UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)
(X)     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        SECURITIES EXCHANGE ACT OF 1934
                For the period ended: March 31, 2005

( )     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 registrant 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
                         (Registrant's telephone number)

Indicate by check mark whether the registrant (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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2, of the Exchange
Act). Yes X 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 May 13, 2005
         -----                                       ---------------------------
         Common Stock, without par value                  25,814,176 shares



<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                                    FORM 10-Q
                                    CONTENTS
<TABLE>
<CAPTION>
<S>                             <C>                                                                             <C>

PART I -- FINANCIAL INFORMATION                                                                                 Page
                                                                                                                ----

            Item 1.       Financial Statements

                          Consolidated Balance Sheets at March 31, 2005 (unaudited) and December 31, 2004.....   3

                          Consolidated  Statements  of  Operations  for the three  months ended March 31, 2005
                          and 2004 (unaudited)................................................................   4

                          Consolidated Statements of Changes in Shareholders' Equity for the Three Months
                          Ended March 31, 2005 (unaudited)....................................................   5

                          Consolidated  Statements of Cash Flows for the three months ended March 31,  2005and
                          2004 (unaudited)....................................................................   6

                          Notes to Consolidated Financial Statements (unaudited)..............................   7

            Item 2.       Management's   Discussion  and  Analysis  of  Financial  Condition  and  Results  of
                          Operations..........................................................................   16

            Item 3.       Quantitative and Qualitative Disclosures About Market Risk..........................   26

            Item 4.       Controls and Procedures.............................................................   27

PART II -- OTHER INFORMATION

            Item 1.       Legal Proceedings...................................................................   28

            Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.........................   28

            Item 3.       Defaults Upon Senior Securities.....................................................   28

            Item 4.       Submission of Matters to a Vote of Security Holders.................................   28

            Item 5.       Other Information...................................................................   28

            Item 6.       Exhibits............................................................................   29

            Signatures.......................................................................................    30

            Exhibit Index....................................................................................    31
</TABLE>

                                       2

<PAGE>



                          PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.

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

                                                                             MARCH 31, 2005
ASSETS                                                                        (UNAUDITED)          DECEMBER 31, 2004
                                                                           -------------------     -------------------
Current assets:
   Cash and cash equivalents                                            $           7,855,174   $           9,345,000
   Accounts receivable, net of allowances for doubtful
      accounts of $139,000, for each period respectively                            3,640,696               4,335,075
   Inventories, net of reserves                                                     3,226,055               2,947,853
   Prepaid expenses and other current assets                                          431,429                 472,654
                                                                           -------------------     -------------------
       Total current assets                                                        15,153,354              17,100,582

Property, plant and equipment, net                                                  2,146,793               2,223,421
Goodwill                                                                              341,730                 341,730
Other intangible assets, net                                                          235,044                 158,162
Other assets                                                                          131,984                 179,046
                                                                           -------------------     -------------------
       Total assets                                                     $          18,008,905  $           20,002,941
                                                                           ===================     ===================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                 1,590,733               2,107,463
   Accrued expenses                                                                 1,642,894               1,776,816
   Deferred revenue                                                                   403,602                 460,393
                                                                           -------------------     -------------------
       Total current liabilities                                                    3,637,229               4,344,672

Deferred warranty revenue, non-current                                                344,047                 348,184
Secured convertible note, non-current                                               1,965,019               1,958,611
                                                                           -------------------     -------------------
       Total liabilities                                                $           5,946,295    $          6,651,467
                                                                           -------------------     -------------------
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized, no shares issued
     or outstanding at March 31, 2005 and 373,779 shares issued and outstanding
     at
     December 31, 2004                                                                      -                 618,161
  Common stock, $.001 stated value, 40,000,000 shares authorized
     25,814,176 and 25,387,630 shares issued at March 31, 2005
     and December 31, 2004, respectively
                                                                                       25,815                  25,388
   Additional paid-in capital                                                      56,346,346              55,650,822
   Accumulated other comprehensive loss                                              (239,727)               (280,582)
   Treasury stock, 50,000 shares at cost                                             (100,000)               (100,000)
   Accumulated deficit                                                            (43,969,824)            (42,562,315)
                                                                           -------------------     -------------------
       Total shareholders' equity                                                  12,062,610              13,351,474
                                                                           -------------------     -------------------
       Total liabilities and shareholders' equity                       $          18,008,905   $          20,002,941
                                                                           ===================     ===================
</TABLE>

       The accompanying notes are an integral part of these statements.

                                       3
<PAGE>



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

                                                                                 FOR THE THREE MONTHS ENDED
                                                                             MARCH 31,                   MARCH 31,
                                                                                2005                      2004
                                                                          ---------------------       -------------------

Net sales                                                             $             3,476,052    $           2,884,001
Cost of products sold                                                               1,277,706                1,213,196
                                                                         ---------------------        -------------------
   Gross profit                                                                     2,198,346                1,670,805

Operating costs and expenses:
   Sales and marketing expenses                                                     2,128,598                1,580,374
   General and administrative expenses                                                870,900                  723,347
   Research and development expenses                                                  584,314                  601,115
                                                                         ---------------------        -------------------

Total operating expenses                                                            3,583,812                2,904,836
                                                                         ---------------------        -------------------

   Loss from operations                                                            (1,385,466)              (1,234,031)

Interest income
                                                                                       41,017                   15,220
Interest expense                                                                      (63,060)                (247,310)
                                                                         ---------------------        -------------------
   Net loss                                                           $            (1,407,509)    $         (1,466,121)
                                                                         =====================        ===================

Basic and diluted loss per share                                      $                  (.05)    $               (.06)
                                                                         =====================        ===================

Weighted average shares outstanding used
to compute basic and diluted loss per share                                        25,602,761               23,234,914
                                                                         =====================        ===================

</TABLE>

         The accompanying notes are an integral part of these statements.

                                       4
<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE THREE MONTHS ENDED MARCH 31, 2005
<TABLE>
<CAPTION>
<S>     <C>          <C>        <C>        <C>       <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,
2004              25,387,630  $25,388    373,779   $618,161  $55,650,822     $(280,582)  $(100,000)  $(42,562,315)  13,351,474
                  ---------- --------- ---------- ---------- ------------ -------------- ----------- -------------- -----------

Issuance of
common stock in
connection with
conversion of
preferred stock      387,946      388   (373,779)  (618,161)     617,773              -           -              -           -

Issuance of
stock in
connection with
exercise of
options               38,600       39          -          -       77,751              -           -              -      77,790

Foreign
currency
translation               -         -          -          -            -        40,855            -              -      40,855

Net loss                  -         -          -          -            -              -           -    (1,407,509)  (1,407,509)
                  ---------- --------- ---------- ---------- ------------ -------------- ----------- -------------- -----------
BALANCE, MARCH    25,814,176   25,815          -          -   56,346,346      (239,727)   (100,000)   (43,969,824)  12,062,610
31, 2005
                  ========== ========= ========== ========== ============ ============== =========== ============== ===========
</TABLE>


    The accompanying notes are an integral part of these statements.

                                       5
<PAGE>




                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)
<TABLE>
<CAPTION>
<S>     <C>                                                                         <C>                    <C>
                                                                                   FOR THE THREE MONTHS ENDED
                                                                                  MARCH 31,               MARCH 31,
                                                                                    2005                    2004
                                                                             ------------------      ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                $          (1,407,509)   $         (1,466,121)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                                                      241,428                 171,906
   Accretion of note discount                                                           6,407                  84,829
   Amortization of beneficial conversion feature                                       13,474                  96,779
Changes in assets and liabilities:
   Decrease in accounts receivable                                                    694,379                 128,082
   Increase in inventories                                                           (411,530)               (535,492)
   Decrease in prepaid expenses and other assets                                       74,813                 111,074
   Decrease in deferred tax asset                                                           -                 397,720
   (Decrease) increase in accounts payable                                           (516,730)                 70,116
   Decrease in accrued expenses and deferred revenue                                 (194,850)             (1,043,388)
                                                                             ------------------      ------------------
        NET CASH USED IN OPERATING ACTIVITIES                           $          (1,500,118)   $         (1,984,495)
                                                                             ------------------      ------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures                                                               (14,882)                (15,400)
   Patent costs                                                                       (93,471)                (32,660)
                                                                             ------------------      ------------------
        NET CASH USED IN INVESTING ACTIVITIES                           $            (108,353)   $            (48,060)
                                                                             ------------------      ------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Payments under notes payable                                                             -              (2,200,000)
   Net proceeds from issuance of common stock, net of offering
       expenses                                                                        77,790                  72,270
                                                                             ------------------      ------------------
   NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES                  $              77,790    $         (2,127,730)
                                                                             ------------------      ------------------

EFFECT OF EXCHANGE RATE CHANGES                                                        40,855                 ( 4,504)

Net decrease in cash and cash equivalents                                          (1,489,826)             (4,164,789)
Cash and cash equivalents, beginning of period                                      9,345,000              11,248,983
                                                                             ------------------      ------------------
Cash and cash equivalents, end of period                                $           7,855,174    $          7,084,194
                                                                             ==================      ==================
Supplemental cash flow information
   Cash paid for interest                                               $             133,328    $            775,205
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       6
<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-Q. 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, 2004 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 March 31, 2005 and December 31, 2004:
<TABLE>
<CAPTION>
<S>             <C>                                   <C>                       <C>

                                                   March 31,               December 31,
                                                      2005                     2004
                                                  (unaudited)
                                                -----------------      ----------------------
           Raw materials                    $          1,356,493    $              1,201,449
           Work in process                               380,011                     516,893
           Finished goods                              1,659,552                   1,399,511
           Reserve for obsolescence                     (170,000)                   (170,000)
                                                -----------------      ----------------------
                                            $          3,226,055    $              2,947,853
                                                =================      ======================
</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
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.

                                       7
<PAGE>

         On December 30, 2002, the Company 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, the Company issued warrants to the EGS Entities to purchase an
aggregate of 50,000 shares of the common stock of the Company at 105% of the
closing trading price of its common stock on December 30, 2002. On January 31,
2003, the Company issued common stock in a 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 the common stock of the Company
in and on the same terms as the private placement. In connection with the
conversion, the warrants to purchase 50,000 shares of common stock issued to the
EGS Entities on December 30, 2002 were cancelled. The Company recorded a
$1,000,000 non-cash charge in connection with the conversion. The charge is for
interest expense 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. A
managing member of the EGS Entities is also a member of the Board of Directors
of the Company.

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

         At the closing of the transaction, the Company issued the Convertible
Note to Laurus having a principal amount of $4,000,000 and received net proceeds
of $2,661,600. An additional $1,000,000 of the Convertible Note was previously
restricted and those restrictions were released during the third quarter of
2004. 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 Convertible Note using the effective interest method. In addition, the
Company paid a portion of the fees payable to an intermediary, Biscayne Capital
Markets, Inc. ("Biscayne"), in 40,000 shares of the Company's Common Stock
having a market value on the date of closing of this transaction equal to
$100,000. The net proceeds of the Convertible Note have been and will be used by
the Company for working capital purposes and payment of outstanding debt.

         The portion of the Convertible Note against which Laurus advances funds
based on the Company's accounts receivable bears interest at the prime rate,
with a floor of 4%, and the balance (the "Advance Amounts") bears interest at
the prime rate plus 2%, effective interest rate of 16.86%, including accretion
of debt discount and amortization of the beneficial conversion feature. One half
of Advance Amounts outstanding on February 28, 2005 was required to be repaid on
or before that date. However, there were no Advance Amounts on that date, as the
net collateral exceeded the principal amount outstanding on the Convertible

                                       8
<PAGE>

Note. 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. The Company,
subject to certain rights of cancellation, may extend the credit facility by
Laurus, on a year-by-year basis, commencing August 28, 2006. The Company may
repay in cash, without penalty, up to $500,000 of the 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 Convertible Note was convertible into the Common Stock of the
Company at the Company's option if the market price of the Company's Common
Stock reached a level, for 11 consecutive trading days, which was more than 120%
of the Fixed Conversion Price. Through December 14, 2004, the Fixed Conversion
Price was $2.55 and was a price in excess of the market price of the Company's
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
Convertible Note into shares of the Company's Common Stock at the Fixed
Conversion Price.

         Following the conversion into the Company's Common Stock by the Company
and/or Laurus of an aggregate of $2,000,000 of the principal amount of the
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
the Company's Common Stock for the three trading days prior to the Conversion
Event. On December 15, 2004, the balance of the first $2,000,000 of the
principal amount was converted into shares of the Company's common stock. The
fixed conversion price was adjusted upwards from $2.55 to $4.20, on the
remaining $2,000,000 principal balance. Subject to certain limitations,
including the repayment obligations with respect to Advance Amounts described
above, the dollar amounts of the Convertible Note converted may be re-borrowed.

         The Fixed Conversion Price is subject to adjustment, with customary
exceptions and on a weighted-average basis, in connection with sales of the
Company's 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 the Company's 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 warrant 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.

         In October 2003, the Company registered, under the Securities Act of
1933, as amended, 1,500,000 shares of its Common Stock which may be received by
Laurus upon conversion of the Convertible Note and exercise of the Warrant and
the remaining 293,628 of such shares were registered in November of 2004.

         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 Convertible Note contained a beneficial conversion feature calculated based
on the difference between the effective conversion price of the proceeds
allocated to the Convertible Notes 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

                                       9
<PAGE>

issuance of the Convertible Note to the mandatory redemption date of August 28,
2006. The Company valued the 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," the Company marked the Warrants
to market at September 30, 2003 incurring a non-cash charge of $264,000. The
registration rights agreement associated with the Convertible Note was amended
on November 25, 2003 and, as a result, the amount associated with the Warrants
was transferred to equity. The Company 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 Convertible Note, after
allocation of the fair value of the Warrants is being accreted to interest
expense over the term of the Convertible Note using the effective interest
method.

NOTE 4.    SHAREHOLDERS' 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 December 31, 2004,
Medtronic held 373,779 of the Company's Series A Preferred Shares which were
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. During the first quarter of 2005, Medtronic converted all their
373,779 shares of preferred stock into 387,946 shares of common stock of the
Company.

COMMON STOCK

          EP MedSystems is authorized to issue 40,000,000 shares of common
stock, no par value, $.001 stated value per share, of which a total of
25,814,576 and 25,387,630 shares were issued and 50,000 shares were held in
Treasury Stock at March 31, 2005 and December 31, 2004.

         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

                                       10
<PAGE>

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
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 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. The Company had the right, with prior notice to the holders of
the warrants, to repurchase the warrants issued in connection with the private
placement 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, the 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 23, 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
its clinical affairs department. In connection with that agreement, the Company
issued 10,000 shares of the Company's common stock to the physician and granted
the physician an option to purchase 10,000 shares of the Company's common stock
which vests twelve months from the date of grant. Also in connection with the
agreement, the Company granted the physician an option to purchase 40,000 shares
of the Company's common stock which vests in equal installments over five years.
The exercise price of each of the options was the fair market value of the
Company's common stock on the date of the grant. The transactions were 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 using the following assumptions for each grant as
follows: risk free rate: 3.07%, 10-year life, and a volatility percentage of
83.86%.

                                      11
<PAGE>

         In October 2004, the Company engaged a physician as a consultant to
manage a clinical study. In connection with that agreement, the Company granted
the physician a warrant to purchase 10,000 shares of the Company's common stock
which vested immediately. The exercise price of the warrants was the fair market
value of the Company's common stock on the date of the grant. 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 using the following assumptions: risk free
rate of 3.36%, 10-year life, and a volatility percentage of 77.25%.

         On December 15, 2004, the Company completed a $4,500,000 private
placement of its common stock to two accredited investors. The Company issued
1,500,000 shares of its common stock at a purchase price of $3.00 per share.

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
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.

         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
months ended March 31, 2005 and 2004 would have been as follows:
<TABLE>
<CAPTION>
<S>     <C>                                                             <C>                   <C>
                                                                      2005                   2004
                                                                      ----                   ----
       Net loss, as reported                                      $(1,407,509)           $(1,466,121)

       Less:  Stock-based employee compensation expense
       not included in reported net income, net of related
       tax effects                                                   (176,730)              (129,596)
                                                             ------------------     ------------------

       Pro forma net loss                                         $(1,584,239)           $(1,595,717)
                                                             ==================     ==================

       Earnings per share:
           Basic and diluted - as reported                             $(0.05)                $(0.06)
                                                             ------------------     ------------------
           Basic and diluted - pro forma                               $(0.06)                $(0.07)
                                                             ------------------     ------------------
</TABLE>
                                      12
<PAGE>

NOTE 6.  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 three months ended March 31, 2005 and 2004.

                                                 FOR THE THREE MONTHS
                                                   ENDED MARCH 31,
                                                2005                 2004
                                                ----                 ----
United States                               $2,759,000            $2,260,000
Europe/Middle East                             205,000               393,000
Asia and Pacific Rim                           512,000               231,000
                                            ----------            ----------
                                            $3,476,000            $2,884,000
                                            ==========            ==========

         Sales of EP MedSystems' cardiac electrophysiology equipment and related
catheters aggregated approximately $3,041,000 and $435,000 respectively, for the
three months ended March 31, 2005, and $2,531,000 and $353,000, respectively,
for the comparable period in 2004. EP MedSystems' long-lived assets are
primarily located in the U.S. One customer accounted for 10% of the Company's
sales for the three months ended March 31, 2004.

         Net sales for the three months ended March 31, 2005 were billed in two
currencies: $3,318,000 in U.S. dollars and the equivalent of $158,000 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 and losses, which are recorded in shareholders' equity.
Cumulative translation losses amounted to approximately $240,000 as of March 31,
2005. In addition, EP MedSystems had not entered into any derivative financial
instruments for hedging or other purposes.

NOTE 7.  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, and convertible debt are anti-dilutive for all periods
presented. Accordingly, potential common shares of 3,724,585 and 4,350,867 for
the three months ended March 31, 2005 and 2004, respectively, have been excluded
from the diluted per share calculation.

NOTE 8.  COMPREHENSIVE INCOME/LOSS

         For the three months ended March 31, 2005 and 2004, EP MedSystems'
comprehensive loss consisted of net loss and foreign currency translation
adjustments. The comprehensive losses for the three months ended March 31, 2005
and 2004, were approximately $1,367,000 and $1,471,000, respectively.

                                      13
<PAGE>

NOTE 9.  RECENTLY ISSUED ACCOUNTING STANDARDS

         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.
The adoption of this Statement did not have a material impact on our results of
operations, financial position, or cash flows.

         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 November 2004, the FASB issued SFAS No. 151, Inventory Costs - an
amendment of ARB No. 43, Chapter 4. This Statement amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that " . . .
under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges . . . ." This Statement requires that those
items be recognized as current-period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. This statement is effective
for inventory costs incurred during fiscal years beginning after June 15, 2005.
At this time, management does not believe the adoption of this Statement will
have any immediate material impact on the Company's results of operation,
financial position or cash flow.

         On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based
Compensation. This new standard eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires
such transactions to be accounted for using a fair-value-based method and the

                                      14
<PAGE>

resulting cost recognized in our financial statements. This new standard is
effective for awards that are granted, modified or settled in cash beginning in
the first fiscal year beginning after June 15, 2005. In addition, this new
standard will apply to unvested options granted prior to the effective date. We
will adopt this new standard effective for the first quarter of 2006, and have
not yet determined what impact this standard will have on our financial position
or results of operations, but it is likely the adoption of this standard will
have a material impact on our results of operations.

         In December 2004, the FASB issued SFAS No.153, Exchange of Nonmonetary
Assets. This Statement addresses the measurement of exchanges of nonmonetary
assets. The guidance in APB Opinion No. 29, Accounting for Nonmonetary
Transactions, is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetrary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. This
Statement is effective for financial statements for fiscal years beginning after
June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges
incurred during fiscal years beginning after the date of this statement is
issued. Management believes the adoption of this Statement will have no impact
on the financial statements of the company.

         In December 2004, the FASB issued two FASB Staff Positions (FSP)
regarding the accounting implications of the American Jobs Creation Act of 2004.
The Company is assessing the impact, if any, that FAS No. 109-1, "Application of
FASB Statement No. 109 'Accounting for Income Taxes' to the Tax Deduction on
Qualified Production Activities Provided by the American Jobs Creation Act of
2004" and FSP No. 109-2 "Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004"
will have on the Company's effective tax rate in 2005.

         At its September 29-30, 2004, meeting, the FASB reached a conclusion on
Emerging Issues Task Force (EITF) Issue No. 04-8, "The Effect of Contingently
Convertible Debt on Diluted Earnings Per Share", that contingently convertible
debt instruments will be subject to the if-converted method under FASB Statement
No. 128 (SFAS No. 128), EARNINGS PER SHARE, regardless of the contingent
features included in the instrument. Under current practice, issuers of
contingently convertible debt instruments exclude potential common shares
underlying the debt instruments from the calculation of diluted earnings per
share until the market price or other contingency is met. 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
conversion of the convertible debt are anti-dilutive for all periods presented.
EITF 04-8 could have a future impact on the Company's results of operations in
the event that the potential shares of common stock issuable upon conversion of
the convertible debt were included in the diluted earnings per share
calculation. The effective date for Issue 04-8 is for reporting periods ending
after December 15, 2004.

                                       15

<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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 rhythm management, or electrophysiology (EP), 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 products, including our EP-WorkMate(R) computerized
electrophysiology workstation, the RPM(TM) RealTime Position Management(TM)
navigation technology, our EP 3(TM) Stimulator, our EP-4(TM) Computerized
Cardiac Stimulator, diagnostic electrophysiology catheters (including our unique
one-piece catheter) and our 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.

         Our core diagnostic product is the EP-WorkMate(R) which consists of the
EP- WorkMate(R), the EP-WorkMate integrated with RPM(TM) RealTime Position
Management(TM) System and the EP-4(TM) Computerized Cardiac Stimulator. The
EP-WorkMate(R) is a computerized electrophysiology workstation that monitors
displays and stores cardiac electrical activity and arrhythmia data. It 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-4(TM) Stimulator, as well as with the systems of other market
leaders and with other technologies and systems. We received FDA market
clearance to sell the EP-WorkMate(R) integrated the RPM(TM) RealTime Position
Management(TM) System in the third quarter of 2003. 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-4(TM) 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 three months ended March 31, 2005 and 2004, the
EP-WorkMate(R) platform accounted for approximately 85% and 81%, 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 3% and 4% of our
total sales revenues for the three months ended March 31, 2005 and 2004,
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's 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 6% and 9% of our total sales revenues in the three months ended
March 31, 2005 and 2004, respectively.

                                      16
<PAGE>

         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 4% and 5% of our total sales
revenues for the three months ended March 31, 2005 and 2004, respectively.

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
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. Note 2 of our Notes to the Consolidated
Financial Statements included in our Annual Report on Form 10-KSB for the period
ended December 31, 2004 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.

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 three sales channels: Direct sales to customers, sales to
independent distributors, and sales to alliance partners. Our products do not
require "installation" in the traditional sense, but the EP-WorkMate(R) does
require a set up. For sales to alliance partners and distributor sales, a
channel partner or distributor is 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,

                                      17
<PAGE>

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.

          EP MedSystems provides a one-year warranty on all of its electronic
products and, in accordance with Statement of Financial Accounting Standard No.
5 "Accounting for Contingencies," accrues for the estimated cost of providing
this warranty at the time of sale. Further, the Company incurs discretionary
costs to service its products in connection with product performance issues. The
estimates of the future warranty costs are based on historical experience.

                                               2005                 2004
                                         -----------------    ------------------
Beginning balance                      $      331,000       $      126,000
Warranties                                     65,000               80,000
Warranty payments                              97,000               74,000
                                         -----------------    ------------------

Ending balance                         $      299,000             $132,000
                                         =================    ==================


         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.

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.

                                      18
<PAGE>

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.

         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
$177,000 and $130,000 for the three months ended March 31, 2005, and 2004,
respectively.

                                      19
<PAGE>

         On December 16, 2004 the FASB issued SFAS No. 123(R), Share-Based
Payment, which is an amendment to SFAS No. 123, Accounting for Stock-Based
Compensation. This new standard eliminates the ability to account for
share-based compensation transactions using Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and generally requires
such transactions to be accounted for using a fair-value-based method and the
resulting cost recognized in our financial statements. This new standard is
effective for awards that are granted, modified or settled in cash beginning in
the first fiscal year beginning after June 15, 2005. In addition, this new
standard will apply to unvested options granted prior to the effective date. We
will adopt this new standard effective for the third quarter of 2005, and have
not yet determined what impact this standard will have on our financial position
or results of operations, but it is likely that the adoption of this standard
will have a material impact on our results of operations.


RESULTS OF OPERATIONS.

THREE MONTHS ENDED MARCH 31, 2005 VERSUS MARCH 31, 2004

         Net sales were $3,476,000 for the three months ended March 31, 2005, as
compared to $2,884,000 for the comparable period in 2004. This $592,000 (or 21%)
increase is a result of an increase in sales of the WorkMate(R) platform and an
increase in sales of ViewFlex(TM) Catheters.

         Gross profit on sales for the three months ended March 31, 2005 was
$2,222,000, as compared to $1,671,000 for the same period in 2004. The gross
profit increased as a percentage of sales from 58% to 63%. The increase in gross
profit is a result of lower warranty costs, higher average selling prices of the
WorkMate(R) platform, and higher sales of the ViewFlex(TM) catheter.

         Sales and marketing expenses increased $548,000 (or 37%) to $2,129,000
for the three months ended March 31, 2005 as compared to the same period in
2004. The increase in sales and marketing expenses is a result of higher
compensation and benefits related to additional sales reps, higher commissions
of $22,000 as a result of higher sales, and additional travel for the additional
sales reps of $140,000. In addition there were higher consulting costs of
$65,000 primarily related to the clinical affairs department which was created
during the second quarter of 2004. Overall, this department accounted for
$153,000 of the increase in costs over the same period in 2004.

         General and administrative expenses increased $148,000 (or 20%) to
$871,000 for the three months ended March 31, 2005, as compared to the same
period in 2004. This was primarily due to an increase in compensation costs and
consultant fees for the implementation of Sarbanes-Oxley Section 404 of $70,000.
The costs for the three months ended March 31, 2005 were also affected by
fluctuations in foreign currency in the amount of $61,000. The increase in costs
was offset by a decrease in business insurance cost of $28,000.

         Research and Development costs decreased $17,000 (or 3%) to $584,000
for the three months ended March 31, 2005 as compared to the same period in
2004. This was primarily due to a decrease in legal and consulting fees of
$23,000 as a result of modifying certain intellectual property strategies in
2004. Research and development can fluctuate on a quarterly basis depending on
costs associated with certain projects.

         Interest expense decreased $210,000 for the three months ended March
31, 2005, as compared to the same period in 2004. The decrease in interest
expense is a result of a decrease in the beneficial conversion feature of
$84,000 and decrease in the accretion of debt discount of $78,000 as a result of
the conversion of debt to equity.

                                      20
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         Since our incorporation in January 1993, our expenses have exceeded
sales, resulting in an accumulated deficit of approximately $42.6 million at
December 31, 2004 and approximately $44.0 million at March 31, 2005.

         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 September 30, 2004 and December 31, 2003,
Medtronic held 373,779 of our Series A Preferred Shares which were 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. During the first
quarter of 2005, Medtronic converted all of its shares of our preferred stock
into 387,946 shares of our common stock.

         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.

         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:

                                     21
<PAGE>

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. In connection with this issuance, 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 shares of our common stock, and the
securities issued in that private placement were issued on the same terms and
conditions as those of 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. We had the right, with prior
notice to the holders of the warrants, to repurchase the warrants issued in
connection with the private placement at $.01 per warrant at any time after the
average closing price of our common stock, for any twenty consecutive trading
days, 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.

         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.

                                     22
<PAGE>
         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. An additional $1,000,000 of the Laurus Convertible Note was
previously restricted. Those restrictions were released during the third quarter
of 2004 and that amount became available to us. 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 have been, and 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 was
required to be repaid on or before that date. However, there were no "Advance
Amounts" outstanding on that date, as the net collateral exceeded the principal
amount outstanding on the Laurus Convertible Note. 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 was convertible into our common stock at
our option if the market price of our common stock reached a level, for 11
consecutive trading days, which was more than 120% of the "Fixed Conversion
Price". Through December 14, 2004, the Fixed Conversion Price was $2.55, which
was 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. On December 15, 2004,
the balance of the first $2,000,000 of the principal amount was converted into
shares of our common stock and the Fixed Conversion Price on the remaining
$2,000,000 principal balance was adjusted upward from $2.55 to $4.20. 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. 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.

                                     23
<PAGE>
         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.

         In October 2003, 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
the remaining 293,628 of such shares were registered in November 2004. 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, we engaged a physician as a consultant to head our
clinical affairs department. In connection with that agreement, we issued 10,000
shares of the Company's common stock to the physician and granted the physician
an option to purchase 10,000 shares of the common stock which vests twelve
months from the date of grant. Also in connection with the agreement, we granted
the physician an option to purchase 40,000 shares of our common stock which
vests in equal installments over five years. The exercise price of each of the
options was the fair market value of our common stock on the date of the grant.
The transactions were 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 using the
following assumptions for each grant as follows: risk free rate: 3.07%, 10-year
life, and a volatility percentage of 83.86%.

                                     24
<PAGE>
         In October 2004, we engaged a physician as a consultant to manage a
clinical study. In connection with that agreement, we granted the physician a
warrant to purchase 10,000 shares of our common stock, which vested immediately.
The exercise price of the warrants was the fair market value of our common stock
on the date of the grant. 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
using the following assumptions: risk free rate of 3.36%, 10-year life, and a
volatility percentage of 77.25%.

         On December 15, 2004, we completed a $4,500,000 private placement of
our common stock to two accredited investors in which we issued 1,500,000 shares
of our common stock at a purchase price of $3.00 per share.

         Net cash used in operating activities for the three months ended March
31, 2005 decreased by $484,000 from $1,984,000 as March 31, 2004 to $1,500,000
at March 31, 2005. The decrease in our net use of cash in operations during 2005
was primarily due to a decrease of accrued expense and deferred revenue in 2005
as compared to 2004, which included the payment to Medtonic of $707,000 in
accrued interest. This was partially offset by an decrease in accounts payable.
Inventory on hand increased as a result of the number of new product lines
approved in the second half of 2003 and accounts receivable decreased as we
collected the receivables from 2004 sales. Capital expenditures were $15,000 for
the three months ended March 31, 2005 and 2004. We expect to purchase capital
equipment in 2005 as we grow. We lease office space and certain office equipment
under operating leases. In connection with certain intellectual property
strategies, we spent $93,000 in patent filings in the first quarter of 2005.

         Assets decreased by $1,994,000 from $20,003,000 at March 31, 2004 to
$18,009,000 at December 31, 2005. The change in assets was due to a number of
factors. Cash and cash equivalents, decreased by $1,490,000 from $9,345,000 at
December 31, 2004 to $7,855,000 at March 31, 2005, primarily due to our net loss
and a reduction of accounts payable, and partially offset by a reduction in
accounts receivable. Inventories increased $278,000 as a result of an increase
in the number of our product lines.

         Liabilities decreased approximately $705,000 from $6,651,000 at
December 31, 2004 to $5,946,000 at March 31, 2005. This decrease was primarily
due to a reduction of accounts payable of $516,000.

         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(R) 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.

                                     25
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

         In addition to historical information, this Quarterly Report on Form
10-Q contains forward-looking statements relating to such matters as anticipated
financial and operational performance, business prospects, technological
developments, results of clinical trials, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. We emphasize to you
that a variety of factors could cause our actual results and experience to
differ materially from the anticipated results or other expectations expressed
in our forward-looking statements. When we use the words or phrases "believe,"
"anticipate," "expect," "intend," "will likely result," "estimate," "project" or
similar expressions in this Quarterly Report on Form 10-Q, we intend to identify
such forward-looking statements, but they are not the exclusive means by which
such statements are made. The forward-looking statements are only expectations
and/or predictions which are subject to risks and uncertainties, including the
significant factors discussed under "Risk Factors" in our most recent Form
10-KSB, and general economic, market or business conditions, opportunities or
lack of opportunities that may be presented to us, competitive actions, changes
in laws and regulations and other matters discussed herein in the section
entitled "Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in other sections herein.

         We caution readers to review the cautionary statements set forth in
this Quarterly Report on Form 10-Q and in our other reports filed with the
Securities and Exchange Commission and caution that other factors may prove to
be important in affecting our business and results of operations. We caution you
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this Quarterly Report. We undertake no obligation to
publicly revise these forward-looking statements to reflect events or
circumstances that arise after the date of this report.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         We are exposed to a variety of risks, including changes in interest
rates affecting our outstanding debt balance and fixed rate investments of our
cash and cash equivalents and foreign currency fluctuations. The Company
does not have any market risk with respect to such factors as commodity prices
or equity prices. We do not invest in, or otherwise use, foreign currency or
other derivative financial or derivative commodity instruments, and we do not
engage in hedging transactions for speculative or trading or any other purposes.

         INTEREST RATE RISK.

         Our exposure to market risk for changes in interest rates relates
primarily to our investment portfolio for our non-current debt obligations and
our cash and cash equivalents.

         At March 31, 2005, we had a Secured Convertible Note outstanding in the
approximate amount of $2,000,000. Interest on the Secured Convertible Note is
based on the prime rate. This floating rate debt may lead to additional interest
expense if interest rates increase. Because management does not believe that our

                                     26
<PAGE>
exposure to interest rate market risk is material at this time, we have not
developed or implemented a strategy to manage this market risk through the use
of derivative financial instruments or otherwise. We will assess the
significance of interest rate market risk from time to time and will develop and
implement strategies to manage that market risk as appropriate.

         We invest our excess cash in money market funds and government
securities, which creates a degree of interest rate risk. Our primary exposure
to market risk relates to changes in interest rates on our cash and cash
equivalents.  Our primary  investment  objective  with respect to our cash and
cash equivalents is to preserve principal, while at the same time maximizing
yields without significantly increasing risk.

         Our portfolio includes money markets funds and/or government securities
The diversity of our portfolio helps us to achieve our investment objective. As
of March 31, 2005, 100% of our investment portfolio matures less than 90 days
from the date of purchase. Due to the short-term nature of these investments, we
believe that we are not subject to any material market risk exposure, and as a
result, the estimated fair value of our cash and cash equivalents  approximates
their principal amounts. If market interest rates were to increase immediately
and uniformly by 10% from levels at March 31, 2005, we estimate that the fair
value of investment portfolio would decline by an immaterial amount.

         FOREIGN CURRENCY RISK.

         Our international revenues were 21% and 22% of our total revenues in
the quarters ended March 31, 2005 and 2004, respectively. Our international
sales are made through international distributors, our direct sales force and
sales to alliance partners, with payments to the Company typically denominated
in United States dollars and the Euro. Approximately 13% of our foreign sales
are denominated in the Euro. Management has determined that the impact of
foreign currency risk is minimal since a majority of our sales are billed in
United States dollars. Our international business is subject to risks typical of
an international business, including, but not limited to, differing economic
conditions, changes in political climate, differing tax structures, other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely affected by changes in these or
other factors. We do no hedge our foreign currency exposure at present.

ITEM 4.  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
Rule 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.

                                     27
<PAGE>
         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 effect, the Company's
internal controls over financial reporting.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

         (a) Not applicable.

         (b) Not applicable.

         (c) 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.

         (a) On May 12, 2005 our Board of Directors approved Senior Management
Incentive Agreements with each of our seven senior officers. Those senior
officers are Reinhard Schmidt, our President and Chief Executive Officer and a
member of our Board of Directors, Matthew C. Hill, our Chief Financial Officer
and Secretary, C. Bryan Byrd, our Vice President, Engineering and Manufacturing,
John Huley, our Vice President, Sales, Thomas Maguire, our Vice President,
Regulatory and Quality Assurance, Richard Gibbons, our Director of Operations,
and Khristine Fuimaono, our Director of Marketing. The agreements provide that
if the senior officer is employed with EP MedSystems immediately prior to a
"change of control" (as defined in the agreements) of EP MedSystems, EP
MedSystems will pay to each of the senior officers an amount equal to two times
the senior officer's annual base salary (which excludes any incentive pay,
premium pay, commissions, overtime, bonuses and other forms of variable
compensation). The agreements also confirm our policy previously approved by our
Board of Directors that all options to purchase common stock of EP MedSystems
granted to our employees (including all senior officers) will vest immediately
prior to a change of control. The incentive agreements also provide that if a
senior officer's benefits under the incentive agreement would result in an
Internal Revenue Code Section 280C(b)(1) "parachute payment," such senior
officer will receive an additional amount not to exceed 20% of the amount of the
payments and benefits otherwise payable to the senior officer upon the
occurrence of a change in control. All senior officers are employed by EP
MedSystems on an "at-will" basis, and except for Mr. Schmidt, none of the senior
officers has an employment agreement with EP MedSystems.

                                       28

<PAGE>
         (b) None.

ITEM 6. EXHIBITS.

         The exhibits are listed in the Exhibit Index appearing at page 31
herein.

                                       29

<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:  May 16, 2005       By: /S/  REINHARD SCHMIDT
                              ---------------------
                              Reinhard Schmidt
                              President and Chief Executive Officer and Director
                              (Principal Executive Officer)


Date:  May 16, 2005       By: /S/ MATTHEW C. HILL
                              -------------------
                              Matthew C. Hill
                              Chief Financial Officer
                              (Principal Financial and Accounting Officer)

                                       30
<PAGE>




                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>
<S>     <C>                     <C>

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               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 January
                           12, 2005 (25)

         3.6               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)

                                    31
<PAGE>

         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)

         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)

                                    32
<PAGE>

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

         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)

         4.34              Common Stock Purchase Agreement, dated as of December 14, 2004, by and between EP
                           MedSystems, Inc. and the Purchasers listed on Exhibit A thereto. (24)

         4.35              Registration Rights agreement, dated as of December 14, 2004, by and between EP
                           MedSystems, Inc. and the Investors listed on Exhibit A thereto (24)

         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)

                                    33
<PAGE>

         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)

         10.8*             EP MedSystems, Inc. 2002 Stock Option Plan as Amended by First Amendment (26)

         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)

         10.18* **           Form of Senior Management Incentive Agreement

         21.1              Subsidiaries of the Registrant (23)

         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.

                                    34
<PAGE>

         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.
         ------------------
<FN>

         * 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.

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.

                                    35
<PAGE>

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.

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.

24.      Incorporated by reference from EP MedSystems, Inc.'s Current Report on
         Form 8-K previously filed with the commission on December 21, 2004.

25.      Incorporated by reference from EP MedSystems, Inc.'s Registration
         Statement on Form S-3 previously filed with the commission on January
         14, 2005.

26.      Incorporated by reference from EP MedSystems, Inc.'s Definitive Proxy
         Statement for the Annual Meeting of Shareholders held on December 22,
         2004, previously filed with the commission on November 24, 2004.
</FN>
</TABLE>

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<PAGE>