AFP Imaging Corporation

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 the 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:

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, 2006 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.

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, 2006.

In the opinion of the Company, all adjustments necessary to present fairly the Company’s consolidated financial position as of March 31, 2007, and its results of operations for the nine and three-month periods ended March 31, 2007 and 2006, and its cash flows for the nine-month periods ended March 31, 2007 and 2006, 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 periods.

Assets		March 31,		June 30,	Liabilities and Shareholders' Equity		March 31, 2007			June 30,
		2007		2006			2007			2006
		(Unaudited)					(Unaudited)
Current Assets:					Current Liabilities:
Cash and cash equivalents	$	4,057,813	$	5,213,289	Current portion of long-term debt	$	385,618		$	-
Accounts receivable, less allowance for					Accounts payable		2,431,473			2,035,117
doubtful accounts of $110,000 and					Accrued expenses		1,640,545			1,565,174
$90,000, respectively		2,928,864		2,757,114	Total current liabilities		4,457,636			3,600,291
Inventories		4,907,598		4,834,510
Prepaid expenses and other current assets
assets		220,275		97,189	Deferred Liabilities		218,949			71,204
Deferred income taxes		680,000		680,000
					Total liabilities		4,676,585			3,671,495
Total current assets		12,794,550		13,582,102
					Common Stock subject to registration rights		---			4,744,323

Property and Equipment
At cost		1,946,765		1,828,149	Shareholders’ Equity:
Less accumulated depreciation		(1,620,958)		(1,450,484)	Preferred stock - $.01 par value; authorized
		325,807		377,665	5,000,000 shares, none issued		-			-
					Common stock, $.01 par value; authorized 30,000,000 shares, issued and outstanding 12,428,800 and 12,345,994 (including 2,777,777 shares subject to registration rights) shares at March 31, 2007, and June 30, 2006, respectively		124,288			95,682
Other Assets		1,913,916		380,797	Common stock warrants		91,131			110,931
					Paid-in capital in excess of par		16,571,129			11,805,852
					Accumulated deficit		(6,428,860	)		(6,087,719	)
					Total shareholders' equity		10,357,688			5,924,746

					Total Liabilities and Shareholders'
Total Assets	$	15,034,273	$	14,340,564	Equity	$	15,034,273		$	14,340,564

AFP Imaging Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

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

	2007			2006			2007			2006

Net sales	$	7,126,326		$	7,173,942		$	20,503,091		$	18,663,935

Cost of sales		4,680,120			4,481,436			13,164,432			11,571,521

Gross profit		2,446,206			2,692,506			7,338,659			7,092,414

Selling, general and administrative expenses		2,651,343			2,011,530			7,174,740			5,811,177
Research and development expenses		167,554			183,014			541,090			527,593
		2,818,897			2,194,544			7,715,830			6,338,770

Operating income/(loss)		(372,691	)		497,962			(377,171	)		753,644


Interest income, net of (interest expense)		13,530			(8,851	)		70,442			(64,173	)

Income/(loss) before provision for income taxes		(359,161	)		489,111			($306,729	)		689,471

Provision for income taxes		19,768			(1,510	)		34,412			(1,510	)

Net income/(loss)		($378,929	)	$	490,621			($341,141	)	$	690,981


Net income/(loss) per common share:
Basic		($.03	)	$	.05			($.03	)	$	.07
Diluted	$	---		$	.05		$	---		$	.07

Weighted average outstanding common stock:
Basic		12,428,800			9,568,217			12,410,604			9,558,533
Diluted		---			10,050,532			---			10,053,422

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

AFP Imaging Corporation and Subsidiaries Condensed Consolidated Statements of Shareholders’ Equity For the Nine Months Ended March 31, 2007 and 2006
	(Unaudited)

	Common Stock		Common Stock Warrants		Paid-in Capital In Excess of Par		Accumulated Deficit			Total

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 ptions		1,605		---		81,633		---			83,238

Stock-based compensation expense		---		---		60,196		---			60,196

Issuance of common stock warrants		---		91,131		---		---			91,131

Net income for nine months
ended March 31, 2006		---		---		---		690,981			690,981

Balance March 31, 2006	$	95,682	$	110,931	$	11,783,650	$	(6,402,086	)	$	5,588,177

Balance June 30, 2006	$	95,682	$	110,931	$	11,805,852	$	(6,087,719	)	$	5,924,746

Issuance of 82,800 shares of common stock in connection with the exercise of common stock warrants		828		(19,800	)		18,972			---			---

Cumulative effect adjustment to reclassify common stock subject to registration rights from temporary equity		27,778		---			4,716,545			---			4,744,323

Stock-based compensation expense		---		---			42,329			---			42,329

Additional fees associated with issuance of common stock in May 2006		---		---			(12,569	)		---			(12,569	)

Net loss for nine months ended
March 31, 2007		---		---			---			(341,141	)		(341,141	)
Balance March 31, 2007	$	124,288	$	91,131		$	16,571,129		$	(6,428,860	)	$	10,357,688

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

AFP Imaging Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended March 31,
	2007			2006

Cash flows from operating activities:
Net income/(loss)		($341,141	)	$	690,981
Adjustments to reconcile net income/(loss) to net cash provided by operating activities-
Depreciation and amortization		177,044			171,170
Non-cash compensation expense		42,329			60,196
Write-off of deferred financing costs		75,000			---
Marked to market gain on Euro hedge contract		(137,237	)		---
Change in assets and liabilities:
(Increase) in accounts receivable		(171,750	)		(319,842	)
(Increase)/decrease in inventories		(73,088	)		139,265
Decrease/(increase) in prepaid expenses and other assets		4,951			(31,738	)
Increase in accounts payable		396,356			498,996
Increase/(decrease) in accrued expenses		75,371			(48,929	)
Increase/(decrease) in deferred liabilities		147,745			(33,165	)

Total adjustments		536,721			435,953

Net cash provided by operating activities		195,580			1,126,934

Cash flows from investing activities:
Purchases of property and equipment		(118,616	)		(192,063	)
Costs related to a proposed acquisition		(1,605,489	)		---

Net cash used in investing activities		(1,724,105	)		(192,063	)

Cash flows from financing activities:
Borrowing of debt		385,618			---
Repayment of debt		---			(652,363	)
Proceeds from exercise of common stock options		---			83,238
Payment of fees associated with issuance of common stock in May 2006		(12,569	)		---

Net cash provided/(used by) by financing activities		373,049			(569,125	)

Net (decrease)/increase in cash and cash equivalents		(1,155,476	)		365,746

Cash and cash equivalents, at beginning of period		5,213,289			331,009

Cash and cash equivalents, at end of period	$	4,057,813		$	696,755

Supplemental cash flow disclosures: Cash paid during the periods for-
Interest	$	96,508		$	74,057
Income taxes, net of refunds	$	27,482			4,563

Supplemental Schedule of Non Cash Activity:
Cashless exercise of common stock warrants	$	19,800			---

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

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, producing and recording medical, veterinary 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 to the diagnostic professionals and through a network of independent and unaffiliated dealers. The Company has only one business segment - medical/dental.

On April 19, 2007, the Company completed the acquisition of Quantitative Radiology srl, an Italian corporation (“QR”), by acquiring all of the outstanding share capital of QR from the shareholders. QR is a global supplier of state-of-the-art, in-office 3D dental computed tomography (CT). QR uses an imaging technology that features a cone shaped beam of x-rays (a CBCT scanner). The Company, prior to April 19, 2007, had acted as QR’s exclusive distributor in North and South America, excluding Brazil. Funding for the acquisition was principally derived from two sources, the first was the proceeds raised from a private offering of the Company’s common stock to equity investors and the second was the loan proceeds from ComVest Capital, LLC in connection with a term loan and revolving credit facility. In connection with the acquisition, the Company, entered into employment agreements with each of the former shareholders’ of QR. Each agreement contains a non-compete clause which prohibits the employee from engaging in activities competitive with the business of QR for a period of five years from the date of termination of employment.

On April 12, 2007, the Company completed the sale of an aggregate of 5,500,000 shares of its common stock to certain accredited investors for an aggregate consideration of $8,140,000 pursuant to previously executed subscription agreements. The Company has granted the investors certain registration rights with respect to the resale of the shares acquired. The common stock was issued and sold pursuant to the exemption from registration afforded by Regulation D of the Securities Act of 1933, as amended. In connection with the transaction, the Company paid the placement agent for the offering $407,000, or five percent of the gross proceeds of the offering.

On April 13, 2007, the Company entered into a Revolving Credit and Term Loan Agreement with ComVest Capital, LLC (“ComVest”) whereby ComVest agreed to lend the Company an aggregate of up to $8 million in the form of a $5 million term loan and a $3 million revolving loan facility. The term loan bears interest at a rate of ten percent (10%) per annum and provides for repayment over five years commencing in November 2007; and the revolving loans bear interest a rate per annum of two percent (2%) plus the prime rate and is payable in full on April 30, 2012. The Company and each of its wholly-owned subsidiaries executed a Collateral Agreement pursuant to which each such party agreed to grant a security interest in all of its respective assets to ComVest as collateral security for repayment of the loans. This new senior secured Revolving Credit and Term Loan Agreement replaced the Company’s previous $2.5 million senior secured credit facility, which was due to expire on September 21, 2007. See footnote 4, Long and Short Term Debt for a further discussion of this transaction.

The Company currently has in effect two employee incentive stock plans, under which approximately 1,100,000 shares of Company common stock were originally authorized and available for issuance. Options that are granted under the plans generally are either fully vested when granted or vest upon completion of specific length of employment. 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).

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 and nine months ended March 31, 2007, non-cash stock based compensation expense related to stock option awards was $0 and $42,329 respectively, and for the three and nine months ended March 31, 2006, non-cash stock based compensation expense related to stock option awards was $34,346 and $60,196, respectively. These charges have all been included in operating expenses.

The fair value of each option granted under the Company’s incentive stock plans during the three and nine months ended March 31, 2007 and 2006 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 Company 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 Company 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 new senior secured debt. The weighted-average of the fair value of the options granted during the three and nine months ended March 31, 2007 was $0 and $2.15 per option, respectively, and the weighted-average of the fair value of the options granted during the three and nine months ended March 31, 2006 was $2.40 and $2.10 per option, respectively.

Stock options to purchase an aggregate of 20,000 shares of Company common stock were granted to the Company’s non-employee Board of Director members in the nine-month period ended March 31, 2007; no stock options were granted during the three-month period ended March 31, 2007, in accordance with the Company’s policy for non-employee director compensation. Stock options to purchase an aggregate of 10,000 shares of Company common stock were granted to the Company’s non-employee Board of Director members in each of the three-month periods ended September 30, 2005, December 31, 2005, and March 31, 2006 in accordance with the Company’s policy for non-employee director compensation. All of these stock options were issued with a ten-year useful life.

On May 2, 2006, the Company issued 2,777,777 shares of its common stock in a private placement to selected institutional and other accredited investors. The offering price was at $1.80 per share. In conjunction with the private placement, the Company has granted the investors certain registration rights with respect to the resale of the shares acquired. No warrants were issued to the investors in this private placement. The Company incurred fees of approximately $256,000 including all placement fees and related legal and accounting expenses. The Company used the entire net proceeds for the acquisition of QR on April 19, 2007.

With respect to the above described financing, the Company filed a registration statement which was declared effective on July 14, 2006. If this registration statement is subsequently suspended for a specified period of time, the Company could be required to pay a penalty of 1% of the financing per month to the investors. Additionally, the Company is required to file amendments to the registration statement as necessary to keep the registration effective for 24 months from the closing date. In accordance with the provisions of FSP EITF 00-19-2, the Company has reclassified this private placement from temporary equity to shareholders’ equity on the accompanying balance sheet as of March 31, 2007. At June 30, 2006, the net proceeds were classified as temporary equity in accordance with the provisions of EITF Topic D-98. The Company has maintained this registration statement since it was declared effective and believes that any future payments related to this registration statement are remote. Therefore, in accordance with SFAS 5, Accounting for Contingencies, no corresponding contingent liability has been recorded.

On April 13, 2007, the Company entered into a Revolving Credit and Term Loan Agreement with ComVest Capital, LLC (“ComVest”) whereby ComVest agreed to lend the Company an aggregate of up to $8 million in the form of a $5 million term loan and a $3 million revolving loan facility. The term loan bears interest at a rate of ten percent (10%) per annum and provides for repayment over five years commencing in November 2007 in 53 equal monthly installments of $92,592.60 with a final balloon payment of all remaining amounts due there-under on April 30, 2012. The term loan is further subject to mandatory prepayment to the extent of 50% of proceeds received by the Company in connection with the sale of its capital stock unless such proceeds are utilized to acquire another business. The revolving loans bear interest a rate per annum of two percent (2%) plus the prime rate and is payable in full on April 30, 2012, has a specific formula to calculate available funds based on eligible accounts receivable and inventory, is subject to maximum “borrowing base” limitations, and has certain reporting requirements. This new senior secured Revolving Credit and Term Loan Agreement replaced the Company’s previous $2.5 million senior secured credit facility, which was due to expire on September 21, 2007.

Both loans are subject to mandatory prepayment in full in the event of certain “sale” events, including merger, sale of assets or change in control. The term loan is convertible by ComVest at any time into shares of the Company’s common stock at a conversion price of $2.37 per share. The term loan is convertible at the Company’s option upon the satisfaction of certain conditions, including a reported trading price equal to 175% of the conversion price, the common stock being traded on Nasdaq, and a certain minimum trading volume, among others. In addition, the Company and each of its wholly-owned subsidiaries executed a Collateral Agreement pursuant to which each such party agreed to grant a security interest in all of its respective assets to ComVest as collateral security for repayment of the loans. Further, each subsidiary agreed to guaranty performance of all of the Company’s obligations to ComVest.

As part of the transaction, the Company granted to ComVest an aggregate of 800,000 warrants to purchase shares of the Company’s common stock at exercise prices per share equal to $1.85 with respect to 266,666 warrants, $2.02 with respect to an additional 266,666 warrants, and $2.19 with respect to the remaining 266,668 warrants. The Company entered into a Registration Rights Agreement pursuant to which it has agreed to register the shares of common stock issuable upon exercise of the warrants and conversion of the term note.

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 March 31, 2007 and June 30, 2006, inventories, net of reserves, consisted of the following:

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 March 31, 2007, 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 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 continuous decline in future taxable income, the Company will reevaluate its valuation allowance. As of March 31, 2007, the Company had approximately $7.24 million in federal net operating loss carryforwards, and approximately $12.0 million in state net operating loss carryforwards.

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 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. This claim was originally filed in 1998 by the federal government in United States District Court for the State of New Jersey, citing several hundred other third-party defendants. 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. An initial settlement amount was offered by this group, however, to date, no settlement has been reached. The potential cost to the Company based on this settlement offer has been assessed at $23,100. The Company accrued $11,550 as of June 2006, 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 a mediation session is held, which has been scheduled for mid 2007. The Company cannot currently 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 connection with 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 and later transferred to the United States District Court, District of Connecticut. The plaintiff, through its insurance company, claims that the Company’s equipment caused a fire on the plaintiff’s premises in May 2003. The complaint seeks approximately $200,000 in compensatory damages, and there were no reported injuries or such claims. Two additional suits seeking approximately $113,000 in damages were filed in May 2006 in the Superior Court in Hartford, Connecticut as subrogation claims relating to the same incident. The Company maintains that its equipment was not the cause of the incident or the resultant damage. The Company’s insurance carriers and their attorneys are assisting in the Company’s defense of this matter. The Company does not believe that the final outcome of this matter will have a material adverse effect on the Company.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes- an Interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is still evaluating the effects, if any; the adoption of FIN 48 will have on its results of operations and financial position.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. SFAS No. 157 also expands disclosures about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. The Company is required to adopt SFAS No. 157, as applicable, beginning in July 2008. The Company is evaluating the effect of SFAS No. 157, but does not believe that there will be any material effect on the Company’s financial statements.

In September 2006, the FASB also issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans-an Amendment of FASB Statements No. 87, 88, 106 and 132R (“SFAS No. 158”). SFAS No. 158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. SFAS No. 158 also improves financial reporting by requiring an employer to measure the funded status of a plan as of the date of its year-end financial position. The Company is required to adopt SFAS No. 158, as applicable, as follows. The Company must recognize the funded status of its defined benefit postretirement plans and provide the required disclosures as of June 30, 2007, and the Company must measure the plan assets and benefit obligations for the fiscal year ended June 30, 2009. The Company does not believe that there will be any material effect on the Company’s financial statements.

In December 2006, the FASB issued FSP EITF 00-19-2, Accounting for Registration Payment Arrangements (“FSP EITF 00-19-2”). FSP EITF 00-19-2 addresses an issuer’s accounting for registration payment arrangements, and specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement should be separately recognized and measured in accordance with SFAS No. 5, Accounting for Contingencies. The Company adopted FSP EITF 00-19-2 effective January 1, 2007.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value, so as to improve financial reporting by providing entities with the opportunity to alleviate volatility in reported earnings. This Statement should expand the use of fair value measurement and permits all entities to choose to measure eligible items at fair value at specified election dates. The resulting unrealized gains or losses on items which the fair value option has been elected are to be reported in earnings. The Company is required to adopt SFAS No. 159, as applicable, beginning in July 2008. The Company is evaluating the effect of SFAS No. 159, but does not believe that there will be any material effect on the Company’s financial statements.

The Company’s working capital at March 31, 2007 decreased by approximately $1.64 million from June 30, 2006. This decrease is principally due to the payment of approximately $1.60 million in the current nine-month period related to the acquisition of QR srl that was completed on April 19, 2007. Such costs included a non-refundable down payment of $1.32 million in February 2007 (credited to the purchase price) and various legal and accounting charges, and were classified as deferred charges as of March 31, 2007. The decrease in working capital is also attributable to increases in the Company’s senior secured debt, accounts payable and accrued expenses, all offset by moderate increases in accounts receivables and inventory.

Operating cash flows were significantly lower in the current nine-month period principally due to the loss from operations. This loss is mainly attributable to lower gross margins based on the product mix towards more distributor goods, the strong Euro in relation to the US dollar, increased competition in the marketplace, as well as significantly higher marketing, sales distribution and administrative expenses. These expenses related to new and existing products and the development and growth of various new distribution channels to advance sales growth. These factors caused the Company to utilize its cash resources, resulting in increased borrowings on the senior secured debt. The Company is requiring advance deposits from its customers on the new-high dollar valued equipment, which is consistent with the vendor’s terms of sale. Otherwise, the Company has neither changed its payment policies to its vendors nor revised its payment terms with its customers.

With respect to the above described financing, the Company filed a registration statement which was declared effective on July 14, 2006. If this registration statement is subsequently suspended for a specified period of time, the Company could be required to pay a penalty of 1% of the financing per month to the investors. Additionally, the Company is required to file amendments to the registration statement as necessary to keep the registration effective for 24 months from the closing date. In accordance with the provisions of FSP EITF 00-19-2, the Company has reclassified this private placement from temporary equity to shareholders’ equity on the accompanying balance sheets. The Company has maintained this registration statement since it was declared effective and believes that any future payments related to this registration statement are remote. Therefore, in accordance with SFAS 5, Accounting for Contingencies, no corresponding contingent liability has been recorded.

On April 13, 2007, the Company entered into a Revolving Credit and Term Loan Agreement with ComVest Capital, LLC whereby ComVest agreed to lend the Company an aggregate of up to $8 million in the form of a $5 million term loan and a $3 million revolving loan facility. The term loan bears interest at a rate of ten percent (10%) per annum and provides for repayment over five years commencing in November 2007 in 53 equal monthly installments of $92,592.60 with a final balloon payment of all remaining amounts due there-under on April 30, 2012. The term loan is further subject to mandatory prepayment to the extent of 50% of proceeds received by the Company in connection with the sale of its capital stock unless such proceeds are utilized to acquire another business. The revolving loans bear interest a rate per annum of two percent (2%) plus the prime rate and is payable in full on April 30, 2012, has a specific formula to calculate available funds based on eligible accounts receivable and inventory, is subject to maximum “borrowing base” limitations, and has certain reporting requirements. This new senior secured Revolving Credit and Term Loan Agreement replaced the Company’s previous $2.5 million senior secured credit facility, which was due to expire on September 21, 2007. The proceeds were used to fund a portion of the purchase price of QR srl, which was completed on April 19, 2007 and for ongoing working capital requirements.

Both loans are subject to mandatory prepayment in full in the event of certain “sale” events, including merger, sale of assets or change in control. The term loan is convertible by ComVest at any time into shares of the Company’s common stock at a conversion price of $2.37 per share. The term loan is convertible at the Company’s option upon the satisfaction of certain conditions, including a reported trading price equal to 175% of the conversion price, the common stock being traded on NASDAQ, and a certain minimum trading volume, among others. In addition, the Company and each of its wholly-owned subsidiaries executed a Collateral Agreement pursuant to which each such party agreed to grant a security interest in all of its respective assets to ComVest as collateral security for repayment of the loans. Further, each subsidiary agreed to guaranty performance of all of the Company’s obligations to ComVest.

The Company’s historical operating cash flows generally have been positive; however, the Company is dependent upon its Revolving Credit and Term Loan Agreement with ComVest to finance its ongoing operations. The Company expects its worldwide working capital requirements will continue to be financed by operations, both in the United States and Italy, with the completion of the acquisition of QR srl, and from borrowings on the Revolving Credit and Term Loan Agreement. It is believed that the Revolving Credit and Term Loan Agreement is sufficient to finance the Company’s ongoing worldwide working capital requirements for the foreseeable future. The Company currently believes that there are no significant trends, demands, commitments or contingencies, other than an unexpected material adverse conclusion to an ongoing environmental litigation case, which are reasonably likely to result in a significant increase or decrease in its liquidity or capital resources within the foreseeable near-term future. As of May 1, 2007, the Company had available approximately $999,300 of unused credit under the Revolving Credit and Term Loan Agreement. No assurances can be given that the Company will have sufficient cash flow in the long term.

Sales increased approximately $1,839,100, or 9.9%, between the Fiscal 2006 and Fiscal 2007 nine-month periods. The Company’s veterinary products business increased 31%, mainly due to the introduction in mid-Fiscal Year 2006 of a digital imaging system for equine patients and general purpose x-ray systems (analog and digital) specifically designed for all veterinary applications. In addition, there is continuing demand for our filmless digital dental radiography system which showed a 16% increase in human and veterinary sales in the current nine-month period. In June 2006, the Company became the exclusive distributor in the United States, Canada and Latin America (excluding Brazil) for a three-dimensional dental x-ray imaging system manufactured in Italy by QR srl (which the Company acquired on April 19, 2007). It produces computer generated three-dimensional images which are a significant improvement over conventional two-dimensional x-ray images. The Company sells this product into both the dental and the medical ENT market and experienced new sales growth with this product. The Company’s analog film processor business showed a decline of approximately 19% in the current nine-month period as health-care professionals continue to migrate to digital imaging equipment, much of which the Company also supplies. The Company has continued its efforts to increase worldwide distribution and expand and develop new international markets for its digital products, resulting in a 30.5% increase in international sales between the periods.

Gross profit as a percent of sales decreased 2.2 percentage points between the Fiscal 2006 and Fiscal 2007 nine-month comparable periods. Material costs as a percent of sales increased 3.7 percentage points, as the Company is selling more high dollar value distributor goods, which tend to have lower gross margins. Many of the distributor goods are imported, and the Company has realized additional costs with the strong Euro to the US dollar. Labor and overhead costs, while the dollar values decreased slightly between the periods, decreased 1.5 percentage points due to much higher sales in the current nine-month period.

Selling, general, and administrative costs increased approximately $1,363,600 or 23.5%, between the Fiscal 2006 and Fiscal 2007 nine-month comparable periods. This increase is due to several factors, including: (1) the write-off of certain deferred financing costs incurred in the previous fiscal year as the Company chose not to utilize that lender; (2) an approximate 7% increase in general and administrative costs associated with the increase in sales; (3) approximately a $90,000 increase in technical support costs related to the new digital equipment the Company is selling, that require a devoted infrastructure support system; (4) an increase in marketing and sales costs of approximately $560,000 in the current nine-month period due to (a) the Company’s aggressive launch into the dental and medical marketplaces for the new three dimensional x-ray imaging equipment, including attendance at two large international tradeshows, development of new brochures and advertising materials, and the related travel and entertainment expenses, (b) pursuing various sales opportunities in both the domestic and international markets, with specific emphasis in the growing veterinary markets, (c) attendance and exhibition at two other large international trade shows in Europe and (d) an increase in general operating expenses, based on increased sales levels; and (5) approximately $500,000 related to the acquisition in mid-December 2006 of a new distinct distribution channel to implement various methods to increase sales levels. Included in selling, general and administrative costs in Fiscal 2007 is $137,237 of income related to the marked to market gain on a Euro hedge contract purchased in March 2007 associated with the purchase of QR srl on April 19, 2007, as the purchase price was in Euro.

Research and development costs increased approximately $13,500, or 2.6%, between the Fiscal 2006 and Fiscal 2007 nine-month comparable periods. The Company continues to invest in the design, development and refinement of its existing digital imaging products, as well as the design and development of new digital imaging products for the human dental and broad veterinary applications, including both hardware and software enhancements. Research and development costs may fluctuate between reporting periods, due to changing research and development consulting agreements, initiation or completion of certain project tasks, and market demands. Research and development costs are generally expected to continue to increase over the next several years as part of the Company’s strategy to develop and market additional high tech digital products.

For the nine-month period ended March 31, 2007 (FY 2007), net interest income was $70,442. For the nine-month period ended March 31, 2006 (FY 2006), net interest expense was $64,173. There was approximately $176,800 of interest income in Fiscal Year 2007 compared to approximately $6,000 in Fiscal year 2006. The increase in interest income is due to the private placement the Company completed in May 2006, whereby all the proceeds have been invested in a diversified US Treasury Money Market Fund. There was approximately $106,400 of interest expense in the current nine-month period, compared to approximately $70,100 in the comparable period in the prior year. The current nine-month period had approximately $400,000 more in average borrowings on the senior secured debt and had a slightly higher average interest rate, which is based on the prime rate of borrowing.

The Company made several small state and federal tax payments in the nine-months ended March 31, 2007, based on payments previously made during its fiscal year ended June 30, 2006. The Company has recorded a deferred tax asset of $680,000, which primarily relates to losses recorded in prior years; the Company believes it is likely that it will utilize these prior year net operating loss carry forwards. As of March 31, 2007, the Company had approximately $7.24 million in federal net operating loss carryforwards, and approximately $12.0 million in state net operating loss carryforwards.

Sales for the third quarter fiscal year 2007 were $7.13M, a slight decrease of $47,600 or .7% compared to the third quarter fiscal 2006. In June 2006, the Company became the exclusive distributor in the United States, Canada and Latin America (excluding Brazil) for a three-dimensional dental x-ray imaging machine manufactured in Italy, by QR srl (which the Company acquired on April 19, 2007). It produces computer generated images that are a significant improvement over conventional two-dimensional x-ray images. The Company sells this product into both the dental and the medical ENT market and continues to experience significant growth with this product. There is continuing demand for our filmless digital dental radiography system in both the human and veterinary marketplaces. These increases in sales were offset by decreases in (a) the Company’s veterinary products business which decreased approximately 5.8%, mainly due to vendor production issues which have now been resolved and (b) a decline of approximately 19% for analog film processors, as health-care professionals continue to choose to upgrade to digital imaging equipment, much of which the Company also supplies. The Company has continued its efforts to increase worldwide distribution and expand and develop new international markets for its digital products.

Gross profit as a percent of sales decreased 3.2 percentage points between the third quarter Fiscal 2006 and the third quarter Fiscal 2007 comparable periods. Material costs as a percent of sales increased 3.8 percentage points, as the Company is selling more high dollar value distributor goods, which tend to have lower gross margins. Many of the distributor goods are imported, and the Company has realized additional costs with the strong Euro to the US dollar. Labor and overhead costs decreased approximately $52,000 as well as decreased .6 percentage points.

Selling, general, and administrative costs increased approximately $640,000 or 31.8%, between the third quarter Fiscal 2006 and the third quarter Fiscal 2007. This increase is due to several factors, including: (1) approximately $430,000 related to the acquisition in mid-December 2006 of a new distinct distribution channel to implement various methods to increase sales levels; (2) a 6.5% increase in general and administrative costs associated with the increase in sales; (3) an approximately $70,000 increase in technical support costs related to the new digital equipment the Company is selling, which require a devoted infrastructure support system; and (4) an increase in marketing and sales costs of approximately $160,000 in the current third quarter Fiscal 2007 due to (a) the Company’s continued aggressive launch into the dental and medical marketplaces for the new three dimensional x-ray imaging equipment and the associated travel and entertainment expenses, (b) pursuing various sales opportunities in both the domestic and international markets, with specific emphasis in the growing veterinary markets, (c) attendance and exhibition at two large international trade shows in Europe and (d) an increase in general operating expenses, based on increased sales levels. Included in selling, general and administrative costs in the third quarter Fiscal 2007 is $137,237 of income related to the marked to market gain on a Euro hedge contract purchased in March 2007 associated with the purchase of QR srl on April 19, 2007, as the purchase price was in Euro.

Research and development costs decreased slightly by approximately $15,400, or 8.4 %, between the third quarter Fiscal 2006 and third quarter Fiscal 2007, mainly due to the timing of the completion of certain software projects in the prior year. The Company continues to invest in the design, development and refinement of its existing digital imaging products, as well as the design and development of new digital imaging products for the human dental and broad veterinary applications, including both hardware and software enhancements. Research and development costs are generally expected to continue to increase over the next several years as part of the Company’s strategy to develop and market additional digital products.

For the three-month period ended March 31, 2007, net interest income was $13,530. For the three-month period ended March 31, 2006, net interest expense was $8,851. There was approximately $53,000 of interest income in the third quarter Fiscal Year 2007 compared to approximately $1,500 in the third quarter Fiscal Year 2006. The increase in interest income is due to the private placement the Company completed in May 2006, whereby all the proceeds have been invested in a diversified US Treasury Money Market Fund. There was approximately $39,500 of interest expense in the current third quarter, compared to approximately $10,300 in the comparable period in the prior year. The current third quarter period had approximately $1.03 million more in average borrowings on the senior secured debt and had a slightly higher average interest rate, which is based on the prime rate of borrowing.

The Company made several small state and federal tax payments in the third quarter ended March 31, 2007, based on payments previously made during its fiscal year ended June 30, 2006. 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 likely that it will utilize these prior year net operating loss carry forwards. As of March 31, 2007, the Company had approximately $7.24 million in federal net operating loss carryforwards, and approximately $12.0 million in state net operating loss carryforwards.

The preparation of financial statements in conformity with United States generally accepted accounting principles requires management to make 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 assurance 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.

The Company reports accounts receivable net of reserves for doubtful accounts. Credit is extended to worldwide distributors on varying terms from letters of credit to 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, 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.

The Company records a liability for an estimate of costs that it expects to incur under the Company’s 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. Management believes that the current warranty provisions are sufficient based on the warranty information available to the Company.

The Company offers extended warranties in connection with sales of its digital sensors. The Company is continuing to 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, or the warranty claims exceed the currently reserved amount, the warranty reserve will be increased, resulting in decreased gross profit during the period(s) in which the warranty reserve is increased.

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.

The Company’s earnings and cash flows are subject to changes in interest rates associated with U.S. Treasury Notes and U.S. Treasury Bills, primarily from its investments of excess cash. The Company invests this cash in an open-end, diversified U.S. Treasury Money Market Fund, whose investment objective is high current income consistent with the preservation of principal and liquidity. All investments are exclusively in U.S. Treasury obligations which have remaining maturities of 397 days or less and repurchase agreements collateralized by U.S. Treasury obligations. The Company does not believe that such investments are materially exposed to market rate volatility.

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 regularly monitors all changes in foreign currency and may adjust its pricing to customers to reflect these changes. The Company purchased a Euro hedge contract in March 2007 to limit the Company’s foreign currency exchange rate risk associated with the purchase of QR srl on April 19, 2007, as the purchase price was in Euro.

Our Co-Chief Executive Officers and Chief Financial Officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a - 15 (e) of the Securities Exchange Act of 1934 (the “Act”)). Based on their review and evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that, as of March 31, 2007, 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.

On April 12, 2007, the Company completed the sale of an aggregate of 5,500,000 shares of its common stock to certain investors for an aggregate consideration of $8,140,000 pursuant to previously executed subscription agreements. The Company has granted the investors certain registration rights with respect to the resale of the shares acquired. The common stock was issued and sold pursuant to the exemption from registration afforded by Regulation D of the Securities Act of 1933, as amended. In connection with the transaction, the Company paid the placement agent for the offering $407,000, or five percent of the gross proceeds of the offering.

On April 13, 2007, the Company granted to ComVest Capital LLC, its new senior secured lender, an aggregate of 800,000 warrants to purchase shares of the Company’s common stock at exercise prices per share equal to $1.85 in respect of 266,666 warrants, $2.02 in respect of an additional 266,666 warrants, and $2.19 in respect of the remaining 266,668 warrants. The Company entered into a Registration Rights Agreement pursuant to which it has agreed to register the shares of common stock issuable upon exercise of the warrants and conversion of the term note.

4.1	-	Form of Subscription Agreement utilized in a private placement of common stock, effective April 12, 2007.
4.2	-	Common Stock Purchase Warrant issued to ComVest Capital, LLC, dated April 13, 2007.
4.3	-	Common Stock Purchase Warrant issued to ComVest Capital, LLC, dated April 13, 2007.
4.4	-	Common Stock Purchase Warrant issued to ComVest Capital, LLC, dated April 13, 2007.
10.1	-	Preliminary Contract for Share transfer by and between QR Imaging S.r.l., NIM S.R.L., Gianmaria Tommasi, Mara Tacconi, Attilio Tacconi and Mozzo Pierluigi, dated February 22, 2007.
10.2	-	Revolving Credit and Term Loan Agreement by and between ComVest Capital, LLC and AFP Imaging Corporation, dated April 13, 2007.
10.3	-	Guaranty Agreement made by Dent-X International Inc., QR Imaging USA Inc. and Visiplex Instruments Corporation in favor of ComVest Capital, LLC, dated April 13, 2007.
10.4	-	Collateral Agreement by and among AFP Imaging Corporation, Dent-X International Inc., QR Imaging USA, Inc., Visiplex Instruments Corporation and ComVest Capital, LLC, dated April 13, 2007.
10.5	-	Registration Rights Agreement by AFP Imaging Corporation, made as of April 13, 2007.
10.6	-	Convertible Term Note issued by AFP Imaging Corporation to ComVest Capital, LLC, dated April 13, 2007.
10.7	-	Revolving Credit Note issued by AFP Imaging Corporation to ComVest Capital, LLC, dated April 13, 2007.
10.8	-	Notice of Patent Security Agreement, dated April 13, 2007.
10.9	-	Notice of Trademark Security Agreement, dated April 13, 2007.
10.10	-	Cooperation Agreement between QR S.r.l. and Gianmaria Tommasi, effective April 19, 2007.
10.11	-	Contract among QR S.r.l., Attilio Tacconi and Mozzo Pierluigi, effective April 19, 2007.
10.12	-	Contract between QR S.r.l. and Mara Tacconi, effective April 19, 2007.
31.1	-	Certification of Co-Chief Executive Officer pursuant to Exchange Act Rule 13a - 14 (a).
31.2	-	Certification of Co-Chief Executive Officer pursuant to Exchange Act Rule 13a - 14 (a).
31.3	-	Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a - 14 (a).
32.1	-	Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of the Sarbanes - Oxley Act of 2002.
32.2	-	Certification of Co-Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of the Sarbanes - Oxley Act of 2002.
32.3	-	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of the Sarbanes - Oxley Act of 2002.

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)

		Page

Part I.	Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2007 (unaudited) and June 30, 2006	4
	Condensed Consolidated Statements of Operations for the nine months ended March 31, 2007 and 2006 (unaudited)
		5

	Condensed Consolidated Statements of Shareholders’ Equity for the nine months ended March 31, 2007 and 2006 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2007 and 2006 (unaudited)	7

	Notes to Consolidated Interim Financial Statements	8-12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13-18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

Part II.	Other Information

Item 1	Legal Proceedings	19

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 6.	Exhibits	19-20

Signatures		21-27

	March 31, 2007		June 30, 2006
	(Unaudited)
Raw materials and sub-component parts	$	2,155,515	$	1,984,979
Work-in-process and finished goods		2,752,083		2,849,531
	$	4,907,598	$	4,834,510

914-592-6100
(Registrant's Telephone Number, Including Area Code)

	Three months ended March 31,				Nine months ended March 31,
	2007		2006		2007		2006
Basic Shares		12,428,800		9,568,217		12,410,604		9,558,533
Dilutive:
Options		---		398,235		---		410,176
Warrants		---		84,080		---		84,713
Diluted Shares		12,428,800		10,050,532		12,410,604		10,053,422



		/s/ David Vozick
		David Vozick
		Chairman of the Board, (Co-Chief Executive Officer) Secretary, Treasurer Date: May 15, 2007



		/s/ Donald Rabinovitch
		Donald Rabinovitch
		President (Co-Chief Executive Officer) Date: May 15, 2007



		/s/ Elise Nissen
		Elise Nissen
		Chief Financial Officer (Principal Financial and Accounting Officer) Date: May 15, 2007