<PAGE>


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

                                    Form 10-Q

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

For Quarterly Period Ended December 31, 2001

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

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

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



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

Registrant's telephone number: 914-592-6100
                               ------------

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes X No____

The registrant had 9,271,054 shares of Common Stock outstanding as of February
1, 2002.

<PAGE>

This Quarterly Report on Form 10-Q contains certain forward-looking statements
within the meaning of the Private Securities Reform Act of 1995. Forward-looking
statements involve known and unknown risks and uncertainties and other factors
that could cause actual results of AFP Imaging Corporation (collectively with
its subsidiaries, the "Company") or achievements expressed or implied by such
forward-looking statements to not occur, not be realized or differ materially
from that stated in such forward-looking statements. Forward-looking statements
may be identified by terminology such as "may", "will", "could", "project",
"expect", "believe", "estimate", "anticipate", "intend", "continue",
"potential", "opportunity" or similar terms, variations of such terms, or the
negative of such terms or variations. Potential risks, uncertainties and factors
include, but are not limited to, adverse changes in general economic conditions,
the economic, political and social impact of the September 2001 terrorist
attacks on the United States, the Company's ability to repay its loans when due,
changes in the markets for the Company's products and services, the ability of
the Company to successfully design, develop, manufacture and sell new products,
the Company's ability to successfully market its existing and new products,
adverse business conditions, increased competition, pricing pressures, risks
associated with foreign operations, the Company's ability to attract and retain
key personnel, difficulties in obtaining adequate long-term financing to meet
the Company's obligations, changes in the nature or enforcement of laws and
regulations concerning the Company's products, services, suppliers, or the
Company's customers, changes in currency exchange rates and regulations, and
other factors set forth in this Quarterly Report on Form 10-Q.


                          PART I. Financial Information

The consolidated financial statements included herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. While certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles in the United States have been condensed or
omitted pursuant to such rules and regulations, the Company believes that the
disclosures made herein are adequate to make the information presented not
misleading. It is recommended that these consolidated financial statements be
read in conjunction with the Company's consolidated financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001.

In the opinion of the Company, all adjustments necessary to present fairly the
Company's consolidated financial position as of December 31, 2001 and June 30,
2001, and the results of its operations for the three and six month periods
ended December 31, 2001 and 2000, and its cash flows for the six months periods
then ended, have been included.


                                       2
<PAGE>

Item 1:  FINANCIAL STATEMENTS

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


<TABLE>
<CAPTION>
Assets                                                                 December 31,          June 30,
                                                                           2001                2001
                                                                     ---------------     ---------------
                                                                       (Unaudited)

<S>                                                                  <C>                 <C>
Current Assets:
   Cash and cash equivalents                                         $       787,249     $       198,276
   Accounts receivable, less allowance
      for doubtful accounts of $75,000
         and $110,000, respectively
                                                                           1,931,994           2,676,546

   Inventories                                                             2,636,675           3,488,217
   Prepaid expenses and other                                                 66,108             130,720
                                                                     ---------------     ---------------
          Total current assets                                             5,422,026           6,493,759
                                                                     ---------------     ---------------

Property and Equipment (at cost)                                           3,021,293           3,359,204
Less accumulated depreciation                                             (2,507,358)         (2,748,726)
                                                                     ---------------     ---------------
                                                                             513,935             610,478

Intangible Assets,
      net of accumulated amortization                                      1,369,069           1,441,069



Other Assets                                                                 264,414              89,908
                                                                     ---------------     ---------------
                                                                     $     7,569,444     $     8,635,214
                                                                     ===============     ===============
</TABLE>

<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity                                   December 31,          June 30,
                                                                           2001                2001
                                                                     ---------------     ---------------
                                                                       (Unaudited)

<S>                                                                  <C>                 <C>
Current Liabilities:
   Current portion of long-term debt                                 $       283,333     $       141,667
   Accounts payable                                                          668,469             982,825
   Accrued expenses                                                          682,934             920,518
                                                                     ---------------     ---------------
      Total current liabilities                                            1,634,736           2,045,010
                                                                     ---------------     ---------------

Long Term Debt                                                             3,172,973           3,872,981
                                                                     ---------------     ---------------
Shareholders' Equity
  Common stock, $.01 par value, 30,000,000
     shares authorized, 9,271,054 shares
     issued and outstanding at December 31,
     2001, and June 30, 2001, respectively                                    92,710              92,710

Common stock warrants                                                         19,800                --
Paid-in capital in excess of par                                          11,545,883          11,545,883
Accumulated deficit                                                       (8,884,239)         (8,907,059)
Cumulative translation adjustment                                            (12,419)            (14,311)
                                                                     ---------------     ---------------
   Total shareholders' equity                                              2,761,735           2,717,223
                                                                     ---------------     ---------------
                                                                     $     7,569,444     $     8,635,214
                                                                     ===============     ===============
</TABLE>

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

                                        3
<PAGE>
                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Operations
                   -------------------------------------------
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                   Three Months Ended                     Six Months Ended
                                                   December 31,                           December 31,
                                                   ------------                           ------------

                                                       2001                2000                2001                2000
                                            ---------------     ---------------     ---------------     ---------------
<S>                                                     <C>                 <C>                 <C>                 <C>
Net sales                                   $     4,612,336     $     6,045,738     $     9,741,779     $    13,123,722


Cost of sales                                     3,008,581           4,066,418           6,383,119           8,965,054
                                            ---------------     ---------------     ---------------     ---------------

     Gross profit                                 1,603,755           1,979,320           3,358,660           4,158,668

Selling, general and
  administrative expenses                         1,493,121           1,835,353           2,901,939           3,633,602
Research and development                            151,492             102,540             250,253             203,550
                                            ---------------     ---------------     ---------------     ---------------
                                                  1,644,613           1,937,893           3,152,192           3,837,152
                                            ---------------     ---------------     ---------------     ---------------
     Operating income (loss)                        (40,858)             41,427             206,468             321,516
Interest, net                                        73,902             112,699             174,931             238,725
                                            ---------------     ---------------     ---------------     ---------------
Income (loss) before provision for taxes           (114,760)            (71,272)             31,537              82,791

Provision (benefit) for income taxes                 (7,597)             (5,612)              8,717               7,818
                                            ---------------     ---------------     ---------------     ---------------

Net income (loss)                           $      (107,163)    $       (65,660)    $        22,820     $        74,973
                                            ===============     ===============     ===============     ===============

NET INCOME (LOSS) PER SHARE
     Basic                                  $          (.01)    $          (.01)    $           ---     $           .01
                                           ===============     ===============     ===============     ===============
     Diluted                                $          (.01)    $          (.01)    $           ---     $           .01
                                            ===============     ===============     ===============     ===============
Weighted average outstanding
    common stock
            Basic                                 9,271,054           9,271,054           9,271,054           9,271,054
                                            ===============     ===============     ===============     ===============
            Diluted                               9,271,054           9,271,054           9,272,054           9,426,426
                                            ===============     ===============     ===============     ===============
</TABLE>

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


                                        4
<PAGE>

                    AFP Imaging Corporation and Subsidiaries
    Consolidated Statements of Shareholders' Equity and Comprehensive Income
               For the Six Months Ended December 31, 2001 and 2000

                                   (Unaudited)

<TABLE>
<CAPTION>

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

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

     Foreign currency translation
       adjustment                                          4,363                --                  --                  --

     Net income for six months
       ended December 31, 2000                            74,973                --                  --                  --
                                                 ---------------

Comprehensive Income                             $        79,336                --                  --                  --
                                                 ---------------     ---------------     ---------------     ---------------
Balance December 31, 2000                                            $        92,710     $          --       $    11,545,883
                                                                     ===============     ===============     ===============




Balance June 30, 2001                            $          --       $        92,710     $          --       $    11,545,883
      Issuance of common stock warrants                     --                  --                19,800                --

     Foreign currency translation
       adjustment                                          1,892                --                  --                  --

     Net income for six months
       ended December 31, 2001                           22,820,                --                  --                  --
                                                 ---------------
Comprehensive Income                             $        24,712                --                  --                  --
                                                 ---------------     ---------------     ---------------     ---------------
Balance Decemer 31, 2001                                             $        92,710     $        19,800     $    11,545,883
                                                                     ===============     ===============     ===============


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

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

     Foreign currency translation
       adjustment                                           --                 4,363               4,363

     Net income for six months
       ended December 31, 2000                            74,973                --                74,973


Comprehensive Income                                        --                  --                  --
                                                 ---------------     ---------------     ---------------
Balance December 31, 2000                        $    (7,093,740)    $       (10,578)    $     4,534,275
                                                 ===============     ===============     ===============




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

     Foreign currency translation
       adjustment                                           --                 1,892               1,892

     Net income for six months
       ended December 31, 2001                            22,820                --                22,820

Comprehensive Income                                        --                  --                  --
                                                 ---------------     ---------------     ---------------
Balance Decemer 31, 2001                         $    (8,884,239)    $       (12,419)    $     2,761,735
                                                 ===============     ===============     ===============
</TABLE>

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

                                        5
<PAGE>

                    AFP Imaging Corporation and Subsidiaries
                      Consolidated Statements of Cash Flows
               For the Six Months Ended December 31, 2001 and 2000
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                          2001                2000
                                                                                    ---------------     ---------------

<S>                                                                                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net lncome                                                                     $        22,820     $        74,973
     Adjustments to reconcile net income to net cash provided
       by operating activities-
         Depreciation and amortization                                                      180,000             402,407
         Change in assets and liabilities:
           Decrease in accounts receivable                                                  744,552             216,302
           Decrease in inventories                                                          510,727             337,550
           (Increase) decrease in prepaid expenses and other assets                         (90,095)            236,683
           (Decrease) in accounts payable                                                  (314,356)           (211,368)
           (Decrease) in accrued expenses                                                  (237,584)            (87,728)
                                                                                    ---------------     ---------------

         Total adjustments                                                                  793,244             893,846
                                                                                    ---------------     ---------------
         Net cash provided by operating activities                                          816,064             968,819
                                                                                    ---------------     ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
         Proceeds from sale of graphic arts business                                        340,815                --
         Capital expenditures                                                               (11,456)            (94,922)
                                                                                    ---------------     ---------------

         Net cash provided by (used by) investing activities                                329,359             (94,922)
                                                                                    ---------------     ---------------

CASH FLOW FROM FINANCING ACTIVITIES:
         Borrowing of debt                                                                1,801,065                --
         Repayment of debt                                                               (2,359,407)           (732,394)
                                                                                    ---------------     ---------------

         Net cash used by financing activities                                             (558,342)           (732,394)
                                                                                    ---------------     ---------------

EXCHANGE RATE EFFECTS ON CASH AND CASH EQUIVALENTS                                            1,892               4,363
                                                                                    ---------------     ---------------

         Net increase in cash and cash equivalents                                          588,973             145,866

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

CASH AND CASH EQUIVALENTS, at end of period                                         $       787,249     $       579,486
                                                                                    ===============     ===============
</TABLE>


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


                                        6
<PAGE>

                    AFP Imaging Corporation and Subsidiaries
                   Notes to Consolidated Financial Statements
                                December 31, 2001
                                   (Unaudited)

(1) General:
The accounting policies followed during the interim periods reported on herein
are in conformity with accounting principles generally accepted in the United
States and are consistent with those applied for annual periods, as described in
the Company's financial statements included in the Company's Annual Report on
Form 10-K for the year ended June 30, 2001.

(2) Net Earnings Per Common Share:
The diluted weighted average number of shares outstanding includes 1,000 and
155,372 shares of common stock respectively, issuable upon exercise of
outstanding stock options in the six months Fiscal 2002 and six months Fiscal
2001.

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

Upon execution of the new Revolving Credit Loan, the Company utilized the
proceeds to repay the former credit facility's revolver balance of $1,801,000 at
September 21, 2001. The Company is dependent upon the Revolving Credit Loan to
finance its overall operations. It is believed that the new Revolving Credit
Loan is sufficient to finance the Company's ongoing working capital requirements
for the foreseeable future. At February 1, 2002, the Company had available
$825,500 of unused credit under the Revolving Credit Loan.

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

(5) Income Taxes:
The Company's income tax provision for the Fiscal 2002 and 2001 six-month
periods relate to state or foreign income and capital taxes, net of any refunds
received. No income tax benefits related to the losses reported in Fiscal 2001
and 2000 have been recorded, in accordance with SFAS No. 109.

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


                                       7
<PAGE>

(7) Segment Information:
As of December 31, 2001, the Company only had one business segment,
Medical/Dental. The segment information for the three and six months ended
December 31, 2000 is shown below. Segment information related to operating
income includes costs directly attributable to each segment's operations.

<TABLE>
<CAPTION>
                                                       Operating                Depreciation                    Net
                                                         Income                        &        Capital       Interest
                                       Net Sales         (Loss)      Assets     Amortization  Expenditures    Expense
                                      -----------      ---------   ----------   ------------  ------------    --------
        For the three months ended
            December 31, 2000

<S>                                   <C>              <C>         <C>            <C>            <C>           <C>
           Medical/Dental              $5,365,796       $72,038     $9,820,602    $200,548       $54,615       $92,699

           Graphic Arts                   679,942       (30,611)       835,149           0             0        20,000
                                      -----------      --------    -----------    --------       -------      --------
           Consolidated                $6,045,738       $41,427    $10,655,751    $200,548       $54,615      $112,699
                                      ===========      ========    ===========    ========       =======      ========

        For the six months ended
            December 31, 2000

           Medical/Dental             $11,675,136      $279,124     $9,820,602    $402,407       $94,922      $198,725

           Graphic Arts                 1,448,586        42,392        835,149           0             0        40,000
                                      -----------      --------    -----------    --------       -------      --------
           Consolidated               $13,123,722      $321,516    $10,655,751    $402,407       $94,922      $238,725
                                      ===========      ========    ===========    ========       =======      ========
</TABLE>


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

Capital Resources and Liquidity

The Company's working capital at December 31, 2001 decreased by approximately
$371,700 from June 30, 2001. The Company sold inventory as well as selected
other assets associated with its graphic arts business for cash and a note
receivable and used the proceeds of the transaction to reduce its long-term
revolver debt. The Company also reduced its borrowings under long-term debt by
reductions in accounts receivable, inventory (other than the graphic arts sale),
prepaid expenses and other assets, which were offset by decreases in accounts
payable and accrued expenses. Additionally, as of December 31, 2001, included in
the current portion of long-term debt is twelve months of principal payments due
under a subordinated note, as opposed to six months of principal payments
included at June 30, 2001.

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

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


                                       8
<PAGE>

The Company's historical operating cash flows have been positive; however, the
Company is dependent upon the Revolving Credit Facility to finance its ongoing
operations. The Company expects its working capital requirements will continue
to be financed by operations and from borrowings. The Company is presently
unaware of any other 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 future. At February 1, 2002, the Company
had available $825,500 of unused credit under the Revolving Credit Loan.

Capital expenditures for the first six months of Fiscal 2002 were $11,456,
consisting of computer workstation upgrades for engineering applications. The
Company continues to conserve all cash expenditures. The Company did not defer
the purchase of any significant capital items, and capital expenditures during
the balance of Fiscal 2002 will relate to the development and production mask
costs for a new digital imaging project. The Company expects to continue to
finance any future capital requirements, where practical, principally from
internally generated funds. Future capital expenditures are limited under the
terms of the Revolving Credit Loan.

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

Sales decreased approximately $3,382,000 or 26% between the Fiscal 2002 and
Fiscal 2001 six-month periods. The dental product sales decreased approximately
20.2% as the Fiscal 2001 six-month period included approximately $1.0 million
more in sales to the U.S. military than the Fiscal 2002 six-month period.
Panoramic X-ray sales and dental processor sales decreased approximately
$330,000 due to the postponement of orders attributable to continued uncertainty
in the market place, and a reduction in export sales. Sales of graphic arts
products showed a decrease from the prior year's corresponding six-month period
of approximately $1,448,600 due to the sale of this product line on July 30,
2001. The Company's medical products showed a decrease of approximately 10.6%
net, due to approximately $750,000 lower sales from the Company's medical
ultrasound and film recording cameras, mainly due to technological changes in
the marketplace, offset by an increase of $300,000 in medical x-ray processors
and veterinary equipment. The Company's other products did not show any
significant variances from the prior fiscal year's six-month period.

Gross profit as a percent of sales increased approximately 2.8 percentage points
between the Fiscal 2002 and Fiscal 2001 six-month periods, due to changes in the
product mix. There were less distributor sales and more Company manufactured
products in the current six-month period. Distributor product sales tend to have
lower margins than Company manufactured products. Labor and overhead costs, as a
percent of sales, were approximately 1.0 percentage point higher in the current
six month period, due to fixed overhead amounts and a lower sales base.

Selling, general, and administrative costs decreased approximately $731,700 or
20.1% between the Fiscal 2002 and Fiscal 2001 six-month periods. Approximately
$400,000 of the decrease is due to costs associated with the graphic arts
product line sold in July 2001. Approximately $76,000 relates to the collection
in the first quarter Fiscal 2002 of a portion of a large receivable, which had
been written off in 1993. There was approximately $144,000 less in amortization
costs in the current six-month period due to lower intangibles in Fiscal 2002.
The balance of approximately $110,000 is attributable to the cost reduction
programs which management instituted in the fourth quarter of Fiscal 2001. As
indicated previously, the work force was reduced, low margin products were
discontinued, and all non-essential expenditures were either eliminated or
reduced. The associated benefits were first realized in the first quarter of
Fiscal 2002. Management continues to seek ways to reduce fixed overhead costs
and eliminate potential redundancies.

Research and development costs increased approximately $46,700 or 22.9% between
the Fiscal 2002 and Fiscal 2001 six-month periods. This increase is mainly
attributable to the timing of expenditures relating to the Company's continued
investment in the design, development and refinement of its digital products, in
order to introduce new products and maintain market share. The Company continues
to invest in sustaining engineering and related costs for its analog products.
Where applicable, the Company is acting as an import distributor for new
products developed by others.

Interest expense, net decreased approximately $63,800 or 26.7% between the
Fiscal 2002 and Fiscal 2001 six-month periods primarily due to there being
approximately $880,000 less in total debt at December 31, 2001 compared to
December 31, 2000. Additionally, the prime rate of borrowing was several points
lower in the current six-month period.


                                       9
<PAGE>

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


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

Sales decreased approximately $1,433,400 or 23.7% between the Fiscal 2002 and
Fiscal 2001 second quarters. The graphic arts product sales decreased
approximately $680,000 in the current quarter due to the sale of this business
segment on July 30, 2001. The Company's medical products showed a decrease of
approximately 31.3% in the current quarter. Approximately $510,000 was due to
lower sales from the Company's medical ultrasound and film recording cameras,
due to technological changes, and the balance was due to other lower medical
x-ray sales. The Company attributes this decline in sales due to the continued
uncertainty in the market place, as a result of the events of September 11,
2001, and the decline of orders. The dental product sales increased
approximately 5.1%, in the current quarter. The Company's other products did not
show any significant variances from the prior fiscal year's second quarter.

Gross profit as a percent of sales increased approximately 2.0 percentage points
between the Fiscal 2002 and Fiscal 2001 second quarters, due to changes in the
product mix. There were less distributor sales and more Company manufactured
products in the current three-month period. Labor and overhead costs, as a
percent of sales, were approximately the same in the current three-month period
as the prior year's three-month period.

Selling, general, and administrative costs decreased approximately $342,200 or
18.6% between the Fiscal 2002 and Fiscal 2001 second quarters. Approximately
$238,000 of the decrease is due to costs associated with the graphic arts
product line sold in July 2001. There was approximately $72,000 less in
amortization costs in the current three-month period due, to lower intangibles
in Fiscal 2002. Management continues to seek ways to reduce fixed overhead costs
and eliminate potential redundancies.

Research and development costs increased approximately $48,900 or 47.7% between
the Fiscal 2002 and Fiscal 2001 second quarters. As reported for the six-month
period analysis, this increase is mainly attributable to continued investment in
the design, development and the refinement of its digital dental products in
order to introduce new products, reduce costs and maintain market share. The
Company continues to invest in sustaining engineering and related costs for its
analog products. Where applicable, the Company is acting as a master import
distributor for new products developed by others.

Interest expense, net decreased approximately $38,800 or 34.4% between the
Fiscal 2002 and Fiscal 2001 second quarters. There was approximately $880,000
less in total debt at December 31, 2001 compared to December 31, 2000.
Additionally, the prime rate of borrowing was several points lower in the
current second quarter than the previous second quarter.


Other

Adoption of New Financial Standards

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No.
141 ("SFAS No. 141"), "Business Combinations" and SFAS No. 142 ("SFAS No. 142"),
"Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations initiated after June
30, 2001, and prohibits the use of the pooling-of-interests method after that
date. SFAS No. 142 changes the accounting for goodwill from an amortization
method to an impairment only approach. The amortization of goodwill from past
business combinations will cease upon adoption of this statement on January 1,
2002. Goodwill and intangible assets acquired in business combinations completed
after June 30, 2001 must comply with the provisions of this statement. The
Company will also be required to evaluate all existing goodwill for impairment
by comparing the fair value of each reporting unit to its carrying value at the
date of adoption. Any transitional impairment losses will be recognized in the
first interim period in the year of adoption and will be recognized as the
effect of a change in accounting principle. The Company is evaluating the
potential impact of adopting these pronouncements on the results of operations
and financial position. Further, the Company is currently assessing all
previously recorded goodwill and intangibles, as well as their useful lives. The
methodology for this asset impairment review will be in accordance with SFAS No.
142, in which the Company will compare the fair value of its reporting units to
the carrying amounts. The fair value will likely be determined using a
discounted cash flow analysis.


                                       10
<PAGE>

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

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

Item 3: Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.



                            Part II Other Information


Item 1: Legal Proceedings

Reference is made to Item 3 in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2001, and to the reference therein, for a discussion
of all material pending legal proceedings to which the Company and its
subsidiaries are parties

Reference is made to the lawsuit filed by Tufts Electronics Group, Inc., in
Massachusetts in 1995, as discussed in Item 3 in the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2001. The Massachusetts Superior
Court has delayed this trial, and has not yet determined a new trial date.

The two environmental claims discussed in Item 3 in the Company's Annual Report
on Form 10-K for the fiscal year ended June 30, 2001, are now formal legal
actions. The claim relating to the offsite disposition of trash and waste in a
landfill was originally filed in 1998 by the Federal Government in United States
District Court and the State of New Jersey, citing several hundred Third Party
Defendants. AFP Imaging (through its former subsidiary, Kenro Corporation) was
recently added (along with many other companies) to the suit. The Company's
liability was potentially assessed at $150,000. The Company has joined, along
with other involved companies, an Alternative Dispute Resolution (ADR) process
for smaller claims.

The other environmental claim was filed as a civil complaint by the owners of
the factory site in New Jersey, in the Superior Court of New Jersey, Morris
County. This suit alleges that Kenro Corporation contaminated this site during
its manufacturing process. The complaint seeks payment by Kenro Corporation to
cover all costs to clean up the property. The Company maintains it secured
appropriate clearance under the Environmental Clean-up Responsibility Act (ECRA)
at the time of sale and continues to investigate, with the help of legal
counsel, any applicable insurance coverage. At this time, the Company cannot
assess the final outcome of either of these two environmental complaints.

In January 2002, the Company received notice that a complaint was filed on
December 12, 2001, in the United States District Court for the Central District
of California. This complaint was filed by a potential customer alleging breach
of a 1996 contract with the Company for non-performance. The Company maintains
that there was no contractual obligation between the two parties and that no
funds or merchandise were ever transferred to or from the Company. The complaint
seeks compensatory damages in the sum of $308,945 and unspecified punitive
damages. The Company intends to vigorously defend this claim and at the present
time does not believe that the final outcome of this matter will have a material
adverse effect on the Company.


                                       11
<PAGE>

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.

On December 14, 2001, the Company held an Annual Meeting of Shareholders to (1)
to elect four directors for a term of one year or until their successors are
duly elected and (2) ratify the appointment of Arthur Andersen LLP as the
independent public auditors of the Corporation's accounts for the year ending
June 30, 2002.

The nominees were each elected to the Board of Directors by the following votes:

                                         For Election       Withheld Authority
                                         ------------       ------------------
                David Vozick             8,604,832          133,505
                Donald Rabinovitch       8,604,832          133,505
                Jack Becker              8,604,832          133,505
                Robert Blatt             8,604,332          134,005

In connection with the ratification of the appointment of Arthur Andersen LLP as
the Company's independent public accountants, 8,562,987 shares voted for, 5,300
shares abstained, and 170,500 shares voted against.


Item 5: Other Information.

None


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

(a)      Exhibits:
         None

(b)      Reports on Form 8-K:
         None


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<PAGE>


                                   Signatures


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



                                   AFP IMAGING CORPORATION



                                   _________/s/________________

                                   David Vozick
                                   Chairman of the Board
                                   Secretary, Treasurer
                                   Date:  February 14, 2002



                                   _________/s/________________

                                   Donald Rabinovitch
                                   President
                                   (Principal Executive Officer)
                                   Date:  February 14, 2002



                                   __________/s/_______________

                                   Elise Nissen
                                   Chief Financial Officer
                                  (Principal Financial and Accounting Officer)
                                   Date:  February 14, 2002


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