U.S. SECURITIES AND EXCHANGE COMMISSION
                   WASHINGTON, D.C. 20549
                         FORM 10-KSB
     (Mark one)
 X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     FOR THE FISCAL YEAR ENDED: December 31, 1996

     TRANSITION REPORT UNDER  SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
     FOR THE TRANSITION PERIOD FROM             TO

              Commission file number   0-28260

                          EP MEDSYSTEMS, INC.
 (Name of small business issuer as specified in its charter)

     New Jersey                         22-3212190
(State or other jurisdiction       (IRS Employer
 of incorporation)                 Identification No.)

58 Route 46 West, Budd Lake, NJ              07828
(Address of principal executive offices)     (Zip code)

Issuer's telephone number:  (201) 691-6400

Securities  registered under Section 12(g) of  the  Exchange
Act:  Common  Stock, no par value, $.001  stated  value  per
share

Check  whether  the  issuer:   (1)  has  filed  all  reports
required  to be filed by Section 13 or 15(d) of the Exchange
Act  during  the past 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.       ___X___ Yes    ______No

Check  if  there  is no disclosure of delinquent  filers  in
response to Item 405 of Regulation S-B contained herein, and
no  disclosure  will  be  contained,  to  the  best  of  the
registrant's  knowledge, in definitive proxy or  information
statements  incorporated by reference in Part  III  of  this
Form 10-KSB or any amendment to this Form 10-KSB.  [ X ]

The  issuer  had revenues of $2,315,959 for the fiscal  year
ended December 31, 1996.

The  aggregate  market  value of  the  issuer's  outstanding
voting  stock  held by non-affiliates on   March  19,  1997,
based  on the closing sale price of its common stock on  the
Nasdaq National Market on such date, was approximately $23.0
million.

As  of  March  19,  1997,  there were outstanding  7,599,917
shares  of  the  registrant's Common Stock,  no  par  value,
stated value $.001 per share.

Transitional Small Business Disclosure Format (check one)
______Yes   ___X___No

FORWARD LOOKING STATEMENTS

In  addition  to historical information, this Annual  Report
contains forward-looking statements relating to such matters
as   anticipated  financial  and  operational   performance,
business prospects, technological developments,new products,
research  and  development activities and  similar  matters.
The   Private  Securities  Litigation  Reform  Act  of  1995
provides  a safe harbor for forward-looking statements.   EP
MedSystems,  Inc. (the "Company") notes that  a  variety  of
factors  could  cause  the  Company's  actual  results   and
experience to differ materially from the anticipated results
or  other  expectations expressed in the Company's  forward-
looking  statements.  The risks and uncertainties  that  may
affect  the  operation,  performance  and  development   and
results  of  the  Company's business include,  but  are  not
limited  to,  those matters discussed herein in the  section
entitled  "Business Considerations."  Readers are  cautioned
not   to  place  undue  reliance  on  these  forward-looking
statements, which reflect management's analysis only  as  of
the  date  hereof.  The Company undertakes no obligation  to
publicly revise these forward-looking statements to  reflect
events  or  circumstances that arise after the date  hereof.
Readers  should carefully review the risk factors  described
in  other documents the Company files from time to time with
the Securities and Exchange Commission.

TRADEMARKS AND TRADENAMES

ProCath  is  a  registered trademark  of  the  Company.   EP
MedSystems,  ALERT,  ALERT  SYSTEM,  ALERT  Catheter,  ALERT
Companion,   EP  WorkMate,  EP-2,  EP-3  and  PaceBase   are
trademarks of the Company.  This Annual Report also includes
tradenames  and  trademarks  of  companies  other  than  the
Company.   EchoEye,  EchoMark  and  ColorMark  are,  to  the
Company's knowledge, trademarks of EchoCath, Inc.

                           PART I

ITEM 1.   DESCRIPTION OF BUSINESS

EP MedSystems, Inc. has developed a new product for internal
cardioversion of atrial fibrillation known as the Atrial Low
Energy   Reversion  Therapy  catheter  system  (the   "ALERT
System"),  which  uses a proprietary electrode  catheter  to
deliver  measured, variable, low energy electrical  impulses
directly  to  the  inside of the heart in order  to  convert
atrial  fibrillation to a normal heart rhythm.  The  Company
also  currently designs, manufactures and markets  a  broad-
based  line  of specially-designed products for the  cardiac
electrophysiology   ("EP")  market  for   the   purpose   of
diagnosing,  monitoring,  managing  and  treating  irregular
heartbeats known as arrhythmias.  This product line includes
what  the  Company  believes is  the  only  computerized  EP
clinical  stimulator  marketed  in  the  U.S.  and  the   EP
WorkMate, a computerized monitoring and analysis workstation
introduced  in  late  1995.  The EP WorkMate  offers,  among
other  features, 64 recorded channels of cardiac  electrical
data,    real-time   analysis   including   graphical    and
quantitative display of such data, superior ease of use  and
a  single  keyboard for all operations.  This  product  line
also  includes  diagnostic  EP catheters,  temporary  pacing
catheters and related disposable supplies.

The Company was incorporated in New Jersey under the name EP
Medical, Inc. in January, 1993, and changed its name  to  EP
MedSystems,  Inc.  in April, 1996.  The Company's  principal
offices  are  located  at 58 Route 46 West,  Budd  Lake,  NJ
07828, and its telephone number is 201-691-6400.  Unless the
context   requires  otherwise,  references  to  the  Company
include  EP MedSystems, Inc. and its wholly owned subsidiary
ProCath Corporation ("ProCath").

BACKGROUND

The Heart and its Function
The  heart,  whose  function is to pump  blood  through  the
body's  circulatory system, is divided into  four  chambers,
two  upper chambers, the atria, and two lower chambers,  the
ventricles.   At  rest,  a  healthy  heart  typically  beats
between  50 and 100 times per minute. Each normal  heartbeat
is  the  result  of  electrical impulses  generated  at  the
heart's natural pacemaker, the sinoatrial ("SA") node, which
is  located  near  the top of the right  atrium.  With  each
heartbeat, an electrical impulse travels down and across the
atria,  causing them to contract.  This contraction in  turn
sends blood into the ventricles, the heart's primary pumping
chambers.   The electrical impulse then passes  through  the
atrioventricular ("AV") node, located between the atria  and
the  ventricles. After a brief delay, the impulse  continues
down the bundle branches and back up and across the Purkinje
fibers within the ventricles.  The ventricles then contract,
pumping  blood  throughout  the body's  circulatory  system.
When the normal electrical rhythm of the heart is disturbed,
its  pumping  activity can be adversely affected  and  life-
threatening   complications  can   result.   Such   abnormal
arrhythmias are known as arrhythmias.

Atrial Fibrillation
Atrial fibrillation, a form of arrhythmia, is a disorganized
quivering  of  the upper chambers of the heart that  results
from  aberrant conduction of electrical signals  within  the
atria.   This   quivering  leads  to  an   ineffective   and
uncoordinated  pumping  of the heart,  which  often  reduces
cardiac  output by up to 30% and causes impaired blood  flow
to  the  brain.   In some patients, atrial fibrillation  can
lead    to   an   uncontrolled   ventricular   heart   rate,
precipitating   a   life-threatening   situation.   Although
patients with atrial fibrillation can be asymptomatic,  most
suffer  from  shortness of breath, palpitations,  dizziness,
fainting,   or  reduced  tolerance  to  exercise   and   the
activities  of  daily  living.   Atrial  fibrillation  is  a
significant  cause of mortality and morbidity,  particularly
from  thromboembolism and stroke.  Each  year  approximately
75,000   strokes   in  the  U.S.  are  related   to   atrial
fibrillation.

The  Company believes that more than 2 million Americans are
currently   afflicted  with  atrial  fibrillation   and   an
estimated  160,000 new cases develop each year.   Generally,
atrial   fibrillation  is  related  to  underlying   cardiac
disease, including congestive heart failure, coronary artery
disease,  hypertension and rheumatic heart disease,  but  it
may  also  occur  in patients with otherwise normal  hearts.
Atrial  fibrillation is most commonly found in the  elderly.
It  affects up to 5% of the population in the U.S. over  the
age  of  60.  It  is the leading cause of arrhythmia-related
hospitalizations  and,  in  1992,  comprised   the   primary
diagnosis for 253,000 hospitalized patients, more  than  all
other types of arrhythmia combined.  In 1993, more than  1.2
million  patients  who were hospitalized for  other  reasons
were   found   to   have,  or  to  have  developed,   atrial
fibrillation during their hospitalization.

Atrial  fibrillation also develops in the  period  following
open  heart surgery in which the atria can suffer  temporary
trauma.  Although usually a temporary phenomenon encountered
in  the week following surgery, atrial fibrillation in  open
heart  surgery  patients  is often  dangerous  and  requires
immediate intervention.  The Company believes that in  1995,
over  450,000  open heart procedures were performed  in  the
U.S.   The  Company  estimates that up to  30%  of  patients
undergoing open heart surgery develop atrial fibrillation in
the   post-operative  period.   These  patients  are  either
treated  with external cardioversion or, in order  to  avoid
the    additional    trauma   associated    with    external
cardioversion,  are  left untreated.  Patients  who  undergo
open  heart  surgery typically have temporary  pacing  wires
affixed  to  the outside of the heart near the  end  of  the
procedure  in  order  to  regulate  their  heartbeat   post-
operatively.   These  wires  are  threaded  from  the  heart
through the chest wall and outside the body, where they  can
remain  for  several  days until pulled from  their  sewn-in
position  on the heart.  Also during open heart  surgery,  a
SwanGanz  catheter  is  typically placed  in  the  pulmonary
artery  to  monitor blood pressure. This catheter  can  also
remain  in  place for several days during the post-operative
period.

The underlying causes of atrial fibrillation are complex and
the  progression  of  the  disease varies  from  patient  to
patient. In patients with underlying cardiac disease, atrial
fibrillation may initially occur paroxysmally, wherein short
periods of atrial fibrillation are interspersed with  normal
heart   rhythm.  Paroxysmal  atrial  fibrillation  generally
converts back to normal heart rhythm spontaneously, but many
patients  require  treatment  with  drugs  and  high  energy
external  cardioversion  to control  their  heart  rate  and
associated  symptoms.   Although  some  patients  may  never
progress   beyond   paroxysmal  atrial   fibrillation,   the
condition  often  precedes  the development  of  chronic  or
persistent   atrial  fibrillation.   In  persistent   atrial
fibrillation, patients do not convert to normal heart rhythm
spontaneously,  but require cardioversion  to  terminate  an
episode  and additional drug therapy thereafter to  maintain
normal  heart  rhythm.  Persistent atrial  fibrillation  can
progress  to  permanent atrial fibrillation, a condition  in
which  the  arrhythmia cannot be converted using traditional
external  cardioversion  or  drug  therapy.   Patients  with
permanent atrial fibrillation are generally given  drugs  to
control  the  heart rate or therapeutic cardiac ablation  is
performed  to  destroy  the  AV  node  and  a  pacemaker  is
implanted  to  provide  ventricular rate  control.   Neither
treatment,   however,   addresses  the   underlying   atrial
fibrillation problem.

Although  treatment  of  atrial  fibrillation  varies   from
patient to patient, the treatment goals remain constant: (1)
restore  and  maintain normal heart rhythm, (2) control  the
ventricular  heart  rate and (3) prevent  stroke.   External
cardioversion  and  drugs are used to restore  normal  heart
rhythm;  antiarrhythmic drugs are used  to  maintain  normal
heart rhythm; anticoagulants (blood thinning drugs) are used
to  reduce  the risk of stroke; and drugs, AV node  ablation
accompanied by pacemaker implantation and open heart surgery
are  used  to control the ventricular rate.  None  of  these
therapies is universally effective and each presents certain
risks and side effects to the patient.

Restoration  of  normal heart rhythm, or  cardioversion,  is
generally attempted by means of antiarrhythmic drug  therapy
or  high energy external cardioversion.  A variety of  drugs
may  be  employed, but none are universally  successful  and
antiarrhythmic agents generally have been shown to  increase
the  risk  of  life threatening ventricular arrhythmias.  In
addition,  these  drugs  can  have  serious  side   effects,
including  liver  failure,  thyroid  dysfunction,  pulmonary
fibrosis  (thickening  of  the  lungs),  dizziness,  nausea,
difficulty urinating and diarrhea.  Numerous studies  report
variable  success  with  pharmacologic  cardioversion,  with
higher success rates reported in patients with recent  onset
atrial fibrillation of less than 48 hours duration.

High  energy  external cardioversion is more effective  than
pharmacologic cardioversion and is a mainstay of  first-line
therapy    for   atrial   fibrillation.    During   external
cardioversion,  between one and four high energy  electrical
shocks of up to 360 joules each are applied across the chest
wall by means of an external defibrillator.  Because of  the
severe   pain   involved,   patients   undergoing   external
cardioversion   are  given  general  anesthesia   or   heavy
sedation.   This  generally requires patient hospitalization
and  the  presence  of  an anesthesiologist.   In  addition,
patients experiencing atrial fibrillation for longer than 48
hours  are  routinely given anticoagulant drugs for  two  to
three weeks before external cardioversion to reduce the risk
of    embolic   strokes.    Patients   undergoing   external
cardioversion frequently report residual neuromuscular pain.
Serious  side effects, while infrequent, include  damage  to
heart  tissue,  spinal  fracture,  thrombus  formation   and
stroke.

Patients    who    have   undergone   successful    external
cardioversion  are  frequently  placed  on   a   course   of
antiarrhythmic drug therapy to maintain normal heart rhythm.
While   external  cardioversion  is  highly   effective   in
terminating atrial fibrillation, without antiarrhythmic drug
therapy,  a  majority  of patients  revert  back  to  atrial
fibrillation  within  one  year of  external  cardioversion.
With antiarrhythmic drug therapy, the percentage of patients
reverting to atrial fibrillation decreases.  Ninety  percent
of  recurrences occur within the first six months.   Despite
these  recurrence rates and the trauma and  cost  associated
with  high  energy  external cardioversion,  this  treatment
method  remains a commonly employed first-line  therapy  and
atrial fibrillation patients often require multiple external
cardioversions.

The ALERT System
The  Company  has developed the ALERT System to  be  a  more
effective  and  less traumatic method of  converting  atrial
fibrillation  to  normal  heart rhythm.   The  ALERT  System
represents a new approach to electrical cardioversion  known
as  low  energy internal cardioversion, in which  up  to  15
joules  of electrical energy are delivered directly  to  the
inside  of the heart.  The ALERT System comprises a  single-
use   proprietary  electrode  catheter  with  two   separate
electrode  arrays  (the "ALERT Catheter")  and  an  external
energy  source (the "ALERT Companion").  The ALERT  Catheter
is inserted into a vein in a patient's arm and guided to the
heart.  Small amounts of energy are then delivered from  the
external  energy  source through the ALERT Catheter  to  the
heart.   The ALERT System simultaneously provides  temporary
pacing  capabilities and blood pressure  monitoring  in  the
left pulmonary artery during this procedure.

The  Company  believes  low  energy  internal  cardioversion
provides  numerous  potential advantages  over  high  energy
external  cardioversion and drug conversion therapies.   The
Company believes the ALERT System will prove more effective,
less painful and less traumatic than external cardioversion.
It  does not require the use of general anesthesia,  can  be
performed  on an outpatient basis and involves the  delivery
of  much lower levels of energy to the patient.  The Company
also  believes  the ALERT System will prove  more  effective
than  drug  conversion therapy without the risk  of  harmful
side effects associated with such therapy.

Atrial  fibrillation often occurs in the open heart  surgery
post-operative  period.  Consequently,  an  effective,  low-
trauma  cardioversion technique that can be deployed rapidly
would  have  applications for open heart  surgery  patients.
The  Company  believes that due to the  significantly  lower
amounts  of  energy required to convert atrial  fibrillation
using  internal  cardioversion,  the  ALERT  System   is   a
particularly appropriate cardioversion alternative for these
patients.   In  addition, the ALERT System may  be  used  to
provide temporary pacing to the atria and ventricles and  to
monitor   blood  pressure  in  the  left  pulmonary  artery,
replacing both temporary pacing wires sewed to the heart and
Swan-Ganz catheters, and reducing the risk of infection from
such  devices.   The  Company believes  the  ALERT  System's
integration  of  these  features  into  a  single   catheter
provides  significant  advantages  over  existing  treatment
methods for patients who have undergone open heart surgery.

The ALERT Catheter is inserted percutaneously into a vein in
the  arm, advanced to the heart under X-ray fluoroscopy  and
positioned  with one defibrillation electrode array  in  the
left  pulmonary  artery and the other in the  right  atrium.
Energy is then delivered in small increments between the two
electrode arrays from an external energy source. During this
procedure the patient is mildly sedated, but conscious.  The
Company believes that internal cardioversion using the ALERT
System will provide the following key benefits:

     -    Less trauma, discomfort and risk to patients than high
          energy external cardioversion.
     -    Higher success rate in converting patients with chronic
          atrial fibrillation to normal heart rhythm than with high
          energy external cardioversion (based on initial clinical
          experience overseas).
     -    Elimination of harmful side effects associated with
          drug therapies.
     -    Can be used on an outpatient basis; general anesthesia
          not required.
     -    Lower overall cost per procedure than high energy
          external cardioversion.
     -    Greater  applicability  for  converting   atrial
          fibrillation occurring immediately following open heart
          surgery.
     -    Combination of temporary pacing and blood pressure
          monitoring features with cardioversion in a single multi-
          purpose catheter.

The  ALERT System is based on technology invented by Eckhard
Alt,  MD,  a  member  of the Company's  Scientific  Advisory
Board.  Two patents have been issued in the U.S. and Dr. Alt
has  filed an application for patents in Europe on the ALERT
Catheter  and  its method of use for internal cardioversion.
The  Company  has licensed rights from Dr. Alt  to  use  the
ALERT  technology in the ALERT System. The Company has filed
additional patents on the method of manufacturing the ALERT.
See "-- Patents and Intellectual Property."

U.S. Clinical Trials
The Company believes the ALERT System is a Class III medical
device  which will require pre-market approval ("PMA")  from
the  U.S.  Food  and Drug Administration  ("FDA")  prior  to
marketing  in the U.S.  The Company has prepared a  clinical
study  protocol  for submission to the FDA  as  part  of  an
application for an Investigational Device Exemption ("IDE").
In February, 1997, the Company filed its Pre-IDE application
for  the ALERT System with the FDA.  Subject to FDA comments
to  the Pre-IDE application, the Company expects to file  an
IDE  application  for  the ALERT System  during  the  second
quarter  of  1997.  Upon receiving FDA approval  of  an  IDE
application  for  the ALERT System, the Company  intends  to
initiate human clinical trials using the ALERT System in the
U.S.   The  Company  has received commitments  from  several
leading electrophysiology centers to participate in clinical
trials.  The Company expects to begin clinical trials during
1997.   See " -- Government Regulation."

Initial Clinical Results
Dr. Alt has performed human studies in Germany comparing the
safety and efficacy of low energy internal cardioversion  to
high  energy  external cardioversion and  has  compared  the
ALERT Catheter to a dual-catheter method used to perform low
energy   internal  cardioversion.  Initial   human   studies
evaluating  the  safety  and  effectiveness  of  low  energy
internal   cardioversion   used   two   separate   catheters
positioned  in  the left pulmonary artery and right  atrium.
In  187  patients  with  chronic atrial  fibrillation  (mean
duration  10  months), treatment with  low  energy  internal
cardioversion  was compared to treatment  with  high  energy
external   cardioversion.    External   cardioversion    was
performed  on  117  patients and internal cardioversion  was
performed  on  70 patients.  Patients who received  external
cardioversion were given general anesthesia, while  patients
who  received  internal cardioversion were  mildly  sedated.
Internal  cardioversion resulted in a  significantly  higher
rate  of  conversion  to normal heart rhythm  compared  with
external cardioversion (93% vs. 78%) at significantly  lower
average  energy  levels (5.8 joules vs. 313 joules).   After
successful  conversion, all 187 patients were  treated  with
the  antiarrhythmic drug sotalol.  Of the 187 patients,  110
were  followed for an average of 12.5 months.  Of these,  70
patients had been treated with external cardioversion and 40
had  been  treated  with  internal  cardioversion.   Of  the
patients  treated with internal cardioversion, 57%  remained
in normal heart rhythm during such period, compared with 49%
of the patients treated with external cardioversion.

Additional  studies performed by Dr. Alt  on  patients  with
chronic  atrial  fibrillation compared 16  patients  treated
with  the  ALERT Catheter to 42 patients treated with  dual-
catheter internal cardioversion.  The two treatment  methods
yielded similar results, with 15 of 16 patients treated with
the  ALERT Catheter and 39 of 42 patients treated  with  the
dual-catheter method successfully converted at mean energies
of   8   joules   and  7  joules,  respectively,   with   no
complications.

In  these studies, the ALERT Catheter was introduced to  the
heart through a vein in the arm and typically was positioned
in  under  two  minutes.   By  contrast,  the  dual-catheter
approach required small incisions in the groin and the  neck
and more time to introduce and position the two catheters in
the heart.

EXISTING PRODUCTS
The  Company develops, markets, sells and services  a  broad
based, integrated line of electrophysiology products used to
monitor,  analyze,  diagnose and treat cardiac  arrhythmias.
All  of these products have received 510(k) clearance except
for the PaceBase software, which the Company believes is not
an  FDA-regulated product.  The Company's  products  can  be
separated  by  function  into  the  three  broad  categories
described below.

EP Laboratory Workstations and Stimulators (EP WorkMate, EP-
3 Clinical Stimulator)
The  Company's  EP WorkMate, commercially released  in  late
1995,  is a computerized electrophysiology workstation  that
monitors,  displays  and stores cardiac electrical  activity
and  arrhythmia  data.  Electrophysiology  workstations  are
dedicated data management systems designed specifically  for
use  in  electrophysiology procedures  to  view  and  record
procedural  data,  facilitate  data  analysis  and  generate
customized reports.  The EP WorkMate consists of  a  Pentium
PC  with  integral proprietary software, dual 17 or  20-inch
high  resolution  color  monitors, a  tape  drive  for  data
storage, a custom keyboard, catheter and stimulator junction
box  and  laser  printer. The EP WorkMate is typically  sold
with  an  integrated EP-3 Clinical Stimulator.  In addition,
each  EP WorkMate has an internal modem to provide a  direct
link  between  the  purchaser and the Company,  facilitating
field  software  support.  The EP WorkMate is differentiated
from competing products by (i) its seamless integration with
the  EP-3 Clinical Stimulator, (ii) its capacity to  receive
and  display  up  to 64 channels of cardiac electrical  data
simultaneously,   (iii)   its   ability   to   process   and
simultaneously   display  both  real-time   and   historical
electrophysiology  activity  and  (iv)  its  simple,   user-
friendly  software  based on a menu-driven,  point-and-click
interface.

The  Company's  EP-3  Clinical  Stimulator  ("EP-3")  is   a
computerized electrical signal generator and processor  used
to  stimulate the heart with electrical impulses in order to
locate  electrical disturbances or arrhythmias.  The Company
believes  the  EP-3  is currently the only  computerized  EP
clinical  stimulator being marketed in the U.S. It  features
automatic synchronization and rate controls as well  as  the
same  user  interface as the EP WorkMate.  The EP-3  can  be
sold  as  a  stand-alone  electrophysiology  stimulator   or
integrated with the EP WorkMate.  If an EP-3 is added  as  a
component  to the EP WorkMate, both products can  be  easily
operated  from  the EP WorkMate's keyboard  or  mouse.   The
Company  believes the EP WorkMate, when integrated with  the
EP-3,  offers the most advanced computer tools available  to
the electrophysiology market.

Catheter Products
The  Company  presently markets a full  line  of  diagnostic
electrophysiology catheters for stimulation and  sensing  of
electrical  signals during electrophysiology  studies.   The
Company's   diagnostic  catheters  are  distinguished   from
competing products by their availability in various  degrees
of  flexibility and curve shape for maximum customization to
each procedure being performed.  The Company offers numerous
electrode/curve  configurations in  soft,  medium  and  firm
catheters.   The  Company also offers  diagnostic  catheters
with user-formed tip shaping, allowing a physician to change
the  curve  on  the  tip of a catheter before  or  during  a
procedure  to  conform  to a patient's  anatomy.   Temporary
pacing   catheters  incorporate  both  pacing  and   sensing
electrodes  and are used to temporarily regulate  pacing  of
the  heart,  including  during the period  while  a  patient
awaits  permanent  pacemaker implant.  These  catheters  are
available in a number of sizes with different curve  shapes.
The  Company  offers  a  temporary pacing  catheter  with  a
balloon tip that allows guidance of the catheter without  X-
ray   fluoroscopy.   The  Company  also  offers   disposable
introducer  kits  that are used to aid in the  insertion  of
catheters or pacemaker leads into a patient's venous system.
The kits include a plastic introducer, guidewire, needle and
syringe.

Arrhythmia Monitoring Products (TeleTrace/PaceBase System)
Patients  who  have undergone pacemaker or ICD implantations
are  regularly  monitored to assess  the  condition  of  the
implanted  device  or  the  status  of  an  arrhythmia.  The
Company's  TeleTrace  III  Receiver  ("TeleTrace")   is   an
integrated    ECG   monitoring   device   and   computerized
transmission   system  for  automation  of   pacemaker   and
arrhythmia   follow-up  testing  and  ECGs   either   in   a
physician's office or over the telephone.  TeleTrace enables
an  ECG  to  be  taken over the telephone for real  time  or
subsequent review.
The  Company's PaceBase database software stores information
generated by the TeleTrace, enabling the user to analyze and
archive   a  patient's  pacemaker  or  arrhythmia  activity,
thereby  eliminating manual recordkeeping.  PaceBase  stores
pacemaker and ICD histories and also provides an interactive
database of all parameters and specifications for pacemakers
and  ICDs manufactured in the U.S. during the last 15 years.
PaceBase   also  stores  certain  patient  data,   including
pertinent   implant   data,  current  programmed   settings,
elective  replacement indicators and  special  notes  to  be
displayed  on-screen during patient follow-up sessions.   In
addition,  PaceBase allows customized settings for  multiple
physicians and generates customized insurance and  physician
reports based on patient follow-up sessions.

PATENTS AND INTELLECTUAL PROPERTY
The Company's success and ability to compete will depend  in
part  upon its ability to protect its proprietary technology
and  other intellectual property.  The Company seeks patents
on  its  important inventions and has acquired  licenses  to
rights  under  selected  patents  of  third  parties  as  to
technology  it considers important to its business.   As  to
the ALERT System, the Company has an exclusive license under
two  U.S.  patents, an exclusive license  under  one  patent
application  pending in the European Patent Office  and  has
filed  two  patent applications in the United  States  on  a
method of manufacturing the ALERT Catheter.  The Company has
a  semi-exclusive license under one issued U.S. patent as to
certain   technology   to   conduct  temporary   ventricular
defibrillation.    The  Company  has  an  Exclusive   Rights
Agreement  to develop the clinical and commercial  potential
of a proprietary ion beam deposition process for applying  a
thin  metallic  coating  to the Company's  electrophysiology
catheters and accessories.  The Company licensed nine issued
U.S.  patents  and four foreign filings as to the  EchoMark,
EchoEye  and ColorMark technologies in an attempt to develop
products  which  allow visualization of the heart's  anatomy
and  visualization of catheters inside the heart through the
use  of ultrasound imaging.  The field of use of the license
covers cardiac electrophysiology except for pacemaker  leads
and  permanently  implanted defibrillation  devices.   These
license  agreements  generally provide for  the  payment  of
royalties  on the sale by the Company of products using  the
patented  technology.  In addition, the  Company  has  filed
four   patent   applications  in  the  U.S.   for   catheter
technologies.

There  can be no assurance that any of the Company's  patent
applications  or  applications as to which it  has  acquired
licenses  will  issue  as patents, or that  if  patents  are
issued  on the Company's applications or on applications  as
to  which the Company has acquired licenses, they will be of
sufficient   scope   and  strength  to  provide   meaningful
protection  of  the Company's technology or  any  commercial
advantage to the Company, or that such patents will  not  be
challenged,  invalidated  or  circumvented  in  the  future.
Moreover,  there  can  be no assurance  that  the  Company's
competitors,  many of which have substantial  resources  and
have made substantial investments in competing technologies,
do  not  presently have or will not seek patents  that  will
prevent,  limit or interfere with the Company's  ability  to
make,  use  or sell its products either in the  U.S.  or  in
other countries.

Pursuant  to  a License Agreement between Dr.  Alt  and  the
Company  (the "Alt License Agreement"), Dr. Alt granted  the
Company an exclusive worldwide right and license to practice
the  method,  to  make, have made for its own  resale,  use,
sell,  offer  to  sell and otherwise dispose  of  the  ALERT
Catheter technology, including without limitation the  ALERT
Catheter device, the method underlying the ALERT System  and
all  continuations and improvements thereon.  In return, the
Company  granted to Dr. Alt royalties equal  to  5%  of  net
sales  of  all products covered by the Alt License Agreement
until  expiration  of the last licensed patent,  and  issued
stock  options  to  Dr. Alt to purchase  210,000  shares  of
Common  Stock at $.10 per share and 164,000 shares of Common
Stock  at  $2.00  per  share.   The  Alt  License  Agreement
terminates  upon the expiration of the last licensed  patent
subject  to  the  Alt License Agreement, or earlier  in  the
discretion of either party in the event of a default by  the
other party.

Under  a  License  Agreement with Sanjeev Saksena,  MD  (the
"Saksena  License  Agreement"),  Dr.  Saksena  granted   the
Company a semi-exclusive worldwide license under a patent as
to  certain  technology  to  conduct  temporary  ventricular
defibrillation. The license is semi-exclusive  in  that  one
other party has license rights under such patent. In return,
the  Company granted to Dr. Saksena a continuing royalty  up
to  a  maximum of $1 million on sales of licensed  products,
paid  Dr.  Saksena $10,000 and issued stock to Dr.  Saksena.
The Saksena License Agreement terminates upon the expiration
of  the  licensed  patent, or earlier in the  discretion  of
either party in the event of a default by the other party.

In  May, 1996, the Company entered into an Exclusive  Rights
Agreement  (the  "Rights Agreement") with Spire  Corporation
("Spire"), whereby the Company obtained the exclusive  right
to  develop the clinical and commercial potential of Spire's
proprietary ion beam deposition process for applying a  thin
metallic   coating   to   the  Company's   electrophysiology
catheters  and accessories.  During the term of  the  Rights
Agreement,  the  Company is required to obtain  all  of  its
requirements  for  products treated with such  a  metallized
coating  from  Spire.   The Rights  Agreement  provides  for
payments of $25,000 per quarter commencing on June  1,  1996
to  maintain exclusivity for an initial term of five  years,
with  provision  for  two  year renewal  terms  upon  mutual
agreement  of  the  parties. The  Rights  Agreement  may  be
terminated at any time by the Company upon 60 days' notice.

During   February,   1997,  the  Company  licensed   certain
technologies from EchoCath, Inc. ("EchoCath")  in  order  to
attempt to develop products which allow visualization of the
heart's  anatomy and visualization of catheters  inside  the
heart through the use of  ultrasound imaging.  The agreement
calls for the Company to make payments totaling $700,000, in
four  installments,  as certain development  milestones  and
initial sales are achieved.  Terms of  the license call  for
a   royalty   on  net  sales,  including  minimum  royalties
beginning  in  1999  and continuing  for  the  life  of  the
applicable  patents and continuations thereof.  The  Company
also   purchased  280,000  shares  of  newly   issued   5.4%
cumulative convertible preferred stock of EchoCath for  $1.4
million in cash.

The  Company  intends to rely on a combination  of  patents,
trade  secrets,  copyrights and trademarks  to  protect  its
intellectual  property rights.  No assurance can  be  given,
however,  that  competitors will not  independently  develop
substantially equivalent proprietary technology, or that the
Company  can  meaningfully protect its rights in  unpatented
proprietary technology.

The  Company has not received any notices alleging,  and  is
not aware of, any infringement by the Company of any patents
or  intellectual property of others.  However, there can  be
no  assurance  that  current and potential  competitors  and
other third parties have not filed or in the future will not
file  applications for patents, or have not received  or  in
the  future  will not receive, patents or other  proprietary
rights   relating  to  devices,  apparatus,   materials   or
processes used or proposed to be used by the Company.

The  market  for  medical  devices  for  the  treatment   of
cardiovascular  disease has been characterized  by  frequent
litigation regarding patent and other intellectual  property
rights. In the event that claims of infringement of a  third
party's  rights  are made and upheld, the Company  could  be
prevented   from   exploiting  the   technology   or   other
intellectual  property involved, or  could  be  required  to
obtain   licenses  from  the  owners  of  such  intellectual
property.   Alternatively, the Company could  be  forced  to
redesign  its  products or processes to avoid  infringement.
There  can  be  no  assurance that such  licenses  would  be
available or, if available, would be on terms acceptable  to
the  Company or that the Company would be successful in  any
attempt  to  redesign  its products or  processes  to  avoid
infringement.  Litigation may be necessary to defend against
claims  of  infringement, to enforce patents issued  to  the
Company  or  to  protect trade secrets and could  result  in
substantial  cost  to,  and  diversion  of  effort  by,  the
Company.

RESEARCH AND DEVELOPMENT
The    electrophysiology   market   is   characterized    by
technological change, new product introductions and evolving
industry   standards.   To  compete  effectively   in   this
environment,   the   Company  engages  in   the   continuous
development of products by (i) engaging in internal research
and  development  or  contracting  with  third  parties  for
specific  research and development projects, (ii)  licensing
new  technology  and (iii) acquiring products  incorporating
technology that could not otherwise be developed as  quickly
using internal resources.

The  Company's  expenditures for  research  and  development
(which includes expenditures for clinical trials, regulatory
affairs  and  engineering) totaled  approximately  $856,191,
$320,311  and  $129,855 in the twelve month  periods  ending
December  31,  1996,  1995 and 1994,  respectively.   During
1996,  the  Company's  principal  research  and  development
project involved the ALERT System, including engineering and
development  of  the  ALERT  Catheter  and  ALERT  Companion
hardware,  design  of the clinical trial  protocol  and  the
preparation   of  the  Pre-IDE  application  to   the   FDA.
Additionally,  other  research and development  efforts  are
ongoing to develop new products, enhance product quality and
lower production costs.

In  May, 1996, the Company entered into an Exclusive  Rights
Agreement  with  Spire,  whereby the  Company  obtained  the
exclusive  right  to  develop the  clinical  and  commercial
potential of Spire's proprietary ion beam deposition process
for  applying  a  thin  metallic coating  to  the  Company's
electrophysiology  catheters and accessories.   The  Company
has  undertaken  several development  projects  for  new  or
improved  catheter  products  utilizing  Spire's  ion   beam
deposition  process, including applications with  the  ALERT
Catheter,    electrophysiology   catheters   and    ablation
catheters.   There can be no assurance that  development  of
the Spire technology will result in future products.

During   February,   1997,  the  Company  licensed   certain
technologies  from EchoCath in order to attempt  to  develop
products  which  allow visualization of the heart's  anatomy
and  visualization of catheters inside the heart through the
use  of  ultrasound imaging.  There can be no assurance that
development of the EchoCath technology will result in future
products.

The  Company is developing a steerable catheter  which  will
deflect, or steer, the tip of the catheter. The catheter  is
being  designed  for  use  in  diagnostic  electrophysiology
studies and the Company has filed a U.S. patent application.
The  Company also intends to design a modified version  that
will  have therapeutic cardiac ablation abilities. Prior  to
marketing  such  products  domestically,  FDA  clearance  or
approval will be required.

Software  development  is  generally  performed  by  Company
software   engineers.   The   Company   is   developing   an
electrophysiology  software database  to  operate  with  the
databases for PaceBase and the EP WorkMate. FDA clearance or
approval  of  such software may be required, depending  upon
design of the product, its intended use and a new FDA policy
governing  medical software that may be implemented  in  the
future.  The  Company  is also developing  upgrades  to  its
TeleTrace III Receiver in order to reduce cost and provide a
more   compact  design.   FDA  clearance  of  such   product
enhancements may be required.

SALES AND MARKETING

Domestic
Historically,  the  Company  has  relied  on   third   party
distributors  for  all  of its sales activities.   Following
completion of its initial public offering, the Company began
efforts to build a direct sales and marketing force to  sell
all  of  its products in the domestic market.  During  1996,
the  Company  hired  a  new  Vice  President  of  Sales  and
Marketing,  a  National Sales Manager, four  Regional  Sales
Managers,  a  Director  of Marketing and  several  technical
service  and administrative support personnel.  Also  during
this time, the Company terminated its relationships with all
of  its  domestic  distributors.   The  Company  intends  to
continue  to  expand its direct sales and marketing  efforts
through 1997.

International
The  Company is continuing to utilize distributors  to  sell
its  products  overseas  and is in  the  process  of  adding
distributors    in   several   countries   not    previously
represented.   The  Company expects to  expend  considerable
effort to expand and strengthen its global sales and support
network.   The  Company intends to focus on  developing  key
distributor  relationships  in Japan  and  certain  European
countries.  The Company hired an International Sales Manager
in  1997  to  facilitate  this development.   In  1997,  the
Company formed a U.S. subsidiary, with a branch based in the
United  Kingdom,  to improve distributor  relationships  and
customer  service  in  Europe.  During 1996,  the  Company's
distributor received approval from the Japanese Ministry  of
Health to sell electrophysiology equipment and catheters  in
the  Japanese  market.  The Company initiated sales  through
its  Japanese distributor during the fourth quarter of 1996.
No   assurance   can  be  given  that  the  Company  or  its
distributors   can  successfully  introduce  the   Company's
products  in Europe,  Japan or elsewhere on terms acceptable
to  the  Company, or at all.  Future foreign sales  will  be
subject   to   certain   risks,  including   exchange   rate
fluctuations, international monetary conditions, tariffs and
taxes, import restrictions and other regulations.

MANUFACTURING
Substantially  all  of the Company's catheter  products  are
manufactured  at a facility located in Berlin,  New  Jersey.
Each  catheter is assembled and tested by the Company  prior
to  sterilization.   The  Company's  Berlin  facilities  and
quality   assurance   procedures   are   subject   to   Good
Manufacturing  Practices ("GMP") regulations promulgated  by
the  FDA.  All raw material vendors are required  to  submit
certificates  of compliance to the Company's specifications.
Procath  recently  received ISO-9001  Certification  of  its
manufacturing facility.  Also, during 1997, ProCath received
approval  from its European notified body to  apply  the  CE
Mark to its catheter products, a necessity for the continued
sales  of  the Company's products in the European Community.
These approvals were also necessary in order for the Company
to initiate sales of the ALERT System in Europe.

During February, 1997, ProCath purchased approximately 7,500
square  feet of space, including 2,500 square feet of  space
that was leased by ProCath.  The purchase will allow for the
expansion of the existing manufacturing operations,  provide
for  additional warehousing, shipping and quality  assurance
activities   and   relocation  of  ProCath's  administrative
offices.   The  Company  believes  that  this  facility  has
sufficient  capacity  to satisfy its catheter  manufacturing
needs for the next two years.

Substantially all of the Company's other products are either
manufactured or assembled on a contract basis by  Hi-Tronics
Designs,  Inc.  ("HDI").  HDI's facilities,  activities  and
quality assurance procedures are subject to GMP regulations.
Although    the   Company   may   engage   other    contract
manufacturers,   any  interruption  in  HDI's   ability   to
manufacture  the  Company's products would have  a  material
adverse  effect on the Company's ability to fill orders  for
products  manufactured  by HDI.   After  such  products  are
assembled  and tested by the manufacturer, the products  are
inspected and subjected to a series of quality control tests
by the Company prior to shipment.

The  Company and its outside manufacturers fabricate certain
of  the Company's proprietary components and purchase  other
components  from  various independent  suppliers.   Although
components  and processes are available from more  than  one
vendor,  certain components and processes are only available
from a single vendor.  Any interruption of supply of certain
components  would  have  a material adverse  effect  on  the
Company's   ability  to  manufacture  its   products   until
acceptable  arrangements  could be  made  with  a  qualified
alternative source of supply and, as a result, could have  a
material adverse effect on the Company's business, financial
condition and results of operations.



GOVERNMENT REGULATION
In   the   U.S.,   the  development,  testing,  manufacture,
labeling,  marketing, promotion and sale of medical  devices
are  regulated by the FDA under the Federal Food, Drug,  and
Cosmetic  Act  ("FFDCA").  The FDA has broad  discretion  in
enforcing  the  FFDCA,  and  noncompliance  with  applicable
requirements   can  result  in  fines,  injunctions,   civil
penalties,  recall or seizure of products, total or  partial
suspension   of  production,  failure  to  grant   premarket
clearance  or  premarket approval for devices  and  criminal
prosecution.

Medical  devices are classified into one of  three  classes,
Class  I,  II or III, on the basis of the controls necessary
to  reasonably ensure their safety and effectiveness.  Class
I  devices require general controls such as proper labeling,
premarket  notification  and adherence  to  GMP.   Class  II
devices  require  the  use  of  special  controls  such   as
performance    standards,   post-market   surveillance    by
regulatory  bodies, patient registries and  FDA  guidelines.
Class III devices must generally receive a PMA from the  FDA
prior to being marketed in the U.S. in order to ensure their
safety and effectiveness.

Before a new device can be introduced into the market in the
U.S.,  the  manufacturer generally must  obtain  either  FDA
clearance  of a premarket notification filing under  Section
510(k)  of the FFDCA (a "510(k) submission") or FDA approval
of  a  PMA application.  A 510(k) submission will be granted
clearance  by  the  FDA  if  the submitted  data  and  other
information   establishes  that  the  proposed   device   is
"substantially  equivalent" to a  predicate  device  legally
marketed  in  the U.S.  A predicate device is a device  that
was legally marketed in the U.S. prior to May 28, 1976 or  a
device marketed since that date that has been determined  by
the  FDA to be substantially equivalent pursuant to a 510(k)
application   and   for  which  a  PMA  is   not   required.
Substantial equivalence means that the device has  the  same
intended  use  and  is as safe and effective  as  a  legally
marketed  device and does not raise questions of safety  and
effectiveness that are different than those associated  with
the  legally  marketed device.  The FDA  has  recently  been
requiring   more   data  and  information   to   demonstrate
substantial  equivalence than in  the  past.   It  generally
takes between 3 to 12 months from the date of submission  to
obtain  510(k)  premarket clearance,  but  may  take  longer
depending  upon  the circumstances.  The FDA  may  determine
that the proposed device is not substantially equivalent, or
that   additional  data  is  needed  before  a   substantial
equivalence determination can be made.  A "not substantially
equivalent" determination, or a request for additional data,
could  delay  the market introduction of new  products  that
fall  into this category and could have a materially adverse
effect  on  the Company's business, financial condition  and
results  of operations.  There can be no assurance that  the
Company  will obtain 510(k) premarket clearance  within  the
above  time  frames, if at all, for any of the  devices  for
which it may file a 510(k) submission in the future.

A  510(k)  submission is also required when the manufacturer
makes  a change or modification to a legally marketed device
that  could significantly affect the safety or effectiveness
of the device, or where there is a change or modification in
the  intended  use  of  the  device.   When  any  change  or
modification  is made in a device or its intended  use,  the
manufacturer  is expected to make the initial  determination
as  to whether the change or modification is of a kind  that
would necessitate a filing of a new 510(k) submission.   The
FDA's  regulations provide only limited guidance for  making
this determination.

A  PMA application must be filed as to a proposed device  if
the  device  is not substantially equivalent  to  a  legally
marketed device or if it is a Class III device for which the
FDA  has called for PMAs.  The PMA procedure involves a more
rigorous, complex and lengthy review process by the FDA than
the 510(k) premarket clearance procedure.  A PMA application
must  be supported by extensive data, including pre-clinical
and  clinical  trial  data  to demonstrate  the  safety  and
efficacy  of  the  device.  If human clinical  trials  of  a
device   are   undertaken,  and  the   device   presents   a
"significant  risk," the manufacturer or the distributor  of
the  device  must obtain FDA approval of an IDE  application
prior to commencing human clinical trials in the U.S.

The  IDE  application must be supported by  data,  typically
including the results of animal and laboratory testing.   If
the  IDE application is approved, human clinical trials  may
begin  at a specific number of investigational sites with  a
maximum specific number of patients, as approved by the FDA.
Sponsors  of  clinical trials are permitted  to  charge  for
those  devices  distributed  in  the  course  of  the  study
provided such compensation does not exceed recovery  of  the
costs of manufacture, research, development and handling.

Upon receipt of a PMA application, the FDA makes a threshold
determination as to whether the application is  sufficiently
complete  to  permit  a  substantive  review.   If  the  FDA
determines   that   the  PMA  application  is   sufficiently
complete,  it  will "file" the application.  Otherwise,  the
FDA   will   request  that  the  sponsor  submit  additional
information  within 180 days.  Depending on the  nature  and
amount  of information requested by the FDA, the PMA  review
process  may  be  substantially delayed by such  a  request.
Once the submission is filed, the FDA begins a review of the
PMA   application.  An  FDA  review  of  a  PMA  application
generally  takes between one and three years from  the  date
the  PMA  application is filed, but may  take  significantly
longer.  The review time is often significantly extended  if
the  FDA  requests  more  information  or  clarification  of
information already provided in the submission.  During  the
review period, an FDA advisory committee, typically a  panel
of  clinicians,  will  likely  be  convened  to  review  and
evaluate the application and provide recommendations to  the
FDA  as to whether the PMA should be approved.  In addition,
the  FDA  will inspect the manufacturing facility where  the
unapproved  product is to be made to ensure compliance  with
the FDA's GMP requirements prior to issuance of a PMA.

The  PMA  process can be expensive, and a number of  devices
for  which  PMAs  have been sought by other  companies  have
never  been  approved  for  marketing.   There  can  be   no
assurance  that the Company will be able to obtain necessary
regulatory approvals or clearances on a timely basis  or  at
all.   Delays  in  receipt  of or failure  to  receive  such
approvals,  the  loss of previously received  approvals,  or
failure   to  comply  with  existing  or  future  regulatory
requirements  would have a material adverse  effect  on  the
Company's  business,  financial  condition  and  results  of
operations.

The Company believes the ALERT System is a Class III medical
device which will require PMA approval prior to marketing in
the  U.S.  Subject to the FDA's comments as to the Company's
Pre-IDE application, the Company intends to apply for an IDE
from the FDA during the second quarter of 1997.  Assuming an
IDE  is  obtained,  the Company intends  to  commence  human
clinical  trials of the ALERT System in the U.S.  to  obtain
data needed for a PMA application.  The Company has received
commitments  from several leading electrophysiology  centers
to   participate  in  clinical  trials.   There  can  be  no
assurance that the IDE will be approved by the FDA or, if it
is,  that  the clinical trials conducted under the IDE  will
determine the safety and effectiveness of the ALERT  System,
or  that  a  subsequently  filed  PMA  application  will  be
accepted by the FDA for filing or approved.

Following  FDA  clearance  or  approval  of  a  device   for
commercial  distribution,  the primary  form  of  government
regulation  of medical devices is the FDA's GMP  regulations
for medical devices.  These regulations, administered by the
FDA,  set  forth requirements to be observed in the  design,
manufacture,  packaging, labeling  and  storage  of  medical
products  for  human  use,  including  implementation  of  a
quality assurance program.  These regulations require, among
other things, that manufacturing be controlled by the use of
written  procedures and the ability to produce devices  that
meet specifications be validated by extensive testing.  They
also require inspection and testing of the products produced
and  investigation when devices fail to meet specifications.
Failure  to  adhere  to  GMP requirements  would  cause  the
products produced to be considered in violation of the FFDCA
and   subject  to  enforcement  action.   The  FDA  monitors
compliance    with   these   requirements    by    requiring
manufacturers to register their manufacturing facilities and
list  their  products  with  the  FDA,  and  subjecting  the
facilities to periodic FDA inspections.  If an FDA inspector
observes   conditions  that  might  be  violative   of   GMP
procedures,  the manufacturer must correct those  conditions
or explain them satisfactorily, or face potential regulatory
action  that  might include physical removal of the  product
from   the  market.   The  FDA's  Medical  Device  Reporting
regulations require that the Company provide information  to
the  FDA on the occurrence of any deaths or serious injuries
alleged  to  have  been  associated  with  the  use  of  the
Company's  products,  as well as on any product  malfunction
that  would likely cause or contribute to a death or serious
injury  if  the  malfunction were to  recur.   FDA  law  and
regulations  also  prohibit a device from being  labeled  or
promoted  for unapproved or uncleared indications.   If  the
FDA believes that a company is not in compliance with any of
these regulations, it can institute proceedings to detain or
seize  products, issue a recall, seek injunctive  relief  or
assess civil and criminal penalties against such a company.

Sales of medical devices outside of the U.S. are subject  to
foreign  regulatory  requirements  that  vary  widely   from
country to country.  The time required to obtain approval by
a  foreign  country  may  be longer  or  shorter  than  that
required for FDA approval, and the requirements may  differ.
Export sales of Class III devices that have not received FDA
marketing clearance or approval generally are subject to FDA
export  permit requirements.  To obtain such a  permit,  the
Company  must provide the FDA with, among other information,
documentation  from the medical device regulatory  authority
of  the  country in which the purchaser is located,  stating
that  the  sale  of  the device is not a violation  of  that
country's  medical  device  laws.   Many  foreign  countries
generally  permit  studies  involving  humans  for   medical
devices  earlier in the product development  cycle  than  is
permitted  by regulation in the U.S.  Other countries,  such
as  Japan, have standards similar to those of the FDA.   The
European  Economic Community is in the process of developing
a  new  approach to the regulation of medical products  that
may  significantly change the situation in those  countries.
The  Company  has  recently received the  CE  Mark  for  its
catheter  products,  including  the  ALERT  Catheter.    The
Company  intends to pursue international regulatory approval
of the ALERT System in foreign markets during 1997.

In addition to the import requirements of foreign countries,
a  company  must  also comply with U.S. laws  governing  the
export  of  FDA-regulated products.  Devices with  a  510(k)
clearance or a PMA generally may be exported without further
FDA  authorization, provided certain conditions are met.   A
Class  III device without a PMA may be exported to a foreign
country  for  commercial marketing  if  the  exporting  firm
obtains   prior   FDA   authorization  and   the   following
requirements  are  satisfied:  (i)  the  device  meets   the
specifications of the foreign purchaser; (ii) the device  is
not in conflict with the laws of the country to which it  is
intended for export; (iii) the device is labeled that it  is
intended for export; (iv) the device is not sold or  offered
for  sale  in domestic commerce; and (v) the FDA  determines
that  the exportation of the device is not contrary  to  the
public  health and has the approval of the country to  which
it is intended for export.

The  FDA  Export  Reform and Enhancement  Act  of  1996  has
relaxed the exportation requirements governing devices under
certain  circumstances.  Pursuant to this new law, a  device
that  has  not  obtained FDA clearance or  approval  may  be
exported   to   any  country  in  the  world   without   FDA
authorization if the product complies with the laws of  that
country and has valid marketing authorization in one of  the
following  countries: Australia, Canada, Israel, Japan,  New
Zealand, Switzerland, South Africa, the European Union or  a
country  in  the  European  economic  area.   The   FDA   is
authorized  to  add countries to this list  in  the  future.
Among  other  restrictions, a device may  only  be  exported
under  the  new  law  if  it is not adulterated,  meets  the
specifications  of the foreign manufacturer,  complies  with
the laws of the importing country, is labeled for export, is
manufactured in substantial compliance with GMP  regulations
or recognized international standards and is not sold in the
U.S.

The  Company is also subject to numerous federal, state  and
local   laws  relating  to  such  matters  as  safe  working
conditions,     manufacturing    practices,    environmental
protection, fire hazard control and disposal of hazardous or
potentially hazardous substances.  There can be no assurance
that  it will not be required to incur significant costs  to
comply with such laws and regulations in the future or  that
such laws and regulations will not have a materially adverse
effect upon the Company's ability to do business.

COMPETITION
The  medical  device market, particularly  in  the  area  of
cardiac  electrophysiology  products, is highly competitive.
Many   of   the   Company's  competitors  have   access   to
significantly greater financial and other resources than the
Company.    Further,   the   medical   device   market    is
characterized by rapid product development and technological
change.  The present or future products of the Company could
be rendered obsolete or uneconomic by technological advances
by   one   or  more  of  the  Company's  present  or  future
competitors  or  by other therapies.  The  Company's  future
success  will depend upon its ability to remain  competitive
with other developers of such medical devices and therapies.
The  Company  believes  that its existing  products  compete
primarily on the basis of features, effectiveness,  quality,
ease  and  convenience of use, customer  service  and  cost-
effectiveness.

The  Company's  primary competitors  in  the  production  of
catheters and disposable accessories are C.R. Bard Inc.,  EP
Technologies,  Inc.  (a  subsidiary  of  Boston   Scientific
Corporation),  Medtronic, Inc., Cordis-Webster Laboratories,
Inc.  (a  subsidiary of Johnson & Johnson,  Inc.)  and  Daig
Corporation  (a subsidiary of St. Jude Medical,  Inc.).   In
the  computerized  EP workstation and EP stimulator  market,
the Company's main competitors are Prucka Engineering, Inc.,
Quinton Instruments (a subsidiary of American Home Products,
Inc.),   C.R. Bard Inc. and Fischer Imaging.  The  Company's
TeleTrace/PaceBase  products compete  with  PaceArt.   Other
companies   vying   for   market  share   in   the   cardiac
electrophysiology  field include Witt Biomedical,  Marquette
Electronics, Inc. and Siemens Medical Systems.

The  ALERT System is a new technology that must compete with
established and emerging treatments for atrial fibrillation.
These   include   pharmaceuticals,  high   energy   external
cardioversion, atrioventricular node ablation combined  with
pacemaker  implantation  and open-heart  surgical  ablation.
Although  no devices are currently being marketed  to  treat
atrial   fibrillation  using  internal  cardioversion,   one
company  is  developing an implantable atrial  defibrillator
that  delivers energy through leads attached to  the  heart,
and the Company believes certain others are developing dual-
chamber  defibrillator systems that could  be  marketed  for
treatment of atrial fibrillation.  The Company also believes
some  competitors and research organizations are researching
other  approaches to treating atrial fibrillation, including
endocardial  ablation  and preventative  pacing  techniques.
Many of the Company's competitors have substantially greater
financial   and   other  resources,  larger   research   and
development staffs, and more experience and capabilities  in
conducting  research  and development, testing  products  in
clinical    trials   and   manufacturing,   marketing    and
distributing  products  than the  Company.  Competitors  may
develop new technologies and bring products to market in the
U.S. before the Company introduces the ALERT System and  may
introduce  products that are more effective than  the  ALERT
System.    In   addition,  competitive   products   may   be
manufactured and marketed more successfully than  the  ALERT
System.  The Company's business will depend upon its ability
to  remain competitive with other developers of such medical
devices and therapies.

THIRD-PARTY REIMBURSEMENT
In  the U.S., the Company's products are marketed to medical
institutions  and physicians that then bill  various  third-
party  payors,  such  as  government  programs,  principally
Medicare and Medicaid, and private insurance plans, for  the
healthcare services provided to their patients.  Third-party
payors  are increasingly challenging the prices charged  for
medical  products and services, and substantial  uncertainty
exists  as  to third-party reimbursement for investigational
and  newly  approved products. Government agencies,  private
insurers and other payors generally reimburse hospitals  for
medical  treatment at a fixed rate per patient or  based  on
the  procedures performed.  The fixed rate reimbursement  is
unrelated to the specific devices used in treatment.   If  a
procedure is not covered, payors may deny reimbursement.  In
addition,  some  payors  may  deny  reimbursement  if   they
determine  that  the  device  used  in  the  treatment   was
unnecessary, inappropriate or not cost-effective, or  if  it
was  experimental or was used for a non-approved indication,
even  if  it  has FDA approval.  Because the amount  of  the
reimbursement is fixed, to the extent a physician uses  more
expensive  devices, the amount of potential profit  relating
to  the  procedure is reduced.  Accordingly, hospitals  must
determine  that  the  clinical benefits  of  more  expensive
equipment justify the additional cost.  The U.S. Health Care
Financing  Administration  has  recently  entered  into   an
interagency agreement with the FDA pursuant to which the FDA
will  place all devices with approved IDEs into one  of  two
categories, "Category A" or "Category B." Category A devices
are  innovative devices that are believed to be in Class III
(the  class of medical devices subject to the most stringent
FDA  review) and are of a type as to which initial questions
of  safety and effectiveness have not been resolved and  the
FDA  is  unsure  whether the device type  can  be  safe  and
effective.    They  will  not  be  eligible   for   Medicare
reimbursement.  Category B devices include Class III devices
of  a  type  as to which underlying questions of safety  and
effectiveness  have been resolved or that  is  known  to  be
capable of being safe and effective because other devices of
that  type have been approved.  Category B devices  will  be
eligible  for  Medicare reimbursement  if  the  devices  are
furnished  in  accordance  with the  FDA-approved  protocols
governing  clinical trials and all other  Medicare  coverage
requirements are met.  The Company believes the ALERT System
is  a Class III device.  There can be no assurance that  the
ALERT  System will be placed in Category B and thus eligible
for  Medicare  reimbursement during clinical trials.   There
can  be  no  assurance that reimbursement will be or  remain
available  for  the Company's products,  or  for  the  ALERT
System  if  it  is  approved, or even  if  reimbursement  is
available,  that  payors' reimbursement  policies  will  not
adversely affect the Company's ability to sell its  products
on a profitable basis.

PRODUCT LIABILITY AND INSURANCE
The  manufacture and sale of the Company's products involves
the   risk  of  product  liability  claims.   The  Company's
products  are highly complex and some are, or will be,  used
in relatively new medical procedures and in situations where
there  is  a potential risk of serious injury, adverse  side
effects or death.  Misuse or reuse of catheters may increase
the risk of product liability claims.  The Company currently
maintains  product liability insurance with coverage  limits
of $5,000,000 per occurrence and $5,000,000 in the aggregate
per  year;  however,  there can be no  assurance  that  this
coverage will be adequate.  Such insurance is expensive  and
may not be available in the future on acceptable terms if at
all.   A  successful  claim against  or  settlement  by  the
Company in excess of its insurance coverage or the Company's
inability to maintain insurance in the future could  have  a
material  adverse effect on the Company's business,  results
of operations and financial condition.

EMPLOYEES
As   of  March  19,  1997,  the  Company  had  40  full-time
employees,  of  whom 11 are dedicated to  manufacturing  and
quality   assurance,  11  are  engaged  in  management   and
administration, 8 are engaged in sales and marketing  and  8
are  engaged  in  research  and  development  and  technical
service.  The  Company believes its employee  relations  are
satisfactory.

ITEM 2.  DESCRIPTION OF PROPERTY
The Company currently leases approximately 1,600 square feet
of  office  space located in Budd Lake, New  Jersey  through
September  30, 1997 and occupies an additional 1,800  square
feet  of contiguous office space on a month-to-month  basis.
At  December  31, 1996,  the Company's subsidiary,  ProCath,
leased  approximately 5,000 square feet of space in  Berlin,
New  Jersey.  The Berlin facilities, which are divided  into
two  adjacent 2,500 square foot units, contain 1,000  square
feet  of sterile product inventory space, 1,500 square  feet
dedicated   to   administration,  shipping  and   receiving,
engineering and catheter research and development, and 2,500
square feet utilized for manufacturing operations.

In  February,  1997,  ProCath purchased approximately  7,500
square  feet of space, including 2,500 square feet of  space
that  was  under lease by ProCath, for an aggregate purchase
price   of   approximately   $386,000,   including   certain
transaction  costs.   The  purchase  will  allow   for   the
expansion of ProCath's manufacturing operations, provide for
additional  warehousing,  shipping  and  quality   assurance
activities   and   relocation  of  ProCath's  administrative
offices.  The lease on ProCath's remaining 2,500 square feet
of  leased space expires in November, 1997 and will  not  be
renewed.   The  Company  believes that  its  facilities  are
sufficient to meet its expected needs for at least the  next
twelve months.

ITEM 3.  LEGAL PROCEEDINGS

       None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None.

                           PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The  Company's  Common Stock has been traded on  the  Nasdaq
National  Market under the trading symbol "EPMD"  since  the
Company  completed  its initial public  offering  of  Common
Stock  on June 21, 1996.  Prior to that date, there  was  no
public market for the Company's Common Stock.

The following table sets forth the high and low closing sale
prices  for  the  Company's Common Stock during  the  second
(from June 21, 1996 through June 30, 1996), third and fourth
quarters of  1996, based on transaction data as reported  by
the Nasdaq National Market.

     For the year ended
      December 31, 1996            High           Low

Second quarter
(commencing June 21, 1996)        $6.00          $5.50
Third quarter                     $6.00          $4.00
Fourth quarter                    $5.50          $3.25


On  March  19,  1997, the last reported sale price  for  the
Company's  Common Stock as reported by the  Nasdaq  National
Market was $3.81 per share.

As of March 19, 1997, there were approximately 81 registered
holders  of  record  of the Company's  Common  Stock.   This
number excludes individual stockholders holding stock  under
nominee  security position listings.  Because many  of  such
shares  are held by brokers and other institutions on behalf
of stockholders, the Company is unable to estimate the total
number of stockholders represented by these record holders.

DIVIDEND POLICY

The  Company has not paid any dividends on its Common  Stock
and  does  not  expect  to pay any  such  dividends  in  the
foreseeable future. The payment of dividends, if any, in the
future  will  be  within  the discretion  of  the  Board  of
Directors  and will depend upon the Company's  earnings,  if
any,  its  capital requirements and financial condition  and
other relevant factors.

ITEM  6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

This  section  contains  certain forward-looking  statements
relating   to   future  events  or  the   future   financial
performance  of the Company.  Such statements involve  risks
and  uncertainties and actual events or results  may  differ
materially  from  the  results discussed  in  such  forward-
looking  statements.  Factors that could cause or contribute
to  such differences include those discussed under "Business
Considerations" herein as well as those discussed  in  other
filings made by the Company with the Securities and Exchange
Commission.

GENERAL
The   Company  was  formed  in  January,  1993  to  develop,
manufacture,  market  and sell a range of  electrophysiology
products used to diagnose, monitor and treat certain cardiac
disorders. The Company has developed the ALERT System, which
uses  a  proprietary electrode catheter to deliver measured,
variable,  low  energy electrical impulses directly  to  the
inside  of the heart in order to convert atrial fibrillation
to  a normal heart rhythm.  Since inception, the Company has
acquired  certain technology and related assets as  well  as
certain marketing rights, has developed new products and has
introduced  or  begun  marketing  various  electrophysiology
products.  The  following summarizes  the  most  significant
product acquisitions and introductions.

     - March, 1993: The Company purchased from HDI all rights
       to a clinical cardiac stimulator (the "EP-2") and began
       selling the EP-2 in May, 1993.

     - November, 1993: The Company acquired substantially all
       the assets of Professional Catheter Corporation ("PCC"), a
       manufacturer of cardiac electrode catheters and other
       related disposable products. The Company immediately began
       sales  of  such  catheters and related  products  and
       enhancements.

     - February, 1994: Under an agreement with HDI,  the
       Company began selling the TeleTrace III Receiver, servicing
       TeleTrace III Receivers previously sold by a third party and
       distributing certain arrhythmia monitors produced by HDI. In
       July, 1994, the Company acquired from HDI all rights to the
       TeleTrace III Receiver, certain arrhythmia monitors and
       certain software for monitoring heart signals.

     - February, 1994: The Company acquired all rights to the
       PaceBase and HeartBase computer software, certain software
       used with the TeleTrace III Receiver and certain related
       technology from BioPhysical Interface Corp.

     - May, 1994: The Company introduced the EP-3 Clinical
       Stimulator (the "EP- 3"), successor to the EP-2. The Company
       ceased selling the EP-2 in November, 1994.

     - September, 1995: The Company initiated sales of the EP
       WorkMate,   a  computer  workstation   for   use   in
       electrophysiology labs. The technology for the EP WorkMate
       was acquired from ElectroPhysiology Systems, Inc. in May,
       1994.

     - November, 1995: The Company acquired an exclusive
       license to develop, manufacture and sell an electrode
       catheter for internal cardioversion of atrial fibrillation,
       to be incorporated in the ALERT System.

     - May, 1996: The Company entered into an Exclusive Rights
       Agreement with Spire, whereby the Company obtained the
       exclusive right to develop the clinical and commercial
       potential of Spire's proprietary ion beam deposition process
       for applying a thin metallic coating to the Company's
       electrophysiology catheters and accessories.  The Company
       has undertaken several development projects for new or
       improved catheter products utilizing Spire's ion beam
       deposition process, including applications with the ALERT
       Catheter,  electrophysiology catheters  and  ablation
       catheters.  These projects are ongoing although there can be
       no assurance that such projects will be successful..

     - February,  1997:   The Company  licensed  certain
       technologies from EchoCath in order to attempt to develop
       products which allow visualization of the heart's anatomy
       and visualization of catheters inside the heart through the
       use of ultrasound rather than by using fluoroscopy, or x-ray
       imaging.  The license includes all rights to the EchoMark,
       EchoEye and ColorMark technologies for use in the field of
       electrophysiology.  The license excludes use on permanently
       implantable defibrillators and pacemaker leads.

The  Company  recognizes product revenues  on  the  date  of
shipment.  Revenues  related to extended warranty  contracts
are recognized on a straight-line basis over the life of the
applicable contract.

Expenditures  for  routine  maintenance  and   upgrades   of
computer  software are expensed currently  as  research  and
development.   Research and development  costs  incurred  in
connection  with developing existing and acquired technology
are expensed as incurred. Expenditures to acquire rights  to
technology are expensed as acquired research and development
except  to  the  extent  that, at the time  of  acquisition,
technological  feasibility for use in  a  product  has  been
established  or  a future alternative use  exists.   To  the
extent technological feasibility was established at the time
of   acquisition  or  a  future  alternative  use   existed,
expenditures are recorded as intangible assets and amortized
over  the  related  products'  estimated  useful  lives.  In
connection  with  its acquisition of the assets  of  PCC  in
November,  1993, the Company recorded intangible  assets  of
$774,099,  which  are being amortized over  15  years  on  a
straight-line basis.  In connection with its acquisition  of
the  PaceBase, TeleTrace and HeartBase software in February,
1994  and  of  the  TeleTrace III  Receiver  and  arrhythmia
monitor  technology  in  July, 1994,  the  Company  recorded
intangible  assets  of  $50,000 and $100,000,  respectively,
which  are  being amortized over three years on a  straight-
line basis. In connection with its acquisition of the rights
to  the EP-2 in March, 1993, the Company recorded intangible
assets of $774,000, to be amortized over two years. It wrote
off  the  unamortized portion of that amount,  $215,216,  in
November, 1994 when it discontinued selling the EP-2.

The Company has been unprofitable since inception and, as of
December   31,   1996,   had  an  accumulated   deficit   of
approximately $5.06 million.  The Company believes  that  it
will  have  sufficient  capital to carry  out  its  proposed
business objectives for at least the next 12 months.

RESULTS OF OPERATIONS

GENERAL
Historically,  the  Company  has  relied  on   third   party
distributors  for  all  of its sales activities.   Following
completion of its initial public offering, the Company began
efforts to build a direct sales and marketing force to  sell
all of its products in the domestic market and to strengthen
its  international distribution network.  During  1996,  the
Company hired a new Vice President of Sales and Marketing, a
National  Sales  Manager,  an International  Sales  Manager,
four  Regional  Sales Managers, a Director of Marketing  and
several   technical   service  and  administrative   support
personnel.   Also  during this time, the Company  terminated
its  relationships  with  all of its domestic  distributors.
The  Company  believes that the change from  a  distributor-
based  sales  force to a direct sales force had a  temporary
adverse  effect on sales of its electrophysiology  equipment
during the third and fourth quarters of 1996.  However,  the
Company  also believes its domestic direct sales  force  has
the  potential to generate greater sales in the future  than
the  Company  had  been  experiencing  through  the  use  of
independent  distributors.  It is likely  that  the  Company
will  incur  additional losses as a result of the  increased
fixed costs associated with a direct sales force until  such
time  as sufficient incremental sales are generated to cover
such  costs.  The Company cannot determine when or  if  that
level of sales will be achieved.

The  Company is continuing to utilize distributors  to  sell
its  products  overseas  and is in  the  process  of  adding
distributors    in   several   countries   not    previously
represented.  In 1997, the Company formed a U.S. subsidiary,
with  a  branch  based  in the United  Kingdom,  to  improve
distributor  relationships and customer service  in  Europe.
During  1996,  the  Company's distributor received  approval
from    the   Japanese   Ministry   of   Health   to    sell
electrophysiology equipment and catheters  in  the  Japanese
market.   The  Company initiated sales through its  Japanese
distributor during the fourth quarter of 1996.

Year Ended December 31, 1996 Compared to Year Ended December
31, 1995

Product sales increased $64,822 (or 3.2%) from $2,001,137 in
1995  to  $2,065,959  in 1996.  Sales  of  the  EP  WorkMate
increased by approximately $330,000 as the product began  to
gain  market acceptance after its introduction in late 1995.
Sales  of the Company's catheter line also increased  during
1996  while sales of stand-alone EP-3 Stimulators  declined,
partially  due  to  the fact that EP-3  Stimulators  are  an
integrated component of the EP WorkMate.  As discussed above
under "General," the Company believes that the change from a
network  of  independent  distributors  to  a  newly   hired
domestic  direct sales force had a temporary adverse  impact
on electrophysiology equipment sales in the third and fourth
quarters of 1996.

During  1996,  the  Company recorded  $250,000  in  catheter
development  revenue  related to a Product  Development  and
Supply Agreement with InControl.  The agreement covers a new
temporary  atrial defibrillation catheter ("TADCATH").   The
Company will manufacture and supply TADCATH to InControl for
clinical trials and subsequent product sales.  The agreement
provides  for  annual minimum purchases.  The  Company  also
entered  into  non-exclusive distribution  agreements  which
allow  InControl  to  sell the ALERT Catheter  in  parts  of
Europe,  Africa and the Middle East and the ALERT  Companion
on  a world-wide basis for a period of two years subject  to
renewal  upon  mutual  agreement  of  the  parties.    While
InControl  will be primarily responsible for all  regulatory
clearances of the TADCATH, the Company will make  a  $75,000
payment to InControl towards the cost of clinical trials.

The  Company has determined that continued sale and  service
of  arrhythmia monitors does not represent a good  strategic
fit with the Company's existing products and planned product
line, including the ALERT System, due, in part, to the  fact
that  the customers for arrhythmia monitors usually  do  not
purchase  the  Company's  electrophysiology  equipment   and
catheters.   The  Company  also determined  that  the  gross
margins generated by the sale of arrhythmia monitors are not
sufficient to justify the expense and efforts by its  direct
sales  force  to generate sales of the product.   Therefore,
the  Company  plans to discontinue sale of  the  MemoryTrace
line  of  arrhythmia monitors.  Sales of arrhythmia monitors
were  approximately $12,000 and $198,000 in the years  ended
December  31,  1996 and 1995, respectively.   In  1997,  the
Company agreed to sell its rights, title and interest in (i)
the  4221,  4222 and 4222 ATM arrhythmia monitors, including
manufacturing drawings and regulatory approvals and (ii) the
4400  ATM arrhythmia monitor currently under development  by
HDI,  to HDI in return for 60,000 shares of common stock  in
Neomedics,  Inc., a newly created company  involved  in  the
design and manufacture of implantable medical devices, which
is an affiliate of HDI.

Cost  of  products  sold decreased $95,520  (or  7.6%)  from
$1,257,468  to  $1,161,948.  Excluding catheter  development
revenues, gross profit for 1996 was $904,011 (or 43.8% as  a
percentage of product sales), as compared with $743,669  (or
37.2%)  for  1995.   This  increase  in  gross  profit   was
principally  due  to  higher  sales,  higher  gross  margins
realized  on  the  EP  WorkMate which represented  a  larger
proportion of sales in 1996 than in 1995 and the decline  in
sales  of  MemoryTrace arrhythmia monitors which produced  a
low gross margin in 1995.

Sales  and marketing expenses increased $287,556 (or  60.3%)
from  $477,209  to  $764,765 and as a  percentage  of  total
revenues from 23.8% to 33.0%.  Beginning in September, 1996,
the  Company  began  hiring a domestic direct  sales  force,
including several salaried sales and marketing managers  and
personnel.    The   effort  also  involved  increased   base
commissions  for  direct  sales  representatives,  increased
travel  and  lodging  and convention  related  expenses  and
increased  promotion expenses related to existing  products.
The Company expects sales and marketing expenses to increase
significantly in 1997 as the direct sales force will  be  in
place   for   the  entire  year  and  as  product  promotion
associated  with  the  direct  sales  effort  continues   to
increase.   It  is  likely  that  the  Company  will   incur
additional  losses as a result of the increased fixed  costs
associated  with direct sales until such time as  sufficient
incremental  sales are generated to cover such  costs.   The
Company cannot determine when or if that level of sales will
be  achieved.   Further, the Company  has  filed  a  Pre-IDE
application  with  the  FDA and expects  to  begin  clinical
trials  for  the ALERT System during the second  quarter  of
1997.  Although there can be no assurance of such fact,  the
Company  anticipates that international sales of  the  ALERT
System  will  begin in 1997.  As a result, the Company  will
incur additional expenses related to the introduction of the
ALERT System.

General  and administrative expenses increased $311,329  (or
41.1%)  from  $757,635  to $1,068,964  and  increased  as  a
percentage  of  total  revenues from 37.9%  to  46.2%.   The
dollar   increase  was  due  to  the  hiring  of  additional
administrative   personnel,   increased   occupancy   costs,
increased use of professional services, including accounting
fees  and legal fees associated with several patent filings,
and  increased product liability and directors and  officers
insurance   expense.   The  Company  expects   general   and
administrative expense to increase in future periods due  to
anticipated future growth.  It is anticipated, however, that
these  expenses  will  decline  as  a  percentage  of  total
revenues  at such time as sufficient incremental  sales  are
generated to cover such costs.  The Company cannot determine
when or if such incremental sales will be achieved.

Research  and  development expenses increased  $535,880  (or
167.3%) from $320,311 to $856,191 and as a percentage of net
sales  from  16.0%  to  37.0%.  The  increase  was  due   to
significant  expenses  associated  with  the  ALERT  System,
including engineering development associated with the  ALERT
Catheter  and  the ALERT Companion hardware, design  of  the
clinical  trial  protocol  and preparation  of  the  Pre-IDE
filing with the FDA.  The Company also realized increases in
research  and development expenses related to the  licensing
and  development of the Spire technology for placement of  a
flexible   metallic   coating   on   its   electrophysiology
catheters,  hiring  of additional in-house  engineering  and
technical  support personnel and increased development  work
on  existing  products,  including  the  EP  WorkMate.   The
Company  expects that expenses related to the  ALERT  System
will  be  significant in 1997 and 1998 when clinical  trials
are  anticipated to commence.  The Company also expects that
other research and development expenses will increase as  it
continues   attempts  to  develop  new  products,  including
ultrasound  guided  catheters utilizing technology  licensed
from EchoCath in February, 1997 and catheters utilizing  the
Spire technology as well as ongoing improvements to existing
products.

Upon  repayment of the 1995 Debentures, the Company recorded
a write-off of $49,232 representing the unamortized discount
on the 1995 Debentures related to the 1995 Warrants.

Interest expense decreased $6,114 (or 12.0%) from $50,893 to
$44,779  and as a percentage of revenues from 2.5% to  1.9%.
The   decrease  was  due  to  the  Company's  repayment   of
$1,137,500 face amount of 1995 Debentures in June, 1996  and
the   repayment of the $96,350 balance plus accrued interest
payable   on  a  note  incurred  in  connection   with   the
acquisition  of  ProCath.  The Company does  not  expect  to
incur material interest expense in 1997.

Interest  income  during 1996 was $338,335 due  to  interest
earned  on  the  proceeds of the June, 1996  initial  public
offering.   Interest income was insignificant in 1995.   The
Company  expects to continue earning interest on its  excess
cash  in  future periods, but the amount of interest  income
will  decrease  as  proceeds are utilized in  the  Company's
business.

The  Company  incurred a net loss $1,570,578  (or  $.23  per
share based on 6,762,019    shares outstanding), in 1996  as
compared  with  $1,482,650  (or  $.26  per  share  based  on
5,789,654  shares  outstanding) in 1995.   The  increase  of
$87,928  (or  5.9%) in net loss was caused  by  the  factors
discussed above.


Year Ended December 31, 1995 Compared to Year Ended December
31, 1994

Net  sales increased $489,061 (or 32.3%) from $1,512,076  in
1994  to  $2,001,137  in  1995.  The  increase  was  due  to
increased  sales  of  PaceBase and  TeleTrace  products  and
diagnostic  and temporary pacing catheters as  well  as  the
initiation  of sales of the EP WorkMate in September,  1995.
The  increase was partially offset by a decline in sales  of
the EP-2 due to the discontinuation of sales of the EP-2  in
1994.

Cost of sales increased $344,011 (or 37.7%) from $913,457 to
$1,257,468. Gross profit increased $145,050 (or 24.2%)  from
$598,619  to $743,669 but decreased as a percentage  of  net
sales  due  to increases in catheter manufacturing  overhead
that were not fully offset by increased product sales.

Sales  and marketing expenses increased $214,439 (or  81.6%)
from  $262,770 to $477,209 and as a percentage of net  sales
from  17.4%  to  23.8%. The increase was  due  to  increased
sales,   the  hiring  of  additional  sales  and   marketing
personnel, increased commissions generated from sales of the
EP-3  through distributors, increased promotion of  existing
products  and  expenses  incurred  in  connection  with  the
introduction of the EP WorkMate in 1995.

General  and administrative expenses increased $109,500  (or
16.9%)  from  $648,135  to  $757,635  but  decreased  as   a
percentage  of  net  sales from 42.9% to 37.9%.  The  dollar
increase  was due to the hiring of additional administrative
personnel,  increased  usage of  professional  services  and
increased  insurance and rent expenses. The  decrease  as  a
percentage of net sales was due to increased sales.

Depreciation and amortization decreased $213,261 (or  55.6%)
from  $383,532 to $170,271 and as a percentage of net  sales
from 25.3% to 8.5%. The decrease was due to the cessation of
amortization  of the intangible asset related to  the  EP-2,
which was written off in 1994, partially offset by increases
in  amortization of intangible assets related to  arrhythmia
monitor technology acquired during 1994.

Research  and  development expenses increased  $190,456  (or
146.7%) from $129,855 to $320,311 and as a percentage of net
sales  from  8.6%  to 16.0%. The increase  was  due  to  the
payment  of  $138,000  to  HDI  in  1995  for  services   in
connection  with development of the TeleTrace III  Receiver,
TeleTrace III-S Receiver and increased internal research and
development related to the EP WorkMate.

In  November, 1995, the Company granted an option to Dr. Alt
to purchase 210,000 shares of Common Stock at $.10 per share
in  partial consideration for the Company's license  of  the
ALERT  technology  from  Dr. Alt. In  connection  with  this
option  grant  to  Dr.  Alt, the Company  recorded  acquired
research  and  development expense of $420,000, representing
the fair market value of such option on the issue date. Also
in  November,  1995, the Company recorded acquired  research
and development expense of $30,000 in connection with a semi-
exclusive license of a patent relating to certain technology
permitting temporary ventricular defibrillation.

Interest expense decreased $5,068 (or 9.1%) from $55,961  to
$50,893  and as a percentage of revenues from 3.7% to  2.6%.
The  decrease  was  due to the Company's  lower  outstanding
indebtedness in 1995 resulting from the repayment of certain
indebtedness  in  September,  1995,  partially   offset   by
interest expense associated with the 1995 Debentures.

The  Company  incurred a net loss $1,482,650  (or  $.26  per
share based on 5,789,654    shares outstanding), in 1995  as
compared  with  $1,596,850  (or  $.29  per  share  based  on
5,480,262  shares outstanding), in 1994.   The  decrease  of
$114,200  (or  7.2%) in net loss was caused by  the  factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

Since  inception, the Company's expenses have  exceeded  its
revenues,  resulting  in  an accumulated  deficit  of  $5.06
million at December 31, 1996.  Until June, 1996, the Company
had  financed its operations through the sale of its  Common
Stock   in  private  placements;  the  issuance  of  certain
debentures  (the "1995 Debentures"); a shared bank  line  of
credit  with HDI; extended payment terms granted by HDI  for
products  manufactured for the Company; and the issuance  of
notes  in  connection with the acquisition of products  from
HDI.   On  June 21, 1996, the Company completed its  initial
public  offering of 2,500,000 shares of Common  Stock  at  a
purchase  price  of  $5.50  per  share,  for  aggregate  net
proceeds   of  approximately  $11,786,000  after   deducting
offering expenses.

Net  cash  used in operating activities for the  year  ended
December 31, 1996 was $1,891,776 as compared to $337,916 for
the  year ended December 31, 1995.  The net use of  cash  in
operations  during 1996 was due primarily to  the  Company's
$1,570,578  net loss from operations.  Accounts  receivable,
net, increased by $233,382 in 1996 from $438,120 to $671,503
and  inventories  increased by $157,442,  from  $469,265  to
$626,707  due  to increased operating volume  and  activity.
Accounts  payable and accrued expenses increased by $148,036
from  $529,515  to  $677,551 due to increased  accruals  for
product  liability  and  directors  and  officers  liability
insurance,  legal  and accounting fees, outside  development
and  consulting expenses for the ALERT System and an accrual
for  clinical costs of the TADCATH catheter to be undertaken
by  InControl.   This was offset by a decrease  in  accounts
payable  as the Company's improved cash position allowed  it
to   make  timely  payments  to  vendors  and  other   trade
creditors.   Amounts payable to a related party declined  by
$173,685  from  $258,720 to $85,035  due  to  the  Company's
improved cash position which allowed it to make payments  to
the  related  party  under normal supplier  terms.   Prepaid
expenses and other current assets increased by $132,113 from
$53,648  to $185,761.  The increase was due to increases  in
prepaid insurance and deposits for several upcoming industry
trade shows.

Capital expenditures, net of disposals, were $97,337  during
the  twelve  months ended December 31, 1996 as  compared  to
$55,754  in  1995.   The increase was due  to  purchases  of
office  equipment,  including  computer  equipment  for  the
direct  sales force, and normal capital expenditures at  the
ProCath  manufacturing facility.  In February, 1997, ProCath
purchased  approximately 7,500 square feet of manufacturing,
administrative and warehouse space, including  2,500  square
feet  of  space  that  was under lease by  ProCath,  for  an
aggregate   purchase   price  of   approximately   $386,000,
including  certain  transaction costs.   The  purchase  will
allow   for   the   expansion  of  ProCath's   manufacturing
operations, provide for additional warehousing, shipping and
quality  assurance  activities and relocation  of  ProCath's
administrative  offices.  The lease on  ProCath's  remaining
2,500  square  feet of space expires in November,  1997  and
will  not be renewed.  As of the date of this Annual Report,
the Company does not have any other material commitments for
capital  expenditures.  However,  the  Company  expects   to
purchase  capital equipment and to expand its  manufacturing
and  assembly  capabilities as it continues  to  grow.   The
Company  leases office and manufacturing space  and  certain
office  equipment  under operating  leases.   The  aggregate
commitment  for  minimum  rentals  under  these  leases   is
approximately $78,000 for 1997.

In  1995,  at a time when the Company was contemplating  the
establishment  of  a  United Kingdom catheter  manufacturing
facility,  the Company purchased a $100,000 note  receivable
payable  by  Falfab  L.L.C.,  a United  Kingdom  angioplasty
catheter  manufacturer ("Falfab"), accruing interest  at  8%
and maturing on July 15, 1996. The fair market value of this
note  receivable approximated its book value as of  December
31, 1995.  The Company loaned an additional $7,500 to Falfab
during the second quarter of 1996. Upon maturity, FalFab was
unable to repay amounts loaned to it by the Company and  was
subsequently liquidated by its creditors.  Accordingly,  the
Company wrote off the $107,500 note receivable in 1996.

Net  cash  provided by financing activities was  $12,243,424
for   the   year  ended  December  31,  1996  and   included
approximately $11,786,000 of net proceeds of the  Company's'
initial  public offering and $500,000 from the private  sale
of  Common  Stock  in January, 1996, prior  to  the  initial
public  offering.   During  1996,  the  Company  repaid  the
remaining  $92,050  principal  plus  accrued  interest   due
thereon  on  a note issued in connection with its  November,
1993   acquisition  of  PCC.   The  Company   borrowed   and
subsequently  repaid a $50,000 short term  note  payable  to
HDI.

During June, 1996, the holders of $1,025,000 face amount  of
1995 Debentures elected to exercise their warrants issued in
connection  with  the 1995 Debentures ("1995  Warrants")  to
purchase  512,500 shares of Common Stock at $2.00 per  share
through  the  forgiveness  of amounts  due  under  the  1995
Debentures.   On  June  30, 1996,  the  Company  repaid  the
remaining outstanding 1995 Debentures in the face amount  of
$112,500 in cash.  Subsequent to the repayment, the  holders
of  the  remaining 1995 Warrants exercised their  option  to
purchase  56,250 shares of Common Stock at $2.00 per  share.
Upon  repayment of the 1995 Debentures, the Company recorded
a  write-off of $49,232, representing the unamortized  value
placed  on the 1995 Warrants issued in connection  with  the
1995 Debentures.

In  May, 1996, the Company entered into an Exclusive  Rights
Agreement  with  Spire,  whereby the  Company  obtained  the
exclusive  right  to  develop the  clinical  and  commercial
potential of Spire's proprietary ion beam deposition process
for  applying  a  thin  metallic coating  to  the  Company's
electrophysiology catheters and accessories. During the term
of  the  Rights Agreement, the Company is required to obtain
all  of  its requirements for products treated with  such  a
metallized   coating  form  Spire.   The  Rights   Agreement
provides  for payments of $25,000 per quarter commencing  on
July 1, 1996 to maintain exclusivity for an initial term  of
five  years, with provision for two year renewal terms  upon
mutual agreement of the parties. The Rights Agreement may be
terminated at any time by the Company upon 60 days'  notice.
The  Company has undertaken several development projects for
new or improved catheter products utilizing Spire's ion beam
deposition  process, including applications with  the  ALERT
Catheter,    electrophysiology   catheters   and    ablation
catheters.   These  projects are ongoing  and  will  require
additional funding by the Company.

During   February,   1997,  the  Company  licensed   certain
technologies  from EchoCath in order to attempt  to  develop
products  which  allow visualization of the heart's  anatomy
and  visualization of catheters inside the heart through the
use  of  ultrasound rather than by using fluoroscopy, or  x-
ray  imaging.   The  license  includes  all  rights  to  the
EchoMark, EchoEye and ColorMark technologies for use in  the
field  of  electrophysiology.  The license excludes  use  on
permanently implantable defibrillators and pacemaker  leads.
EchoCath  will  also  transfer its  510-K  approval  on  the
EchoMark electrophysiology catheter to the Company.

The  agreement  calls  for  the  Company  to  make  payments
totaling   $700,000,  in  four  installments,   as   certain
development milestones and initial sales are achieved on the
EchoMark  and  EchoEye technologies.  The  EchoCath  license
provides  for  a  royalty  on net sales,  including  minimum
royalties  of  $120,000 beginning in 1999 and increasing  to
$400,000  in  2005  and  thereafter  for  the  life  of  the
applicable patents and continuations.  The Company may elect
not  to  make  minimum royalty payments and, in  such  case,
EchoCath has the option to make the license non-exclusive or
cancel   the  license  and  return  the  $700,000  milestone
payments.   The  Company also purchased  280,000  shares  of
newly-issued EchoCath 5.4% cumulative convertible  preferred
stock  for $1.4 million in cash.  The Company's $1.4 million
investment  is intended to fund development of  the  EchoEye
technology.   Upon successful completion of its  development
projects,  the  Company may introduce ultrasound  technology
into its electrophysiology catheter line although there  can
be  no assurance that the Company will be successful in this
effort.

The  Company  plans to finance its capital needs principally
from  existing capital resources, which the Company believes
will  be  sufficient  to fund its operations  through  1997.
Additional  funding may not be available when needed  or  on
terms acceptable to the Company, which would have a material
adverse   effect   on  the  Company's  business,   financial
condition, results of operations and cash flows.

BUSINESS CONSIDERATIONS

HISTORY OF LOSSES; FUTURE OF PROFITABILITY UNCERTAIN.
The  Company  commenced operations in 1993 and has  incurred
substantial  operating losses in each year since  inception.
As  of  December 31, 1996, the Company's accumulated deficit
was   approximately  $5.06  million.   While   the   Company
currently   manufactures certain products and has  generated
revenues  from  product sales, the Company anticipates  that
losses  could continue.  The Company's ability  to  generate
significant  revenues  or achieve profitable  operations  is
dependent,  in large part, on market acceptance of  existing
products,  the effective manufacturing and delivery  of  its
products,  the  successful development of new products,  the
ability  to  obtain regulatory approvals on a timely  basis,
the  ability  to  manage  domestic and  international  sales
growth  and  the  ability  to compete  successfully  in  the
future.   There  can be no assurance that the  Company  will
generate significant revenues or attain profitability.   See
"Management's Discussion and Analysis of Financial Condition
and  Results of Operations,"  "Business - The ALERT System,"
"-  Research  and Development,"  "- Manufacturing"  and   "-
Government Regulation."


DEPENDENCE ON THE ALERT SYSTEM.
Although  the  Company currently markets a  broad  range  of
products,  it  believes its potential for substantial  long-
term  growth will depend on the success of the ALERT System,
a  new  product  the Company has developed to  treat  atrial
fibrillation. The ALERT System has not been approved by  the
FDA  and  is not currently available for commercial sale  in
any  market.   Before  the Company may begin  marketing  the
ALERT System in the U.S., it must apply for and obtain a PMA
based   on,   among   other  things,  clinical   data   that
demonstrates  the safety and effectiveness  of  the  device.
Prior  to  undertaking any clinical trials in  the  U.S.  to
obtain   such  data,  the  Company  must  obtain   FDA   and
Institutional Review Board approval of an application for an
IDE.   The Company has prepared a protocol for such clinical
trials as part of an IDE application and has filed a Pre-IDE
application  with  the  FDA and, subject  to  FDA  comments,
expects to file the ALERT IDE application during the  second
quarter of 1997.  There can be no assurance that the Company
will  be permitted to undertake such clinical trials,  that,
if  conducted,  such  clinical trials will  demonstrate  the
safety  and effectiveness of the ALERT System, or  that  the
Company  will obtain PMA approval on a timely  basis  or  at
all.    Further,  if  granted,  FDA  approval  may   include
significant limitations on the indicated uses for which  the
product  may  be  labeled or marketed.  Assuming  the  ALERT
System receives FDA approval, commercial success will depend
on  acceptance  by physicians as a desirable  treatment  for
atrial fibrillation.  Such acceptance will depend on,  among
other  things,  substantial, favorable clinical  experience,
advantages  over  alternative  treatments,  including  cost-
effectiveness, and favorable reimbursement policies of third
party payors such as insurance companies, Medicare and other
governmental programs.  There can be no assurance  that  the
ALERT  System  will  achieve such  market  acceptance.   The
Company's  ability  to  sell  the  ALERT  System  at  prices
necessary  to achieve profits and the profitability  of  the
system  will  depend  in part on the  Company's  ability  to
manufacture the system efficiently in commercial quantities.
At this time, the Company has only manufactured the catheter
component of the ALERT System in limited quantities  and  is
in  the  final  stages of development of the  energy  source
component of the system.  There can be no assurance that the
Company  will be able to develop the manufacturing processes
and    capabilities    necessary   to    attain    efficient
manufacturing.   The Company will also be dependent on  sub-
contractors  for  certain  key  components  of   the   ALERT
Companion.   Failure  to  obtain FDA  approval  for,  market
acceptance  of,   efficient  manufacturing processes  and/or
reliable sub-contractors for the ALERT System would  have  a
material  adverse effect on the Company's business,  results
of  operations and financial condition.  See "Business - The
ALERT  System,"   "-Marketing  and  Distribution,"  and   "-
Government Regulation."


DEPENDENCE ON EP WORKMATE.
In  late 1995, the Company began commercial sales of the  EP
WorkMate,    a   computerized   monitoring   and    analysis
electrophysiology workstation.  Although the Company sells a
broad range of products, it believes its ability to increase
revenues   over   the   next  several  years   will   depend
significantly   on  acceptance  of  the   EP   WorkMate   by
electrophysiologists.    The  EP  WorkMate   accounted   for
approximately  28% of the Company's net sales  in  the  year
ended  December 31, 1996.  The EP WorkMate has a list  price
of  approximately $120,000 with an integrated EP-3  Clinical
Stimulator and, as a result, each sale of an EP WorkMate can
represent a relatively large percentage of the Company's net
sales  in  a particular quarter.  The EP WorkMate is  a  new
product and there can be no assurance it will be accepted by
the  EP market or that sales will be substantial.  Each sale
of  an  EP  WorkMate  may  take a relatively  long  time  to
complete  due in part to the high selling price relative  to
other  types of equipment and to the budgetary processes  of
hospitals to which the Company markets the EP WorkMate.  See
"Management's Discussion and Analysis of Financial Condition
and  Results  of  Operations"   and   "Business  -  Existing
Products."


GOVERNMENT REGULATION.
The  Company's  products  and manufacturing  activities  are
subject  to  extensive  and rigorous government  regulation,
both  in  the U.S. and abroad. In the U.S., the development,
testing,  manufacture,  labeling, marketing,  promotion  and
sale  of medical devices are regulated by the FDA under  the
FFDCA.   The FFDCA and regulations thereunder require  that,
unless  exempted  by  regulation, all products  meeting  the
statutory definition of "device" receive FDA clearance of  a
510(k)  clearance or a PMA prior to marketing  in  the  U.S.
Obtaining  FDA clearance or approval can take  a  number  of
years and may require substantial expenditures.  The Company
has  made  the  determination that one of its products,  the
PaceBase  System, is not a medical device and  thus  is  not
subject  to  FDA  premarket clearance  or  other  regulatory
requirements.  There can be no assurance that the FDA  would
agree with this determination.  If the FDA were to disagree,
it  could take regulatory actions such as issuing a  warning
letter  or  requiring that the Company  stop  marketing  the
product until a 510(k) or PMA for the product is cleared  or
approved.

The  FFDCA provides that a new premarket notification  under
Section  510(k) is required to be filed with the  FDA  when,
among  other things, there is a major change or modification
in  the  intended  use of a legally marketed  device,  or  a
change  or  modification to a legally marketed  device  that
could  significantly  affect its  safety  or  effectiveness.
Changes  to  manufacturing procedures could also necessitate
the filing of a new 510(k) notification.  A manufacturer  is
expected  to make the initial determination as to whether  a
proposed change to a cleared device, its intended use  or  a
manufacturing procedure is of a kind that would require  the
filing  of a new 510(k) notification.  The Company has  made
certain modifications to its cleared devices, and for  these
changes  the Company made the determination that the changes
were  not  major  changes  in  intended  use  and  did   not
significantly  affect  the safety or  effectiveness  of  the
devices,   and,   accordingly,  that  the  original   510(k)
clearances  permitted the Company to market the  devices  in
the  U.S.   There  can be no assurance  that  the  FDA  will
conclude that these changes did not necessitate one or  more
new  510(k) notifications.  If the FDA were to disagree with
one  or more of the Company's determinations, the FDA  could
take regulatory actions such as issuance of a warning letter
or  requiring that the Company stop marketing the device  or
devices  until  one  or  more new 510(k)  notifications  are
cleared.

Future changes to manufacturing procedures could necessitate
the   filing  of  a  new  510(k)  notification.    Likewise,
development  of  future products or product enhancements  or
changes  may require additional 510(k) clearances,  PMAs  or
other   regulatory  approvals.  PMAs  and  other  regulatory
approvals   generally  involve  more  extensive   pre-filing
testing  than  a  510(k) clearance and a longer  FDA  review
process.   FDA  regulatory processes are time-consuming  and
expensive,  and  there  can  be no  assurance  that  product
applications  submitted by the Company will  be  cleared  or
approved on a timely basis or at all.  Delays in the  review
process,  failure to receive FDA clearance or  approval,  or
rescission  of  a  previously  received  FDA  clearance   or
approval  could  have  a  material  adverse  effect  on  the
Company's  business,  financial  condition  and  results  of
operations.

The  FDA also strictly regulates the development and testing
of  medical devices under the agency's IDE regulations.   In
order  to  conduct a clinical investigation involving  human
subjects  for  the purpose of demonstrating the  safety  and
effectiveness  of  a device, a company must  apply  for  and
obtain  IRB  approval  of  the proposed  investigation.   In
addition,  in  order to conduct such clinical investigations
involving  a  "significant risk" device, such as  the  ALERT
System  or other new products under development, the company
must  also  submit  and  obtain  FDA  approval  of  an   IDE
application.   There can be no assurance  that  the  Company
will  be  able  to obtain IRB or FDA approval  to  undertake
clinical  trials  in the U.S. for the ALERT  System  or  for
other  investigational devices, or, if  such  approvals  are
obtained, that the Company will be able to comply  with  the
FDA's   IDE   and   other  regulations  governing   clinical
investigations.

The  Company's  products must be manufactured in  compliance
with  GMP  regulations under the FFDCA,  and  the  Company's
manufacturing  facilities, and those of  its  subcontractors
are subject to FDA inspections to ensure compliance with GMP
and  other  regulations.  The FDA has  broad  discretion  in
enforcing the FFDCA and noncompliance by the Company or  the
Company's  contract manufacturers could result in a  variety
of  regulatory actions ranging from warning letters, product
detentions, device alerts or field corrections to  mandatory
recalls,  seizures, injunctive actions and civil or criminal
penalties.

The  FFDCA and regulations thereunder are amended from  time
to   time,  often  imposing  additional  or  more  stringent
requirements.   For example, the FDA has  proposed  new  GMP
regulations  that would require medical device manufacturers
to   comply  with,  among  other  new  requirements,  design
controls.   These  and  other  new  regulations   may   make
compliance  by  the Company with the FFDCA  and  regulations
thereunder more difficult in the future.

Many   countries,  especially  Japan  and  several  European
countries,  regulate the manufacture, marketing and  use  of
medical  devices  in ways similar to the U.S.   The  Company
intends  to  seek to market its products in  some  of  those
countries and intends to pursue product clearance, approval,
or  registration procedures in such countries.  There can be
no  assurance  that the Company will be able to  obtain  and
maintain necessary approvals to market its products in those
countries on a timely basis or at all.

In addition to the import requirements of foreign countries,
a  company  must  also comply with U.S. laws  governing  the
export  of FDA regulated products.  While devices  with  FDA
510(k)  clearance  or  an  approved  PMA  generally  may  be
exported  without further FDA authorization, exportation  of
unapproved  Class  III devices requiring premarket  approval
has  required  prior FDA clearance.  Although  the  recently
enacted  FDA Export Reform and Enhancement Act of  1996  has
relaxed  the exportation requirements for unapproved devices
under certain circumstances, there can be no assurance  that
the  Company will be able to satisfy FDA export requirements
on  a  timely  basis or at all.  The Company has  previously
exported limited quantities of what it considered  to  be  a
custom  device to a single physician pursuant to his written
specifications.   There  can be no assurance  that  the  FDA
would  agree with this determination.  The Company believes,
however,  that this would not affect its ability  to  export
products   in  the  future.   See  "Business  -   Government
Regulation."


NECESSITY OF PRODUCT DEVELOPMENT AND IMPROVEMENT.
The  markets for medical devices in general and EP  products
in  particular  are  characterized  by  rapid  technological
change.   The Company's ability to compete in these  markets
will  depend in part on its ability to develop new products,
improvements  to existing products and processes  for  cost-
effective  manufacturing on a timely  basis.   Many  of  the
Company's   development  efforts  will  be  based   on   new
technologies  or new applications of existing  technologies,
such  as  the ALERT System, ultrasound technology and  Spire
technology.  As a result, research and development  for  any
potential new product or product refinement may take  longer
and  require  greater expenditures than  expected,  and  may
ultimately prove unsuccessful.  The commercial acceptance of
any  new  product  will  depend on the  medical  community's
acceptance of such product.  There can be no assurance  that
the  Company  will  be able to develop new  products  or  to
refine existing products that will be commercially accepted.
See   "Business  -  The  ALERT  System,"   "-  Research  and
Development" and "-Manufacturing."


POTENTIAL FLUCTUATIONS IN OPERATING RESULTS.
Several  factors  may  have a significant  impact  upon  the
Company's revenues, expenses and results of operations  from
quarter  to  quarter  and year to year,  including  but  not
limited  to a long sales cycle for the EP WorkMate, hospital
budgetary processes, the timing of new product introductions
by  the  Company  or its competitors, development  of  other
treatments  for atrial fibrillation and other  heart  rhythm
disorders,    changes   in   government    or    third-party
reimbursement  policies,  mix  of  products  sold,   foreign
currency   fluctuations  to  the  extent  the  Company   has
developed  significant international sales, the  ability  to
obtain  products  to meet customer demand and  increases  or
fluctuations   in   sales  and  marketing,   administrative,
manufacturing   and   research   and   development    costs.
Consequently,  quarterly  results of  operations  should  be
expected  to  fluctuate  significantly.   See  "Management's
Discussion  and Analysis of Financial Condition and  Results
of Operations."


POTENTIAL LACK OF PROPRIETARY PROTECTION.
The Company's success and ability to compete will depend  in
part  upon its ability to protect its proprietary technology
and  other intellectual property.  The Company seeks patents
on  its  important inventions and has acquired  licenses  to
rights  under  selected  patents  of  third  parties  as  to
technology  it considers important to its business.   As  to
the ALERT System, the Company has an exclusive license under
two  U.S.  patents, an exclusive license  under  one  patent
application  pending in the European Patent Office  and  has
filed  two  patent applications in the United  States  on  a
method of manufacturing the ALERT Catheter.  The Company has
a  semi-exclusive license under one issued U.S. patent as to
certain   technology   to   conduct  temporary   ventricular
defibrillation.    The  Company  has  an  Exclusive   Rights
Agreement  with Spire to develop the clinical and commercial
potential  of a proprietary ion beam deposition process  for
applying   a   thin  metallic  coating  to   the   Company's
electrophysiology  catheters and accessories.   The  Company
licensed  nine issued U.S. patents and four foreign  filings
from  EchoCath  as  to the EchoMark, EchoEye  and  ColorMark
technologies in an attempt to develop products  which  allow
visualization  of  the heart's anatomy and visualization  of
catheters  inside  the heart through the use  of  ultrasound
imaging.   In  addition, the Company has filed four   patent
applications in the U.S. for catheter technologies.

There  can be no assurance that any of the Company's  patent
applications  or  applications as to which it  has  acquired
licenses  will  issue  as patents, or that  if  patents  are
issued  on the Company's applications or on applications  as
to  which the Company has acquired licenses, they will be of
sufficient   scope   and  strength  to  provide   meaningful
protection  of  the Company's technology or  any  commercial
advantage to the Company, or that such patents will  not  be
challenged,  invalidated  or  circumvented  in  the  future.
Moreover,  there  can  be no assurance  that  the  Company's
competitors,  many of which have substantial  resources  and
have made substantial investments in competing technologies,
do  not  presently have or will not seek patents  that  will
prevent,  limit or interfere with the Company's  ability  to
make,  use  or sell its products either in the  U.S.  or  in
other countries.

The  Company  intends to rely on a combination  of  patents,
trade  secrets,  copyrights and trademarks  to  protect  its
intellectual  property rights.  No assurance can  be  given,
however,  that  competitors will not  independently  develop
substantially equivalent proprietary technology, or that the
Company  can  meaningfully protect its rights in  unpatented
proprietary technology.

The  Company has not received any notices alleging,  and  is
not aware of, any infringement by the Company of any patents
or  intellectual property of others.  However, there can  be
no  assurance  that  current and potential  competitors  and
other third parties have not filed or in the future will not
file  applications for patents, or have not received  or  in
the  future  will not receive, patents or other  proprietary
rights   relating  to  devices,  apparatus,   materials   or
processes used or proposed to be used by the Company.

The Company's software (which is an integrated component  in
its  EP  WorkMate  and  EP-3  Clinical  Stimulator)  is  not
patented  and  existing copyright laws  offer  only  limited
practical  protection.  There can be no assurance  that  any
legal  protection which may be sought and precautions  which
may  be  taken  by the Company will be adequate  to  prevent
misappropriation  of  the  Company's  software   and   trade
secrets.

The  medical  device industry is characterized  by  frequent
litigation regarding patent and other intellectual  property
rights.  While the Company does not believe it is infringing
any  patents or other intellectual property rights of others
and  has  received no notice of infringement, it is possible
that claims in the future may adversely affect the Company's
ability  to market certain products.  Any such claims,  with
or  without merit, could be time-consuming, result in costly
litigation   and  diversion  of  technical  and   management
personnel,  cause shipment delays or require the Company  to
develop  alternative technology or to enter into royalty  or
licensing  agreements.   Although  patent  and  intellectual
property disputes in the medical device area have often been
settled  through  licensing or similar  arrangements,  costs
associated  with  such arrangements may be  substantial  and
could  include ongoing royalties.  There can be no assurance
that, if required, necessary licenses would be available  to
the  Company  on satisfactory terms or at all, or  that  the
Company  could redesign its products or processes  to  avoid
alleged infringement.  Accordingly, an adverse determination
in  a  judicial or administrative proceeding or  failure  to
obtain  necessary  licenses could prevent the  Company  from
manufacturing and selling its products, which would  have  a
material  adverse effect on the Company's business,  results
of  operations and financial condition.  Conversely,  costly
and  time-consuming litigation may be necessary  to  enforce
the Company's rights under patents, to protect trade secrets
or  know-how  owned  by  the Company  or  to  determine  the
enforceability, scope and validity of the proprietary rights
of   others.    See  Business  -  Patents  and  Intellectual
Property"  and  " - Competition."


SIGNIFICANT COMPETITION.
The  medical  device market, particularly  in  the  area  of
electrophysiology  products,  is  highly  competitive.   The
Company  competes with many companies, some  of  which  have
access  to  significantly greater financial,  marketing  and
other  resources  than  the Company.  Further,  the  medical
device  market is characterized by rapid product development
and technological change.  The present or future products of
the  Company  could be rendered obsolete  or  uneconomic  by
technological  advances  by one or  more  of  the  Company's
present  or  future competitors or by other  therapies.   In
particular, the ALERT System is a new technology  that  must
compete  with established treatments for atrial fibrillation
as  well  as with new treatments currently under development
by  other  companies.   The Company's  future  success  will
depend  upon  its ability to remain competitive  with  other
developers  of  such  medical devices  and  therapies.   See
"Business - Competition."


LIMITATIONS ON THIRD PARTY REIMBURSEMENT.
The Company's products are generally purchased by physicians
or  hospitals.  In  the U.S., third-party  payors  are  then
billed  for  the  healthcare services provided  to  patients
using   those  products.   These  payors  include  Medicare,
Medicaid   and   private  insurers.   Similar  reimbursement
arrangements  exist in several European  countries.   Third-
party  payors  may  deny  or  limit  reimbursement  for  the
Company's existing products and future products such as  the
ALERT   System.    Third-party   payors   are   increasingly
challenging  the  prices charged for  medical  products  and
services  and  are  putting pressure  on  medical  equipment
suppliers   to  reduce  prices.   Furthermore,   substantial
uncertainty  exists  as  to  third-party  reimbursement  for
investigational  and  newly  approved  products.   The  U.S.
Health   Care  Financing  Authority  has  entered  into   an
interagency agreement with the FDA pursuant to which the FDA
places  all  IDEs  it approves into one of  two  categories,
"Category  A"  or  "Category  B."  Category  A  devices  are
innovative devices that are believed to be in Class III (the
class  of medical devices subject to the most stringent  FDA
review)  and are of a type as to which initial questions  of
safety and effectiveness have not been resolved and the  FDA
is unsure whether the device type can be safe and effective.
They  will  not  be  eligible  for  Medicare  reimbursement.
Category B devices include Class III devices of a type as to
which underlying questions of safety and effectiveness  have
been  resolved or that is known to be capable of being  safe
and  effective because other devices of that type have  been
approved.  Category B devices will be eligible for  Medicare
reimbursement  if  the devices are furnished  in  accordance
with  the  FDA-approved protocols governing clinical  trials
and  all  other Medicare coverage requirements are met.  The
Company  believes  the ALERT System is a Class  III  device.
There  can  be  no assurance that the ALERT System  will  be
categorized  as  a Category B device and thus  eligible  for
Medicare reimbursement during clinical trials.  There can be
no  assurance that reimbursement will be or remain available
for the Company's products, or for the ALERT System if it is
approved for marketing in the U.S., or even if reimbursement
is  available, that payors' reimbursement policies will  not
adversely affect the Company's ability to sell its  products
on  a  profitable  basis.  Mounting  concerns  about  rising
healthcare  costs  may cause more restrictive  coverage  and
reimbursement  policies  to be implemented  in  the  future.
Changes   in  government  and  private  third-party  payors'
policies  toward reimbursement for procedures employing  the
Company's products in the U.S. or other countries could have
a material adverse effect on the Company's ability to market
its products.  See "Business - Third Party Reimbursement."


ABILITY TO MANAGE SALES GROWTH.
During 1996, the Company began to assemble a domestic direct
sales  and marketing force to sell and promote the Company's
products in the U.S. market.  Previously, the Company relied
on  third-party  distributors for all sales efforts.   There
can be no assurance that the Company will be able to attract
and   retain  qualified  and  capable  individuals  who  can
successfully promote the Company's products.

The  Company  is in the process of expanding  its  marketing
internationally  and  will continue to rely  on  third-party
distributors in foreign markets.  During 1997,  the  Company
formed  a U.S. subsidiary, with a branch based in the United
Kingdom,  to improve distributor relationships and  customer
service  in  Europe.  During 1996, the Company's distributor
received  approval from the Japanese Ministry of  Health  to
sell  electrophysiology  equipment  and  catheters  in   the
Japanese  market  and initiated sales through  its  Japanese
distributor during the fourth quarter of 1996.  The  Company
operates  pursuant to written agreements  with  third  party
distributors  which are terminable upon 60  days  notice  by
distributors  and, in certain instances,  pursuant  to  oral
arrangements  with distributors. There can be  no  assurance
that  distributors will actively and effectively market  the
Company's  products  or that the Company  will  be  able  to
replace  any existing distributors on advantageous terms  if
any  of  its present relationships are terminated.  Further,
there  can be no assurance that the Company will be able  to
make  arrangements  with  new  distributors  to  access  new
international  markets.   See  "Business  -  Marketing   and
Distribution."


HEALTHCARE REFORM.
The  healthcare  industry is subject to changing  political,
economic  and  regulatory influences  that  may  affect  the
procurement  practices  and  the  operation  of   healthcare
facilities.   During the past several years, the  healthcare
industry  has  been subject to an increase  in  governmental
regulation of, among other things, reimbursement  rates  and
certain  capital  expenditures.   Certain  legislators  have
introduced legislation or have announced proposals to reform
certain  aspects  of the U.S. healthcare  system,  including
proposals  that  may  increase governmental  involvement  in
healthcare, lower reimbursement rates for both treatment and
capital costs incurred by hospitals, or otherwise change the
operating   environment   for   the   Company's   customers.
Significant  changes  in  healthcare  systems  may  have   a
substantial  impact  on  the manner  in  which  the  Company
conducts  its  business and could have  a  material  adverse
effect  on  the Company's business, financial condition  and
ability  to market the Company's products. Changes resulting
from  healthcare  reform proposals or the enactment  thereof
may   influence  customer  purchases  and  the   amount   of
reimbursement  available  from  governmental  agencies   and
private  third-party payors for diagnostic  and  therapeutic
procedures conducted with the Company's products,  or  could
impose limitations on prices that customers will be able  to
pay, or the Company may charge, for its products.


ABILITY TO MANAGE CORPORATE GROWTH.
The  Company  has  acquired technology and  related  assets,
introduced  or  commenced marketing  several  new  products,
begun assembling a domestic direct sales force and generally
experienced  significant  growth  in  the  number   of   its
employees  and  operations.  This  growth  has  placed,  and
continued  growth will place, a significant  strain  on  the
Company's  management, operating and financial  systems  and
resources.  To compete effectively and manage any  potential
future  growth  in sales and manufacturing  activities,  the
Company   will   be  required  to  implement   and   improve
operational,  financial and management information  systems,
procedures  and  controls on a timely basis and  to  expand,
train, motivate and manage its work force.  There can be  no
assurance  that the Company's personnel, systems, procedures
and  controls  will be adequate to support  any  significant
growth  in the Company's business.  Any failure to implement
and improve operational, financial and management systems or
to  increase, train, motivate or manage employees could have
a material adverse effect on the Company's business, results
of  operations  and financial condition.   See  "Business  -
Manufacturing" and "- Employees."

DEPENDENCE ON KEY PERSONNEL; RECENT FORMATION OF MANAGEMENT
TEAM; NEED TO RECRUIT ADDITIONAL KEY MANAGEMENT PERSONNEL.
The  Company  is  dependent upon a  limited  number  of  key
management  and technical personnel, particularly  David  A.
Jenkins,  C.  Bryan  Byrd and Joseph C. Griffin,  III.   The
Company is actively recruiting additional management,  sales
and technical personnel.  The Company's success will depend,
in  part,  on  its  ability to attract  and  retain  highly-
qualified  personnel.  There can be no  assurance  that  the
Company  will be able to attract and retain such  personnel.
The  Company competes for such personnel with other  medical
device   companies,   academic   institutions   and    other
organizations. The loss of any key personnel, the  inability
to hire or retain qualified personnel or the failure of such
personnel  to  function effectively as  a  management  group
could  have  a  material  adverse effect  on  the  Company's
business,  results  of  operations and financial  condition.
See  "Directors, Executive Officers, Promoters  and  Control
Persons; Compliance with Section 16(a) of the Exchange Act."


PRODUCT LIABILITY AND INSURANCE.
The  manufacture and sale of the Company's products involves
the   risk  of  product  liability  claims.   The  Company's
products  are highly complex and some are, or will be,  used
in relatively new medical procedures and in situations where
there  is  a potential risk of serious injury, adverse  side
effects or death.  Misuse or reuse of catheters may increase
the risk of product liability claims.  The Company currently
maintains  product liability insurance with coverage  limits
of $5,000,000 per occurrence and $5,000,000 in the aggregate
per  year;  however,  there can be no  assurance  that  this
coverage will be adequate.  Such insurance is expensive  and
may not be available in the future on acceptable terms if at
all.   A  successful  claim against  or  settlement  by  the
Company in excess of its insurance coverage or the Company's
inability to maintain insurance in the future could  have  a
material  adverse effect on the Company's business,  results
of operations and financial condition.


LIMITED MANUFACTURING EXPERIENCE; DEPENDENCE ON HI-TRONICS
DESIGNS, INC.
To  date,  the Company's manufacturing activities have  been
limited.  The Company must manufacture, or contract for  the
manufacturing  of,  products  in  commercial  quantities  in
compliance  with regulatory requirements and  at  acceptable
costs.  The Company currently manufactures substantially all
of  its  catheter  products and intends to  manufacture  the
ALERT  Catheter.  There can be no assurance that the Company
will be able to manufacture catheters or other products with
sufficient processes and in quantities necessary to  achieve
and  sustain  profitability.  In addition,  the  Company  is
attempting  to expand its catheter manufacturing  facilities
and hire and train additional personnel.  The Company has no
experience in large-scale manufacturing and there can be  no
assurance   that   the  Company  will   be   successful   in
manufacturing catheter products.

The  Company  relies on HDI for the manufacture  of  the  EP
WorkMate,  EP-3  Clinical Stimulator and the  TeleTrace  III
Receiver.  Such manufacturing consists primarily of  testing
of  components,  final assembly and systems  testing.   Some
components  are  manufactured by subcontractors  to  HDI  in
accordance with custom specifications.  Any interruption  in
the  supply  from  HDI or its subcontractors  would  have  a
material adverse effect on the Company's ability to  deliver
its  products until acceptable arrangements can be made with
a  qualified alternative source of supply.  There can be  no
assurance  that  the  Company would  be  able  to  reach  an
acceptable arrangement with an alternative source of  supply
at acceptable prices and adequate quality levels on a timely
basis.   If  the  Company were unable  to  do  so,  such  an
interruption  would have a material adverse  effect  on  the
Company's  business,  results of  operations  and  financial
condition.  See  "Business  -- Manufacturing"  and  "Certain
Relationships and Related Transactions."

RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
Approximately  39% of the Company's revenues for  1996  were
derived  from  sales of its products outside  the  U.S.   As
such,  the  Company is subject to fluctuations  in  currency
exchange  rates  and  other  risks  of  foreign  operations,
including    tariff   regulations   and    export    license
requirements, unexpected changes in regulatory requirements,
longer  periods to collect accounts receivable,  potentially
inadequate protection of intellectual property rights, local
taxes, restrictions on repatriation of earnings and economic
and  political instability.  There can be no assurance  that
such factors will not have a material adverse effect on  the
Company's ability to maintain and expand profitable  foreign
sales  and, consequently, on the Company's business, results
of operations and financial condition.

POSSIBLE VOLATILITY OF STOCK PRICE.
The  market  for  securities of early  stage,  small  market
capitalization companies has been highly volatile in  recent
years, often as a result of factors unrelated to a company's
operations.  The Company believes factors such as  quarterly
fluctuations  in  financial results,  announcements  of  new
developments   relating  to  cardiac  care   diagnosis   and
treatment   therapies   and  developments   in   third-party
reimbursement  policy  and in the  medical  device  industry
could  contribute  to the volatility of  the  price  of  its
Common Stock, causing it to fluctuate significantly.   These
factors,  as  well as general economic conditions,  such  as
recessions or high interest rates, or other events unrelated
to  the  Company or its products, may adversely  affect  the
market  price of the Common Stock.  See "Market  for  Common
Equity and Related Stockholder Matters."


TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS.
Anthony  Varrichio, a director of the Company,  and  William
Winstrom, both of whom are shareholders of the Company,  are
officers,  directors and shareholders  of  HDI.   Medtronic,
Inc.  ("Medtronic") is a shareholder of the Company and HDI,
and Lester Swenson, a director of the Company, is an officer
of  Medtronic.  HDI has sold rights to various  products  to
the  Company, performs research and development services for
the Company and currently manufactures substantially all  of
the  Company's  non-catheter products  and  has  repurchased
rights  to  the  arrhythmia monitor product  line  from  the
Company.   While the Company believes its arrangements  with
HDI  have  been, and will continue to be, on terms  no  less
favorable  to  the Company than it could obtain  from  third
parties,  there  can be no assurance that  all  arrangements
between  the  Company and HDI will be as  favorable  to  the
Company as they would be in the absence of its relationships
with  affiliates  of  HDI.  See "Certain  Relationships  and
Related Transactions."


CONCENTRATION OF  OWNERSHIP.
As  of March 19, 1997, the Company's directors and executive
officers   and  their  affiliates  beneficially   owned   an
aggregate   of   approximately  22.7%   of   the   Company's
outstanding Common Stock, including unexercised vested stock
options.   As a result, these shareholders, acting together,
will  have  significant influence over all matters requiring
approval by the shareholders of the Company.  This level  of
ownership  could  have an effect in delaying,  deferring  or
preventing  a  change  in control of  the  Company  and  may
adversely  affect  the  voting and  other  rights  of  other
holders  of Common Stock. See "Security Ownership of Certain
Beneficial Owners and Management."

ITEM 7.  FINANCIAL STATEMENTS

The information in response to this item is set forth in the
Consolidated Financial Statements beginning on page F-1 of
this report on Form 10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

       None.

                          PART III

ITEM  9.   DIRECTORS,  EXECUTIVE  OFFICERS,  PROMOTERS   AND
CONTROL  PERSONS;  COMPLIANCE WITH SECTION  16  (A)  OF  THE
EXCHANGE ACT

The following table sets forth certain information regarding
the  directors, executive officers and certain key employees
of the Company as of March 19 1997:

NAME                           AGE  POSITION

David A. Jenkins(3)             39  Chairman of the Board,
                                    President and Chief Executive
                                    Officer
James J. Caruso                 36  Chief Financial Officer,
                                    Treasurer and Secretary
C. Bryan Byrd                   37  Vice President of Engineering
Robert W. Evans                 53  Vice President of Sales and
                                    Marketing
Joseph C. Griffin, III          37  President,ProCath Corporation
David W. Mortara, Ph.D.(1)(2)   55  Director
Lester J. Swenson(2)            57  Director
Jon A. Tietbohl(1)(2)           38  Director
Anthony J. Varrichio(3)         50  Director


(1)  Member  of the Compensation Committee of the  Board  of
Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Plan Committee of the Board of Directors.

Mr.  Jenkins has been Chairman of the Board of Directors  of
the  Company  since  November,  1995.   Prior  thereto,  Mr.
Varrichio  served  as the Chairman of  the  Board  from  the
Company's inception in January, 1993. Directors and officers
of  the Company are elected annually and hold offices  until
their  successors are elected and qualified or  until  their
earlier removal, death or resignation. Set forth below is  a
brief   summary  of  the  recent  business  experience   and
background  of  each director and executive officer  of  the
Company.

David A. Jenkins is the co-founder and Chairman of the Board
of  Directors, President and Chief Executive Officer of  the
Company.  Mr. Jenkins served as the President and a Director
of  the  Company from 1993 to 1995. From 1988 to  1993,  Mr.
Jenkins  served  as  the Chief Executive  Officer  and  then
Chairman  of  the Board of Directors of Arrhythmia  Research
Technology,  Inc., a publicly held company involved  in  the
sale  and distribution of electrophysiology products.  Prior
to  1988, Mr. Jenkins served as the Chief Financial  Officer
of  Hemex  Scientific,  Inc., a manufacturer  of  prosthetic
heart valves.

James  J.  Caruso is the Chief Financial Officer,  Treasurer
and Secretary of the Company. Mr. Caruso served from 1989 to
1995 as Vice President and Chief Financial Officer of Micron
Medical   Products,  Inc.,  a  wholly-owned  subsidiary   of
Arrhythmia  Research Technology, Inc. and a manufacturer  of
components for ECG electrodes. Prior to joining Micron,  Mr.
Caruso  was  employed for five years in the audit department
of  Deloitte & Touche (formerly Touche Ross & Co.) and  also
by  Ladenburg,  Thalmann & Co., an investment banking  firm.
Mr. Caruso is a Certified Public Accountant.

C.  Bryan Byrd is the Vice President of Engineering  of  the
Company.  Mr.  Byrd  joined the Company  in  April  1993  to
oversee software development for new products. From 1989  to
1993,   he   co-founded  and  served  as  the  Director   of
Engineering  for BioPhysical Interface Corp.  where  he  was
responsible for developing automated computerized monitoring
equipment  for pacemaker and open heart operating rooms  and
follow-up  clinics. Before that, he was a software  engineer
for  Medtronic, Inc. ("Medtronic"), where he  developed  the
ValveBase,  PaceBase  and TeleTrace  software  modules,  and
before  that  with Mt. Sinai Medical Center in Miami  Beach,
Florida.  He  has  developed databases for  all  aspects  of
cardiac surgery.

Robert  W.  Evans has been the Vice President of  Sales  and
Marketing  of the Company since September, 1996.  From  1992
to  1996,  Mr. Evans served as Vice President of  Sales  and
Marketing  for  Cordis  Webster,  Inc.  which  was  recently
purchased  by Johnson & Johnson.  While at Webster,  he  was
responsible  for  setting up worldwide distribution  of  the
Webster   line  of  electrophysiology  catheters,  including
building  a  direct  sales force covering  the  entire  U.S.
domestic  market.   During  a career  spanning  twenty  five
years  prior to 1992, Mr. Evans served as Vice President  of
Sales  and Marketing of Telos Medical, a division  of  Smith
Industries;  Vice  President  of  Sales  and  Marketing   of
Interpore   International;  Vice  President  of   Sales   of
Cardiovascular Devices, Inc.; Vice President, Domestic Sales
of   American  Edwards  Laboratories  Division  of  American
Hospital Supply Corporation and Sales Representative of  The
Upjohn Company.

Joseph  C.  Griffin, III has been the President  of  ProCath
Corporation,  the wholly-owned subsidiary  of  the  Company,
since   its   inception   in  1993.  Mr.   Griffin   founded
Professional   Catheter  Corporation,  the  predecessor   to
ProCath  Corporation, in 1990 and served  as  its  President
until  the  Company acquired its business  in  1993.  Before
that, Mr. Griffin was Manager of Research and Development at
Oscor  Medical  Corporation, a manufacturer  of  implantable
pacing  leads,  and Director, Research and  Development  and
Technical  Services  at Nova Medical  Specialties,  Inc.,  a
division of B. Braun of America.  Mr. Griffin has more  than
17  years  experience in the design, development, regulation
and  manufacture of cardiac catheters and has  served  as  a
member  of  the  Health  Industry Manufacturers  Association
Pacemaker Task Force and Electrode Catheter Task Force.

David  W.  Mortara, Ph.D. has served as a  Director  of  the
Company  since November, 1995. Dr. Mortara founded  and  has
served  as  the  Chairman  and Chief  Executive  Officer  of
Mortara   Instruments,   Inc.  ("MII"),   a   privately-held
manufacturer and supplier of electrocardiography  equipment,
since  1982.  Prior to founding MII, Dr.  Mortara  was  Vice
President, Engineering at Marquette Electronics, Inc. He has
authored   numerous   scientific  publications   on   signal
processing for electrocardiography and currently  serves  as
co-chair of AAMI's ECG Standards Committee.

Lestor  J.  Swenson has served as a Director of the  Company
since  November,  1995.  Mr.  Swenson  has  served  as  Vice
President, Finance of Medtronic, a leading manufacturer  and
supplier    of   arrhythmia   control   products   including
pacemakers, implantable defibrillators and catheter ablation
systems,  since 1985.  At Medtronic, Mr. Swenson  previously
held  a  variety of positions including Assistant  Corporate
Controller,    European   Controller    and    International
Controller.    He   is  currently  a  Director   of   Nguyen
Electronics, Inc.

Jon  A.  Tietbohl has served as a Director  of  the  Company
since November, 1995. Since 1990, Mr. Tietbohl has served as
Managing Director and co-head of Mergers and Acquisitions at
Tucker   Anthony  Incorporated,  a  Boston-based  investment
banking firm.  During his ten year tenure at Tucker Anthony,
Mr.   Tietbohl  has  represented  both  public  and  private
companies  in  a  range of corporate merger and  acquisition
transactions,  along with related experience in  acquisition
finance.

Anthony J. Varrichio has served as a Director of the Company
since inception and served as the Chairman of the Board  and
Treasurer of the Company from 1993 to 1995. Since 1987,  Mr.
Varrichio has served as the President and a director of HDI,
an  engineering  consulting and medical device  corporation.
Prior  to  co-founding  HDI, Mr. Varrichio  served  as  Vice
President  of  Electro-Biology,  Inc.,  a  manufacturer   of
electronic  bone growth stimulator devices.  Prior  thereto,
Mr.  Varrichio worked in the Advanced Technology  Laboratory
division  of Intermedics, Inc., where he served as  Director
of Engineering.


COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE.
The Company has an Audit Committee of the Board of Directors
at  least a majority of whom must be "independent directors"
(as  defined  in  the bylaws of the National Association  of
Securities   Dealers,   Inc.),   to   make   recommendations
concerning the engagement of independent public accountants,
review with the independent public accountants the plans and
results   of  the  audit  engagement,  approve  professional
services  provided  by the independent  public  accountants,
review   the   independence  of   the   independent   public
accountants, consider the range of audit and non-audit  fees
and review the adequacy of the Company's internal accounting
controls.  Currently, Messrs. Mortara, Swenson and  Tietbohl
are members of the Audit Committee.


COMPENSATION COMMITTEE.
The  Company  has a Compensation Committee of the  Board  of
Directors  consisting of two or more disinterested,  outside
directors, who may not receive options under the  1995  Long
Term  Incentive  Plan,  to determine  compensation  for  the
Company's executive officers and to administer the 1995 Long
Term Incentive Plan. Currently, Messrs. Mortara and Tietbohl
are members of the Compensation Committee.


PLAN COMMITTEE.
The  Company has a Plan Committee of the Board of  Directors
consisting  of  two  or  more directors  to  administer  the
Company's  1995  Director Option  Plan,  none  of  whom  are
eligible  to  participate in such Plan.  Currently,  Messrs.
Jenkins and Varrichio are members of the Plan Committee.

COMPLIANCE WITH REPORTING REQUIREMENTS

Under  the  securities  laws  of  the  United  States,   the
Company's  directors,  executive officers  and  any  persons
holding more than ten percent of the Company's Common  Stock
are  required  to  report their ownership of  the  Company's
Common  Stock  and  any  changes in that  ownership  to  the
Securities  and Exchange Commission and the Nasdaq  National
Market  Surveillance Department.  Based solely on its review
of the forms received by it from such persons for their 1996
transactions,   the  Company  believes   that   all   filing
requirements  applicable  to such  officers,  directors  and
greater  than  ten percent beneficial holders were  complied
with in a timely manner.

ITEM 10.  EXECUTIVE COMPENSATION

The  following summary compensation table sets forth certain
information concerning compensation paid or accrued  to  the
Chief Executive Officer of the Company (the "Named Executive
Officer")  for services rendered in all capacities  for  the
years  ended  December 31, 1996, 1995 and  1994.   No  other
executive officer of the Company was paid a salary and bonus
aggregating greater than $100,000 during such time periods.

                 Summary Compensation Table

                             Annual Compensation      Long  Term
                                                     Compensation

                                                       Securities
Name and Principal              Salary     Bonus       Underlying
Position                Year      ($)        ($)         Options

David A. Jenkins       1996    $127,500      $250               0
Chairman,President     1995    $110,000    $5,250         166,000 (1)
Chief Executive        1994    $108,542       $ 0               0
Officer



STOCK OPTIONS
The   following   table   sets  forth  certain   information
concerning  grants of stock options to the  Named  Executive
Officer during the fiscal year ended December 31, 1996.

              Option Grants in Fiscal Year 1996

                                        Individual Grants

                                         Percent of
                                           Total
                          Number of       Options
                            Shares        Granted      Exercise
                          Underlying         to         Price      Expira
                           Options       Employees       per        tion
                           Granted       in Fiscal      Share       Date
                                            Year

David A. Jenkins              -              -            -          -
Chairman, President
and Chief Executive
Officer





1)    On August 31, 1995, the Company granted Mr. Jenkins  a
  non-qualified  stock option to purchase 96,000  shares  of
  Common  Stock  at  an exercise price of $2.20  per  share.
  Options to purchase 30,000 shares became exercisable on the
  grant  date  and options to purchase 1,000  shares  become
  exercisable each month thereafter.  The term of such option
  is  five years.  On November 29, 1995, the Company granted
  Mr.  Jenkins an incentive stock option to purchase  70,000
  shares of Common Stock pursuant to the Company's 1995 Long
  Term Incentive Plan at an exercise price of $2.20 per share.
  Options to purchase 45,000 shares became exercisable  upon
  completion  of the Company's initial public  offering  and
  options to purchase 25,000 shares become exercisable on the
  first anniversary of such date.  The term of such option is
  ten years.

OPTION EXERCISES AND HOLDINGS
The   following  table  provides  certain  information  with
respect  to  the  Named  Executive  Officer  concerning  the
exercise  of  stock  options during the  fiscal  year  ended
December 31, 1996 and the value of unexercised stock options
held as of December 31, 1996.

             AGGREGATED OPTION EXERCISES IN 1996
                 AND YEAR END OPTION VALUES
<TABLE>
<S>                 <C>           <C>           <C>                          <C>
                                                Number of Shares             Value of
                    Shares                      Underlying                   Unexercised
                    Acquired      Value         Unexercised                  In the Money
                    on Exercise   Realized      Options at                   Options at
                    (#)           ($)           December 31, 1996            December 31,
                                                                             1996 ($)(1)
Name                                            Exercisable   Unexercisable  Exercisable     Unexercisable
David A. Jenkins       -            -              90,000         76,000     $218,250        $184,300
Chairman, President
and Chief Executive
Officer
</TABLE>
COMPENSATION PLANS AND OTHER ARRANGEMENTS

1995 Long Term Incentive Plan
The  Company's  1995  Long Term Incentive  Plan  (the  "1995
Incentive  Plan") was adopted by the Board of Directors  and
shareholders  in November, 1995.  A total of 400,000  shares
of  Common Stock are available for issuance under  the  1995
Incentive  Plan and options to purchase 361,500 shares  were
outstanding  as  of December 31, 1996.  The  1995  Incentive
Plan  provides for grants of "incentive" and "non-qualified"
stock  options  to  employees  of  the  Company.   The  1995
Incentive   Plan   is  administered  by   the   Compensation
Committee, which determines the optionees and the  terms  of
the options granted, including the exercise price, number of
shares   subject  to  the  options  and  the  exercisability
thereof.  The 1995 Incentive Plan will terminate on November
30,  2005,  unless  earlier  terminated  by  the  Board   of
Directors.

The  exercise price of incentive stock options granted under
the  1995 Incentive Plan must be equal to at least the  fair
market  value of the Common Stock on the date of grant,  and
the  term  of  such options may not exceed ten years.   With
respect  to  any  optionee who owns stock representing  more
than 10% of the voting power of all classes of the Company's
outstanding  capital  stock,  the  exercise  price  of   any
incentive stock option must be equal to at least 110% of the
fair  market value of the Common Stock on the date of grant,
and  the term of the option may not exceed five years.   The
aggregate  fair market value of Common Stock (determined  as
of  the  date  of the option grant) for which  an  incentive
stock  option  may for the first time become exercisable  in
any calendar year may not exceed $100,000.


(1) Amounts calculated by subtracting the exercise price  of
the  options from the market value of the underlying  Common
Stock  using  the closing sale price on the Nasdaq  National
Market of $4.625 per share on December 31, 1996.
1995 Director Option Plan
The  Company's 1995 Director Option Plan was adopted by  the
Board  of Directors and the shareholders in November,  1995.
A total of 360,000 shares of Common Stock of the Company are
available  for issuance under the 1995 Director Option  Plan
and  options to purchase 288,000 shares were outstanding  as
of  December  31,  1996.   The  1995  Director  Option  Plan
provides  for  grants  of  "director  options"  to  eligible
directors of the Company and for grants of "advisor options"
to  eligible  members  of  the  Scientific  Advisory  Board.
Director  options and advisor options become exercisable  at
the  rate  of  1,000 shares per month, commencing  with  the
first  month following the date of grant for so long as  the
optionee remains a director or advisor, as the case may  be.
The  1995  Director Option Plan is administered by the  Plan
Committee of the Company, which determines the optionees and
the  terms  of  the options granted, including the  exercise
price and the number of shares subject to the options.   The
1995  Director  Option Plan will terminate on  November  30,
2005, unless earlier terminated by the Board of Directors.

COMPENSATION OF DIRECTORS
During  1996, no directors of the Company received  cash  or
other compensation for services on the Board of Directors or
any  committee  thereof.  The directors were reimbursed  for
their reasonable travel expenses incurred in performance  of
their duties as directors.

COMPENSATION OF SCIENTIFIC ADVISORY BOARD MEMBERS
During  1996,  no members of the Scientific  Advisory  Board
received  cash  or other compensation for  services  to  the
Company.   During  1995,  each member  received  options  to
purchase  36,000 shares of the Company's Common Stock  under
the  1995  Director Option Plan, which vest at the  rate  of
1,000  shares per month.  Scientific Advisory Board  members
are reimbursed for their reasonable expenses incurred in the
performance  of  their duties as Scientific  Advisory  Board
members.

EMPLOYMENT AGREEMENTS
On  March  1,  1993, the Company entered into an  Employment
Agreement with David A. Jenkins as President for an  initial
term  of  three  years.  The  agreement  provides  for  base
compensation of $105,000 for the first year and bonuses  and
other  additional compensation as may be determined  by  the
Board  of  Directors in its sole discretion. On  August  31,
1995,  the  Company  entered into  an  Employment  Agreement
Addendum  with  Mr.  Jenkins  which  extended  the  term  of
employment through March 1, 1999. The addendum provides  for
an  increase in base compensation to $145,000 beginning upon
the  consummation  of  an  initial public  offering  of  the
securities  of  the  Company,  plus  five  percent  of   the
Company's  consolidated income before  taxes.  Mr.  Jenkins'
Employment  Agreement  may be terminated  at  any  time  for
cause. It contains a non-competition provision extending for
two years after termination of employment for cause and,  in
the  Company's  discretion, one year  after  termination  of
employment  for  any  other reason,  provided  that  if  Mr.
Jenkins   is  terminated  without  cause,  the  Company   is
obligated  to continue to pay him compensation  during  such
discretionary period.

ITEM  11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL  OWNERS
AND MANAGEMENT
The following table sets forth certain information regarding
beneficial  ownership of Common Stock of the Company  as  of
March 19, 1997 by (i) each of the Company's directors,  (ii)
the   Named  Executive  Officer,  (iii)  all  directors  and
executive officers as a group and (iv) each person known  to
the  Company to beneficially own more than five  percent  of
the  Company's Common Stock. Except as otherwise  indicated,
the  persons  named  in  the  table  have  sole  voting  and
investment  power  with respect to all  shares  beneficially
owned, subject to community property laws, where applicable.

      Name and Address            Number of       Percentage of
    of Beneficial Owner             Shares            Class
                                 Beneficially      Beneficially
                                    Owned           Owned (1)
David A. Jenkins (2)              905,000           11.8%
c/o EP MedSystems, Inc.
58 Route 46 West
Budd Lake, NJ 07828

Medtronic, Inc.                   548,000            7.2%
7000 Central Avenue NE
Minneapolis, MN 55432

Anthony J. Varrichio (3)          521,000            6.8%
1 Hemlock Lane
Flanders, NJ 07836

Edwin K. Hunter (4)               504,500            6.6%
1807 Lake Street
Lake Charles, LA 70602

Oppenheimer Funds, Inc.           500,000            6.6%
Two World Trade Center
New York, NY 10048

AWM Investment Co., Inc.          436,500            5.7%
153 East 53 Street
New York, NY 10022

David W. Mortara, Ph.D(5)          69,000               *
7865 North 86th Street
Milwaukee, WI 53224

Jon A. Tietbohl (5)                44,000               *
Third Floor
200 Liberty Street
New York, NY 10281

Lester J. Swenson (5)              19,000               *
7000 Central Avenue NE
Minneapolis, MN 55432

All executive officers and
 directors as a group
 (nine persons)                 1,788,367           22.7%


*   Represents beneficial ownership of less than one percent
of the Common Stock.

(1)      Applicable percentage ownership as of March 19 1997
    is   based   upon  7,599,917  shares  of  Common   Stock
    outstanding  together  with the applicable  options  for
    such stockholder.  Beneficial ownership is determined in
    accordance with Rule 13d-3(d) of the Securities Exchange
    Act  of  1934, as amended.  Under Rule 13d-3(d),  shares
    issuable  within  60 days upon exercise  of  outstanding
    options,   warrants,  rights  or  conversion  privileges
    ("Purchase  Rights")  are  deemed  outstanding  for  the
    purpose  of calculating the number and percentage  owned
    by  the  holder of such Purchase Rights, but not  deemed
    outstanding   for   the  purpose  of   calculating   the
    percentage  owned  by  any  other  person.   "Beneficial
    ownership"  under Rule 13d-3 includes  all  shares  over
    which  a person has sole or shared dispositive or voting
    power.

(2)       Includes  95,000 shares issuable upon exercise  of
    options.  Also  includes  160,000  shares  held  by  Mr.
    Jenkins  as trustee for the Dalin Class Trust.  Excludes
    45,000  shares  held by Mr. Jenkins'  wife,  and  20,000
    shares  held by Mr. Jenkins' wife as custodian  for  his
    children.

(3) Includes   50,000  shares  issuable  upon  exercise   of
    options.

(4)       Includes 140,000 shares held by a trust  of  which
    Mr.  Hunter  is the trustee, 150,000 shares  held  by  a
    private  foundation  over whose assets  Mr.  Hunter  has
    voting  and investment power and 12,500 shares  held  by
    two trusts of which Mr. Hunter is the trustee.

(5)       Includes  19,000 shares issuable upon exercise  of
    options.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HI-TRONICS DESIGNS, INC. -- GENERAL
HDI  was  one  of  the Company's two founding  shareholders.
HDI's   shareholders  are  Anthony  J.  Varrichio,   William
Winstrom  and Medtronic, Inc. ("Medtronic").  Mr.  Varrichio
is  the President, a director and the largest shareholder of
HDI, and Mr. Winstrom is an officer and director of HDI.

Mr.  Varrichio has been a director of the Company since  the
Company's  inception  and  was  Chairman  of  the  Board  of
Directors and Treasurer of the Company until November, 1995.
Mr.  Winstrom was a director of the Company until  November,
1995.   Lester Swenson, an officer of Medtronic, has been  a
director   of  the  Company  since  November,   1995.    Mr.
Varrichio, Mr. Winstrom and Medtronic acquired shares of the
Company's Common Stock from HDI.  As of March 19, 1997,  Mr.
Varrichio  owned  beneficially 6.8% of the Company's  Common
Stock,  Mr.  Winstrom owned beneficially 4.9% and  Medtronic
owned 7.2%

The Company acquired the rights to its first product, the EP-
2  Clinical  Stimulator, from HDI in 1993 and  has  acquired
rights to certain other products and technology since  then.
HDI  has  provided  and  continues to provide  research  and
development   services   as   to   selected   projects   and
manufactures  the EP WorkMate, the EP-3 Clinical  Stimulator
and   the  TeleTrace III Receiver for the Company.   In  its
early  stages, the Company subleased office space from  HDI,
had  a joint bank line of credit agreement with HDI and used
certain  of  HDI's other resources.  During May,  1996,  the
Company  borrowed  $50,000 from HDI.   The  promissory  note
accrued  interest at 9.25% per annum and was repaid on  June
30, 1996.

The Company believes that each of the following transactions
with  HDI  was entered into on terms and at prices  no  less
favorable  than  the  Company could have  received  from  an
unaffiliated party.

EP-2 AND EP-3 CLINICAL STIMULATORS
In  March  1993, the Company acquired from HDI  all  of  its
rights  to  the  EP-2  for $360,000 in cash  and  guaranteed
royalty payments aggregating $450,000 due on or before March
3,  1995, based on a royalty rate of $2,250 per sale of  the
EP-2 or EP-3 (which was in development by HDI at the time of
the acquisition).

As  of  May  1,  1993,  the Company entered  into  a  Supply
Agreement  with Medtronic, whereby it engaged  Medtronic  as
its exclusive distributor of the EP-2 within the U.S. for  a
one  year period, and Medtronic agreed to purchase at  least
50  EP-2s for distribution. Medtronic purchased an aggregate
of  $31,868  and  $150,159  of products  from  the  Company,
including  EP-2s and EP-3s, during the twelve month  periods
ended December 31, 1996 and 1995, respectively. In addition,
the  Supply Agreement granted Medtronic a right to negotiate
for  acquisition  of  the exclusive right  to  purchase  and
distribute  the  EP-3  for a period  of  60  days  upon  its
completion  of  development, and an option  terminating  two
years after expiration of the Supply Agreement to distribute
the  EP-3  on  a non-exclusive basis on the same  terms  and
conditions as offered to any third party.  Medtronic did not
exercise  any of its rights under the Supply Agreement  with
respect to the EP-3 and the Supply Agreement expired on  May
1,  1995.   The  Company  and HDI terminated  the  Company's
obligation  to make royalty payments to HDI with respect  to
the  EP-2  and EP-3 (collectively, the "EP Stimulators")  in
August,  1994 in exchange for 66,000 shares of the Company's
Common Stock issued to HDI and the assumption by the Company
of  HDI's promissory note payable to Medtronic in the amount
of  $270,000 (the "Medtronic Note").  As of such  date,  the
Company  had  made  aggregate royalty  payments  to  HDI  of
$114,750  as  to  EP Stimulators, and was obligated  to  pay
additional  royalties of $335,250, as  well  as  $67,500  of
other debt due HDI.  HDI subsequently acquired the Medtronic
Note   from  Medtronic  and,  in  July,  1995,  the  Company
satisfied the Medtronic Note in full by paying to  HDI  cash
of  $70,000 and issuing $200,000 aggregate principal  amount
of  1995  Debentures,  with attached warrants  covering  the
right  to  purchase  100,000 shares of Common  Stock  at  an
exercise price of $2.00 per share.

The  Company entered into a manufacturing agreement with HDI
(the "Stimulator Manufacturing Agreement") during May, 1993,
pursuant   to  which  HDI  was  engaged  as  the   exclusive
manufacturer   of   the  EP  Stimulators.   The   Stimulator
Manufacturing  Agreement provided for the  purchase  by  the
Company  of at least 200 EP Stimulators prior to  March  31,
1996.   The  Company purchased products from HDI aggregating
$392,000  and  $424,000  during  the  twelve  months   ended
December 31, 1996 and 1995, respectively, including  amounts
under the Stimulator Manufacturing Agreement.

The  Company  entered into a Master Manufacturing  Agreement
with  HDI  during  April  1996  (the  "Master  Manufacturing
Agreement") which provides that HDI will manufacture the  EP
WorkMate,  the  EP-3, the TeleTrace III  Receiver,  and  all
subsequent versions of such products for the Company  on  an
exclusive basis in accordance with GMP regulations  and  all
other   applicable   laws  and  regulations.    The   Master
Manufacturing Agreement has a term of five years  commencing
on  March  31,  1996 and, unless terminated by either  party
upon  at  least  90 days written notice, will  automatically
renew   for  successive  terms  of  one  year.   The  Master
Manufacturing Agreement also contains a one year warranty by
HDI  as to materials, workmanship and conformance to written
specifications. HDI also agrees to indemnify the Company for
damages  resulting  from HDI's breach or failure  to  comply
with  any term of the Master Manufacturing Agreement, agrees
to  keep all proprietary information of the Company relating
to  products  manufactured for the Company confidential  and
agrees  to  maintain certain product liability insurance  to
which  the  Company is named as an additional insured.   The
Master  Manufacturing Agreement also provides for the waiver
by HDI of any remaining minimum order requirements under the
Stimulator Manufacturing Agreement.

TELETRACE RECEIVER AND MEMORYTRACE MONITORS
In  July,  1994, the Company entered into an agreement  with
HDI (the "Monitor Acquisition Agreement"), pursuant to which
the  Company acquired all of HDI's rights to (i)  the  4221,
4222   and   4222   ATM   arrhythmia   monitors,   including
manufacturing  drawings and regulatory  approvals  (ii)  the
TeleTrace  III  Receiver, (iii) a newly  designed  4400  ATM
arrhythmia  monitor,  including manufacturing  drawings  and
regulatory   approvals  and  (iv)  the  ValveBase   software
program,  in consideration of 50,000 shares of Common  Stock
as  of  such  date  and 50,000 shares of Common  Stock  upon
submission  to  the  FDA  of  a  newly  designed  arrhythmia
monitor.   HDI agreed to manufacture the arrhythmia monitors
and  any  new generation of the TeleTrace Receiver  for  the
Company at a price that provides HDI no greater than  a  30%
gross  margin.   In addition, HDI and Messrs. Varrichio  and
Winstrom  agreed  not  to  design or manufacture  arrhythmia
monitors for any other party for the greater of three  years
or  so  long  as  the  Company uses HDI to  manufacture  its
arrhythmia monitors, with certain exceptions.  In  February,
1996,  the  Company  agreed to grant HDI certain  additional
exceptions  in  exchange  for HDI's  agreement  to  pay  the
Company 10% of the gross revenues received by HDI under  the
excepted manufacturing arrangements.

In January, 1995, the Company entered into an agreement with
HDI  pursuant to which HDI agreed to continue to develop the
TeleTrace  III-S Receiver, in exchange for $30,000  in  cash
and  10,000  shares  of Common Stock  of  the  Company.   In
September,   1995,   the  parties  agreed   to   amend   the
consideration to be paid to HDI to 19,000 shares  of  Common
Stock  of the Company issued immediately and a cash  payment
of  $30,000  upon completion of development,  including  all
documentation necessary for filing a 510(k) submission  with
the  FDA.   The parties subsequently entered into a  written
amendment memorializing this agreement.  Development of  the
TeleTrace III-S Receiver is ongoing.

The  Company has determined that continued sale and  service
of  arrhythmia monitors does not represent a good  strategic
fit with the Company's existing products and planned product
line, including the ALERT System, due, in part, to the  fact
that  the  potential customers for arrhythmia  monitors  are
different  than those purchasing electrophysiology equipment
and  catheters.  The Company also determined that the  gross
margins generated by arrhythmia monitors were not sufficient
to justify the expense and efforts by its direct sales force
to  generate sales of such product.  Therefore, the  Company
plans  to  discontinue  sale  of  the  MemoryTrace  line  of
arrhythmia  monitors.   Sales of  arrhythmia  monitors  were
approximately  $12,000  and  $198,000  in  the  years  ended
December  31, 1996 and 1995, respectively.  The Company  has
recently  agreed to sell its rights, title and  interest  in
(i)  the  4221,  4222  and  4222  ATM  arrhythmia  monitors,
including  manufacturing drawings and  regulatory  approvals
and  (ii)  the 4400 ATM arrhythmia monitor, currently  under
development  by HDI, to HDI in return for 60,000  shares  of
common  stock  in  Neomedics, Inc.  ("Neomedics"),  a  newly
created  company involved in the design and  manufacture  of
implantable  medical devices.  Neomedics is an affiliate  of
HDI.   In  addition, HDI and Messrs. Varrichio and  Winstrom
were  released  from  their  agreement  not  to  design   or
manufacture arrhythmia monitors for parties other  than  the
Company.

EP WORKMATE
The  Company  uses HDI to manufacture and  assemble  the  EP
WorkMate.  The Company paid $209,185 and $54,570 to HDI  for
such  manufacturing  and  assembly during  the  years  ended
December 31, 1996 and 1995, respectively.

OTHER SECURITIES TRANSACTIONS
In  September, 1995, the Company issued units  comprised  of
1995  Debentures and 1995 Warrants in the amount of $200,000
to  Medtronic and $200,000 to HDI in consideration for HDI's
forgiveness of $400,000 of accounts payable due HDI from the
Company for products and services provided to the Company by
HDI.   With  respect  to  such issuance  to  Medtronic,  HDI
forgave $200,000 of such accounts payable by the Company  in
lieu  of  reimbursing  Medtronic  for  $200,000  of  prepaid
research and development payments made by Medtronic to  HDI.
During  1996, the holders of the 1995 Debentures elected  to
exercise  their  1995 Warrants through  the  forgiveness  of
amounts due under the 1995 Debentures.

In  December,  1995, the Company entered into  an  agreement
with  an  investor, pursuant to which the Company agreed  to
provide  certain  registration rights to  such  investor  in
connection with his agreement to purchase 100,000 shares  of
the  Company's Common Stock from the Company and to purchase
100,000  shares of Common Stock from Messrs.  Varrichio  and
Winstrom.   The   Company  subsequently   entered   into   a
subscription agreement with such investor pursuant to  which
the  investor  purchased 100,000 shares of Common  Stock  at
$3.00  per  share from the Company. At the  same  time,  the
Company  entered  into  an Investment  Agreement  with  such
investor  and  Messrs. Varrichio and Winstrom,  pursuant  to
which Messrs. Varrichio and Winstrom sold 100,000 shares  of
the  Company's Common Stock to such investor  at  $2.00  per
share,  and  agreed to enter into a "lockup" agreement  with
the  Company's  underwriter in any future  public  offering.
Pursuant  to  the  lock-up  provisions  of  such  Investment
Agreement, Messrs. Varrichio and Winstrom agreed not to sell
or  otherwise dispose of any of their shares of Common Stock
for  a  period  of  one year following  the  initial  public
offering of shares of Common Stock of the Company.

ACQUISITION OF NOTE RECEIVABLE
In   September,  1995,  at  a  time  when  the  Company  was
considering  establishing a catheter manufacturing  facility
based  in  the United Kingdom, the Company acquired  a  note
receivable in the amount of $100,000 from FalFab.  Edwin  K.
Hunter,  who  beneficially owned 504,500  shares  of  Common
Stock  of  the  Company as of March 19,  1997,  was  also  a
principal shareholder of FalFab. The note receivable accrued
interest at 8% per annum and was due and payable on July 15,
1996.   The  Company loaned an additional $7,500  to  Falfab
during the second quarter of 1996. Upon maturity of the note
receivable,  Falfab  was unable to  repay  amounts  due  the
Company  and  was liquidated by its creditors.  Accordingly,
the  Company  reflected a write-off  of  the  $107,500  note
receivable in 1996.

ITEM 13.  FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM
8-K

(a)  Documents filed as a part of this Form 10-KSB:

     (1)  Financial  Statements   The following Consolidated
          Financial  Statements of EP MedSystems,  Inc.  and
          report  of independent public accountants relating
          thereto are filed with this report on Form 10-K:

               Consolidated  Balance Sheets as  of  December
               31, 1996 and 1995

               Consolidated Statement of Operations for  the
               years ended December 31, 1996, 1995 and 1994

               Consolidated   Statements   of   Changes   in
               Stockholders'  Equity  for  the  years  ended
               December 31, 1996, 1995 and 1994

               Consolidated Statements of Cash Flows for the
               years ended December 31, 1996, 1995 and 1994

               Notes to Consolidated Financial Statements

     (3)  Exhibits

               3.1   Amended  and  Restated  Certificate  of
               Incorporation (1)

               3.2  Bylaws, as amended (1)

               10.1  Agreement of Lease dated November, 1995
               between EP     Medical, Inc. and Yeh  Bin  Wu
               an Jean Wu, as landlords (1)

               10.6  Employment Agreement dated as of  March
               1,  1993   between EP Medical, Inc. and David
               A. Jenkins, as      amended (1)

               10.7   Employment  Agreement  dated   as   of
               November  6,  1993    between EP  Acquisition
               Corp. and Joseph C. Griffin, III (1)

               10.8 1995 Director Option Plan (1)

               10.9 1995 Long Term Incentive Plan (1)

               10.10      License  Agreement  dated  as   of
               November,  1,  1995 between      EP  Medical,
               Inc. and Dr. Eckhard Alt, as amended  (1)

               10.11      Consulting Agreement dated  as  of
               February 1, 1996    between EP Medical,  Inc.
               and Raman Mitra  (1)

               10.12      License  Agreement  dated  as   of
               November,  1,  1995 between      EP  Medical,
               Inc. and Sanjeev Saksena (1)

               10.13     Consultant Agreement dated February
               26,  1996  between     EP Medical,  Inc.  and
               Regulatory Strategies, Inc. (1)

               10.14      Investment Agreement  dated  April
               22,  1994  among  EP   Medical,  Inc.,  David
               Jenkins,    Anthony    Varrichio,     William
               Winstrom  and  American Medical  Electronics,
               Inc. (1)

               10.15      Letter  Agreement dated  December,
               15,  1995  between EP      Medical, Inc.  and
               Rudiger Dahle  (1)

               10.16      Investment Agreement dated January
               16,  1996  among EP   Medical, Inc.,  Rudiger
               Dahle,   Anthony   Varrichio   and    William
               Winstrom (1)

               10.20     Letter Agreement dated January  23,
               1995  between  EP     Medical, Inc.  and  Hi-
               Tronics    Designs,    Inc.    relating    to
               development  of  TeleTrace  IV  Receiver,  as
               amended (1)

               10.22       Master  Manufacturing   Agreement
               dated   April   16,   1996       between   EP
               MedSystems, Inc. and Hi-Tronics Designs, Inc.
               (1)

               10.25      Exclusive  Rights Agreement  dated
               May  26, 1996 between     EP MedSystems, Inc.
               and Spire Corporation (1)

               10.26      Letter Agreement dated  April  12,
               1996 between EP     MedSystems, Inc. and  Hi-
               Tronics  Designs,  Inc.  relating   to    the
               TeleTrace IV Receiver (1)

               10.27      Consulting Agreement dated  as  of
               May  24, 1996 between     EP MedSystems, Inc.
               and  Elliott Young and Associates,  Inc.,  as
               amended and restated (1)

               10.28     Stock Option Agreement dated August
               31,  1995 between    EP MedSystems, Inc.  and
               Tracey E. Young, as amended   (1)

               10.29     Registration Rights Agreement dated
               as  of  May  24, 1996  between EP MedSystems,
               Inc. and Tracey E. Young (1)

               10.30      Exclusive License Agreement  dated
               February  27,  1997   between EP  MedSystems,
               Inc. and EchoCath, Inc.

               10.31        Subscription   Agreement   dated
               February  27,  1997   between EchoCath,  Inc.
               and EP MedSystems, Inc.

               11.1      Statement regarding Calculation  of
               Shares  Used in      Computing Net  Loss  per
               Share

               21.1      List of Subsidiaries

               27   Financial Data Schedule (2)



               (1)  Incorporated by reference to the exhibit
               of  the same number previously filed with the
               Commission  in connection with the  Company's
               Registration Statement on Form SB-2 and  Pre-
               Effective Amendments No. 1 and 2 thereto.

               (2)  EDGAR Filing only.

(b)  Reports on Form 8-K

           No  reports on Form 8-K were filed by the Company
during 1996.

             EP MEDSYSTEMS, INC. AND SUBSIDIARY
         INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

1.  FINANCIAL STATEMENTS                             Page

Report of Independent Public Accountants               F-2

Consolidated Balance Sheets as of December 31,
1996 and 1995                                          F-3

Consolidated Statements of Operations for the
years ended December 31, 1996, 1995 and 1994           F-4

Consolidated Statements of Changes in
Shareholders' Equity (Deficit) for the years
ended December 31, 1996, 1995 and 1994                 F-5

Consolidated Statements of Cash Flows for the
years ended December 31, 1996, 1995 and 1994           F-6

Notes to Consolidated Financial Statements             F-7















                             F-1


          REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To EP MedSystems, Inc.:

We have audited the accompanying consolidated balance sheets
of  EP  MedSystems,  Inc.  (a New  Jersey  corporation)  and
subsidiary as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders'  equity
(deficit) and cash flows for each of the three years in  the
period   ended   December  31,  1996.   These   consolidated
financial statements are the responsibility of the Company's
management. Our responsibility is to express an  opinion  on
these consolidated financial statements based on our audits.

We   conducted  our  audits  in  accordance  with  generally
accepted auditing standards. Those standards require that we
plan  and  perform the audit to obtain reasonable  assurance
about  whether the financial statements are free of material
misstatement. An audit includes examining, on a test  basis,
evidence  supporting  the amounts  and  disclosures  in  the
financial  statements. An audit also includes assessing  the
accounting principles used and significant estimates made by
management,  as  well  as evaluating the  overall  financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In  our opinion, the financial statements referred to  above
present  fairly,  in  all material respects,  the  financial
position  of  EP  MedSystems,  Inc.  and  subsidiary  as  of
December  31,  1996  and  1995, and  the  results  of  their
operations and their cash flows for each of the three  years
in  the  period ended December 31, 1996, in conformity  with
generally accepted accounting principles.




                                        ARTHUR ANDERSEN LLP
New York, New York
March 10, 1997



                             F-2
             EP MEDSYSTEMS, INC. AND SUBSIDIARY
                 CONSOLIDATED BALANCE SHEETS
                                                      December 31,
                   ASSETS                          1996          1995
Current assets:
   Cash and cash equivalents                  $  5,491,857  $     34,588
   Short-term investments                        1,794,553        --
   Accounts receivable, net of allowance for
doubtful accounts of $82,709 and $89,100,          671,503       438,120
respectively
   Inventories                                     626,707       469,265
   Notes receivable, net                            -            150,000
   Prepaid expenses and other current assets       185,761        53,648
          Total current assets                   8,770,381     1,145,621
Long-term investments                            3,001,222        --
Property and equipment, net                        181,385       148,954
Intangible assets, net                             615,861       722,448
Other assets                                        31,000        26,837
          Total assets                        $ 12,599,849  $  2,043,860

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Current portion of notes payable           $     --      $     17,200
   Accounts payable                                238,764       281,118
   Payables due to related party                    85,035       258,720
   Accrued expenses                                438,787       248,397
   Deferred revenue                                 42,938       145,875
   Customer deposits                               103,999        91,502
          Total current liabilities                909,523     1,042,812
Long-term debt                                      --         1,180,318
          Total liabilities                        909,523     2,223,130
Commitments and contingencies
Shareholders' equity (deficit):
  Preferred Stock, no par value, 5,000,000
  shares authorized, no shares issued and           --            --
  outstanding
  Common stock,$.001 stated value, 5,000,000
  shares authorized, 7,599,917 and 4,352,000
  shares issued and outstanding                      7,600         4,352
  Additional paid-in capital                    16,743,014     3,306,088
  Accumulated deficit                           (5,060,288    (3,489,710
                                                         )             )
Total shareholders' equity (deficit)            11,690,326     (179,270)
Total liabilities and shareholders' equity    $ 12,599,849  $  2,043,860

    The accompanying notes are an integral part of these
                         statements.
                             F-3
             EP MEDSYSTEMS, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF OPERATIONS


                                         For the years ended December 31,
                                           1996           1995           1994
<TABLE>
<S>                                   <C>            <C>            <C>
Product sales                         $   2,065,959  $   2,001,137  $   1,512,076
Revenue from catheter development           250,000        --             --
          Total revenues                  2,315,959      2,001,137      1,512,076

Operating costs and expenses:
 Cost of products sold                    1,161,948      1,257,468        913,457
 Sales and marketing expenses               764,765        477,209        262,770
 General and administrative expenses      1,068,964        757,635        648,135
 Depreciation and amortization              171,493        170,271        383,532
 Research and development expenses          856,191        320,311        129,855
 Acquired research and development          --             450,000        500,000
 Write-off of intangible and other
assets                                      107,500        --             215,216
          Loss from operations          (1,814,902)    (1,431,757)    (1,540,889)

Interest expense                           (44,779)       (50,893)       (55,961)
Interest income                             338,335        --             --
Write-off of unamortized discount
  on Debentures                            (49,232)        --             --
          Net loss                    $ (1,570,578)  $ (1,482,650)  $ (1,596,850)

Net loss per share                    $       (.23)  $       (.26)  $       (.29)

Weighted average shares outstanding       6,762,019      5,789,654      5,480,262

Supplementary net loss per  share     $       (.22)  $       (.25)
</TABLE>

The  accompanying  notes  are  an  integral  part  of  these
statements

                             F-4
             EP MEDSYSTEMS, INC. AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                          (DEFICIT)
    For the Years Ended December 31, 1996, 1995 and 1994

<TABLE>
                                                    Additional
                               Common Stock          Paid-in       Accumulated
                             Shares      Amount      Capital         Deficit
<S>                         <C>         <C>        <C>             <C>             <C>
Balance, January 1, 1994    3,487,500   $ 3,488    $  1,199,100    $ (410,210)     $   792,378
Issuance of common stock      367,500       367         663,033        --              663,400
Issuance of common stock
 for acquisition of
 technology from Bio-
 Physical Interface Corp.      37,500        38          49,962        --               50,000
Issuance of common stock
 for acquisition of
 technology from Electro-
 Physiology Systems, Inc.     200,000       200         399,800        --              400,000
Issuance of common stock
 for acquisition of
 intangible assets
 from HDI                      50,000        50          99,950        --              100,000
Issuance of common stock
 in payment of debt            66,000        66         132,684        --              132,750
Issuance of common stock
  for the conveyance
  of assets for steerable
  catheter technology          50,000        50          99,950        --              100,000
Net loss                       --          --           --         (1,596,850)     (1,596,850)
Balance,December 31, 1994   4,258,500  $  4,259  $    2,644,479  $ (2,007,060)  $      641,678
Issuance of common stock
  to HDI for research and
  development expenses         69,000        69         137,931        --              138,000
Issuance of common stock
  for consulting services      14,500        14          28,986        --               29,000
Value of debenture
 warrants issued               --          --            54,702        --               54,702
Stock options issued in
  connection with ALERT
  licensing agreement          --          --           420,000        --              420,000
Issuance of common stock
  for licensing agreement
  of Saksena patent            10,000        10          19,990        --               20,000
Net loss                       --          --           --         (1,482,650)     (1,482,650)
Balance, December 31,1995   4,352,000  $  4,352  $    3,306,088  $ (3,489,710)  $    (179,270)
Issuance of common stock      166,667       167         499,833        --              500,000
Issuance of common stock
  upon exercise of
  stock options                12,500        12          16,654        --               16,666
Issuance of common stock
  upon initial public
  offering                  2,500,000     2,500      11,783,508        --           11,786,008
Issuance of common stock
  upon exercise of
  1995 Warrants               568,750       569       1,136,931        --            1,137,500
Net loss                           --        --              --    (1,570,578)     (1,570,578)
Balance,December 31, 1996   7,599,917  $  7,600  $   16,743,014  $ (5,060,288)  $   11,690,326

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

                             F-5

             EP MEDSYSTEMS, INC. AND SUBSIDIARY
            CONSOLIDATED STATEMENTS OF CASH FLOWS
              For the Years Ended December 31,
<TABLE>
<S>                                               <C>             <C>            <C>
                                                        1996           1995           1994

Cash flows from operating activities:
 Net loss                                         $  (1,570,578)  $ (1,482,650)  $ (1,596,850)
 Adjustments to reconcile net income to net
   cash provided (used) by operating activities:
 Depreciation and amortization                           171,493        170,271        383,532
 Acquired research and development                       --             440,000        500,000
 Issuance of stock for consulting services               --              29,000        --
 Issuance of stock for research and development          --             138,000        --
 Write-off of intangible and other assets                107,500        --             215,216
 Write-off of unamortized discount on Debentures          49,232        --             --
 Amortization of discount on payable to
   related parties                                       --             --              24,241
 Amortization of premium or discount on
   long-term and short-term investments                  (6,233)        --             --
 Bad debt expense                                          5,017         52,400         36,700
   Changes in assets and liabilities:
   (Increase) in accounts receivable                   (238,400)      (194,449)      (234,067)
   (Increase) decrease in inventories                  (157,442)         18,433      (260,221)
   (Increase) decrease in prepaid expenses
      and other current assets                         (132,113)       (48,526)         42,513
   (Increase) in other assets                            (4,163)       (26,837)        (4,500)
   (Decrease) increase in due to related party         (173,685)        177,988         11,524
   (Decrease) increase in accounts payable              (42,354)        131,513         98,388
   Increase (decrease) in accrued expenses,
      deferred revenue and customer deposits              99,950        256,941         64,057
   Net cash used in operating activities             (1,891,776)      (337,916)      (719,467)
Cash flows from investing activities:
   Purchase of investments                          (21,567,497)        --             --
   Proceeds from sale of investments                  16,777,955        --             --
   Capital expenditures, net of disposals               (97,337)       (55,754)       (33,030)
   Loan to FalFab                                        (7,500)      (100,000)        --
      Net cash used in investing activities          (4,894,379)      (155,754)       (33,030)
Cash flows from financing activities:
  (Repayments)proceeds from debentures, net             (62,500)        687,500        --
   Proceeds from issuance of common stock,
      net of offering expenses                        12,398,508        --             663,400
   Proceeds from exercise of stock options                16,666        --             --
   Payments of borrowing under line of credit            --             --           (102,681)
   (Payments) proceeds from borrowings                   --            (70,000)         66,000
   Payment of notes payable                            (109,250)      (109,250)        --
   Payment due to related party                          --             --            (58,500)
  Net cash provided by financing activities           12,243,424        508,250        568,219
  Net increase (decrease) in cash and cash
      equivalents                                      5,457,269         14,580      (184,278)
Cash and cash equivalents, beginning of period            34,588         20,008        204,286
Cash and cash equivalents, end of period             $ 5,491,857       $ 34,588       $ 20,008
The  accompanying  notes  are  an  integral  part  of  these
statements.
                             F-6

             EP MEDSYSTEMS, INC. AND SUBSIDIARY
         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  NATURE OF BUSINESS
EP  MedSystems, Inc. (the "Company") was incorporated in the
State  of New Jersey in January, 1993. The Company develops,
markets,   sells   and   services   a   line   of    cardiac
electrophysiology ("EP") products used to diagnose,  monitor
and  treat  cardiac  disorders. The  Company's  wholly-owned
subsidiary,  ProCath  Corporation ("ProCath"),  manufactures
and markets pacing catheters, used to pace a patient's heart
on  a  temporary  basis,  and  diagnostic  electrophysiology
catheters, used to detect electrical conduction disturbances
in  the  heart by sending and receiving electrical impulses.
The  Company  is presently developing a low energy  internal
cardioversion  catheter system for atrial fibrillation  (the
"ALERT System").

The  Company  faces a number of risks, including significant
operating  losses, the availability of sufficient  financing
to  meet  its future cash requirements and market acceptance
of  existing and future products. Additionally,  other  risk
factors  such as government regulation, uncertainty  of  new
product development, changes in relationships with its third-
party  distributors, significant competition, dependence  on
limited sources of supply of non-catheter products, the loss
of  key personnel and difficulty in establishing, preserving
and  enforcing intellectual property rights could impact the
future results of the Company.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of Consolidation
The  consolidated financial statements include the  accounts
of  EP  MedSystems,  Inc.  and its wholly-owned  subsidiary,
ProCath. All material intercompany accounts and transactions
have been eliminated in consolidation.

Cash and Cash Equivalents
The Company considers all highly liquid investments with  an
original  maturity of three months or less to  be  cash  and
cash equivalents.

Accounts Receivable and Notes Receivable
The  Company's customer base for its products  is  primarily
comprised of hospitals, distributors and to a lesser extent,
office-based practitioners throughout the United States  and
abroad.   On  certain transactions, the Company may  require
payment  in advance or an issuance of an irrevocable  letter
of  credit.  The  Company believes that its  terms  of  sale
provide adequate protection against significant credit  risk
with respect to trade accounts receivable.

At  December 31, 1995, the Company had two notes  receivable
aggregating  $150,000: a $50,000 6% note receivable  arising
from  the  subscription to the Company's debenture  offering
which  was collected in February, 1996; and a $100,000  note
receivable  from  Falfab,  L.L.C.,  a  UK-based  angioplasty
catheter manufacturer ("Falfab"), which matured on July  15,
1996.   The  Company loaned an additional $7,500  to  Falfab
during  the  second quarter of 1996.  Upon maturity,  Falfab
was  unable  to  repay the amounts due the Company  and  was
liquidated  by  its  creditors.  Accordingly,  the   Company
reflected  a  write-off of the $107,500 note  receivable  in
1996.   A  former  shareholder of  Falfab  is  a  beneficial
shareholder in excess of 5% of the outstanding shares of the
Company's common stock.

Inventories
Inventories  are valued at the lower of cost or market  with
cost being determined on a first-in, first-out basis.

Property and Equipment
Machinery  and  equipment  are  recorded  at  cost  and  are
depreciated  on  a  straight-line basis over  the  estimated
useful  lives  of  the assets ranging from  three  to  seven
years.   Leasehold improvements are amortized on a straight-
line  basis over the shorter of their estimated useful lives
or  the  term  of the lease.  Expenditures for  repairs  and
maintenance are expensed as incurred.

Intangible Assets
Intangible assets are being amortized over a period  ranging
from two to fifteen years, with technology related to the EP-
2  Clinical Stimulator ("EP-2") amortized on a straight-line
basis  over  two  years; cardiac monitoring  technology  and
arrhythmia monitoring technologies are being amortized on  a
straight-line   basis   over  three  years;   and   catheter
technology is being amortized on a straight-line basis  over
fifteen  years.  Patents and license costs are  expensed  as
incurred.

Long-Lived Assets
On  January  1,  1996,  the  Company  adopted  Statement  of
Financial  Accounting  Standards  No.  121  "Accounting  for
Impairment of Long-Lived Assets and for Long-Lived Assets to
be  Disposed  Of" ("SFAS 121").  SFAS 121 requires  that  an
entity  review  its  long-lived assets and  certain  related
intangibles  for impairment whenever events  or  changes  in
circumstances indicate that the carrying amount of an  asset
may  not  be fully recoverable.  As a result of its  review,
adoption of this standard did not have a material impact  on
the Company's results of operations or financial position.

Revenue Recognition
The  Company  recognizes  product revenue  on  the  date  of
shipment.   Payments  received in  advance  of  shipment  of
product  are  deferred  until  such  products  are  shipped.
Revenues related to warranty contracts are recognized  on  a
straight-line basis over the warranty period.

Research and Development
Research  and development costs incurred in connection  with
developing existing and acquired technology are expensed  as
incurred.  Costs incurred in developing patents are expensed
as incurred.

Net Loss Per Common Share
Net  loss per share is computed by dividing net loss by  the
weighted average number of shares of common stock and common
stock  equivalents outstanding during the periods presented.
The  weighted average number of shares is based upon (i) APB
15 for the periods after June 30, 1996 which excludes common
stock  equivalents  as  they  are  antidilutive,  and   (ii)
Securities and Exchange Commission Staff Accounting Bulletin
No.  83 ("SAB 83"), for periods prior to June 30, 1996.   In
applying  SAB  83, common stock, stock options and  warrants
issued during the twelve months preceding the initial public
offering  (see  Note 3) at prices below the  initial  public
offering price, have been included in the Company's loss per
share  computation  for  all periods  presented,  using  the
treasury  stock method, even though they were  antidilutive.
Stock  options  issued prior to the twelve months  preceding
the  initial  filing  of  the initial  public  offering  are
excluded as they are antidilutive.

Supplementary Net Loss Per Common Share
Supplementary  net loss per common share is computed  as  if
all  of the 1995 Debentures as of December 31, 1996 and 1995
had been paid at the beginning of the period or the date  of
issuance,  if  later, and assuming that (i)  222,385  common
shares  were  issued  to pay the 1995  Debentures  and  (ii)
$33,875  and $24,286 of interest expense was eliminated  for
the  periods ending December 31, 1996 and 1995, respectively
as a result of such payment.

Stock Options
The  Company  accounts for stock options in accordance  with
Accounting  Principles Board Opinion No. 25 "Accounting  for
Stock  Issued  to  Employees" ("APB  25")  and  adopted  the
disclosure requirements of Statement of Financial Accounting
Standard  No.  123 "Accounting for Stock Based Compensation"
("SFAS  123") for the year ending December 31,  1996.   (See
Note 13).
Use of Estimates
The  preparation of financial statements in conformity  with
generally accepted accounting principles requires management
to  make  estimates and assumptions that affect the  amounts
reported in the financial statements and accompanying notes.
Although these estimates are based on management's knowledge
of  current  events  and actions it  may  undertake  in  the
future,  the  estimates may ultimately  differ  from  actual
results.

Reclassification
Certain prior year amounts have been reclassified to conform
with the current year's presentation.


3.   ISSUANCE OF COMMON STOCK

During  January,  1996, the Company  sold  an  aggregate  of
166,667  shares  of  Common Stock  to  two  investors  at  a
purchase  price of $3.00 per share.  The net  proceeds  from
the sale were $500,000.
On  June 21, 1996, the Company completed its initial  public
offering  of 2,500,000 shares of Common Stock at a  purchase
price  of  $5.50  per  share.  The  net  proceeds  from  the
offering  were  approximately $11,786,000  net  of  offering
costs.

4.   INVESTMENT SECURITIES

The  Company  accounts  for  its  investment  securities  in
accordance with Statement of Financial Accounting  Standards
No.  115,  "Accounting for Certain Investments in  Debt  and
Equity    Securities."    This   Statement   requires    the
classification  of  debt  and  equity  securities  based  on
whether  the  securities  will  be  held  to  maturity,  are
considered  trading securities, or are available  for  sale.
Classification  within  these  categories  may  require  the
securities  to be reported at their fair market  value  with
unrealized gains and losses included in current earnings  or
reported  as  a separate component of stockholders'  equity.
As  of  December  31,  1996,  all short-term  and  long-term
investments,  except  for  $297,828  invested  in  corporate
preferred  stock, have been classified as held to  maturity.
These  investments  are  stated  at  amortized  cost,  which
approximates  market, and consist of U.S. Agency  Notes  and
corporate  bonds.   The maturities of long-term  investments
range from August, 1998  to September 2000.  At December 31,
1996, the Company classified $297,828 invested in two issues
of  corporate preferred stock as available for sale.   These
investments  are stated at market, which approximates  their
amortized cost.

Short-term and long-term investments held to maturity at
December 31, 1996 are as follows:


     Held to maturity securities:

     Short-term investments

          U.S   Government   Agency  $ $1,496,725
     Obligations



     Long-term investments

        Corporate bonds              $ $3,001,222



     Total    held   to    maturity  $ $4,497,947
     securities


The Company's available for sale securities are as follows:
     Corporate preferred stocks      $    297,828



5.    ACQUISITIONS  OF PRODUCTS AND TECHNOLOGY  AND  RELATED
PARTY TRANSACTIONS

Technology from Hi-Tronics Design, Inc.
General
The  Company's initial shareholders were David  A.  Jenkins,
its current Chairman, President and Chief Executive Officer,
and  Hi-Tronics Designs, Inc. ("HDI"), a corporation engaged
in  the  business of contract engineering and manufacturing.
The  Company acquired rights to its first product, the EP-2,
from  HDI,  and  in its early stages, the Company  subleased
office space from HDI, participated in HDI's employee health
insurance  policies and utilized personnel,  facilities  and
other  related  resources  in  an  effort  to  quickly   and
efficiently develop the Company's operations and to minimize
cash  expenditures. In subsequent periods, the  Company  has
purchased  rights  to certain other products  and  the  next
generation of several products under development  from  HDI.
The  Company has utilized, and continues to utilize, HDI  to
provide research and development for various products.  When
economically   advantageous,  or  practical,   the   Company
utilizes HDI to manufacture its products, including  the  EP
WorkMate,  EP-3  Clinical Stimulator  ("EP-3")  and  certain
other products. The value of products and services purchased
from   HDI,  excluding  the  purchase  of  technology,   was
$392,000,  $424,000,  $471,000  in  1996,  1995  and   1994,
respectively.    In April 1996, the Company entered  into  a
five  year  exclusive manufacturing agreement  with  HDI  to
manufacture certain products.  During May, 1996 the  Company
borrowed  $50,000  from  HDI. The  promissory  note  accrued
interest at 9.25% and was repaid on June 30, 1996.

EP-2 Clinical Stimulator
On  March  3,  1993, the Company acquired from HDI  all  the
rights, title and interest to the EP-2 for a purchase  price
of   $810,000,  which  was  principally  allocated  to   the
intangible  assets acquired.  The Company paid  $360,000  of
the  purchase  price  at the date of  acquisition  with  the
remaining  $450,000  payable in  four  payments  of  varying
amounts  through February, 1995.  The Company  also  entered
into  a manufacturing agreement with HDI to manufacture  the
EP-2 and any subsequent models.  In 1994, after payments  of
$114,750 were made, the Company changed the original payment
schedule  of the purchase price for the EP-2, together  with
$67,500  of other debt due HDI.  The Company issued  to  HDI
66,000  shares  of its common stock and assumed  a  $270,000
note  (the  "Medtronic Note") payable by HDI  to  Medtronic,
Inc., a shareholder of the Company, with interest at 8%,  as
full  payment  for the remaining obligations. In  connection
with  the  assumption  of the Medtronic  Note,  the  Company
signed  a  security agreement with HDI whereby all inventory
and   proceeds   generated  from  the  sale   of   inventory
manufactured  by HDI relating to stimulator  products  would
serve as collateral for the loan.  In 1995, the Company paid
off   $70,000  of  the  Medtronic  Note  and  converted  the
remaining  principal into $200,000 face amount of debentures
issued  in  full  satisfaction of the amounts  due  and  the
security agreement was terminated (See Note 11).  Gains  and
losses  resulting from the modification of debt  terms  were
not material.

In November, 1994, the Company discontinued selling the EP-2
in favor of the EP-3. Accordingly, the Company wrote off the
net book value of the intangible assets of $215,216 relating
to the EP-2.

Arrhythmia Monitors and TeleTrace Receivers
In  July, 1994, the Company acquired from HDI certain rights
to  (i)  the  4221,  4222 and 4222 ATM arrhythmia  monitors,
including  manufacturing drawings and regulatory  approvals,
(ii) the TeleTrace III Receivers, and (iii) a new arrhythmia
monitor,  the 4400 ATM, to be developed by HDI. In  exchange
for  the rights to these assets, the Company agreed to issue
HDI  100,000 shares of its common stock, valued at $200,000,
50,000  on the agreement date and 50,000 upon submission  to
the FDA of the new arrhythmia monitor.  In 1995, the Company
issued  the additional 50,000 shares to HDI even though  the
Company has not yet submitted data for the review by the FDA
of  the  new  arrhythmia monitor.  HDI agreed to manufacture
the  arrhythmia  monitors  and any  new  generation  of  the
TeleTrace  Receiver (the "TeleTrace III-S") for the  Company
and  agreed  to  not engage in the design or manufacture  of
arrhythmia  monitors, with exceptions, for a period  of  the
greater of three years or so long as the Company uses HDI to
manufacture its arrhythmia monitors.  Of the purchase price,
$100,000  was  allocated to technology  rights  in  existing
arrhythmia  monitors.  The shares  issued  relating  to  the
arrhythmia  monitors being developed by  HDI  were  expensed
during  the year ended December 31, 1995, as work  performed
represented research and development costs.

In January, 1995, the Company entered into an agreement with
HDI pursuant to which HDI agreed to continue development  of
the  TeleTrace III-S Receiver in exchange for 10,000  shares
of  common  stock of the Company and $30,000  in  cash  upon
completion of development.  In September, 1995, the  parties
agreed  to  amend the consideration to be 19,000  shares  of
Common  Stock, issued immediately, and $30,000 in cash  upon
completion of development.  The Company recorded a charge to
research and development expense of $38,000 during the  year
ended December 31, 1995.  During the year ended December 31,
1996,  no  amounts were charged to research and  development
expense and development of the TeleTrace III-S is ongoing.

The  Company has determined that continued sale and  service
of  arrhythmia monitors does not represent a good  strategic
fit with the Company's existing products and planned product
line, including the ALERT System, due, in part, to the  fact
that  the  potential customers for arrhythmia  monitors  are
different    than    those    purchasing    the    Company's
electrophysiology equipment and catheters.  The Company also
determined  that the gross margins generated  by  arrhythmia
monitors  were  not sufficient to justify  the  expense  and
efforts of its direct sales force to generate sales  of  the
product.   Therefore, the Company plans to discontinue  sale
of  the  MemoryTrace line of arrhythmia monitors.  Sales  of
arrhythmia monitors were approximately $12,000 and  $198,000
in the years ended December 31, 1996 and 1995, respectively.
In  1997,  the Company agreed to sell its rights, title  and
interest  in  (i)  the  4221, 4222 and 4222  ATM  arrhythmia
monitors,  including manufacturing drawings  and  regulatory
approvals,  and  (ii)  the  4400  ATM  arrhythmia   monitor,
currently under development by HDI, to HDI in return for the
60,000  shares of common stock in Neomedics, Inc.,  a  newly
created  company involved in the design and  manufacture  of
implantable medical devices, which is affiliated with HDI.

Technology from BioPhysical Interface Corp.
On  February 18, 1994, the Company acquired from BioPhysical
Interface  Corp.  all the rights to the PaceBase,  TeleTrace
and   HeartBase  Software  Packages  and  the  Pacer  System
Analyzer and Simulator for 37,500 shares of its common stock
valued  at  $50,000.  The  cost  of  this  acquisition   was
capitalized as an intangible asset and is being amortized on
a straight-line basis over a three year period.

6.   ACQUIRED RESEARCH AND DEVELOPMENT AND LICENSE
AGREEMENTS

ACQUIRED RESEARCH AND DEVELOPMENT
The  Company has entered into numerous transactions  whereby
it   has  acquired  technology.  This  technology  has  been
expensed as acquired research and development as at the date
of   acquisition,  the  technological  feasibility  of   the
acquired  technology  had not yet been established  and  the
technology had no future alternative uses.

Technology from ElectroPhysiology Systems, Inc.
In May, 1994, the Company purchased substantially all of the
assets  of  ElectroPhysiology  Systems,  Inc.  ("EPSI"),   a
company    engaged   in   the   development   of    a    new
electrophysiology workstation. At the date  of  acquisition,
no  copyrights, patents, or revenues existed  for  EPSI.  In
connection  with this purchase, the Company  issued  200,000
shares of common stock valued at $400,000. During 1994,  the
Company expensed the purchase price as acquired research and
development  expense  as technological  feasibility  of  the
acquired  technology  had not yet been established  and  the
technology  had no future alternative uses. In  1995,  after
the product received market clearance, the Company commenced
selling a commercial product.

Steerable Catheters
In October, 1994, the Company acquired all rights, title and
interest  in  certain technology relating to uni-directional
and bi-directional steerable catheters under development  by
a  certain  individual.   The purchase  price  consisted  of
100,000 shares of the Company's common stock, which  was  to
be  issued  in  four  equal amounts upon the  occurrence  of
certain events. Through December 31, 1994, 50,000 shares  of
common  stock  were  issued at a  value  of  $100,000.   The
Company  will  not issue the remaining 50,000 shares  as  it
presently  does  not plan to pursue the  events  that  would
necessitate the issuance of the remaining common stock.  The
Company  has  recorded the cost to acquire these  rights  as
acquired  research and development expense as no  commercial
product   existed   when  it  was  acquired,   technological
feasibility   had  not  been  established  and   no   future
alternative  uses  exist  for the technology.   No  tangible
assets were acquired in connection with this acquisition and
no  revenues  from product sales had occurred prior  to  the
acquisition.

LICENSE AGREEMENTS

 ALERT Catheter
In   November,  1995,  the  Company  acquired  an  exclusive
worldwide  license  to  the  rights  to  certain  technology
developed  by  Dr.  Eckhard  Alt  for  a  Temporary   Atrial
Defibrillation  Catheter  and  Treatment  Method   and   all
licensed   products  and  licensed  methods  and  associated
techniques, counterparts and improvement patents (the "ALERT
Technology").  In consideration of the license, the  Company
(i)  granted  Dr.  Alt an option to buy  210,000  shares  of
common stock at $.10 per share beginning on May 1, 1996  and
ending  on November, 1, 2000; (ii) granted an option to  buy
an  additional  164,000 common stock options exercisable  at
$2.00  for  a  period  of  five  years,  vesting  upon   the
occurrence of certain events, including issuance of  patents
and  an  FDA pre-marketing approval and (iii) agreed to  pay
royalties  ranging  up to 5% of net sales  of  the  licensed
products  until the expiration of the licensed patents.   In
1995, the Company recorded $420,000 as acquired research and
development  expense  as technological feasibility  has  not
been  established.  This amount represented the fair  market
value of the option on the issue date.

Saksena License
In  November,  1995, the Company acquired  a  semi-exclusive
worldwide  license  to  the  rights  to  certain  technology
developed by Dr. Sanjeev Saksena for a Temporary Ventricular
Defibrillation Catheter and Treatment Method and  associated
techniques,  methods, counterparts and improvement  patents.
In  consideration  of the license, the Company  granted  Dr.
Saksena 10,000 shares of common stock and $10,000 cash.  The
license  agreement also calls for the payment  of  royalties
ranging up to 5% of net sales of the licensed products until
the  expiration of the licensed patents up to a  maximum  of
$1,000,000.  In 1995, the Company recorded acquired research
and  development  expense of $30,000, which represented  the
fair  market  value  of the Company's common  stock  on  the
license   date   plus   the   cash  payment.   Technological
feasibility  of this technology had not been established  at
the license date.

Spire Corporation License
In  May, 1996, the Company entered into an Exclusive  Rights
Agreement  (the  "Rights Agreement") with Spire  Corporation
("Spire"), whereby the Company obtained the exclusive  right
to  develop the clinical and commercial potential of Spire's
proprietary ion beam deposition process for applying a  thin
metallic   coating   to   the  Company's   electrophysiology
catheters  and accessories.  During the term of  the  Rights
Agreement,  the  Company is required to obtain  all  of  its
requirements  for  products treated with such  a  metallized
coating  from  Spire.   The Rights  Agreement  provides  for
payments of $25,000 per quarter commencing on June  1,  1996
to  maintain exclusivity for an initial term of five  years,
with  provision  for  two  year renewal  terms  upon  mutual
agreement  of  the  parties. The  Rights  Agreement  may  be
terminated at any time by the Company upon 60 days'  notice.
As  of  December 31, 1996, the Company recorded  $58,333  as
research  and  development expense related to  this  license
fee.

7.   AGREEMENTS WITH INCONTROL

During  1996,  the  Company  recorded  catheter  development
revenue  of  $250,000 related to a Product  Development  and
Supply   Agreement   (the  "Development   Agreement")   with
InControl,  Inc.   The Development Agreement  covers  a  new
temporary  atrial defibrillation catheter ("TADCATH").   The
Development   Agreement  provides  for  payment   in   three
installments,  with  the  final  $90,000  installment  after
receipt by the Company of CE Mark approval for its temporary
defibrillation catheters.  CE Mark approval was received  in
January,  1997.   The  Company will manufacture  and  supply
TADCATH  to  InControl  for clinical trials  and  subsequent
sales.   The  agreement  calls for  certain  annual  minimum
purchases.    InControl  will be responsible  for  complying
with   the   regulatory  requirements  and   marketing   and
distributing the TADCATH.  The Company will make  a  $75,000
payment  to  support the clinical trials  in  Europe.   Such
payment  has been accrued for in the consolidated  financial
statements at December 31, 1996.

The  Company  also  entered into non-exclusive  distribution
agreements which allow InControl to sell the ALERT  Catheter
in parts of Europe, Africa and the Middle East and the ALERT
Companion  on a world-wide basis for a period of  two  years
subject to renewal upon mutual agreement of the parties.

8.   INTANGIBLE ASSETS

Intangible assets consist of the following:
                                         December 31,
                                      1996          1995
Catheter technology                 $ 774,099     $ 774,099
Arrhythmia monitors                   100,000       100,000
Cardiac monitoring technology          50,000        50,000
Other                                   6,900         6,900
                                      930,999       930,999
Less: accumulated amortization      (315,138)     (208,551)
                                    $ 615,861     $ 722,448


9.   INVENTORIES

Inventories consist of the following:
                                    December 31,
                                   1996          1995
     Raw materials               $ 173,936     $ 285,326
     Work in progress               11,456        21,671
     Finished goods                441,315       162,268
                                 $ 626,707     $ 469,265



                            F-16

             EP MEDSYSTEMS, INC. AND SUBSIDIARY
   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)

10.  PROPERTY AND EQUIPMENT

Property and equipment consist of the following:
                                           December 31,
                                        1996          1995
Leasehold improvements                $ 112,670       $90,540
Machinery and equipment                 244,559       169,352
                                        357,229       259,892
Less: accumulated depreciation        (175,844)     (110,938)
                                      $ 181,385     $ 148,954


11.   DEBT

Debentures
Commencing  July,  1995, the Company  issued  $1,137,500  of
debentures (of which $687,500 was received in cash,  $50,000
was  received  for subscription which was paid in  February,
1996  and $400,000 was issued in conversion of accounts  and
other  notes payable into debentures) with interest  payable
quarterly beginning September 30, 1995 at a rate of  6%  per
annum  (the  "1995 Debentures").  The maturity date  of  the
debt  was the earlier of June 30, 2000 or 30 days after  the
completion  of  an initial public offering of the  Company's
securities. The holders of the 1995 Debentures also received
warrants  (the "1995 Warrants") to purchase an aggregate  of
568,750  shares of the Company's common stock at  $2.00  per
share exercisable at any time ending on the earlier of  June
30,   2000  or  thirty  days  after  full  payment  of   the
corresponding  1995  Debentures.   In  connection  with  the
issuance  of  the  1995 Debentures, the Company  recorded  a
discount  on  the debentures issued of $54,702  representing
the  value  of  the 1995 Warrants issued.  The discount  was
being  amortized on a straight-line basis over the  life  of
the 1995 Debentures.

During June, 1996, the holders of $1,025,000 face amount  of
1995  Debentures elected to exercise their 1995 Warrants  to
purchase  512,500 shares of common stock at $2.00 per  share
through  the  forgiveness  of amounts  due  under  the  1995
Debentures.   On  June  30, 1996,  the  Company  repaid  the
remaining outstanding 1995 Debentures in the face amount  of
$112,500 in cash.  During the subsequent thirty day  period,
the  holders of the remaining 1995 Warrants exercised  their
option  to purchase 56,250 shares of common stock  at  $2.00
per  share.   Upon  repayment of the  1995  Debentures,  the
Company  wrote  off  the unamortized discount  on  the  1995
Debentures of $49,232.

Note Payable
In  connection with the acquisition of ProCath in 1993,  the
Company  assumed a $218,500 note payable. The note  provided
for  interest payable quarterly, at the rate of 8% per year.
The  principal amount was to be paid in full on November  5,
1995.  In  August, 1995, $109,250 of the outstanding  amount
was  paid and the terms of the note were renegotiated on the
remaining balance to quarterly payments of $4,300 commencing
on October, 1, 1995.  The related interest was accrued at an
annual  rate  of  8% to be paid with the  final  payment  at
maturity. No gain was recorded upon the modification of debt
terms  as  it was not significant.  During September,  1996,
the  Company  repaid the remaining balance of  $92,050  plus
accrued interest on the note.

12.   COMMITMENTS AND CONTINGENCIES

Operating Leases
The  Company  has operating leases relating  to  its  office
space  and  manufacturing  facility  for  periods  extending
through  November,  1997.  The Company also  leases  certain
office  equipment  for periods extending  through  December,
2001. The future aggregate commitment for minimum rentals as
of December 31, 1996 is as follows:

1997                        $78,076

1998                          7,272

1999                          7,272

2000                          7,272

2001 and thereafter           6,636



Rent  expense associated with these leases was approximately
$112,643,  $83,661 and $53,661 for the years ended  December
31, 1996, 1995 and 1994, respectively.

Employment Agreements
The  Company  has employment agreements with  two  corporate
officers and two employees. On August 31, 1995, the  Company
amended the contract of the President through March 1, 1999.
This  contract includes a provision for a bonus equal to  5%
of consolidated pre-tax income effective after completion of
an  initial public offering.  The contract for the President
of  ProCath includes an incentive bonus equal to 5%  of  the
net   income  (before  extraordinary  items)  generated   by
ProCath.   The  agreements  with  the  President   and   the
President   of   ProCath  contain  certain   non-competition
provisions  in the event of termination of their employment.
The Company also has an agreement with the Vice President of
Sales and Marketing which calls for a bonus equal to 1/2% of
1997  net  sales, provided that the Company  is  profitable.
The   aggregate  minimum  commitment  for  future  salaries,
excluding bonuses, as of December 31, 1996, is as follows:

          1997                  $409,000

          1998                   237,400

          1999                   125,807

          2000                   106,722

          2000                   112,058



The   Company  has  key  man  life  insurance  policies  for
$1,000,000  covering  its  President,  $1,000,000  for   the
President of ProCath and $500,000 for the Vice President  of
Engineering, for which it is the beneficiary.

Other
In  August, 1995, the Company entered into an agreement with
a consultant whereby it will compensate such consultant, for
a period of three years, with five percent of net sales made
by  the Company to any non-U.S. based company, dealer, agent
or  individual to whom the Company is introduced during  the
one  year  term of the agreement and with whom  the  Company
enters   into   a   sales,  distributor,  or  representative
agreement  for its products within one year of  introduction
by   the  consultant.   The  agreement  also  provided   for
consulting services to the Company in the areas of strategic
planning,  business development, regulatory  strategies  and
access  to capital in return for aggregate cash compensation
of  $45,000 plus certain reimbursable expenses and an option
to  purchase  150,000  shares of Common  Stock,  subject  to
adjustment,  at $2.00 per share. In May, 1996,  the  Company
entered  into  an Amended and Restated Consulting  Agreement
and   an  Amendment  to  Stock  Option  Agreement  with  the
consultant.   The amended agreements provide  for  aggregate
cash   compensation   of   up  to  $250,000   plus   certain
reimbursable expenses, in addition to the option to purchase
150,000  shares of the Company's Common Stock at an exercise
price  of  $2.00 per share.  The Amendment to  Stock  Option
Agreement  caused a 50,000 share reduction in the  estimated
number   of  shares  subject  to  the  option  due  to   the
elimination of the "subject to adjustment" clause.   Of  the
aggregate   cash   consideration,   approximately   $131,000
including certain reimbursable expenses has been recorded as
an  expense  through December 31, 1996. The  remaining  cash
consideration,   of   approximately   $122,500,   represents
financial   consulting  fees  for  services   performed   in
connection with the Company's initial public offering, which
was paid upon closing and was recorded as a reduction of the
net proceeds of the offering.

 13.   STOCK OPTIONS AND COMMON STOCK

1995 Long-Term Incentive Plan
The  Company's  1995  Long Term Incentive  Plan  (the  "1995
Incentive  Plan") was adopted by the Board of Directors  and
shareholders  in November, 1995.  A total of 400,000  shares
of  Common Stock are available for issuance under  the  1995
Incentive  Plan  and options for 361,500  shares  of  Common
Stock,  at  an exercise price of $2.00 to $5.50  per  share,
have  been  granted and are outstanding as of  December  31,
1996.  The  1995  Incentive  Plan  provides  for  grants  of
"incentive"  and "non-qualified" stock options to  employees
of  the Company.  Options under this plan have a term of  no
more than ten years and vest over a period as determined  by
the  Board  of  Directors.   The 1995  Incentive  Plan  will
terminate on November 30, 2005, unless earlier terminated by
the Board of Directors.

1995 Director Option Plan
The  Company's 1995 Director Option Plan (the "1995 Director
Plan")  was  adopted  by  the Board  of  Directors  and  the
shareholders  in November, 1995.  A total of 360,000  shares
of  common  stock of the Company are available for  issuance
under  the 1995 Director Plan and options for 288,000 shares
of  common  stock, at an exercise price of $2.00 per  share,
are  outstanding as of December 31, 1996.  The 1995 Director
Plan  provides  for grants of director options  to  eligible
directors  of the Company and for grants of advisor  options
to  eligible members of the Scientific Advisory Board of the
Company.   Each  of  the director options  and  the  advisor
options  are  exercisable at the rate of  1,000  shares  per
month, commencing with the first month following the date of
grant.  The terms of these options range from three to  five
years.   The  1995 Director Plan will terminate on  November
30,  2005,  unless  earlier  terminated  by  the  Board   of
Directors.

Other Options
On  June  1,  1993,  the Company granted  stock  options  to
purchase  an  aggregate  of  47,500  common  shares  of  the
Company, exercisable through June 1, 1998.  All options  are
exercisable  at $1.33 per common share.  During April  1996,
options for 12,500 common shares were exercised.

The Company granted stock options during 1994 to purchase an
aggregate  of  55,000 common shares of the  Company  with  a
defined  option term of five years at an exercise  price  of
$2.00 per common share.

During  1995,  the Company issued options to its  President,
directors, employees, Scientific Advisory Board Members  and
a consultant totaling 1,013,000 shares.  The exercise prices
of  these  options range from $2.00 to $2.20 per share.  The
options  have terms ranging from five to ten years and  vest
over varying periods, including 70,000 options that vest  in
connection with a successful initial public offering of  the
Company's  common  stock. In addition,  the  Company  issued
374,000  options  in  connection with a licensing  agreement
(See Note 6).

During  1996, the Company issued options to purchase 222,500
shares  of  common  stock.   The exercise  prices  of  these
options  range from $4.75 to $5.50 per share.   The  options
have  terms  ranging from five to ten years  and  vest  over
varying periods.

Information relating to options is as follows:
                                                Option       Weighted

                                    Number       Price       Average
                                      of

                                   Options       Range       Exercise
                                                              Price

Outstanding at December 31, 1993     47,500          $1.33    $1.33

Granted                              55,000  $1.33 - $2.00    $2.00

Outstanding at December 31, 1994    102,500  $1.33 - $2.00    $1.69

Granted                            1,387,00   $.10 - $2.20    $1.72
                                          0

Canceled                           (118,000  $1.33 - $2.00    $1.97
                                          )

Outstanding at December 31, 1995   1,371,50   $.10 - $2.20    $1.70
                                          0

Granted                             222,500  $4.75 - $5.50    $4.88

Exercised                          (12,500)          $1.33    $1.33

Canceled                           (138,000          $2.00    $2.00
                                          )

Outstanding at December 31, 1996   1,443,50   $.10 - $5.50    $2.16
                                          0



Exercisable at December 31, 1996    730,331   $.10 - $5.50    $1.64





At December 31, 1996 and 1995, the Company had 1,443,500 and
1,940,250 shares, respectively, of common stock reserved for
stock  options and warrants. All stock options and  warrants
granted  by  the Company, except for an option  to  purchase
210,000 shares of Common Stock at $.10 per share granted  to
Dr.  Alt  in  connection  with  the  license  of  the  ALERT
technology  (the  "Alt Option"), were  granted  at  exercise
prices  not less than the current fair market value  of  the
Company's  Common Stock on the date of grant, as  determined
by  the  Board of Directors or the fair market value on  the
date of grant for options issued after the Company's initial
public   offering.   The  Company  expensed  the  difference
between  the fair market value of the Alt Option as  of  the
date  of  grant  and the actual exercise price  of  the  Alt
Option (See Note 6).

The  Company accounts for its stock option plans based  upon
the  "intrinsic  value" method set forth  in  APB  25.   Had
compensation costs for the Company's stock option plans been
determined consistent with SFAS 123, the Company's pro-forma
net  loss  and loss per share for 1996 and 1995  would  have
been as follows:

                          1996             1995

Net loss               $(1,791,372)     $(1,760,223)

Net loss per share          $ (.27)          $ (.30)


Because  SFAS  123 has not been applied to  options  granted
prior   to   January   1,  1995,  the  resulting   pro-forma
compensation cost may not be representative of  that  to  be
expected in future periods.

Under SFAS 123, the fair value of each stock option grant is
estimated  on  the  date  of grant using  the  Black-Scholes
option  pricing  model with the following  weighted  average
assumptions  in  1996  and  1995,  respectively:  risk  free
interest rate of 6% and 6%; expected life of approximately 5
and  4  years;  expected volatility of  50%  and  50%.   The
weighted  average fair value of the options  granted  during
1996 and 1995 was $2.60 and $1.08, respectively.

14.   MAJOR CUSTOMER AND EXPORT SALES
During  1996,  1995  and 1994, sales to Medtronic,  Inc.,  a
shareholder of the Company, accounted for approximately  1%,
8%,  and 34% respectively, of total revenues of the Company.
Receivables  outstanding from these sales were approximately
$18,853,  $983,  and $2,300 at December 31, 1996,  1995  and
1994,  respectively.   Catheter  development  revenues  from
InControl accounted for approximately 11% of total  revenues
for   the   year  ended  December  31,  1996.    Receivables
outstanding for catheter development was $90,000 at December
31, 1996.

The following table sets forth export sales:
                                    December 31,
                                  1996        1995

          Europe                       $           $
                                 545,817     235,563
          Asia  and  Pacific     275,784     257,834
          Rim
          Other                   91,165      63,564
                                       $           $
                                 912,766     556,961



15.   INCOME TAXES
As a result of losses incurred during the years, there is no
provision  for  income  taxes in the accompanying  financial
statements.  The  Company has established a  full  valuation
allowance   against   its  net  deferred   tax   assets   as
realizability of such assets is predicated upon the  Company
achieving   profitability.  The  tax  effects  of  temporary
differences  and carryforwards that give rise to significant
portions of deferred tax assets consist of the following:

                                         December 31,
                                    1996             1995

Allowance for doubtful               $ 30,000         $ 36,000
accounts
Inventory reserves                     59,000           59,000
Intangible asset                       16,000           58,000
amortization
Depreciation                           24,000           14,000
Accrued liabilities                    23,000           23,000
Net operating loss                  1,417,000          768,000
carryforwards
Research and development               52,000           24,000
credit
                                    1,624,000          982,000
Less: Valuation allowance         (1,624,000)        (982,000)
                                         $ --             $ --

On   December   31,  1996,  the  Company  had  approximately
$3,500,000 of net operating loss carryforwards available  to
offset  future  income.   Due  to  ownership  changes   that
occurred during 1995 and 1996, as defined by Section 382  of
the Internal Revenue Code, the Company is limited to the use
of  net  operating losses generated prior to the changes  in
ownership in each year following the changes in ownership.

16.   SUPPLEMENTAL STATEMENT OF CASH FLOW INFORMATION

Supplemental Noncash Investing and Financing Activities
Supplemental noncash investing and financing activities:
                                               1994
Acquisition of assets from BioPhysical
     Interface Inc.:
Fair value of assets acquired                $  50,000
Common stock issued                           (50,000)

Acquisition of certain assets from HDI:
Fair value of assets acquired                $ 100,000
Common stock issued                          (100,000)

During  1995,  the Company paid $70,000 and issued  $200,000
face  amount  of 1995 Debentures in payment of  $270,000  in
debt  due  to  HDI.  The Company also issued  $200,000  face
amount of 1995 Debentures in settlement of accounts payable.
During  1994,  the  Company issued 66,000 shares  of  common
stock  and assumed a note of $270,000 as payment of $401,250
in debt due HDI.

In 1995, the Company issued 1995 Warrants in connection with
its  1995 Debentures offering, which were valued at $54,702.
During  1996, the holders of $1,025,000 face amount of  1995
Debentures  elected  to  exercise  their  1995  Warrants  to
purchase  512,500 shares of common stock at $2.00 per  share
through  the  forgiveness  of amounts  due  under  the  1995
Debentures.   Upon  repayment of the  1995  Debentures,  the
Company  recorded  a write-off of $49,232, representing  the
unamortized value placed on the 1995 Warrants.

Cash  paid  for  interest was $60,969, $26,150  and  $22,155
during  the  years ended December 31, 1996, 1995  and  1994,
respectively.

17.    SUBSEQUENT EVENTS

PROCATH BUILDING PURCHASE
During February, 1997, ProCath purchased approximately 7,500
square  feet of manufacturing, administrative and  warehouse
space,  including 2,500 square feet of space that was leased
by ProCath, for an aggregate purchase price of approximately
$386,000, including certain transaction costs.  The purchase
will  allow  for the expansion of the existing manufacturing
operations, provide for additional warehousing, shipping and
quality  assurance  activities and relocation  of  ProCath's
administrative  offices.  The lease on  ProCath's  remaining
2,500  square  feet of space expires in November,  1997  and
will not be renewed.

ECHOCATH LICENSE
During   February,   1997,  the  Company  licensed   certain
technologies from EchoCath, Inc. ("EchoCath")  in  order  to
attempt to develop products which allow visualization of the
heart's  anatomy and visualization of catheters  inside  the
heart  through the use of  ultrasound rather than  by  using
fluoroscopy,  or  x-ray imaging.  The license  includes  all
rights  to  the EchoMark, EchoEye and ColorMark technologies
for  use  in  the field of electrophysiology.   The  license
excludes  use on permanently implantable defibrillators  and
pacemaker  leads.   EchoCath will also  transfer  its  510-K
approval on the EchoMark EP catheter to the Company.

The  agreement  calls  for  the  Company  to  make  payments
totaling   $700,000,  in  four  installments,   as   certain
development milestones and initial sales are achieved on the
EchoMark   and EchoEye technologies.  Terms of  the  license
call for a royalty on net sales, including minimum royalties
beginning  in  1999  and continuing  for  the  life  of  the
applicable  patents and continuations thereof.  The  Company
may  elect to not make minimum royalty payments and in  such
case,  EchoCath can make the license non-exclusive or cancel
the  license and return the $700,000 milestone payments. The
Company  also purchased 280,000 shares of newly issued  5.4%
cumulative convertible preferred stock of EchoCath for  $1.4
million in cash.

The minimum royalties under the license are as follows:
1999                       $120,000
2000                        160,000
2001                        200,000
2002                        280,000
2003                        320,000
2004                        360,000
2005 and thereafter         400,000
                         SIGNATURES

Pursuant to the requirements of Section 13 or 15(d)  of  the
Securities and Exchange Act of 1934, the registrant has duly
caused  this  report  to be signed  on  its  behalf  by  the
undersigned, thereunto duly authorized.

EP MEDSYSTEMS, INC.

/s/ David A. Jenkins                    March 26, 1997
David A. Jenkins, Chairman, President
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange  Act
of  1934, this report has been signed below by the following
persons  on  behalf of the registrant and in the  capacities
and on the dates indicated.

Signature                                    Date


/s/ David A. Jenkins                    March 26, 1997
David A. Jenkins, Chairman, President
and Chief Executive Officer
(Principal Executive Officer)

/s/ James J. Caruso                     March 26, 1997
James J. Caruso, Chief Financial Officer
and Secretary (Principal Accounting Officer)

/s/ David W. Mortara                    March 26, 1997
David W. Mortara, Ph.D.
Director

/s/ Lestor J. Swenson                   March 26, 1997
Lestor J. Swenson
Director

/s/ Jon A. Tietbohl                     March 26, 1997
Jon A. Tietbohl
Director

/s/ Anthony J. Varrichio                March 26, 1997
Anthony J. Varrichio
Director


                        EXHIBIT INDEX

          Exhibit
          Number                   Description
          3.1       Amended and Restated Certificate of
          Incorporation (1)

          3.2       Bylaws, as amended (1)

          10.1      Agreement of Lease dated November, 1995
                    between EP Medical, Inc. and Yeh Bin Wu
                    and Jean Wu, as landlords (1)

          10.6      Employment Agreement dated as of March
                    1, 1993 between EP Medical, Inc. and
                    David A. Jenkins, as amended (1)

          10.7      Employment Agreement dated as of
                    November 6, 1993 between EP Acquisition
                    Corp. and Joseph C. Griffin, III (1)

          10.8      1995 Director Option Plan (1)

          10.9      1995 Long Term Incentive Plan (1)

          10.10     License Agreement dated as of November,
                    1, 1995 between EP Medical, Inc. and Dr.
                    Eckhard Alt, as amended  (1)

          10.11     Consulting Agreement dated as of
                    February 1, 1996 between EP Medical,
                    Inc. and Raman Mitra  (1)

          10.12     License Agreement dated as of November,
                    1, 1995 between EP Medical, Inc. and
                    Sanjeev Saksena (1)

          10.13     Consultant Agreement dated February 26,
                    1996 between EP Medical, Inc. and
                    Regulatory Strategies, Inc. (1)

          10.14     Investment Agreement dated April 22,
                    1994 among EP Medical, Inc., David
                    Jenkins, Anthony Varrichio, William
                    Winstrom and American Medical
                    Electronics, Inc. (1)

          10.15     Letter Agreement dated December, 15,
                    1995 between EP Medical, Inc. and
                    Rudiger Dahle  (1)

          10.16     Investment Agreement dated January 16,
                    1996 among EP Medical, Inc., Rudiger
                    Dahle, Anthony Varrichio and William
                    Winstrom (1)

          10.20     Letter Agreement dated January 23, 1995
                    between EP Medical, Inc. and Hi-Tronics
                    Designs, Inc. relating to development of
                    TeleTrace IV Receiver, as amended (1)

          10.22     Master Manufacturing Agreement dated
                    April 16, 1996 between EP MedSystems,
                    Inc. and Hi-Tronics Designs, Inc. (1)

          10.25     Exclusive Rights Agreement dated May 26,
                    1996 between EP MedSystems, Inc. and
                    Spire Corporation (1)

          10.26     Letter Agreement dated April 12, 1996
                    between EP MedSystems, Inc. and Hi-
                    Tronics Designs, Inc. relating to the
                    TeleTrace IV Receiver (1)

          10.27     Consulting Agreement dated as of May 24,
                    1996 between EP MedSystems, Inc. and
                    Elliott Young and Associates, Inc., as
                    amended and restated (1)

          10.28     Stock Option Agreement dated August 31,
                    1995 between EP MedSystems, Inc. and
                    Tracey E. Young, as amended (1)

          10.29     Registration Rights Agreement dated as
                    of May 24, 1996 between EP MedSystems,
                    Inc. and Tracey E. Young (1)

          10.30     Exclusive License Agreement dated
                    February 27, 1997 between EP MedSystems,
                    Inc. and EchoCath, Inc.

          10.31     Subscription Agreement dated February
                    27, 1997 between EchoCath, Inc. and EP
                    MedSystems, Inc.

          11.1      Statement regarding Calculation of
                    Shares Used in Computing Net Loss per
                    Share

          21.1      List of Subsidiaries

          27        Financial Data Schedule (2)



(1)   Incorporated by reference to the exhibit of  the  same
number  previously filed with the Commission  in  connection
with  the Company's Registration Statement on Form SB-2  and
Pre-Effective Amendments No. 1 and 2 thereto.

(2)  EDGAR Filing only.

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