UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB

(Mark One)
(X)               QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934 For the period ended: June 30,
                  2004

( ) 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.
        (Exact name of small business issuer as specified in its charter)

         New Jersey                                             22-3212190
         -----------                                            ----------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

575 Route 73 N. Building D, West Berlin, New Jersey  08091
---------------------------------------------------  -----
(Address of principal executive offices)             (Zip Code)



                                 (856) 753-8533
                           (Issuer's telephone number)

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

                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

         Check whether the registrant  filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
___ Yes     ___ No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
      Class                                        Outstanding at August 9, 2004
      -----                                        -----------------------------
      Common Stock, without par value                       23,508,613 shares

      Transitional Small Business Disclosure Format (check one):    Yes__ No X
                                                                            --

                                       2
<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                                   FORM 10-QSB
                                    CONTENTS

PART I -- FINANCIAL INFORMATION                                             Page
                                                                            ----

    Item 1.     Financial Statements

                Consolidated Balance Sheets at June 30, 2004 (unaudited) and
                December 31, 2003..............................................3

                Consolidated Statements of Operations for the three months
                ended June 30, 2004 and 2003 (unaudited).......................4

                Consolidated  Statements of Operations for the six
                months ended June 30, 2004 and 2003 (unaudited)................5

                Consolidated Statement of Changes in Shareholders'
                Equity for the six months ended June 30, 2004 (unaudited)......6

                Consolidated  Statements  of Cash Flows for the six
                months ended June 30, 2004 and 2003 (unaudited)................7

                Notes to Consolidated Financial Statements (unaudited).........8

    Item 2.     Management's Discussion and Analysis or Plan
                of Operation..................................................18

    Item 3.     Controls and Procedures.......................................29

PART II -- OTHER INFORMATION

    Item 1.       Legal Proceedings...........................................29

    Item 2.       Changes in Securities.......................................29

    Item 3.       Defaults Upon Senior Securities.............................29

    Item 4.       Submission of Matters to a Vote of Security Holders.........29

    Item 5.       Other Information ..........................................29

    Item 6.       Exhibits and Reports on Form 8-K............................30

    Signatures................................................................31
    Exhibit Index.............................................................32


                                       3
<PAGE>



                          PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S>     <C>                                                                       <C>                     <C>

                                                                             JUNE 30, 2004
ASSETS                                                                        (UNAUDITED)          DECEMBER 31, 2003
                                                                           -------------------     -------------------
Current assets:
   Cash and cash equivalents                                            $           5,770,406   $          11,248,983
   Restricted cash                                                                  1,000,000               1,000,000
   Accounts receivable, net of allowance for doubtful
      accounts of $98,600                                                           3,244,798               3,035,426
   Inventories, net of reserves                                                     2,830,629               2,330,830
   Prepaid expenses and other current assets                                          581,877                 846,132
   Deferred tax asset, net of valuation allowance                                           -                 397,720
                                                                           -------------------     -------------------
          Total current assets                                                     13,427,710              18,859,091

Property, plant and equipment, net                                                  2,049,507               1,951,640
Goodwill                                                                              341,730                 341,730
Other intangible assets, net                                                           35,837                  13,033
Other assets                                                                          332,545                 495,530
                                                                           -------------------     -------------------
          Total assets                                                  $          16,187,329  $           21,661,024
                                                                           ===================     ===================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Current portion of notes payable                                     $                   -   $           2,200,000
   Current portion of secured convertible note                                        775,970                       -
   Accounts payable                                                                 2,000,715               1,962,556
   Accrued expenses                                                                   933,883               1,645,842
   Deferred revenue                                                                   729,835                 507,824
                                                                           -------------------     -------------------
     Total current liabilities                                                      4,440,403               6,316,222

Deferred warranty revenue, non-current                                                327,957                 271,629
Secured convertible note, non-current                                               2,000,468               3,446,865
                                                                           -------------------     -------------------
          Total liabilities                                                         6,768,828              10,034,716
                                                                           -------------------     -------------------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value, 5,000,000 shares
     authorized, 373,779 shares issued and outstanding                                618,161                 618,161
  Common stock, $.001 stated value, 30,000,000 shares authorized
     23,494,316 and 23,098,179 shares issued and outstanding at
     June 30, 2004 and December 31, 2003, respectively                                 23,494                  23,098
  Additional paid-in capital                                                       50,400,705              49,414,829
  Accumulated other comprehensive loss                                               (157,599)               (177,728)
  Treasury stock                                                                     (100,000)               (100,000)
  Accumulated deficit                                                             (41,366,260)            (38,152,052)
                                                                           -------------------     -------------------
          Total shareholders' equity                                                9,418,501              11,626,308
                                                                           -------------------     -------------------
          Total liabilities and shareholders' equity                    $          16,187,329  $           21,661,024
                                                                           ===================     ===================
<FN>


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

                                       3

<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>     <C>                                                                     <C>                        <C>

                                                                                 FOR THE THREE MONTHS ENDED
                                                                              JUNE 30,                  JUNE 30,
                                                                                2004                      2003
                                                                        ---------------------      -------------------

Net sales                                                            $             3,587,981    $           2,338,432
Cost of products sold                                                              1,575,772                1,102,613
                                                                        ---------------------      -------------------
   Gross profit                                                                    2,012,209                1,235,819

Operating costs and expenses:
   Sales and marketing expenses                                                    2,120,307                1,287,956
   General and administrative expenses                                               837,342                  549,155
   Research and development expenses                                                 637,067                  590,804
   Mortgage conversion expense                                                             -                  222,084
                                                                        ---------------------      -------------------

Total operating expenses                                                           3,594,716                2,649,999
                                                                        ---------------------      -------------------

   Loss from operations                                                           (1,582,507)              (1,414,180)

Interest expense, net                                                                (33,135)                 (53,894)
Interest expense, debt conversion                                                   (132,445)                        -
                                                                        ---------------------      -------------------

   Net loss                                                          $            (1,748,087)    $         (1,468,074)
                                                                        =====================      ===================
Basic and diluted loss per share                                     $                 (0.07)    $              (0.08)
                                                                        =====================      ===================

Weighted average shares outstanding used
to compute basic and diluted loss per share                                       23,413,272               18,160,652
                                                                        =====================      ===================

<FN>

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

                                       4

<PAGE>




                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>     <C>                                                                     <C>                        <C>
                                                                                  FOR THE SIX MONTHS ENDED
                                                                              JUNE 30,                  JUNE 30,
                                                                                2004                      2003
                                                                        ---------------------      -------------------

Net sales                                                            $             6,471,982    $           4,628,948
Cost of products sold                                                              2,788,968                2,264,714
                                                                        ---------------------      -------------------
    Gross profit                                                                    3,683,014                2,364,234

Operating costs and expenses:
   Sales and marketing expenses                                                    3,700,681                2,605,842
   General and administrative expenses                                             1,560,689                1,092,391
   Research and development expenses                                               1,238,182                1,184,062
   Mortgage conversion expense                                                             -                  222,084
                                                                        ---------------------      -------------------

   Total operating expenses                                                        6,499,552                5,104,379
                                                                        ---------------------      -------------------

   Loss from operations                                                           (2,816,538)              (2,740,145)

Interest expense, net                                                                (83,617)                (117,759)
Interest expense, debt conversion                                                   (314,053)               (1,000,000)
                                                                        ---------------------      -------------------
   Net loss                                                          $            (3,214,208)    $         (3,857,904)
                                                                        =====================      ===================

Basic and diluted loss per share                                     $                 (0.14)    $              (0.22)
                                                                        =====================      ===================

Weighted average shares outstanding used
to compute basic and diluted loss per share                                       23,324,093               17,398,394
                                                                        =====================      ===================

<FN>

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

                                       5

<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
             CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2004
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>     <C>         <C>    <C>    <C>    <C>    <C>
                                                                        Accumulated
                   Common     Common    Preferred Preferred  Additional    Other
                   Stock      Stock     Stock     Stock      Paid-in    Comprehensive   Treasury   Accumulated
                   Shares     Amount    Shares    Amount     Capital        Loss         Stock      Deficit       Total
                  ---------- --------- --------- --------- ------------ -------------- ---------- ------------ ------------
BALANCE,
DECEMBER 31,
2003              23,098,179  $23,098   373,779  $618,161  $49,414,829     $(177,728)  $(100,000) $(38,152,052) 11,626,308
                  ---------- --------- --------- --------- ------------ -------------- ---------- ------------ ------------

Issuance of
stock in
connection with
conversion of
secured
convertible
note                321,000       321        --        --      793,165             --         --           --      793,486

Issuance of
stock in
connection with
exercise of
options              65,137        65        --        --      134,941             --         --           --      135,006

Issuance of
stock and
options in
connection with
clinical
affairs
consulting
contract             10,000        10        --        --       46,990             --         --           --       47,000

Acceleration of
option vesting
in connection
with separation
agreement                --        --        --        --       10,780             --         --           --       10,780

Foreign
currency
translation              --        --        --        --           --        20,129          --           --       20,129

Net loss                 --        --        --        --           --             --         --    (3,214,208)  (3,214,208)
                  ---------- --------- --------- --------- ------------ -------------- ---------- ------------ -------------
BALANCE,          23,494,316  $23,494   373,779  $618,161  $50,400,705     $(157,599)  $(100,000) $(41,366,260)   9,418,501
JUNE 30, 2004
                  ========== ========= ========= ========= ============ ============== ========== ============ =============

<FN>

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

                                       6
<PAGE>


                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

<S>     <C>                                                                         <C>                    <C>

                                                                                    FOR THE SIX MONTHS ENDED
                                                                                JUNE 30,                 JUNE 30
                                                                                  2004                    2003
                                                                            ------------------      ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                $          (3,214,208)    $        (3,857,904)
Adjustments to reconcile net loss to net cash
 used inoperating activities:
 Depreciation and amortization                                                        379,355                 380,235
 Interest expense, debt conversion                                                          -               1,000,000
 Accretion of note discount                                                           148,123                 222,084
 Amortization of beneficial conversion feature                                        165,930                      --
Changes in assets and liabilities:
  (Increase) decrease in accounts receivable                                         (209,372)               1,629,187
  Increase in inventories                                                            (898,799)               (148,499)
  Decrease in prepaid expenses and other assets                                       261,310                  47,176
  Decrease in deferred tax asset                                                      397,720                 438,000
  Increase in accounts payable                                                         38,159                  13,735
  Decrease in accrued expenses and deferred revenue                                  (433,620)             (1,476,015)
                                                                            ------------------      ------------------
          NET CASH USED IN OPERATING ACTIVITIES                         $          (3,365,402)    $        (1,759,878)
                                                                            ------------------      ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                                                (68,366)                (80,936)
  Patent costs                                                                        (32,660)                 (6,540)
                                                                            ------------------      ------------------
         NET CASH USED IN INVESTING ACTIVITIES                          $            (101,026)    $           (87,476)
                                                                            ------------------      ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Payments under notes payable                                                      (2,200,000)               (500,000)
   Net  proceeds from issuance of common stock, net of
         offering costs                                                               167,722               2,265,087
                                                                            ------------------      ------------------
   NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                  $          (2,032,278)    $          1,765,087
                                                                            ------------------      ------------------
  EFFECT OF EXCHANGE RATE CHANGES                                                        20,129                 (95,698)

Net decrease in cash and cash equivalents                                          (5,478,577)               (177,965)
Cash and cash equivalents, beginning of period                                     11,248,983               2,012,809
                                                                            ------------------      ------------------
Cash and cash equivalents, end of period                                $           5,770,406    $          1,834,844
                                                                            ==================      ==================

Supplemental cash flow information
   Cash paid for interest                                               $             824,303    $              6,820

<FN>

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

</TABLE>

                                       7

<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

         The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States of America for interim financial information and in accordance
with the instructions to Form 10-QSB. Accordingly, they do not include all of
the financial information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (including normal recurring adjustments) considered
necessary for a fair presentation have been included.

         The preparation of financial statements in conformity with generally
accepted accounting principles in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
from those estimates.

         The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in EP MedSystems, Inc.'s (the "Company" or "EP MedSystems'")
Annual Report on Form 10-KSB for the year ended December 31, 2003 filed with the
Securities and Exchange Commission ("SEC" or "Commission").

NOTE 2. INVENTORIES

         Inventories are valued at the lower of cost or market with cost being
determined on a first-in, first-out basis. Inventories consist of the following
at June 30, 2004 and December 31, 2003:

<TABLE>
<CAPTION>
<S>             <C>                                     <C>                     <C>

                                                    June 30,               December 31,
                                                      2004                     2003
                                                  (unaudited)
                                                -----------------      ----------------------
           Raw materials                    $          1,074,615    $              1,202,711
           Work in process                               484,935                     561,008
           Finished goods                              1,442,079                     725,111
           Reserve for obsolescence                     (171,000)                   (158,000)
                                                -----------------      ----------------------
                                            $          2,830,629    $              2,330,830
                                                =================      ======================
</TABLE>


NOTE 3. NOTES PAYABLE

         On November 15, 2000, EP MedSystems, Inc. completed a debt financing
for $3.2 million with Medtronic Asset Management, Inc., an affiliate of
Medtronic, Inc., and one of EP MedSystems' shareholders. Approximately $2.3
million was utilized to repay outstanding amounts on EP MedSystems' then
existing revolving credit facility. The principal and all accrued interest on
the note was to be repaid on November 15, 2003, and the note was secured by a
pledge by David Jenkins, EP MedSystems' Chairman, of shares of common stock of a
privately-held corporation. On March 12, 2003, the due date of the note was

                                       8

<PAGE>


extended to April 1, 2004. In connection with the extension, the Company paid $1
million of the note upon receipt of certain equity proceeds and increased the
interest rate to the prime rate plus 3%. The prime rate was 4% at December 31,
2003. EP MedSystems had accrued approximately $707,000 of interest expense as of
December 31, 2003. In February 2004, the principal amount of this note, along
with all accrued interest totaling approximately $2,920,000, was repaid.

NOTE 4. SHAREHOLDER'S EQUITY

PREFERRED STOCK

         EP MedSystems is authorized to issue 5,000,000 shares of undesignated
preferred stock, no par value per share. The Board of Directors has the
authority to issue preferred stock in one or more classes, to fix the number of
shares constituting a class and the stated value thereof, and to fix the terms
of any such class, including dividend rights, dividend rates, conversion or
exchange rights, voting rights, rights and terms of redemption, the redemption
price and the liquidation preference of such shares or class.

         During the year ended December 31, 2001, EP MedSystems consummated the
private sale and issuance of Series A convertible preferred stock to Medtronic,
Inc. ("Medtronic"). In 2002, Medtronic converted a portion of its preferred
stock into shares of common stock of the Company. At June 30, 2004 and December
31, 2003, Medtronic, Inc. held 373,779 of the Company's Series A Preferred
Shares which are convertible into 387,946 shares of common stock of the Company
at the option of Medtronic or the Company in accordance with the terms of the
agreement with Medtronic. The Series A Preferred Shares have a liquidation
preference of $2.048 per share.

COMMON STOCK

         EP MedSystems is authorized to issue 30,000,000 shares of common stock,
no par value, $.001 stated value per share, of which a total of 23,494,316 and
23,098,179 shares were outstanding at June 30, 2004 and December 31, 2003,
respectively.

         On September 5, 2002, EP MedSystems entered into a stock purchase
agreement and license agreement with Boston Scientific Corporation ("BSC") in
connection with a strategic joint development project. Following the completion
of the development, which occurred in the third quarter 2003, EP MedSystems has
marketing rights to the technology and will pay royalties to BSC based on the
market value of the technology at the time of sale of the product. The stock
purchase agreement with BSC allowed for the sale of up to $3,000,000 of common
stock based on the achievement by the Company of milestones in the development
of certain cardiac electrophysiology technology. The common stock was sold at
the lesser of the ten-day trailing average trading price per share prior to the
closing of each installment purchase, and $5.00 per share. Upon signing of the
agreement, EP MedSystems received $500,000 for 210,084 shares issued at the
ten-day trailing average trading price of $2.38 per share. On February 4, 2003,
the Company issued 311,915 shares of common stock in exchange for $500,000.
These shares were registered for resale on Form S-3 on April 2, 2003. On April
21, 2003, the Company issued 357,398 shares of common stock in exchange for
another payment of $500,000. During the third quarter of 2003, the Company
issued 601,631 shares of common stock in exchange for the final payments
totaling $1,500,000.

         On January 31, 2003, the Company completed a $2,470,000 private
placement of its common stock to various accredited investors. The Company

                                       9

<PAGE>


issued 2,007,475 shares of its common stock for a purchase price of $1.23 per
share and warrants to purchase 802,990 shares of common stock at an exercise
price per share of 110% of the closing trading price on the date of closing of
that transaction, which was $1.6943. In the private placement, the Company
received approximately $1,570,000 in cash, net of offering costs. The balance of
the private placement included the conversion of the entire principal amount of,
and accrued interest on, the promissory notes from the EGS Entities into common
stock of the Company and the securities issued in that private placement were
issued on the same terms and conditions as those of the other investors. In
connection with that conversion, the 50,000 warrants issued to the EGS Entities
on December 30, 2002 were cancelled in 2003 and the Company recorded a
$1,000,000 non-cash charge to interest expense in connection with the
conversion. The charge is for interest conversion expense associated with
certain beneficial conversion features and the intrinsic value of embedded
conversion options within the promissory notes. With prior notice to the holders
of the warrants, the warrants may be repurchased by the Company at $.01 per
warrant at any time after the average closing price of the Company's common
stock, for any twenty consecutive trading days, has equaled or exceeded $2.54.
In July of 2003, the closing price requirement for repurchase of the warrants
was met, notice to repurchase the warrants was given to the warrant holders by
the Company, and 794,790 shares of common stock were issued upon exercise of
these warrants. In April 2003, the Company completed an additional $210,000
private placement of 120,000 shares of its common stock to various accredited
investors.

         On April 4, 2003, the principal amount of, and all accrued and unpaid
interest on, a note receivable from a Company officer were repaid by that
officer through return to treasury of the 50,000 shares of common stock to the
Company, which collateralized that loan. The market price of the Company's
common stock on the date of such return was $2.08. The shares are recorded on
the balance sheet under the caption "Treasury stock."

         On December 26, 2003, the Company completed an $8,200,000 private
placement of its common stock to various accredited investors. The Company
issued 3,200,000 shares of its common stock at a purchase price of $2.56 per
share.

         In May of 2004, the Company engaged a physician as a consultant to head
our clinical affairs department. In connection with that agreement, the Company
issued 10,000 shares of the Company's common stock and an option to purchase
10,000 shares of the Company's common stock. The option vests over twelve months
and was issued at the fair market value. The transaction was accounted for in
accordance with Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." The fair value was measured using
the Black-Scholes option pricing model under Statement of Financial Accounting
Standard No. 123.


NOTE 5. STOCK BASED COMPENSATION

         EP MedSystems accounts for stock options granted to employees and
non-employee directors in accordance with the "intrinsic value" method set forth
in Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employees", with supplemental pro forma disclosures of "fair
value" as required by Statement of Financial Accounting Standards No. 123 ("SFAS
No.123"), "Accounting for Stock Based Compensation."

         EP MedSystems records the fair value of stock issuances to
non-employees based on the market price on the date issued. The amount is
expensed, capitalized or recorded as a reduction of paid-in capital, depending
on the purpose for which the stock is issued. It is EP MedSystems' policy to

                                       10

<PAGE>



account for stock options granted to non-employees in accordance with Emerging
Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services," and the fair value is measured using the Black-Scholes
option pricing model under SFAS No. 123. As discussed above, EP MedSystems
issued an option to purchase 10,000 shares of the Company's common stock to a
non-employee in the second quarter of 2004.

         In addition, in connection with a separation agreement with one of the
Company's employees, there was an acceleration of the vesting of certain
options. In connection with the accelerated vesting, the Company recorded an
expense in accordance with FIN 44, "Accounting for Certain Transactions
involving Stock Compensation."

         Except as noted above, had compensation costs for EP MedSystems' stock
option plans been determined consistent with SFAS No. 123 "Accounting for
Stock-Based Compensation", EP MedSystems' proforma net loss and loss per share
for the three and six months ended June 30, 2004 and 2003 would have been as
follows:

<TABLE>
<CAPTION>
<S>     <C>                                  <C>                <C>                   <C>                <C>

                                                                                           FOR THE THREE
                                                  FOR THE SIX MONTHS                        MONTHS ENDED
                                                   ENDED JUNE 30,                              JUNE 30,
                                              2004               2003                   2004               2003
                                              ----               ----                   ----               ----

   Net loss, as reported                   $(3,214,208)       $(3,857,904)           $(1,748,087)       $(1,468,074)

Deduct:  Total stock-based
employee compensation expense
determined under fair value based
method for all options

                                              (282,810)          (214,930)              (153,214)          (107,465)
                                      ------------------ ------------------
                                                                                ------------------ ------------------

Pro forma net loss                         $(3,497,018)       $(4,072,834)           $(1,901,301)       $(1,575,539)
                                      ================== ==================     ================== ==================
Earnings per share:
    Basic and diluted - as
    reported                                    $(0.14)            $(0.22)                $(0.07)            $(0.08)
                                      ------------------ ------------------     ------------------ ------------------
    Basic and diluted - pro
    forma                                       $(0.15)            $(0.23)                $(0.08)            $(0.09)
                                      ------------------ ------------------     ------------------ ------------------
</TABLE>


NOTE 6. SALE OF STATE NET OPERATING LOSSES

         During the six months ended June 30, 2004 and 2003, EP MedSystems
received approximately $398,000 and $438,000, respectively, from the sale of a
portion of its cumulative unused New Jersey State Net Operating Loss ("State
NOL") carryforwards for its statutory subsidiaries. The sales of the cumulative
net operating losses are a result of a New Jersey State law enacted January 1,
1999 allowing emerging technology and biotechnology companies to transfer or
"sell" their unused State NOL carryforwards and New Jersey research and
development tax credits to any profitable New Jersey company qualified to
purchase them for cash. As of December 31, 2003 and 2002, EP MedSystems had

                                      11

<PAGE>


recorded approximately $398,000 and $438,000, respectively, in deferred tax
assets related to these sales. These deferred tax assets were realized upon
receipt of cash from the sales of these benefits to third parties in the six
months ended June 30, 2004 and 2003.

NOTE 7. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

         EP MedSystems manages its business based on one reportable segment, the
manufacture and sale of cardiac electrophysiology products. EP MedSystems' chief
operating decision-makers use consolidated results to make operating and
strategic decisions.

         The following table sets forth product sales by geographic segment for
the six months ended June 30, 2004 and 2003.

                                                    FOR THE SIX MONTHS
                                                       ENDED JUNE 30,
                                              2004                  2003
                                              ----                  ----
United States                               $5,302,000            $2,756,000
Europe/Middle East                             837,000             1,235,000
Asia and Pacific Rim                           333,000               638,000
                                   ----        -------  -----        -------
                                            $6,472,000            $4,629,000
                                            ==========            ==========

         Sales of EP MedSystems' cardiac electrophysiology equipment and related
catheters aggregated approximately $5,722,000 and $750,000 respectively, for the
six months ended June 30, 2004, and $4,082,000 and $547,000, respectively, for
the comparable period in 2003. EP MedSystems' long-lived assets are primarily
located in the U.S. One customer accounted for 11% of the Company's sales for
the three and six months ended June 30, 2004, respectively.

         Net sales for the six months ended June 30, 2004 were billed in two
currencies: $6,215,000 in U.S. dollars and the equivalent of $257,000 in Euros.
Management has determined the impact of foreign currency risk on sales to be
minimal since a majority of sales are billed in U.S. dollars. EP MedSystems does
incur translation gains/losses, which are recorded in shareholders' equity.
Cumulative translation losses amounted to approximately $158,000 as of June 30,
2004. In addition, EP MedSystems had not entered into any derivative financial
instruments for hedging or other purposes.

NOTE 8. NET LOSS PER SHARE

         Basic net loss per share is computed using the weighted-average number
of shares of common stock outstanding. Due to the losses incurred for the
quarter, diluted net loss per share does not differ from basic net loss per
share, since potential shares of common stock issuable upon the exercise of
stock options, warrants, convertible preferred shares, and convertible debt are
anti-dilutive for all periods presented. Accordingly, potential common shares of
4,840,000 and 4,062,000 for the six months ended June 30, 2004 and 2003,
respectively, have been excluded from the diluted per share calculation.

NOTE 9. COMPREHENSIVE INCOME

         For the three and six months ended June 30, 2004 and 2003, EP
MedSystems' comprehensive loss consisted of net loss and foreign currency
translation adjustments. The comprehensive losses for the three months ended
June 30, 2004 and 2003 were approximately $1,723,000 and $1,537,000,
respectively. The comprehensive loss for the six months ended June 30, 2004 and
2003 was approximately $3,194,000 and $3,954,0000, respectively.
                                      12

<PAGE>


NOTE 10. RECENTLY ISSUED ACCOUNTING STANDARDS

         In November 2002, the FASB issued FASB Interpretation No. (FIN) 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 requires that an entity
issuing a guarantee (including those embedded in a purchase or sales agreement)
must recognize, at the inception of the guarantee, a liability equal to the fair
value of the guarantee. FIN 45 also requires detailed information about each
guarantee or group of guarantees even if the likelihood of making a payment is
remote. The disclosure requirements of this interpretation are effective for
financial statements of periods ending after December 15, 2002, which makes them
effective for EP MedSystems for December 31, 2002. The recognition and
measurement provisions of this Interpretation are applicable on a prospective
basis to guarantees issued or modified after December 31, 2002. FIN 45 could
have an impact on the future results of the Company, depending on guarantees
issued; however, at this time, the adoption of this Statement did not have a
material impact on our results of operation, financial position or cash flows.

         In January 2003, the FASB issued FIN 46, "Consolidation of Variable
Interest Entities -- an Interpretation of Accounting Research Bulletin (ARB) No.
51." FIN 46 requires the primary beneficiary to consolidate a variable interest
entity (VIE) if it has a variable interest that will absorb a majority of the
entity's expected losses if they occur, receive a majority of the entity's
expected residual returns if they occur, or both. FIN 46 applies immediately to
VIEs created after January 31, 2003, and to VIEs in which the entity obtains an
interest after that date. For VIEs acquired before February 1, 2003, the
effective date for EP MedSystems is July 1, 2003. In December 2003, the FASB
published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of
the interpretation and defer to the effective date of implementation for certain
entities. Under the guidance of FIN 46R, entities that do not have interests in
structures that are commonly referred to at special purpose entities are
required to apply the provisions of the interpretation in financials statements
for periods ending after March 14, 2004. FIN 46 could have an impact on future
results of the Company; however, at this time the adoption of this Statement did
not have a material impact on our results of operations, financial position or
cash flow.

         In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement
133 on Derivative Instruments and Hedging Activities." This standard amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under FASB
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This standard is effective for contracts entered into or modified
after June 30, 2003, except as stated below and for hedging relationships
designated after June 30, 2003. In addition, except as stated below, all
provisions of this Statement should be applied prospectively. SFAS No. 149 could
have a future impact depending on transactions entered into, however, at this
time the adoption of SFAS No. 149 had no impact on the Company's results of
operations, financial position or cash flows.

         In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity." This
standard requires an issuer to classify certain financial instruments as
liabilities. It also changes the classification of certain common financial
instruments from either equity or presentation to liabilities and requires an
issuer of those financial statements to recognize changes in fair value or
redemption amount, as applicable, in earnings. SFAS 150 is effective for
financial instruments entered into or modified after May 31, 2003, and with one

                                      13

<PAGE>


exception, is effective at the beginning of the first interim period beginning
after June 15, 2003. SFAS 150 could have a future impact depending on
transactions entered into, however, at this time the adoption SFAS 150 had no
impact on the Company's results of operations, financial position or cash flows.

NOTE 11. GUARANTOR CONDENSED FINANCIAL STATEMENTS

         In connection with the issuance of a Secured Convertible Note (the
"Convertible Note") by the Company to Laurus Master Fund, Ltd. ("Laurus"), one
of the Company's subsidiaries (the "Guarantor") guaranteed the Convertible Note.
We believe that the non-guarantor subsidiaries of the Company are minor and
would not provide any additional information material to investors. Therefore,
the non-guarantor subsidiaries of the Company are combined in the presentation
below. There are no significant restrictions on the ability of the Guarantor to
make distributions to EP MedSystems. The following tables represent the results
of operations, financial position and cash flows of EP MedSystems, the Guarantor
and the eliminations necessary to arrive at the information for the Company on a
consolidated basis.

         General corporate expenses have been allocated to the Guarantor.
Additionally, all of the indebtedness of the Company historically has been, and
continues to be, carried at the Company level and therefore is included in the
EP MedSystems' column in the following tables.

                                      14

<PAGE>



<TABLE>
<CAPTION>
<S>     <C>                                      <C>                  <C>             <C>                <C>

                               EP MEDSYSTEMS, INC.
                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

                                                               SIX MONTHS ENDED JUNE 30, 2004
                                                                        (UNAUDITED)
                                         ---------------------------------------------------------------------------
                                              EP MEDSYSTEMS AND       GUARANTOR      ELIMINATIONS      CONSOLIDATED
                                                 NON-GUARANTOR
                                                  SUBSIDIARIES
                                         ---------------------------------------------------------------------------

Net sales                                            $5,713,880         $758,102                         $6,471,982

Cost of products sold                                 2,091,726          697,242                          2,788,968
                                         ----------------------------------------                  -----------------

          Gross profit                                3,622,154           60,860                          3,683,014

Operating costs and expenses:

   Sales and marketing expenses                       2,600,758        1,099,923                          3,700,681
   General and administrative
       expenses                                       1,149,223          411,466                          1,560,689

   Research and development expenses
                                                        853,102          385,080                          1,238,182
                                         ----------------------------------------                  -----------------

          Loss from operations                         (980,929)      (1,835,609)                        (2,816,538)

Interest expense, net                                  (397,670)               --                          (397,670)
                                         ----------------------------------------                  -----------------

      Net loss                                      $(1,378,599)     $(1,835,609)                       $(3,214,208)
                                         ========================================                  =================

</TABLE>

                                       15
<PAGE>



                               EP MEDSYSTEMS, INC.
                      CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
<S>     <C>                                               <C>                 <C>          <C>              <C>

                                                                             JUNE 30, 2004
                                                                              (UNAUDITED)
                                                   -------------------------------------------------------------------
                                                     EP MEDSYSTEMS AND     GUARANTOR    ELIMINATIONS    CONSOLIDATED
                                                      NON-GUARANTOR
                                                       SUBSIDIARIES
                                                  --------------------------------------------------------------------
ASSETS
Current assets:

Cash and cash equivalents                                     $5,734,847       $35,559                     $5,770,406

   Restricted Cash                                             1,000,000            --                      1,000,000

   Accounts receivable, net                                    3,023,731       221,067                      3,244,798

   Inventories, net                                            1,685,627     1,145,002                      2,830,629
   Prepaid expenses and other current assets                     537,059        44,818                        581,877
                                                  --------------------------------------------------------------------

          Total current assets                                11,981,264     1,446,446                     13,427,710

Property, plant and equipment, net                               946,615     1,102,892                      2,049,507

Intangible assets, net                                                --       377,567                        377,567

Other assets                                                     332,545            --                        332,545
                                                  --------------------------------------------------------------------

          Total assets                                       $13,260,424    $2,926,905                    $16,187,329
                                                  ====================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current portion of secured convertible note                   $775,970           $--                       $775,970

  Accounts payable                                             1,824,531       176,184                      2,000,715

  Accrued expenses                                               714,260       219,623                        933,883

  Deferred revenue                                               729,835            --                        729,835
                                                  --------------------------------------------------------------------

     Total current liabilities                                 4,044,596       395,807                      4,440,403

Deferred warranty revenue - non current                          327,957            --                        327,957

Intercompany balances                                        (21,827,167)   21,827,167                             --

Secured convertible note                                       2,000,468            --                      2,000,468
                                                  --------------------------------------------------------------------

          Total liabilities                                  (15,454,146)   22,222,974                      6,768,828
                                                  --------------------------------------------------------------------
                                                              28,714,570   (19,296,069)                     9,418,501
Total shareholders' equity (deficit)
                                                  --------------------------------------------------------------------
Total liabilities and shareholders' equity                   $13,260,424    $2,926,905                    $16,187,329
                                                  ====================================================================
</TABLE>

                                       16

<PAGE>



                               EP MEDSYSTEMS, INC.
                      CONDENSED CONSOLIDATING STATEMENT OF
                                   CASH FLOWS
<TABLE>
<CAPTION>
<S>     <C>                                             <C>                 <C>                 <C>             <C>

                                                                    FOR THE SIX MONTHS ENDED JUNE 30, 2004
                                                                                  (UNAUDITED)
                                                    ------------------------------------------------------------------------
                                                     EP MEDSYSTEMS        GUARANTOR        ELIMINATIONS      CONSOLIDATED
                                                        AND
                                                     NON-GUARANTOR
                                                     SUBSIDIARIES
                                                    ---------------- ------------------- ----------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                $(1,319,947)        $(1,894,261)                        $(3,214,208)
Adjustments to reconcile net loss to net cash
used in operating activities:
  Depreciation and amortization                             338,473              40,882                             379,355
Amortization of beneficial conversion feature               165,930                  --                             165,930
Accretion of discount                                       148,123                  --                             148,123
Changes in assets and liabilities:
  Accounts receivable                                      (528,885)            319,513                           (209,372)
  Inventories                                              (899,384)                585                           (898,799)
  Prepaid expenses and other assets                         221,021              40,289                             261,310
  Deferred tax asset                                        179,494             218,226                             397,720
  Accounts payable                                           23,066              15,093                              38,159
 Accrued expenses, deferred revenue, and accrued
    interest                                               (341,656)            (91,964)                           (433,620)
                                                    ---------------- ------------------- ----------------- -----------------
          NET CASH USED IN OPERATING ACTIVITIES         $(2,013,765)        $(1,351,637)                        $(3,365,402)
                                                    ---------------- ------------------- ----------------- -----------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                      (68,366)                  --                            (68,366)
  Patent costs                                                    --            (32,660)                            (32,660)
                                                    ---------------- ------------------- ----------------- -----------------
         NET CASH USED IN INVESTING ACTIVITIES             $(68,366)           $(32,660)                          $(101,026)
                                                    ---------------- ------------------- ----------------- -----------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments under term notes payable                     (2,200,000)                  --                         (2,200,000)
   Change in intercompany balances                       (1,377,492)          1,377,492                                  --
   Proceeds from issuance of common stock, net of
    offering expenses                                       167,722                  --                             167,722
                                                    ---------------- ------------------- ----------------- -----------------
      NET CASH (USED IN) PROVIDED BY FINANCING          $(3,409,770)         $1,377,492                         $(2,032,278)
      ACTIVITIES
                                                    ---------------- ------------------- ----------------- -----------------

EFFECT OF EXCHANGE RATE CHANGES                              20,129                  --                              20,129
                                                    ---------------- ------------------- ----------------- -----------------
NET INCREASE IN CASH AND CASH EQUIVALENTS               $(5,471,772)            $(6,805)                        $(5,478,577)
                                                    ---------------- ------------------- ----------------- -----------------
Cash and cash equivalents, beginning of period           11,206,619              42,364                          11,248,983
                                                    ---------------- ------------------- ----------------- -----------------
Cash and cash equivalents, end of period                 $5,734,847             $35,559                          $5,770,406
                                                    ================ =================== ================= =================
<FN>

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

                                       17

<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

OVERVIEW

         EP MedSystems was incorporated in January 1993 and operates in a single
industry segment. We develop, manufacture, market and sell a line of products
for the cardiac electrophysiology market used to diagnose, monitor, visualize
and treat irregular heartbeats known as arrhythmias. Since our inception, we
have acquired technology and marketing rights, have developed new products and
have begun marketing various electrophysiology (EP) products, including the
EP-WorkMate(R) computerized electrophysiology workstation, the RPM(TM) RealTime
Position Management(TM) navigation technology, the EP-4(TM) Computerized Cardiac
Stimulator, diagnostic electrophysiology catheters, including our unique
one-piece catheter and the ALERT(R) System, including the ALERT(R) Companion II
and ALERT(R) family of internal cardioversion catheters, ViewMate(R)
intracardiac ultrasound catheter system and related disposable supplies.

         In 2003, we received the following product approvals or market
clearances:

 Product                                                 Regulatory Body
------------------------------------            --------------------------------
ViewMate(R)                                     FDA and European Notified Body
ALERT(R) Companion II energy source             FDA
ALERT(R) CS/RA catheter set                     European Notified Body
ALERT(R) Deflectable CS catheter                European Notified Body
Integration of the EP-WorkMate(R)               FDA
with Boston Scientific's RPM RealTime
Position Management(TM) System

         In 2004, we received market clearance from the FDA for our
line of deflectable diagnostic catheters. A deflectable catheter allows the
physician to deflect its tip to steer the catheter into certain vessels and
areas of the heart, which would be difficult with a fixed curve catheter. In
addition, we received FDA market clearance for our new EP-4(TM) Computerized
Cardiac Stimulator. The EP-4(TM) is an improvement over our existing EP-3(TM)
technology allowing for constant current, elimination of a battery and two or
four channel stimulator.

         Our core diagnostic product is the EP-WorkMate(R), a computerized
electrophysiology workstation that monitors displays and stores cardiac
electrical activity and arrhythmia data. The EP-WorkMate(R) offers, among other
features, display and storage of up to 192 intracardiac signals, real-time
diagnosis, analysis and integration with our own proprietary systems, such as
our EP-3(TM) Stimulator, as well as those of market leaders, such as the RPM(TM)
RealTime Position Management(TM) navigation system, as well as with other
technologies and systems. Late in the third quarter of 2003, we received FDA
market clearance to sell the EP-WorkMate(R) integrated with Boston Scientific
Corporation's RPM(TM) RealTime Position Management(TM) System. This approval was
the culmination of a strategic joint development project between Boston
Scientific Corporation and EP Med. It is the only EP recording system on the
market to integrate advanced recording and stimulation with anatomic modeling,
advanced mapping and 3-D navigation features, allowing electrophysiology studies
to be more efficient and user friendly. The EP-3(TM) and now the EP-4(TM)

                                      18

<PAGE>


Stimulator is a computerized signal generator and processor which, when
integrated with the EP-WorkMate(R), is used to stimulate the heart with
electrical impulses in order to locate arrhythmia. For the six months ended June
30, 2004 and 2003, the EP-WorkMate(R),the RPM(TM) RealTime Position
Management(TM) System, the EP-3(TM) and the EP-4(TM) Stimulator accounted for
approximately 84% and 88%, respectively, of our total sales. We also market a
line of diagnostic electrophysiology catheters for stimulation and sensing of
electrical signals during electrophysiology studies, which represented
approximately 4% and 5% of our total sales revenues for each of the six months
ended June 30, 2004 and 2003, respectively.

         We have also developed a product for the treatment of atrial
fibrillation known as the ALERT(R) System, which uses a patented electrode
catheter to deliver measured, variable, low-energy electrical impulses directly
to the inside of the heart to convert atrial fibrillation to a normal heart
rhythm. We have obtained Class III Design Examination Certification from a
European Notified Body allowing us to label the ALERT(R) System with a CE Mark,
an international symbol of adherence to quality assurance standards, design
reviews and hazard analysis, which permits us to sell the ALERT(R) System in the
European Community. In September 2003, we received pre-market approval to sell
the ALERT(R) Companion II in the United States. Sales of the ALERT(R) System and
related catheters accounted for approximately 5% and 7% of our total sales
revenues for the six months ended June 30, 2004 and 2003, respectively.

         We have also developed the ViewMate(R) intracardiac ultrasound catheter
system including the ViewMate(R) ultrasound imaging console and ViewFlexTM
intracardiac imaging catheters. These products offer high-resolution, real-time
ultrasound capability designed to improve a physician or clinician's ability to
visualize inside the chambers of the heart. We believe the ViewMate(R)
Ultrasound System may play an important role for a broad range of potential
applications in electrophysiology and cardiology. In April of 2003, we received
CE approval to market the ViewMate(R) in Europe. In October 2003, we received
FDA market clearance to sell the ViewMate(R) System in the United States. Sales
of the ViewMate(R) system and related ViewFlex(TM) catheters accounted for
approximately 7% of our total sales revenues in the six months ended June 30,
2004.

CRITICAL ACCOUNTING POLICIES

         Financial Reporting Release No. 60 requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The SEC indicated that a critical accounting policy is one
which is important to the portrayal of the company's financial condition and
results and requires management's most difficult, subjective or complex
judgements, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Note 1 of our Notes to the Consolidated
Financial Statements includes a summary of the significant accounting policies
and methods used in the preparation of our Consolidated Financial Statements. In
addition, Financial Reporting Release No. 61 requires all companies to include a
discussion to address, among other things, liquidity, off-balance sheet
arrangements, contractual obligations and commercial commitments. The
information provided below describing our debt and future commitments is
provided to facilitate a review of our liquidity and capital resources. The
following is a brief discussion of the more significant accounting policies and
methods used by us.

                                      19

<PAGE>


GENERAL

         The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. The primary estimates used by
management are in the determination of the allowance for doubtful accounts,
inventory obsolescence reserve and warranty reserve. Although these estimates
are based upon management's knowledge of current events, the estimates may
ultimately differ from actual results.

REVENUE RECOGNITION

         We ship products to our customers based on FOB shipping point and, as
such, recognize product sales on the date of shipment. Installation of the
products is considered perfunctory. Payments received in advance of shipment of
product are deferred until such products are shipped. We do not have royalty
agreements that result in revenue to EP Med. We do not provide distributors or
end-users with a general right to return products purchased.

         We have two sales channels: sales to independent distributors and sales
directly to customers. Our products do not require "installation" in the
traditional sense, but the EP-WorkMate(R) does require a set up. For distributor
sales, distributors are responsible for all set-up of all electronic hardware
products and we have no obligation after shipment of products to the
distributors. For direct sales, the customer can perform the set-up on its own,
however, EP Med personnel generally will assist customers in this process. The
set-up process, which takes approximately 1-2 hours to complete, is usually
performed within the week of shipment and primarily consists of assembling the
workstation cart and plugging in the monitors, printer, isolation transformer,
and the EP-4(TM) Stimulator to the main computer. This process does not impact
our standard payment terms. For sales to distributors, payment terms are defined
in the distributor agreements as 100% of the purchase price being due 30-60 days
after shipment. For direct sales, payment terms are agreed in advance of the
sale and generally require a 50% deposit prior to shipment, with the balance due
30-60 days after shipment.

         We provide a standard one-year warranty on all of our products, and in
accordance with Statement of Financial Accounting Standard No. 5, "Accounting
for Contingencies", we accrue the estimated cost of providing the warranty at
the time of sale. The estimates of the future costs are based on historical
data.

         We also sell various types of warranty contracts to our customers.
These contracts range in term from one to five years. Revenue is recognized on
these contracts on a straight line basis over the life of the contract.

VALUATION OF ACCOUNTS RECEIVABLE

         We continuously monitor customers' balances, collections and payments,
and maintain a provision for estimated credit losses based upon our historical
experience and any specific customer collection issues that we have identified.
We may request letters of credit from our customers when we believe that there
is a significant risk of credit loss. While such credit losses have historically
been within our expectations and the provisions established, we cannot guarantee
that we will continue to experience the same credit loss rates that we have in
the past.

                                      20

<PAGE>


VALUATION OF INVENTORY

         We value our inventory at the lower of cost or market, with cost being
determined on a first-in, first-out basis. We continually monitor our
slow-moving items, and establish reserve amounts on a specific identification
basis, as necessary. In addition, due to the fact that our business is dependent
on the latest computer technology, we continually monitor our inventory and
products for obsolescence. If we determine market value to be less than cost, we
write down the cost to that value. Generally, we do not experience significant
writedowns, losses, etc. with the valuation of our inventory; however, these
reserves are estimates, which could change significantly, either favorably or
unfavorably, depending on market and competitive conditions.

VALUATION OF GOODWILL, INTANGIBLE ASSETS, AND OTHER LONG-LIVED ASSETS

         We assess the impairment of identifiable intangibles, long-lived assets
and enterprise level goodwill whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. Factors we consider
important which could trigger an impairment review include the following:

o       significant underperformance relative to expected historical or
        projected future operating results;
o       significant  changes in the  manner of our use of the  acquired
        assets or the  strategy  for our  overall business;
o       significant negative industry or economic trends;
o       significant decline in our stock price for a sustained period; and
o       our market capitalization relative to net book value.

         When we determine that the carrying value of intangibles, long-lived
assets and related goodwill and enterprise level goodwill may not be recoverable
based upon the existence of one or more of the above indicators of impairment,
we measure any impairment based on a projected discounted cash flow method using
a discount rate determined by our management to be commensurate with the risk
inherent in our current business model.

INCOME TAXES

         We account for our income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the enacted tax rates which will be in effect when
these differences reverse. Deferred tax expense is the result of changes in
deferred tax assets and liabilities.

ACCOUNTING FOR STOCK-BASED COMPENSATION.

         We have elected to measure our stock-based compensation expense
relating to grants to employees under our stock option plans using the intrinsic
value method. Under this method, we record no compensation expense when we grant
stock options to employees if the exercise price for a fixed stock option award
to an employee is equal to the fair value of the underlying common stock at the
date we grant the stock option.

                                      21

<PAGE>


         A different method for accounting for employee stock option grants is
the fair value method. Under the fair value method, a company is required to
determine the fair value of options granted to employees based on an option
pricing model which incorporates such factors as the current stock price,
exercise prices of the options, expected volatility of future movements in the
price of the underlying stock, risk-free interest rates, the term of the options
and any dividends expected to be paid. The fair value determined under this
method is then amortized over the vesting period of the related options. Had we
chosen to account for employee stock options using the fair value method, we
would have recorded additional stock based compensation expense of approximately
$283,000 and $215,000 for the six months ended June 30, 2004 and 2003,
respectively.

RESULTS OF OPERATIONS.

SIX MONTHS ENDED JUNE 30, 2004 AND 2003.

         The Company had net sales of $6,472,000 for the six months ended June
30, 2004 as compared to $4,629,000 for the comparable period in 2003. This
$1,843,000 (or 40%) increase was primarily due to new product sales of
approximately $2,013,000, which includes sales of ViewMate(R) consoles,
ViewFlex(TM) catheters, EP-WorkMate(R) integrated with Boston Scientific
Corporation's RPM(TM) Technology and sales of RPM(TM) upgrades into our
installed base.

         Gross profit on sales for the six months ended June 30, 2004 was
$3,683,000 as compared with $2,364,000 for the same period in 2003. Gross profit
as a percentage of sales increased from 51.1% to 56.9%, primarily due to an
increase in sales of new products within the United States where overall margins
are higher.

         Sales and marketing expenses increased $1,094,000 or (42%) to
$3,701,000 for the six months ended June 30, 2004 as compared to the same period
in 2003. This increase was a result of higher commissions, salaries, travel and
recruiter fees as a result of higher overall sales in 2004 and an increase in
headcount in connection with the launch of new products. Additional product
launch costs include higher spending on U.S. and international conventions,
training, and marketing costs. We anticipate continuing to invest in sales and
marketing in connection with the product launches. Lastly, the launch of our new
clinical affairs department in the second quarter of 2004 also contributed to an
increase in sales and marketing expenses. We anticipate this department will
assist in the marketing of our new and existing products, expand the overall
claims of our new products and provide additional strategic direction from the
physician's perspective.

         General and administrative expenses increased $468,000 (or 43%) to
$1,561,000 for the six months ended June 30, 2004 as compared to the same period
in of 2003. This increase in general and administrative expenses was primarily
due to an increase in noncash expenses for the amortization of deferred
financing fees of $88,000 and fluctuations in foreign currency of $182,000. In
addition, expenses in connection with being a public company increased
significantly in the first half of 2004. Accounting and auditing expenses
increased $30,000. Director's fees increased $24,000 and investor relations
expenses were higher by $45,000. In addition, the Company has added the
controller position.

         Research and development expenses increased $54,000 (or 5%) to
$1,238,000 for the six months ended June 30, 2004 as compared to the same period
in 2003. The increase was due to higher spending in legal fees related to
intellectual property of $51,000, additional spending to conclude the research
and development of the EP-4(TM) and innovations to existing products and was
offset by a reduction in salaries due to a lower head count in 2004. Costs for
research and development can fluctuate on a quarter-by-quarter basis depending
on status of projects and intellectual property strategies.


                                      22

<PAGE>

    Interest expense increased $279,000 to $398,000 for the six months
ended June 30, 2004 as compared to the same period in 2003. This was the result
of the interest expense related to the convertible note issued to Laurus
including accretion of note discount of $148,000 and amortization of beneficial
conversion of $166,000, offset by a reduction in expense from payoff of the note
payable to Medtronic. For the six months ended June 30, 2003, EP MedSystems
recorded a non-cash interest expense, debt conversion in connection with the
conversion of the $1,000,000 convertible promissory bridge notes issued to EGS,
which converted into common stock of the Company on January 31, 2003.

THREE MONTHS ENDED JUNE 30, 2004 VERSUS JUNE 30, 2003

         Net sales were $3,588,000 for the three months ended June 30, 2004, as
compared to $2,338,000 for the comparable period in 2003. This $1,250,000 (or
53%) increase is primarily due to new product sales in the United States of
approximately $1,335,000, which includes sales of ViewMate(R) Consoles,
ViewFlex(TM) catheters, EP-WorkMate(R) integrated with Boston Scientific
Corporation's RPM(TM) Technology and sales of RPM(TM) upgrades into our
installed base. This increase in sales in the United States was partially offset
by decreased sales in Europe and Asia.

         Gross profit on sales for the three months ended June 30, 2004 was
$2,012,000, as compared to $1,236,000 for the same period in 2003. The gross
profit increased as a percentage of sales from 52.8% to 56.1%, due to sales of
new products in the United States, discussed above. Sales margins in the United
States are higher than the rest of the world.

         Sales and marketing expenses increased $832,000 (or 65%) to $2,120,000
for the three months ended June 30, 2004, as compared to the same period in
2003. This increase was a result of higher commissions, salaries, travel and
recruiter fees as a result of higher overall sales in 2004 and an increase in
headcount in connection with the launch of new products. Additional product
launch costs include higher spending on U.S. and international conventions,
training, and marketing costs. We anticipate continuing to invest in sales and
marketing in connection with the product launches. Lastly, the launch of our new
clinical affairs department in the second quarter of 2004 also contributed to an
increase in sales and marketing expenses. We anticipate this department will
assist in the marketing of our new and existing products, expand the overall
claims of our new products and provide additional strategic direction from the
physician's perspective.

         General and administrative expenses increased $288,000 (or 52%) to
$837,000 for the three months ended June 30, 2004, as compared to the same
period in 2003. This was primarily due to an increase in noncash expenses for
the amortization of deferred financing fees of $44,000 and fluctuations in
foreign currency of $150,000. In addition, expenses in connection with being a
public company increased significantly in the first half of 2004. Accounting and
auditing expenses increased $43,000. Director's fees increased $19,000 and
investor relations expenses were higher by $20,000. In addition, the Company has
added the controller position.

         Research and Development costs for the quarters increased $46,000 (or
8%) to $637,000 for the three months ended June 30, 2004 as compared to the same
period in 2003. The increase was due to higher spending in legal fees related to
intellectual property, additional spending to conclude the research and
development of the EP-4(TM) and innovations to existing products and was offset
by a reduction in salaries due to a lower head count in 2004. Costs for research
and development can fluctuate on a quarter-by-quarter basis depending on status
of projects and intellectual property strategies.

                                      23

<PAGE>


         Interest expense increased $110,000 for the three months ended June 30,
2004, as compared to the same period in 2003. This was the result of the
interest expense related to the convertible note issued to Laurus including
accretion of note discount of $63,000 and amortization of the beneficial
conversion of $69,000, offset by a reduction in expense from the payoff of the
note payable with Medtronic.

         In 2003, the Company recorded a $1,000,000 non-cash charge to interest
expense, debt conversion in connection with the conversion of the convertible
promissory bridge notes as a result of certain beneficial conversion features
and the intrinsic value of embedded conversion options within the promissory
notes.

LIQUIDITY AND CAPITAL RESOURCES

         Since our incorporation in January 1993, our expenses have exceeded
sales, resulting in an accumulated deficit of approximately $38.2 million at
December 31, 2003 and approximately $41.4 million at June 30, 2004.

         On November 15, 2000, we completed a $3.2 million debt financing with
Medtronic Asset Management, Inc., an affiliate of Medtronic, Inc., one of our
shareholders. Approximately $2.3 million of that amount was used to repay
outstanding amounts on our then-existing revolving credit facility. The
principal and all accrued interest on the Medtronic note was to be repaid on
November 15, 2003 and the note was secured by a pledge by David Jenkins, the
Chairman of our Board of Directors, of shares of common stock of a
privately-held corporation. On March 12, 2003, the due date of the note was
extended to April 1, 2004. In connection with the extension, we paid $1 million
of the note upon receipt of certain equity proceeds and increased the interest
rate to the prime rate plus 3% from the prime rate plus 2%. The prime rate was
4% at December 31, 2003. We had accrued approximately $728,000 of interest
expense as of December 31, 2003. In February 2004, the principal amount of this
note along with all accrued interest was repaid.

         During the year ended December 31, 2001, we consummated the private
sale and issuance of our Series A convertible preferred stock to Medtronic, Inc.
("Medtronic"). In 2002, Medtronic converted a portion of its preferred stock
into shares of our common stock. At June 30, 2004 and December 31, 2003,
Medtronic held 373,779 of our Series A Preferred Shares which are convertible
into 387,946 shares of our common stock at the option of Medtronic or us in
accordance with the terms of the agreement with Medtronic.

         On September 5, 2002, we entered into a stock purchase agreement and
license agreement with Boston Scientific Corporation ("BSC") in connection with
a strategic joint development project. The development project was completed in
the third quarter of 2003. As a result, we have marketing rights to the
developed technology and will pay royalties to BSC based on the market value of
the technology at the time of our sale of the integrated product. The stock
purchase agreement with BSC allowed for the sale of up to $3,000,000 of common
stock based on the achievement by us of milestones in the development of certain
cardiac electrophysiology technology. We achieved each of the milestones, and
the common stock was sold at the lesser of the ten-day trailing average trading
price per share prior to the closing of each installment purchase, and $5.00 per
share. Upon signing of the agreement, we received $500,000 for 210,084 shares of
our common stock issued at the ten-day trailing average trading price of $2.38
per share. On February 4, 2003, we issued 311,915 shares of common stock in
exchange for $500,000. These shares were registered for resale on Form S-3 on
April 2, 2003. On April 21, 2003, we issued 357,398 shares of common stock in
exchange for another payment of $500,000. During the third quarter of 2003, we
issued 601,631 shares of common stock in exchange for the final payments
totaling $1,500,000.

                                      24

<PAGE>


         On November 21, 2002, we issued $750,000 of notes secured by a mortgage
on our facility in West Berlin, New Jersey. Interest was payable quarterly at 8%
and the notes were collateralized by the building. The notes were convertible
into our common stock at escalating amounts over its three year term as follows:

o       November 21, 2002 through December 31, 2003 convertible at $2.14
        per share
o       January 1, 2004 through December 31, 2004 convertible at $2.50 per share
o       January 1, 2005 through December 31, 2005 convertible at $3.00 per share

         On April 2, 2003, the holders of the mortgage notes converted an
aggregate of $375,000 of the mortgage notes into 300,000 shares of our common
stock. In connection with the conversion, we reduced the conversion price from
$2.14 per share to $1.25 per share, which resulted in the recording of a
non-cash mortgage conversion charge of $222,084. On June 30, 2003, the holders
of the mortgage notes converted the final portion of the mortgage notes into
175,234 shares of common stock at a conversion price of $2.14 as stated in the
agreement.

         On December 30, 2002, we issued convertible promissory bridge notes, in
an aggregate amount of $1,000,000, to EGS Private Healthcare Partnership L.P.
and EGS Private Healthcare Counterpart L.P. (the "EGS Entities"). The maturity
date of those promissory notes was June 30, 2003, and interest accrued at 10%
per annum, payable upon maturity. In connection with that financing, we issued
warrants to the EGS Entities to purchase an aggregate of 50,000 shares of our
common stock at 105% of the closing trading price of its common stock on
December 30, 2002. On January 31, 2003, we issued common stock in a related
private placement. The entire principal amount of the promissory notes issued to
the EGS Entities and all accrued and unpaid interest thereon were converted into
819,783 shares of common stock and warrants to purchase 327,913 shares of our
common stock in and on the same terms as the private placement. A managing
member of the EGS Entities is also a member of our Board of Directors.

         On January 31, 2003, we completed a $2,470,000 private placement of our
common stock to various accredited investors. We issued 2,007,475 shares of our
common stock for a purchase price of $1.23 per share and warrants to purchase
802,990 shares of common stock at an exercise price per share of 110% of the
closing trading price on the date of closing of that transaction, which was
$1.6943. In the private placement, we received approximately $1,570,000 in cash,
net of offering costs. The balance of the private placement included the
conversion of the entire principal amount of, and accrued interest on, the
promissory notes from the EGS Entities into our common stock and the securities
issued in that private placement were issued on the same terms and conditions as
those of the other investors. In connection with that conversion, the 50,000
warrants issued to the EGS Entities on December 30, 2002 were cancelled in 2003
and we recorded a $1,000,000 non-cash charge in connection with the conversion
in 2003. The charge is for interest conversion expense associated with certain
beneficial conversion features and the intrinsic value of embedded conversion
options within the promissory notes. With prior notice to the holders of the
warrants, the warrants issued in connection with the private placement may be
repurchased by us at $.01 per warrant at any time after the average closing
price of our common stock, for any twenty consecutive trading days, has equaled
or exceeded $2.54. In July of 2003, the closing price requirement for repurchase
of the warrants was met, we gave notice to repurchase the warrants to the
warrant holders, and 794,790 shares of common stock were issued upon exercise of
these warrants. In April 2003, we completed an additional $210,000 private
placement of 120,000 shares of our common stock to various accredited investors.

                                      25

<PAGE>


         On August 28, 2003, we issued a Secured Convertible Note (the "Laurus
Convertible Note") to Laurus Master Fund, Ltd. ("Laurus") and entered into a
related Security Agreement with Laurus, pursuant to which Laurus provided us
with a $4,000,000 revolving asset-based credit facility in the form of a
three-year Laurus Convertible Note secured by our accounts receivable,
inventory, real property and other assets, other than intellectual property.

         At the closing of the transaction, we issued the Laurus Convertible
Note to Laurus having a principal amount of $4,000,000 and received net proceeds
of $2,661,600. The remaining $1,000,000 has been funded by Laurus and is
expected to be available to us upon the fulfillment of certain requirements
associated with documenting Laurus' security interest in our real property and
is included on the Balance Sheet under the caption "Restricted Cash". The
balance of the proceeds was used to pay fees incurred in connection with this
transaction. Deferred financing fees are being amortized over the life of the
Laurus Convertible Note using the effective interest method. In addition, we
paid a portion of the fees payable to an intermediary, Biscayne Capital Markets,
Inc. ("Biscayne"), in 40,000 shares of our common stock having a market value on
the date of closing of this transaction equal to $100,000. The net proceeds of
the Laurus Convertible Note will be used for working capital purposes and
payment of outstanding debt.

         The portion of the Laurus Convertible Note against which Laurus
advances funds based on our accounts receivable bears interest at the prime
rate, with a floor of 4%, which is an effective interest rate of approximately
17% (including accretion of discount and amortization of beneficial conversion
feature), and the balance (the "Advance Amounts") bears interest at the prime
rate plus 2%. One half of Advance Amounts outstanding on February 28, 2005
(approximately $776,000 as of June 30, 2004) is required to be repaid on or
before February 28, 2005. The remaining balance of the Advance Amounts
outstanding on the date of the closing is required to be repaid on or before
August 28, 2006. Subject to certain rights of cancellation, we may extend the
Laurus credit facility, on a year-by-year basis, commencing August 28, 2006. We
may repay in cash, without penalty, up to $500,000 of the Laurus Convertible
Note in any one calendar year, plus all Advance Amounts.

         Subject to certain volume limitations and other conditions, all or a
portion of the Laurus Convertible Note is convertible into our common stock at
our option if the market price of our common stock reaches a level, for 11
consecutive trading days, which is above 120% of $2.55 (the "Fixed Conversion
Price"), which is a price that was greater than the market price of our common
stock on the date of closing. Subject to certain volume limitations and other
conditions, Laurus has the option to convert all or a portion of the Laurus
Convertible Note into shares of our common stock at the Fixed Conversion Price.

         Following the conversion into our common stock by us and/or Laurus of
an aggregate of $2,000,000 of the principal amount of the Laurus Convertible
Note (a "Conversion Event"), the Fixed Conversion Price will be adjusted upward
to a price which is 115% of the average of the closing price of our common stock
for the three trading days prior to the Conversion Event. Subject to certain
limitations, including the repayment obligations with respect to Advance Amounts
described above, the dollar amounts of the Laurus Convertible Note converted may
be re-borrowed.

                                      26

<PAGE>


         The Fixed Conversion Price is subject to adjustment, with customary
exceptions and on a weighted-average basis, in connection with sales of our
securities below the Fixed Conversion Price then in effect, and is also subject
to adjustment for stock splits, combinations, stock dividends and similar
events. As part of the credit facility transaction, Laurus and the intermediary
also received warrants to purchase an aggregate of 240,750 shares of our common
stock (the "Warrants"), with exercise prices set as follows: $2.93 per share for
the purchase of up to the first 133,750 shares, $3.19 per share for the purchase
of up to the next 80,250 shares, and $3.70 per share for the purchase of up to
the final 26,750 shares. The expiration date of the Warrants is August 28, 2010.
The exercise price of the Warrants and the number of shares underlying the
Warrants are subject to adjustments for stock splits, combinations, stock
dividends and similar events.

         We registered, under the Securities Act of 1933, as amended, 1,500,000
shares of our common stock which may be received by Laurus upon conversion of
the Laurus Convertible Note and exercise of the Warrant and will be required to
register the remainder of such shares (approximately 300,000 shares) on the date
which is the earlier of (i) one year from the closing of the transaction or (ii)
the date of conversion of the $2 million portion of the Laurus Convertible Note.
In accordance with the provisions of Emerging Issues Task Force (EITF) Issue
00-27, "Application of EITF Issue No. 98-5 `Accounting for Convertible
Securities with Beneficial Conversion Features of Contingently Adjustable
Conversion Ratios', to Certain Convertible Securities", the allocated value of
the Laurus Convertible Note contained a beneficial conversion feature calculated
based on the difference between the effective conversion price of the proceeds
allocated to the Laurus Convertible Note and the Warrants at the date of
issuance. The amount arising from the beneficial conversion feature aggregated
approximately $486,000 and is being amortized as interest expense from the date
of the issuance of the Laurus Convertible Note to the mandatory redemption date
of August 28, 2006. We valued the Laurus Convertible Note and the Warrants at
issuance. The fair value of the Warrants at the time of issue was $407,500. In
accordance with EITF 00-19, "Accounting for Derivative Financial Instruments
Indexed to, and Potentially Settled in, a Company's Own Stock," we marked the
Warrants to market at September 30, 2003 incurring a non-cash charge of
$264,000. The registration rights agreement associated with the Laurus
Convertible Note was amended on November 25, 2003 and, as a result, the amount
associated with the warrants was transferred to equity. We marked the Warrants
to market at the date of the amendment which reduced the overall expense to
$210,750 for the year ended December 31, 2003. The net carrying value of the
Laurus Convertible Note, after allocation of the fair value of the Warrants, is
being accreted to interest expense over the life of the agreement using the
effective interest method.

         On December 26, 2003, we completed an $8,200,000 private placement of
our common stock to various accredited investors whereby we issued 3,200,000
shares of our common stock at a purchase price of $2.56 per share.

         In May of 2004, the Company engaged a physician as a consultant to head
our clinical affairs department. In connection with that agreement, the Company
issued 10,000 shares of the Company's common stock and an option to purchase
10,000 shares of the Company's common stock. The option vests over twelve months
and was issued at the fair market value. The transaction was accounted for in
accordance with Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." The fair value was measured using
the Black-Scholes option pricing model under Statement of Financial Accounting
Standard No. 123.

                                      27

<PAGE>


         Net cash used in operating activities for the six months ending June
30, 2004 increased $1,606,000 as compared to the same period in 2003. The
increase in our net use of cash in operations during 2004 was primarily due to
our net loss, an increase in inventory and a decrease in accrued expenses.
Inventory on hand increased as a result of the number of new product lines
approved in the second half of 2003 and accrued expenses decreased with the
payment of accrued interest to Medtronic. Payments to related parties are made
on terms similar to those of other suppliers. Capital expenditures, were $68,000
for the six months ended June 30, 2004 as compared to $81,000 in 2003. We expect
to purchase capital equipment in 2004 as we grow, however, we currently do not
have any commitments for purchases. We lease office and manufacturing space and
certain office equipment under operating leases.

         Assets decreased $5,474,000 from $21,661,000 at December 31, 2003 to
$16,187,000 at June 30, 2004. The change in assets was due to a number of
factors. Cash and cash equivalents, including restricted cash, decreased by
$5,479,000 from $11,249,000 at December 31, 2003 to $5,770,000 at June 30, 2004,
mainly due to the repayment of the Medtronic debt and accrued interest of
approximately $2,920,000. Prepaid expenses and other assets, both short and long
term, decreased approximately $264,000. The decrease in these balance sheet
items was primarily a result of the reduction of both the deferred offering
costs and the beneficial conversion feature in connection with the convertible
note of $88,000 and $166,000 respectively.

         Liabilities decreased approximately $3,266,000 from $10,035,000 at
December 31, 2003 to $6,769,000 at June 30, 2004. This decrease was primarily
due to the repayment of approximately $2,920,000 in principal and interest to
Medtronic in February 2004.

         We evaluate the collectability of our receivables quarterly. The
allowance for bad debts is based upon specific identification of customer
accounts for which collection is doubtful and our estimate of the likelihood of
potential loss. To date, we have experienced only modest credit losses with
respect to our accounts receivable. To date, we have experienced insignificant
inventory write-downs and the reserve is consistent with management's
expectations.

         We have a history of operating losses and we expect to continue to
incur operating losses in the near future as we continue to expend substantial
funds for research and development, increased manufacturing activity and
expansion of sales and marketing activities. The amount and timing of future
losses will depend upon, among other things, volume of sales of our existing
products, market acceptance of the ALERT System and ultrasound products, and
developmental, regulatory and market success of new products under development,
as well as our ability to establish, preserve and enforce intellectual property
rights related to our products. There can be no assurance that any of our
development projects will be successful or that if development is successful,
the products will generate any sales. Based upon our current plans and
projections, we believe that our existing capital resources will be sufficient
to meet our anticipated capital needs for at least the next twelve months.


                                      28

<PAGE>


ITEM 3. CONTROLS AND PROCEDURES.

         As of the end of the period covered by this report, the Company
conducted an evaluation, under the supervision and with the participation of our
principal executive officer and principal financial officer, of the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15 and 15d-15 of the Exchange Act). Based on this evaluation, our
principal executive officer and principal financial officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by the Company in reports that it files or submits
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission rules and
forms. It should be noted that the design of any system of controls is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions, regardless of how remote.

         There was no change in the Company's internal control over financial
reporting during the Company's most recently completed fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company's
internal controls over financial reporting.

                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not Applicable.

ITEM 2. CHANGES IN SECURITIES.

         (a) Not applicable.

         (b) Not applicable.

         (c) Not applicable.

         (d) Not applicable.

         (e) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.


                                      29

<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)      Exhibits

         The exhibits are listed in the Exhibit Index appearing at page 32
         herein.

(b)      Reports on Form 8-K.

         The following report on Form 8-K was filed during the quarter ended
June 30, 2004:

         On May 7, 2004, under Item 12, Results of Operations and Financial
Condition, attaching a press release regarding our financial results and certain
highlights from the first quarter of 2004.

                                       30

<PAGE>



                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                          EP MEDSYSTEMS, INC.
                                          (Registrant)

Date:  August 11, 2004              By:   /s/  Reinhard Schmidt
     ----------------                     ---------------------
                                          Reinhard Schmidt
                                          President and Chief Executive Officer
                                          and Director
                                          (Principal Executive Officer)


Date:  August 11, 2004              By:   /s/ Matthew C. Hill
     ----------------                     -------------------
                                          Matthew C. Hill
                                          Chief Financial Officer
                                          (Principal Financial and Accounting
                                          Officer)

                                       31
<PAGE>


                                  EXHIBIT INDEX

Exhibit
Number          Description
-------         ---------------------------------------------------------------

3.1             Amended and Restated Certificate of Incorporation of EP
                MedSystems, Inc. filed with the Secretary of the State of New
                Jersey on April 8, 1996 (1)

3.2             Certificate of Amendment to the Amended and Restated Certificate
                of Incorporation of EP MedSystems, Inc. filed with the State of
                New Jersey on November 6, 1998 (16)

3.3             Certificate of Amendment to the Amended and Restated Certificate
                of Incorporation of EP MedSystems, Inc., filed with the
                Secretary of the State of New Jersey on October 21, 2001 (14)

3.4             Certificate of Amendment to the Amended and Restated Certificate
                of Incorporation of EP MedSystems, Inc., filed with the
                Secretary of the State of New Jersey on December 22, 2003 (17)

3.5             Bylaws, as amended (1)

4.1             Form of Common Stock and Warrant Purchase Agreement, dated as of
                August 31, 1999, between EP Med and the Purchasers named therein
                (including Exhibit A: Form of Registration Rights Agreement and
                Exhibit B: Form of Warrant) (7)

4.2             Form of Replacement Warrant, dated as of February 15, 2000,
                between EP Med and the Purchasers named therein (including
                Amendment to Registration Rights Agreement and Form of
                Replacement Warrant) (10)

4.3             Form of Amended and Restated Common Stock and Warrant Purchase
                Agreement, dated as of February 16, 2001, between EP Med and the
                Purchasers (including Exhibit A: Form of Registration Rights
                Agreement and Exhibit B: Form of Warrant) (8)

4.4             Registration Rights Agreement, dated March 28, 2001, between EP
                Med and the Purchasers identified therein (8)

4.5             Warrant, dated March 28, 2001, issued by EP Med to Cardiac
                Capital, LLC (8)

4.6             Warrant, dated March 28, 2001, issued by EP Med to Texada
                Trust (8)

4.7             Warrant, dated as of July 20, 2001, issued by EP Med to Reinhard
                Schmidt (13)

4.8             Preferred Stock Purchase Agreement, dated as of October 23,
                2001, between EP MedSystems and Medtronic, Inc. (14)

4.9             Registration Rights Agreement, dated as of October 23, 2001,
                between EP MedSystems and Medtronic, Inc. (14)

                                      32

<PAGE>


4.10            Common Stock and Warrant Purchase Agreement, dated as of January
                31, 2003, by and between EP MedSystems, Inc. and each of the
                several purchasers named in Exhibit A thereto. (9)

4.11            Registration Rights Agreement, dated as of January 31, 2003, by
                and between EP MedSystems, Inc. and the Initial Investors
                referred to therein. (9)

4.12            Warrant, dated January 31, 2003, issued by EP MedSystems, Inc.
                to Michael R. Hamblett. (9)

4.13            Warrant, dated January 31, 2003, issued by EP MedSystems, Inc.
                to Heimdall Investments Ltd. (9)

4.14            Warrant, dated January 31, 2003, issued by EP MedSystems, Inc.
                to EGS Private Healthcare Partnership, L.P. (9)

4.15            Warrant, dated January 31, 2003, issued by EP MedSystems, Inc.
                to EGS Private Healthcare Counterpart, L.P. (9)

4.16            Amended and Restated Secured Promissory Note issued to Medtronic
                International Limited on March 13, 2003, together with First
                Amendment to Note Purchase Agreement, dated March 13, 2003,
                between Medtronic International Limited and EP MedSystems,
                Inc. (9)

4.17            Stock Purchase Agreement, dated as of September 5, 2002, between
                EP MedSystems, Inc. and Boston Scientific Corporation. (15)

4.18            Registration Rights Agreement, dated as of September 5, 2002,
                between EP MedSystems, Inc. and Boston Scientific
                Corporation (15).

4.19            Mortgage Note, dated November 21, 2002, issued to William
                Winstrom, in the principal amount of $375,000, together with
                related Mortgage and Security Agreement. (21)

4.20            Mortgage Note, dated November 21, 2002, issued to Anthony
                Varrichio, in the principal amount of $375,000, together with
                related Mortgage and Security Agreement. (21)

4.21            Agreement between Anthony Varrichio and EP MedSystems, Inc.,
                dated April 2, 2003, effecting conversion of the Mortgage Note
                into 150,000 shares of EP MedSystems common stock. (19)

4.22            Agreement between William Winstrom and EP MedSystems, Inc.,
                dated April 2, 2003, effecting conversion of the Mortgage Note
                into 150,000 shares of EP MedSystems common stock. (19)

4.23            Common Stock Purchase Agreement between EP MedSystems, Inc.
                and the several purchasers named therein, dated as of April 11,
                2003. (18)

                                      33

<PAGE>


4.24            Amendment No. 1, dated April 11, 2003, to Registration Rights
                Agreement, dated as of January 31, 2003, by and between EP
                MedSystems, Inc. and the Initial Investors referred to
                therein. (18)

4.25            Agreement made as of June 27, 2003, by and between EP
                MedSystems, Inc. and Anthony Varrichio. (16)

4.26            Agreement made as of June 27, 2003, by and between EP
                MedSystems, Inc. and William Winstrom. (16)

4.27            Notice of EP MedSystems' Right to Repurchase Warrants, dated
                July 23, 2003. (16)

4.28            Secured Convertible Note, dated August 28, 2003, with Laurus
                Master Fund, Ltd. in the principal amount of $4,000,000,
                together with related Registration Rights Agreement, Guaranty,
                and Security Agreement. (20)

4.29            Amendment, dated November 25, 2003 to Registration Rights
                Agreement dated August 28, 2003 with Laurus Master Fund,
                Ltd. (23)

4.30            Warrant, dated August 28, 2003, issued by EP MedSystems, Inc. to
                Laurus Masterfund, Ltd. (11)

4.31            Warrant, dated August 28, 2003, issued by EP MedSystems, Inc. to
                Biscayne Capital Markets, Inc. (13)

4.32            Form of Common Stock Purchase Agreement dated December 26, 2003
                (identical agreements, except for number of shares of Common
                Stock acquired, were executed by each of the selling
                shareholders) (17)

4.33            Form of Registration Rights Agreement dated December 26, 2003
                (identified agreements were executed by each of the selling
                shareholders) (17)

10.1            License Agreement, dated as of November 1, 1995, between EP Med
                and Dr. Eckhard Alt, as amended (1)

10.2            License Agreement, dated as of November 1, 1995, between EP Med
                and Sanjeev Saksena (1)

10.3            License Agreement, dated February 27, 1997 between EP MedSystems
                and EchoCath, Inc. (2) together with settlement agreement, dated
                November 6, 2001 between EP MedSystems and EchoCath, Inc.

10.4            Master Manufacturing Agreement, dated April 16, 1996, between EP
                Med and Hi Tronics Designs, Inc. (1)

10.5*           Amended and Restated 1995 Long-Term Incentive Plan (3)

10.6*           Amended and Restated 1995 Director Option Plan (3)

10.7*           Amendment to EP MedSystems, Inc. 1995 Director Option Plan (22)

                                      34

<PAGE>


10.8*           2002 Stock Option Plan (22)

10.9            Agreement of Lease, dated August 25, 1997, between EP Med and
                Provident Mutual Life Insurance Company, as landlord (5)

10.10           Note Purchase Agreement, dated as of November 15, 2000, between
                EP Med and Medtronic Asset Management, Inc. (11)

10.11           Secured Promissory Note, dated November 15, 2000, issued by EP
                Med to Medtronic Asset Management, Inc. (11)

10.12           Stock Pledge Agreement, dated as of November 15, 2000, between
                Medtronic Asset Management, Inc. and David Jenkins (11)

10.13           Subordination Agreement, dated as of November 15, 2000, between
                Medtronic Asset Management, Inc. and Fleet National Bank (11)

10.14           Agreement, dated as of March 9, 1998, between ProCath
                Corporation and Allan Willis (12)

10.15           License Agreement, dated as of January 21, 1998, between EP Med
                and Incontrol, Inc. (13)

10.16           Employment Agreement, dated as of July 20, 2001, between EP Med
                and Reinhard Schmidt (13)

10.17           Promissory Note dated December 30, 2002 between EP MedSystems,
                Inc. and EGS Healthcare Limited Partnership (21)

31.1**          Certification Pursuant to Rule 13a-14(a) and 15d-14(a) under the
                Securities Exchange Act of 1934, as amended.

31.2**          Certification Pursuant to Rule 13a-14(a) and 15d-14(a) under the
                Securities Exchange Act of 1934, as amended.

32.1**          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**          Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
                Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     ------------------------------

     *Denotes management contract or compensatory plan or arrangement. **Filed
     herewith.

1.       Incorporated by reference from EP MedSystem, Inc.'s Registration
         Statement on Form SB-2 and Pre-Effective Amendments No. 1 and 2 thereto
         previously filed with the Commission on April 18, 1996, May 28, 1996
         and June 13, 1996, respectively.

2.       Incorporated by reference from EP Med's Annual Report on Form 10-KSB
         for the year ended December 31, 1996 previously filed with the
         Commission.

                                      35

<PAGE>


3.       Incorporated by reference from EP Med's Proxy Statement for the Annual
         Meeting of Shareholders held on July 18, 2000, previously filed with
         the Commission.

4.       Incorporated by reference from EP Med's Current Report on Form 8-K
         dated April 14, 1998, previously filed with the Commission.

5.       Incorporated by reference from the Commission in connection with EP
         Med's Form 10-KSB for the year ended December 31, 1997 previously filed
         with the Commission.

6.       Incorporated by reference from EP Med's Current Report on Form 8-K,
         dated August 25, 1998, previously filed with the Commission.

7.       Incorporated by reference from EP Med's Current Report on Form 8-K,
         dated August 31, 1999, previously filed with the Commission.

8.       Incorporated by reference from EP Med's Proxy Statement for the special
         meeting of shareholders held on March 27, 2001 previously filed with
         the Commission on March 5, 2001.

9.       Incorporated by referenced from EP Med's Current Report on Form 8-K,
         dated June 11, 2001, previously filed with the Commission.

10.      Incorporated by reference from EP Med's Quarterly Report on Form 10-QSB
         for the quarter ended March 31, 1999 previously filed with the
         Commission.

11.      Incorporated by reference from EP Med's Quarterly Report on Form 10-QSB
         for the quarter ended September 30, 2000 previously filed with the
         Commission.

12.      Incorporated by reference from EP Med's Annual Report on Form 10-KSB
         for the year ended December 31, 2000, as amended, previously filed with
         the Commission.

13.      Incorporated by reference from EP Med's Registration Statement on Form
         SB-2 and Pre-Effective Amendments No.1 through 4 previously filed with
         the Commission on June 26, 2001, August 24, 2001, September 28, 2001
         and October 12, 2001, respectively.

14.      Incorporated by reference from EP Med's Quarterly Report on Form 10-QSB
         for the quarter ended September 30, 2001.

15.      Incorporated by reference form EP Med's Quarterly Report on Form 10-QSB
         for the quarter ended September 30, 2002.

16.      Incorporated by reference from EP MedSystems, Inc.'s Quarterly Report
         on Form 10-QSB for the quarter ended June 30, 2003 previously filed
         with the commission.

17.      Incorporated by reference form EP MedSystems, Inc.'s Registration
         Statement on Form S-3 previously filed with the commission on January
         22, 2004.

18.      Incorporated by reference to EP MedSystems, Inc.'s Registration
         Statement on Form S-3 previously filed with the commission on April 18,
         2003.

19.      Incorporated by reference to EP MedSystems, Inc.'s Registration
         Statement on Form S-3 previously filed with the commission on October
         28, 2003.

                                      36

<PAGE>


20.      Incorporated by reference to EP MedSystems, Inc.'s current report on
         Form 8-K previously filed with the commission on September 12, 2003.

21.      Incorporated by reference to EP MedSystems, Inc.'s Annual Report on
         Form 10-KSB for the year ended December 31, 2002.

22.      Incorporated by reference from EP MedSystems, Inc.'s Proxy Statement
         for the Annual Meeting of Shareholders held on August 29, 2002,
         previously filed with the commission on July 30, 2002.

23.      Incorporated by reference from EP MedSystems, Inc.'s Annual Report on
         Form 10-KSB for the year ended December 31, 2003.

                                       37