <C>
                                        (Unaudited)                                                      (Unaudited)
Current Assets:                                                     Current Liabilities:
 Cash and cash equivalents             $   346,146  $   331,009      Current portion of long-term debt  $  1,047,118  $      674,585
 Accounts receivable, less allowance                                 Accounts payable                      1,095,639       1,339,251
  for doubtful accounts of $110,000                                  Accrued expenses                      1,074,847       1,361,514
  and $90,000, respectively                                                                              -----------   -------------
                                         2,394,961    2,704,136        Total current liabilities           3,217,604       3,375,350
                                                                                                         -----------   -------------
 Inventories                             3,976,749    3,921,383
 Prepaid expenses and other current                                 Deferred Rent                            104,360         115,415
  assets                                   101,868       89,069                                          -----------   -------------

    Deferred income taxes                  680,000      680,000
                                        -----------  ----------
                                                                     Total liabilities                     3,341,964       3,490,765
                                                                                                         -----------   -------------
   Total current assets                  7,499,724    7,725,597
                                        -----------  ----------
                                                                    Shareholders' Equity:
Property and Equipment                                              Preferred stock - $.01 par value;
 At cost                                 1,728,483    1,623,043      authorized 5,000,000 shares, none            -               -
 Less accumulated depreciation          (1,289,497)  (1,234,305)      issued
                                        -----------  ----------     Common stock, $.01 par value;
                                                                     authorized 30,000,000 shares,
                                                                     issued and outstanding 9,568,217
                                                                     and 9,407,617 shares at September
                                                                     30, 2005, and June 30, 2005,
                                           438,986      388,738      respectively                             95,682          94,077
                                        -----------  ----------
                                                                    Common stock warrants                     19,800          19,800
Other Assets                                36,871       39,061     Paid-in capital in excess of par      11,741,098      11,641,821
                                        -----------  ----------
                                                                    Accumulated deficit                  (7,202,963)   (7,093,067)7)
                                                                                                         -----------   -------------
                                                                    Total shareholders' equity             4,653,617       4,662,631
                                                                                                         -----------   -------------

                                                                    Total Liabilities and Shareholders'
        Total Assets                   $ 7,975,581  $ 8,153,396       Equity                            $  7,975,581  $    8,153,396
                                        ===========  ==========                                          ===========   =============
</TABLE>

                                       3
<PAGE>


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


                                                     Three Months Ended
                                                        September 30,

                                                     2005          2004
                                                  ----------    ----------

Net sales                                        $5,130,114    $4,655,471

Cost of sales                                     3,282,596     2,907,679
                                                  ----------    ----------

   Gross profit                                   1,847,518     1,747,792
                                                  ----------    ----------

Selling, general and administrative expenses      1,775,574     1,676,425
Research and development expenses                   154,685        86,699
                                                  ----------    ----------
                                                  1,930,259     1,765,124

   Operating  loss                                  (82,741)      (17,332)


Interest expense, net                                27,155        43,185

     Loss before provision for income taxes        (109,896)      (60,517)

Provision for income taxes                              ---        11,095

Net loss                                          ($109,896)     ($71,612)
                                                  ==========    ==========


Net loss per common share:
         Basic and diluted                            ($.01)        ($.01)
                                                  ==========    ==========

Weighted average outstanding common stock:
         Basic and diluted                        9,539,375     9,321,313


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
             For the Three Months Ended September 30, 2005 and 2004
             ------------------------------------------------------
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                 Common        Paid-in
                                                    Common        Stock     Capital In    Accumulated
                                                     Stock     Warrants  Excess of Par         Deficit          Total
                                                     -----     --------  -------------         -------          -----
<S>          <C> <C>                               <C>          <C>        <C>            <C>              <C>
Balance June 30, 2004                              $92,710      $19,800    $11,545,883    $(8,992,997)     $2,665,396

     Issuance of 129,000 shares of
      common stock in connection with
      the exercise of stock options                  1,286          ---         38,704            ---          39,990

       Net loss for three months
         ended September 31, 2004                      ---          ---            ---        (71,612)        (71,612)
                                           ---------------------------------------------------------------------------
Balance September, 2004                            $93,996      $19,800    $11,584,587    $(9,064,609)     $2,263,774
                                                  ========     ========   ============   ============     ===========

Balance June 30, 2005                              $94,077      $19,800    $11,641,821    $(7,093,067)     $4,662,631


     Issuance of 160,500 shares of
        common stock in connection
      with the exercise of stock
      options                                        1,605          ---         81,633            ---          83,238

     Stock-based compensation expense                  ---          ---         17,644            ---          17,644

     Net loss for three months
      ended September 30, 2005                         ---          ---            ---       (109,896)       (109,896)
                                           ---------------------------------------------------------------------------
Balance September 30, 2005                         $95,682      $19,800    $11,741,098    $(7,202,963)     $4,653,617
                                                  ========     ========   ============   ============     ===========
</TABLE>

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


                                       5
<PAGE>

                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
                      -------------------------------------
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                    Three months ended
                                                                       September 30,
                                                                     2005        2004
                                                                  ----------  ----------
<S>                                                               <C>          <C>
Cash flows from operating activities:
  Net loss                                                        ($109,896)   ($71,612)
                                                                  ----------  ----------
  Adjustments to reconcile net loss to net cash (used by)
   provided by operating activities-
    Depreciation and amortization                                    57,382      57,896
    Non-cash compensation expense                                    17,644         ---
    Change in assets and liabilities:
       Decrease in accounts receivable                              309,175     360,328
       (Increase) in inventories                                    (55,366)   (492,366)
       (Increase)/decrease in prepaid expenses and other assets     (23,854)    122,297
       (Decrease)/increase in accounts payable                     (243,612)     60,865
       (Decrease)/increase in accrued expenses                     (286,667)     57,805
                                                                  ----------  ----------

       Total adjustments                                           (225,298)    166,825
                                                                  ----------  ----------

       Net cash (used by) provided by operating activities         (335,194)     95,213
                                                                  ----------  ----------

Cash flows from investing activities:
       Purchases of property and equipment                         (105,440)    (46,361)
                                                                  ----------  ----------

       Net cash used in investing activities                       (105,440)    (46,361)
                                                                  ----------  ----------

Cash flow from financing activities:
       Borrowing of debt                                            439,199      70,711
       Repayment of debt                                            (66,666)   (137,500)
          Proceeds from exercise of common stock options             83,238      39,990
                                                                  ----------  ----------

       Net cash provided by/(used by) financing activities          455,771     (26,799)
                                                                  ----------  ----------

       Net increase in cash and cash equivalents                     15,137      22,053

Cash and cash equivalents, at beginning of period                   331,009     331,993
                                                                  ----------  ----------

Cash and cash equivalents, at end of period                      $  346,146  $  354,046
                                                                  ==========  ==========

Supplemental cash flow disclosures:
    Cash paid during the periods for-
              Interest                                           $   25,559  $   42,877
              Income taxes, net of refunds                          ($1,537) $   31,370
</TABLE>

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

                                       6
<PAGE>


AFP Imaging Corporation and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005
------------------
(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. Since
such date, the Company has been engaged in the business of designing,
developing, manufacturing and distributing equipment for generating, capturing
and 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 under various brand names through a network of
independent and unaffiliated dealers. The Company has only one business segment,
medical/dental.

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, 2005.

(2) Stock Option Plans:
    -------------------
The Company currently has in effect three employee incentive stock plans, under
which approximately 2,200,000 shares of Company common stock were originally
authorized and available for issuance. Most options that are granted under the
plans are fully vested when granted. Under the terms of these plans, options to
purchase common stock of the Company may be granted at not less than 85% of the
fair market value of the stock on the date of grant, (100% in the case of
incentive stock options qualifying under Section 422A of the Internal Revenue
Code ("ISOs") or 110% in the case of ISOs granted to persons owning more than
10% of the outstanding stock of the Company). As of March 31, 2004 all of the
outstanding stock options issued by the Company were fully vested.

 Effective July 1, 2005, the Company adopted the fair value based method of
accounting for stock-based employee compensation under the provisions of
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share Based
Payment ("SFAS No. 123R"), using the modified prospective method without
restatement of the interim periods prior to the adoption date, as described in
SFAS 123R. As a result, the Company has begun recognizing expense in an amount
equal to the fair value of share-based payments (including stock option awards)
on their date of grant, over the vesting period of the awards. Under SFAS 123R,
the Company must recognize compensation expense for (1) all share-based payments
granted on or after July 1, 2005 and (2) any partially vested options as of July
1, 2005. Prior to the adoption of SFAS 123R, the Company accounted for these
plans pursuant to Accounting Principles Board Opinion No. 25 Accounting for
Stock Issued to Employees. Therefore, compensation expense related to stock
option awards was not reflected in operating expenses in any period prior to
July 2005 (first quarter of Fiscal Year 2006), and prior period results have not
been restated. For the three months ended September 30, 2005, non-cash stock
based compensation expense related to stock option awards ("Stock Option
Expense") was $17,644 and has been included in operating expenses. For the three
months ended September 30, 2004, had the Company adopted the fair value based
method of accounting for stock-based compensation under the provisions of SFAS
123R, Stock Option Expense would have been $8,168, and the effect on the
Company's net loss and net loss per share would have been as follows:

                                                           Three months ended
                                                           September 30, 2004
                                                         --------------------
Net loss, as reported                                               ($71,612)
Deduct:  Stock-based compensation expense determined
 under
 fair value based method for all awards                               (8,168)
                                                         --------------------
Pro forma net loss                                                  ($79,780)
                                                         ====================

Basic net loss per share amounts:
     As reported                                                       ($.01)
                                                         ====================
     Pro forma                                                         ($.01)
                                                         ====================

Diluted net loss per share amounts:
     As reported                                                       ($.01)
                                                         ====================
     Pro forma                                                         ($.01)
                                                         ====================

                                       7
<PAGE>


The fair value of each option granted under the Company's incentive stock plans
during the three months ended September 30, 2005 and 2004 was estimated on the
date of grant using the Black-Scholes option pricing method. Using this model,
fair value is calculated based on assumptions with respect to (a) expected
volatility of the market price of the Company's Common Stock, (b) the periods of
time over which employees, directors and other option holders are expected to
hold their options prior to exercise (expected lives), (c) expected dividend
yield on the Company's Common Stock and (d) risk free interest rates which are
based on quoted US Treasury rates for securities with maturities approximating
the options' expected lives. Expected volatility has been estimated based on
actual movements in the Company's stock price over the most recent historical
periods equivalent to the options' expected lives. Expected lives are
principally based on the Company's limited historical exercise experience with
option grants with similar prices. The expected dividend yield is zero as the
Company has never paid dividends, does not currently anticipate paying any
dividends in the foreseeable future and is restricted from paying dividends
under the terms of its senior secured debt. The weighted-average of the fair
value of the options granted during the three months ended September 30, 2005
and 2004 was $2.00 and $1.30 per option, respectively. The following table
summarizes the weighted average values of the assumptions used in computing the
fair value of the option grants.

                                       Three months ended September 30,
                                                   2005               2004
                                   ----------------------------------------
Expected volatility                                  92%                47%
Expected lives from grant date                  10 years           10 years
Expected dividend yield                               0%                 0%
Risk-free interest rate                            4.19%              4.04%


Stock options to purchase 10,000 shares of the Company's Common Stock were
granted to the Company's outside Board of Director members in the three-month
period ended September 30, 2005, in accordance with the Company's policy for
non-employee director compensation.

Transactions under the plans for the three months ended September 30, 2005 and
2004 are as follows:


 Three months ended September 30,         2005                      2004
--------------------------------------------------------------------------------
                                  Options      Weighted      Options    Weighted
                                                average                  average
                                                  price                    price
--------------------------------------------------------------------------------
Outstanding, beginning of
 fiscal year                      948,400          $.76    1,008,500        $.57
Exercised                        (160,500)          .52     (129,000)        .31
Granted                            10,000          2.00       10,000        1.30
Forfeited                               0             0       (5,000)        .98
Expired                                 0             0      (57,000)        .31
--------------------------------------------------------------------------------
Outstanding, end of period        797,900          $.82      827,500        $.64
================================================================================
Exercisable at September 30,      797,900                    527,500
================================================================================
Weighted average fair value
 of
options granted                     $1.55                                   $.72
================================================================================



At September 30, 2005, the range of exercise prices is as follows:

<TABLE>
<CAPTION>
                          Options Outstanding                Options Exercisable

                                 Weighted-
                  Number          average       Weighted-       Number       Weighted-
  Range of      Exercisable      Remaining       average      Exercisable     average
   Exercise   at September 30,  Contractual      Exercise   at September 30,  Exercise
    Prices         2005         Life(Years)       Price          2005          Price
---------------------------------------------------------------------------------------
<S>      <C>         <C>              <C>           <C>         <C>             <C>
  $.11 - $.50        396,000          4.42          $.30        396,000         $.30
  $.53 - $.81         25,500          4.69           .61         25,500          .61
$1.06 - $1.75        348,400          8.99          1.33        348,400         1.33
$2.00 - $2.26         28,000          5.02          2.10         28,000         2.10
---------------------------------------------------------------------------------------
                     797,900          6.45          $.82        797,900         $.82
              =========================================================================
</TABLE>

                                       8
<PAGE>


(3) Per Share Data:
    ---------------
The Company's basic net income (loss) per share amounts are calculated by
dividing net income or loss by the weighted average number of common shares
outstanding during the period. Diluted net income per share is based upon the
weighted average number of common shares and common share equivalents
outstanding, when dilutive. Common stock equivalents include (1) outstanding
stock options and (2) outstanding warrants. For the three months ended September
30, 2005 and 2004, the Company reported a net loss, and therefore, no common
stock equivalents were included in the computation of diluted net loss per share
for such periods, since such inclusion would have been antidilutive. The
following is a reconciliation from basic to diluted shares for the three months
ended September 30, 2005 and 2004:

                                     Three months ended September 30,
                                               2005                 2004
                                 ----------------------------------------
     Basic Shares                         9,539,375            9,321,313
     Dilutive:
       Options                                  ---                  ---
       Warrants                                 ---                  ---
                                 ----------------------------------------
     Diluted Shares                       9,539,375            9,321,313
                                 ========================================

Common stock equivalents which have been excluded from the September 30, 2005
and 2004 diluted per share amounts because their effect would have been
antidilutive, include the following:

                                    Three months ended September 30,
                                               2005                2004
                                 ---------------------------------------
     Stock Options                          797,900             883,500
     Warrants                               100,000             100,000

(4) Long and Short Term Debt:
    -------------------------
On September 21, 2004, the Company renewed its senior secured credit facility
(the "Renewed Revolving Credit Loan") with its existing senior secured lender
for an additional three-year period. The Renewed Revolving Credit Loan consists
of a $2.5 million revolving line of credit, which 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 Renewed Revolving Credit Loan has an interest rate of 1.375%
over the prime rate, 6 3/4% as of September 30, 2005, a specific formula to
calculate available funds based on eligible accounts receivable and inventory,
and certain reporting requirements to the senior secured lender. The Renewed
Revolving Credit Loan also requires that certain financial ratios and net worth
amounts be maintained. The Renewed Revolving Credit Loan provides for increases
in the interest rate charged on monies outstanding under specific circumstances.
As of September 30, 2005, the amount outstanding under the Renewed Revolving
Credit Loan was $891,562 and the Company was in compliance with all the terms
and conditions of the Renewed Revolving Credit Loan except for the EBITDA
covenant. The Company's senior secured lender amended the Renewed Revolving
Credit Loan on October 27, 2005, and the Company was in compliance with the
amended EBITDA covenant at September 30, 2005.

Included in debt is a subordinated promissory note related to a prior
acquisition. This note had a principal outstanding amount of $155,556 at
September 30, 2005, of which the entire amount has been classified as a current
liability; repayment is scheduled at $22,222 per month through April 2006.

(5) Inventory:
    ----------
Inventories, which include material and a small component of labor and
manufacturing overhead, are stated at the lower of cost (first-in, first-out) or
market (net realizable value). Production materials represent a small component
of inventory at month-end due to the manufacturing cycle. 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 September 30, 2005 and June 30, 2005, inventories, net of reserves,
consist of the following:


                                            September 30, 2005   June 30, 2005
                                            ------------------   -------------
                                             (Unaudited)
                                             -----------
     Raw materials and sub-component parts          $1,991,312     $1,721,165
     Work-in-process and finished goods              1,985,437      2,200,218
                                                     ---------      ---------
                                                    $3,976,749     $3,921,383
                                                    ==========     ==========

                                       9
<PAGE>


(6) Income Taxes:
    -------------
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recorded for temporary differences between financial statement
carrying amounts and the tax basis of assets and liabilities. Deferred tax
assets reflect the tax rates expected to be in effect in the period in which the
differences are expected to reverse. The Company records a valuation allowance
to reduce its deferred tax asset to an amount that is more likely than not to be
realized. As of September 30, 2005, the Company has recorded a deferred tax
asset of $680,000, which primarily relates to losses recorded in prior years,
and which the Company believes it is still likely that the Company will utilize
these prior year net operating loss carry forwards. Should circumstance change
and the Company determine that it will not be able to utilize its net operating
loss carryforward, such as a continued decline in future taxable income, the
Company will reevaluate its valuation allowance. As of September 30, 2005, the
Company had approximately $8.4 million in federal net operating loss
carryforwards, and approximately $13.2 million in state net operating loss
carryforwards.

The Company did not make any federal or state tax payments in the three-months
ended September 30, 2005, based on over-payments made during its fiscal year
ended June 30, 2005. The Company's income tax provision for the Fiscal 2005
three-month period relates to state income and capital taxes, net of any refunds
received.

(7) Commitments and Contingencies:
    ------------------------------
The Company is a defendant in an environmental claim relating to a property in
New Jersey owned by the Company between August 1984 and June 1985. This claim
was originally filed in 1998 by the federal government in United States District
Court (New Jersey), citing several hundred other third-party defendants. This
claim relates to the offsite commercial disposition of trash and waste in a
landfill in New Jersey. The Company maintains that its waste materials were of a
general commercial nature. The Company (through its former subsidiary, Kenro
Corporation) was added, along with many other defendants, to the suit. The
Company's claimed liability was potentially assessed by the plaintiff at
$150,000. The Company has joined, along with other involved defendants, in an
alternative dispute resolution (ADR) process for smaller claims. No definitive
potential cost to the Company has been assessed on this claim; however, the
Company has accrued $75,000, which represents the Company's estimate of its
potential liability, net of the Company's insurance carrier's agreed-upon
contribution towards a potential settlement. The Company does not expect to
receive any further information until after the next status conference is held,
in December 2005. The Company cannot, at this time, assess the amount of
liability that could result from any adverse final outcome of this environmental
complaint. The Company's insurance carrier has agreed to equally share, with the
Company, the defense costs incurred in this environmental claim.

The Company is a defendant (with several other parties) in a product liability
insurance action, which was filed in May 2005 in the Superior Court in Hartford,
Connecticut. The plaintiff, through their insurance company, claims that the
Company's equipment caused damages to the plaintiff's premises in May 2003. The
complaint seeks unspecified compensatory damages. The Company maintains that its
equipment was not the cause of the accident or the resultant damage. The
Company's insurance carriers, and their attorneys, are assisting in the
Company's defense in this matter. The Company does not believe that the final
outcome of this matter will have a material adverse effect on the Company.

From time to time, the Company may be party to other claims and litigation
arising in the ordinary course of business. The Company does not believe that
any adverse final outcome of any of these matters, whether covered by insurance
or otherwise, would have a material adverse effect on the Company.

(8) New Accounting Standards:
    -------------------------
In May 2005, the Financial Accounting Standards Board ("FASB") issued SFAS No.
154, Accounting Changes and Error Corrections ("SFAS No. 154"). SFAS No. 154
replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements, and requires retrospective
application to prior-period financial statements of changes in accounting
principle, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of a change. Previously, most changes in
accounting principle were recognized by including in net income of the period of
the change, the cumulative effect of the change. SFAS No. 154 also redefines
"restatement" as the revising of previously issued financial statements to
reflect the correction of an error. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. The Company is required to adopt SFAS No. 154, as applicable,
beginning July 1, 2006. The Company is evaluating the effect of SFAS No. 154,
but does not believe that there will be any material effect on the Company's
historical financial statements.

                                       10
<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 September 30, 2005 decreased by approximately
$68,100 from June 30, 2005. This decrease principally is due to the loss from
operations, reductions in accounts receivable, accounts payable and accrued
expenses, and scheduled subordinated debt payments, offset by increased
borrowings on the Company's senior secured debt.

Operating cash flows were slightly lower in the current quarter due to the
Company's decrease in sales compared to the prior quarter, ended June 30, 2005,
as well as the numerous trade shows and exhibits which the Company attended in
the current quarter. These factors caused the Company to significantly utilize
its cash resources, resulting in the Company increasing its borrowings on its
senior secured debt. Additionally, the Company considerably reduced its accrued
expenses and accounts payable in the current quarter due to scheduled payments
to vendors. The Company has not changed its payment policies to its vendors.

On September 21, 2004, the Company renewed its senior secured credit facility
(the "Renewed Revolving Credit Loan") with its existing senior secured lender
for an additional three-year period. The Renewed Revolving Credit Loan consists
of a $2.5 million revolving line of credit, which 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 Renewed Revolving Credit Loan has an interest rate of 1.375%
over the prime rate, 6-3/4 % as of September 30, 2005, a specific formula to
calculate available funds based on eligible accounts receivable and inventory,
and certain reporting requirements to the senior secured lender. The Renewed
Revolving Credit Loan also requires that certain financial ratios and net worth
amounts be maintained. The Renewed Revolving Credit Loan provides for increases
in the interest rate charged on monies outstanding under specific circumstances.
As of September 30, 2005, the amount outstanding under the Renewed Revolving
Credit Loan was $891,562 and the Company was in compliance with all the terms
and conditions of the Renewed Revolving Credit Loan except for the EBITDA
covenant. The Company's senior secured lender amended the Renewed Revolving
Credit Loan on October 27, 2005, and the Company was in compliance with the
amended EBITDA covenant at September 30, 2005.

Included in debt is a subordinated promissory note related to a prior
acquisition. This note had a principal outstanding amount of $155,556 at
September 30, 2005, of which the entire amount has been classified as a current
liability; repayment is scheduled at $22,222 per month through April 2006.

The Company's historical operating cash flows generally have been positive;
however, the Company is dependent upon the Renewed Revolving Credit Loan to
finance its ongoing operations. It is believed that the Renewed 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
borrowings under the Renewed Revolving Credit Loan. The Company currently
believes that there are no significant trends, demands, commitments or
contingencies, which are reasonably likely to result in a material increase or
decrease in its liquidity or capital resources in the foreseeable near-term
future. As of November 4, 2005, the Company had available approximately
$2,104,327 of unused credit under the terms of the Renewed Revolving Credit
Loan.

The terms of the Renewed Revolving Credit Loan limit the amount of capital
expenditures. However, such terms can be waived by the senior secured lender.
Capital expenditures for the first three months of Fiscal 2006 were $105,440,
consisting of the purchase of a new trade show booth for national veterinary
exhibitions, the purchase and implementation of a new customer relationship
management software module and related hardware, fully integrated within the
Company's ERP computer system, tooling, foundry and test equipment expenditures
related to the design, development and production of the new imaging products,
and an upgrade to the Company's voice-mail system. 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.

Results of Operations - Three Months Fiscal 2006 Versus Three Months Fiscal 2005
--------------------------------------------------------------------------------

Sales increased approximately $474,600 or 10.2%, between the Fiscal 2006 and
Fiscal 2005 three-month periods. Approximately 44% of this increase is
attributable to the continued growth of the Company's digital products in both
the domestic and international marketplaces. The balance of the increase in
sales is mainly attributable to increased x-ray processor sales, and sales of
veterinary systems. The Company's international sales increased 76% between the
periods, mainly due to sales of the new products and continued efforts to
increase worldwide distribution.

                                       11
<PAGE>


Gross profit as a percent of sales decreased slightly (1.5 percentage points)
between the Fiscal 2006 and Fiscal 2005 three-month comparable periods. Material
costs as a percent of sales increased .8 percentage points, mainly due to the
strength of the Euro compared to the U.S. dollar, and an increase in raw
material production costs, which the Company has absorbed. Labor and overhead
costs increased $108,000 due to the higher sales volumes in the current
three-month period, including transportation costs, which showed a significant
increase.

Selling, general, and administrative costs increased approximately $99,200 or
5.9%, between the Fiscal 2006 and Fiscal 2005 three-month comparable periods.
This increase is due to several different factors, including: (1) the Company
began to expense stock options issued, in accordance with SFAS No. 123R, (2)
marketing and sales costs increased $90,000 in the current period, due to the
Company aggressively pursuing various sales opportunities in both the domestic
and international markets, including increased travel costs, attendance at
several national and regional clinical exhibitions, additional advertising, and
increased operating costs, (3) costs associated with the purchase and
implementation of a new customer relationship management software program, and
(4) a slight increase in general operating expenses. These factors were
partially offset by the $75,000 environmental lawsuit accrual in September 2004.

Research and development costs increased approximately $68,000 or 78.4%, between
the Fiscal 2006 and Fiscal 2005 three-month comparable periods. In June 2005,
the Company recruited a new executive to serve as Executive Vice-President of
Technology in order to implement the Company's strategic plans for all
engineering development focusing on new products in the digital imaging field.
The Company continues to invest in the design, development and refinement of its
new digital imaging products, as well as to invest in sustaining engineering and
related costs for its existing products. Research and development costs may
fluctuate between reporting periods, due to changing research and development
consulting requirements, initiation or completion of certain project tasks, and
market demands. Research and development costs are expected to stay at this
higher rate, as part of the Company's strategy to develop and market additional
digital products.

Interest expense, net decreased approximately $16,000 or 37.1%, between the
Fiscal 2006 and Fiscal 2005 three-month comparable periods. A subordinated note
was repaid as of December 2004, which reduced interest for the period by
approximately $8,800. The balance of the decrease is due to approximately
$291,000 less in the average monthly revolving credit borrowings for the current
three-month period, with a slightly higher interest rate, which is based on the
prime rate of borrowing.

The Company did not make any federal or state tax payments in the three-months
ended September 30, 2005, based on over-payments made during Fiscal Year 2005.
The Company's income tax provision for the Fiscal 2005 three-month period
relates to state income and capital taxes, net of any refunds received. As of
September 30, 2005, the Company has recorded a deferred tax asset of $680,000,
which primarily relates to losses recorded in prior years, and which the Company
believes it is still likely that the Company will utilize these prior year net
operating loss carry forwards. As of September 30, 2005, the Company had
approximately $8.4 million in federal net operating loss carryforwards, and
approximately $13.2 million in state net operating loss carryforwards.


Critical Accounting Policies and Estimates
------------------------------------------

The preparation of financial statements in conformity with United States
generally accepted accounting principles requires management to makes estimates
and assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses. These estimates and assumptions
are evaluated on an ongoing basis focusing on historical internal operations,
industry trends and conditions, market conditions and other information that
management believes to be reasonable or applicable under the circumstances.
There can be no assurances that actual results of operations will be consistent
with management's estimates and assumptions, and that reported results of
operations will not be adversely affected by the requirement to make accounting
adjustments to reflect changes in these estimates from time to time. The
following policies are those that management believes to be the most sensitive
to estimates and judgments.

Revenue Recognition
-------------------
The Company recognizes revenue for both its domestic and international sales
when products are shipped and title passes to the customer. The Company includes
shipping and handling costs as a component of cost of sales.

                                       12
<PAGE>


Accounts Receivable
-------------------
The Company reports accounts receivable net of reserves for doubtful accounts.
Credit is extended to worldwide distributors on varying terms between 30 and 90
days. The reserve for doubtful accounts is management's best estimate of the
amount of probable credit losses in the Company's existing accounts receivable
and is based upon continual analysis of the accounts receivable aging including
credit risk of specific customers, historical trends and other related
information. The Company writes-off accounts receivable when they are determined
by management to be uncollectible. There have been no significant changes in the
computation methodology of the reserve for doubtful accounts in the past three
years and the Company has not had significant bad debt write-offs in the past
few years. The allowance for doubtful accounts is based on the Company's
analysis of aged accounts receivable. Management believes that any potential
risk associated with the estimate of reserve for doubtful accounts is therefore
limited.

Inventories
-----------
Inventories, which include material and a small component of work-in-process
labor and 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 system to properly account for,
control, and maintain the movement of all inventory components. The Company has
established inventory reserves based on inventory estimated to be obsolete, slow
moving, or unmarketable due to changing technological and/or market conditions.
If actual market and technical conditions are less favorable than those
anticipated, additional inventory reserves would be required. There have been no
significant changes in the computation methodology of the reserves for inventory
in the past three years.

Warranties
----------
The Company records a liability for an estimate of costs that it expects to
incur under the Company limited warranties issued to its customers. Various
factors affect the Company's warranty liability, including (1) number of units
sold, (2) historical rates of claims, (3) anticipated rates of claims, and (4)
costs per claim. The Company periodically assesses the adequacy of its warranty
liability based on changes in these factors.

In March 2005, the Company began to issue extended warranties in connection with
sales of its digital sensors. The Company will monitor the rate and costs of
claims and review the adequacy of its warranty liability and make any changes
as, and if, necessary. If the Company experiences significant increased warranty
claims or activity, the warranty reserve will be increased, resulting in
decreased gross profit during the period(s) in which the warranty reserve is
increased.

Stock-based Compensation
------------------------
Stock based compensation is accounted for under SFAS No. 123R. The Company
determines the fair value of options based on the Black-Scholes model, which is
based on specific assumptions including (1) expected life of the option, (2)
risk free interest rates, (3) expected volatility and (4) expected dividend
yield.

Deferred Tax Asset and Income Taxes
-----------------------------------
Income taxes are accounted for under the asset and liability method. Deferred
income taxes are recorded for temporary differences between financial statement
carrying amounts and the tax basis of assets and liabilities. Deferred tax
assets reflect the tax rates expected to be in effect in the period in which the
differences are expected to reverse. The Company records a valuation allowance
to reduce its tax asset when it is more likely than not that a portion of the
amount may not be realized. The Company estimates its valuation allowance based
on an estimated forecast of its future profitability. Any significant changes in
future profitability resulting from variations in future revenues or expenses
could affect the valuation allowance on its deferred tax asset and operating
results could be affected. In reviewing the valuation allowance, the Company
considers future taxable income and determines whether it is more likely than
not that a portion of the deferred tax asset will be realized. Changes in these
circumstances, such as an increase or decline in estimated future taxable
income, would result in a re-determination of the valuation allowance.

Litigation and Contingencies
----------------------------
The Company is party to lawsuits arising out of its respective operations. The
Company records a liability when it is probable and can be reasonably estimated.
The Company believes it has properly estimated in the past; however, court
decisions and/or other unforeseen events could cause liabilities to be incurred
in excess of estimates.


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

Risk The Company's earnings and cash flows are subject to changes in interest
rates (short-term, prime-based interest rates and the 12-month LIBOR rate)
primarily from its borrowings under its senior and subordinated debt. The
Company does not believe that it is materially exposed to changes in interest
rates; as at September 30, 2005 there was approximately $1,047,100 in total debt
outstanding. The Company currently does not use interest rate derivative
instruments to manage exposure to interest rate changes.

                                       13
<PAGE>


The Company's earnings and cash flows are subject to foreign currency exchange
rate risk, specifically the Euro/Dollar and the Yen/Dollar. The Company does not
believe that it is materially exposed to foreign currency exchange rate risk due
to the volume of purchases in foreign currency relative to purchases in US
dollars; however, the relative strength/weakness of the Dollar to the Euro or to
the Yen does affect the Company's gross profit. The Company continuously
monitors all changes in foreign currency and may adjust its pricing to customers
to reflect these changes

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 September 30, 2005, 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 quarter ended September 30, 2005, 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 necessary.

                                       14
<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, 2005, and to the references therein, for a discussion
of all material pending legal proceedings to which the Company and its
subsidiaries are parties.

The October 2005 status conference relating to the environmental claim involving
a property in New Jersey owned by the Company between August 1984 and June 1985
was postponed until December 2005.

From time to time, the Company may be party to other claims and litigation
arising in the ordinary course of business. The Company does not believe that
any adverse final outcome of any of these matters, whether covered by insurance
or otherwise, would have a material adverse effect on the Company.

Item 2: Unregistered Sales in Equity Securities and Uses 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.
--------------------

     (a)  Exhibits:
          ---------

          (1)  31.1, 31.2, 31.3 - Certifications pursuant to Exchange Act Rule
               13a - 14 (a).

          (2)  32.1, 32.2, 32.3 - Certifications pursuant to 18 U.S.C. Section
               1350 of the Sarbanes - Oxley Act of 2002.

                                       15
<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:  November 14, 2005



                                    /s/Donald Rabinovitch
                                    -----------------------------
                                    Donald Rabinovitch
                                    President
                                    (Principal Executive Officer)
                                    Date:  November 14, 2005


                                    /s/Elise Nissen
                                    -----------------------------
                                    Elise Nissen
                                    Chief Financial Officer
                                    (Principal Financial and Accounting Officer)
                                    Date:  November 14, 2005



                                       16