UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-QSB
 (Mark One)
(X)      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
                  For the period ended: September 30, 2002
                                        ------------------

(  )     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
                  For the transition period from __________ to  __________

                         Commission File Number: 0-28260

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

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


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

100 Stierli Court, Mount Arlington, New Jersey                  07856
----------------------------------------------                  -----
(Former address of principal executive offices)               (Zip Code)

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

Check  whether  the issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing requirements for the past 90 days.  X Yes    No
                                                                   ---    ---

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

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

   Class                                       Outstanding at November 4, 2002
   -----                                       -------------------------------
   Common Stock, without par value                    15,098,736 shares

         Transitional Small Business Disclosure Format (check one):    Yes  X No
                                                                    ---    ---
<PAGE>

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

PART I  -- Financial INFORMATION                                           Page
                                                                           ----


  Item 1.      Financial Statements

               Consolidated Balance Sheet at September 30, 2002
               (unaudited)                                                   3

               Consolidated Statements of Operations for the three
               months ended September 30, 2002 and 2001 (unaudited)          4

               Consolidated Statements of Operations for the nine
               months ended September 30, 2002 and 2001 (unaudited)          5

               Consolidated Statements of Cash Flows for the nine
               months ended September 30, 2002 and 2001 (unaudited)          6

               Notes to Consolidated Financial Statements (unaudited)       7-14

  Item 2.      Management's Discussion and Analysis or Plan of Operation   14-22

  Item 3.      Controls and Procedures                                       22

PART II -- OTHER INFORMATION

  Item 1.      Legal Proceedings                                             23

  Item 2.      Changes in Securities                                         23

  Item 3.      Defaults Upon Senior Securities                               23

  Item 4.      Submission of Matters to a Vote of Security Holders           23

  Item 5.      Other Information                                             24

  Item 6.      Exhibits and Reports on Form 8-K                              24

  Signatures                                                                 25

  Certifications                                                           26-27

  Exhibit Index                                                              28


                                       2
<PAGE>
                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                                          SEPTEMBER 30,
                                                              2002
                                                         ---------------
ASSETS                                                    (unaudited)
Current assets:
  Cash and cash equivalents                               $  1,979,890
  Accounts receivable, net of allowances for
       doubtful accounts of $76,000                          2,679,938
  Inventory, net                                             2,687,895
  Prepaid expenses and other current assets                    260,117
                                                          ------------
          Total current assets                               7,607,840

  Property and equipment, net                                1,887,987
  Goodwill, net                                                341,730
  Intangible assets, net                                        18,438
  Other assets                                                 112,145
                                                          ------------
          Total assets                                    $  9,968,140
                                                          ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                        $  2,611,489
  Accrued expenses and other current liabilities               413,853
  Deferred warranty revenue, current                            29,479
  Customer deposits                                             30,100
                                                          ------------
          Total current liabilities                          3,084,921

  Accrued interest on long term debt, non-current              467,406
  Deferred warranty revenue, non-current                       370,050
  Note payable to Medtronic, Inc.                            3,200,000
                                                          ------------
          Total liabilities                               $  7,122,377
                                                          ------------

Commitments and contingencies                                       --

Shareholders' equity:
  Preferred Stock, no par value, 5,000,000 shares
      authorized, 373,779 shares issued and outstanding   $    618,161
  Common stock, $.001 stated value, 25,000,000
      shares authorized, 15,098,736 shares issued
      and outstanding                                           15,099
  Additional paid-in capital                                32,357,748
  Receivable from officer                                     (100,000)
  Accumulated deficit                                      (30,045,245)
                                                          ------------
          Total shareholders' equity                         2,845,763
                                                          ------------
          Total liabilities and shareholders' equity      $  9,968,140
                                                          ============

         The accompanying notes are an integral part of this statement.


                                       3
<PAGE>

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

                                               FOR THE THREE MONTHS ENDED
                                             SEPTEMBER 30,     SEPTEMBER 30,
                                                  2002            2001
                                              ------------    ------------

Net sales                                     $  3,410,645    $  2,482,654
Cost of products sold                            1,968,456       1,145,723
                                              ------------    ------------
   Gross profit                                  1,442,189       1,336,931

Operating costs and expenses:
Sales and marketing expenses                     1,190,091       1,195,310
General and administrative expenses                822,221         544,551
Research and development expenses                  812,778         633,551
Offering costs (See Note 4)                      1,118,770              --
                                              ------------    ------------
   Loss from operations                         (2,501,671)     (1,036,481)

Interest expense, net                              (53,300)        (81,510)
Other income, net                                       --          13,026
                                              ------------    ------------
   Net loss                                   $ (2,554,971)   $ (1,104,965)
                                              ============    ============

Basic and diluted loss per share              $      (0.17)   $      (0.08)
                                              ============    ============

Weighted average shares outstanding used
to compute basic and diluted loss per share     14,946,545      13,806,869
                                              ============    ============


        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

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

                                                 FOR THE NINE MONTHS ENDED
                                               SEPTEMBER 30,    SEPTEMBER 30,
                                                   2002            2001
                                              ------------    ------------

Net sales                                     $  9,494,730    $  6,964,394
Cost of products sold                            4,496,381       3,227,699
                                              ------------    ------------
   Gross profit                                  4,998,349       3,736,695

Operating costs and expenses:
Sales and marketing expenses                     3,383,547       3,481,580
General and administrative expenses              1,860,919       1,624,759
Research and development expenses                2,370,690       1,931,993
Offering costs (See Note 4)                      1,118,770              --
                                              ------------    ------------
   Loss from operations                         (3,735,577)     (3,301,637)

Interest expense, net                             (160,446)       (251,161)
Other income, net                                    5,370           2,702
                                              ------------    ------------
   Net loss                                   $ (3,890,653)   $ (3,550,096)
                                              ============    ============

Basic and diluted loss per share              $      (0.26)   $      (0.27)
                                              ============    ============

Weighted average shares outstanding used
to compute basic and diluted loss per share     14,764,989      13,197,054
                                              ============    ============





        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>
                                                                  FOR THE NINE MONTHS ENDED
                                                                  SEPTEMBER 30,  SEPTEMBER 30,
                                                                     2002           2001
                                                                  -----------    -----------
<S>                                                               <C>            <C>
Cash flows from operating activities:
Net loss                                                          $(3,890,653)   $(3,550,096)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                                       511,932        638,979
  Deferred Income Taxes                                               474,688        419,031
  Bad Debt Expense                                                         --          8,667
  Write-off of deferred offering costs                              1,042,413             --
   Non-cash compensation expense related to employee agreement         42,000             --
Changes in assets and liabilities:
  Decrease (increase) in accounts receivable                        1,117,084       (445,700)
  (Increase) in inventories                                          (686,758)      (123,964)
  Decrease (increase) in prepaid expenses and other
    current assets                                                     60,006       (533,537)
(Decrease) in payables due to related parties                              --            (75)
Increase in accounts payable                                        1,374,001        329,082
(Decrease) increase in accrued expenses, deferred
   revenue and customer deposits                                     (286,374)       297,864
                                                                  -----------    -----------
          NET CASH USED IN OPERATING ACTIVITIES                   $  (241,661)   $(2,959,749)
                                                                  -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                               (140,742)      (123,353)
  Patent Costs                                                         (7,311)            --
                                                                  -----------    -----------
         NET CASH USED IN INVESTING ACTIVITIES                    $  (148,053)   $  (123,353)
                                                                  -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from exercise of stock options                                 --          1,600
   Net (payments) borrowings under term notes payable                (436,111)     1,551,190
   Net payments - revolving line of credit                                 --       (761,560)
   Net  proceeds from issuance of common stock, net of offering
          costs                                                       472,336      2,978,445
                                                                  -----------    -----------
         NET CASH  PROVIDED BY FINANCING ACTIVITIES               $    36,225    $ 3,769,675
                                                                  -----------    -----------

EFFECT OF EXCHANGE RATE CHANGES                                        (9,924)      (178,624)

Net (decrease) increase in cash and cash equivalents                 (363,413)       507,949
Cash and cash equivalents, beginning of period                      2,343,303        302,279
                                                                  -----------    -----------
Cash and cash equivalents, end of period                          $ 1,979,890    $   810,228
                                                                  ===========    ===========
</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 for interim
financial  information and in accordance  with the  instructions to Form 10-QSB.
Accordingly,  they do not include all of the financial information and footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements.  In the opinion of management,  all  adjustments  (including  normal
recurring  adjustments)  considered  necessary for a fair presentation have been
included.

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  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'  (the  "Company")  Annual  Report  on Form
10-KSB/A  for the year ended  December  31, 2001 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  at September 30, 2002
consist of the following:

                Raw materials              $ 1,495,983
                Work in process                294,951
                Finished goods               1,008,167
                Reserve for obsolescence      (111,206)
                                           -----------
                                           $ 2,687,895
                                           ===========
NOTE 3.  NOTE PAYABLE

     On November 15, 2000,  EP  MedSystems  completed a debt  financing for $3.2
million with Medtronic Asset Management,  Inc., an affiliate of Medtronic, Inc.,
one of EP MedSystems'  shareholders.  Approximately $2.3 million was utilized to
repay outstanding  amounts on EP MedSystems'  revolving credit facility with its
bank. The note to Medtronic Asset  Management,  Inc. bears interest at the prime
rate plus 2%.  The  principal  and all  accrued  interest  on the note are to be
repaid on November 15, 2003.  The note is secured by a pledge by David  Jenkins,
EP  MedSystems'  Chairman  of  the  Board,  of  shares  of  common  stock  of  a
privately-held  corporation.  EP MedSystems received $1.6 million at closing and
$1.6 million on January 17, 2001. For the nine months ended  September 30, 2002,
EP MedSystems accrued approximately $160,000 of interest expense related to this
note.

                                       7
<PAGE>

     EP  MedSystems  entered into a financing  arrangement  with a bank in March
1999,  consisting of a $2,000,000  revolving  line of credit and a $500,000 term
loan,  secured by a lien on EP MedSystems'  facility in West Berlin,  New Jersey
and the machinery, equipment and inventory located there. EP MedSystems borrowed
approximately  $2  million  under  the  revolving  line  of  credit,  which  was
subsequently  repaid with the proceeds of the Medtronic  note payable  discussed
above. The related term loan was repaid in March 2002.

NOTE 4.  SHAREHOLDER'S EQUITY

PREFERRED STOCK

     On October  23,  2001,  EP  MedSystems  consummated  the  private  sale and
issuance of newly-designated  Series A convertible preferred stock to Medtronic,
Inc.  ("Medtronic"),  a shareholder  and creditor of EP MedSystems,  and Century
Medical,  Inc.  ("CMI"),  its  Japanese  distributor.  An aggregate of 1,259,717
preferred  shares were  issued in the  transactions.  On December  31, 2001 each
preferred  share became  convertible  into equal shares of EP MedSystems  common
stock, at the option of the holder.  The transaction  with CMI involved the sale
of the  shares of  preferred  stock at a price of $2.048 per share as well as an
amendment to EP MedSystems'  Distribution  Agreement  with CMI. The  transaction
with  Medtronic  involved the sale of  preferred  stock at a price of $1.781 per
share.  EP MedSystems  received  aggregate gross proceeds of $2,400,000 from the
two transactions.  The preferred stock is recorded in Shareholders'  Equity, net
of  issuance  costs.  In the first  quarter of 2002,  CMI  converted  all of its
585,938  shares  of  preferred  stock  into an  equal  number  of  shares  of EP
MedSystems'  common stock.  In the second quarter of 2002,  Medtronic  converted
300,000 of its shares of preferred  stock into an equal number of EP MedSystems'
common stock. The converted shares of both CMI and Medtronic were registered for
resale by EP MedSystems pursuant to a registration  statement on Form S-3, which
was declared effective by the SEC in May 2002.

COMMON STOCK

     On March 28, 2001, EP MedSystems  consummated the private sale and issuance
to certain  investors of 1,625,000  shares of common stock of EP MedSystems  and
warrants for 812,500 additional shares at a purchase price of $2.00 per share of
common  stock and  warrants.  The warrants  have an exercise  price of $4.00 per
share. Among the investors is Cardiac Capital, LLC, a limited liability company,
of  which  The  Chairman  of the  Board of EP  MedSystems'  is a 50%  owner.  EP
MedSystems  received  $3,250,000 in gross  proceeds,  which was used for working
capital purposes.

     On June 11,  2001,  EP  MedSystems  entered  into a common  stock  purchase
agreement  with Fusion  Capital  Fund II, LLC ("Fusion  Capital")  whereby at EP
MedSystems'  election,  Fusion  Capital was  required to purchase EP  MedSystems
common  stock at the times and prices set forth in this  common  stock  purchase
agreement  (the "Fusion  Agreement").  The shares of EP MedSystems  common stock
that were  subject  to the Fusion  Agreement  were  registered  on Form SB-2 and
declared  effective  by the SEC in October  2001.  In June 2002,  EP  MedSystems
amended the Fusion  Agreement and, as a result of such amendment,  EP MedSystems
was  required  to file a new  registration  statement  on  Form  SB-2  with  the
Securities  and  Exchange  Commission


                                       8
<PAGE>

on July 30, 2002.  This new  registration  statement  was declared  effective on
August 13, 2002.

     In connection with the Fusion Agreement,  the Company had recorded deferred
offering costs of approximately $1 million,  which were recorded in other assets
and additional  paid-in  capital,  and were to be offset against proceeds as the
common stock was sold to Fusion Capital.  During the third quarter,  the Company
determined  it was no longer  probable  that  shares  would be sold  under  this
agreement,  based on new financing  opportunities  initiated by the Company, and
therefore,  the entire amount of the deferred  offering  costs were written off.
This non-cash charge, as well as $76,000 of additional cash  expenditures,  were
recorded as a separate  line item  labeled  "Offering  costs"  within  operating
expenses in the  Statement of  Operations.  On October 29, 2002,  EP  MedSystems
withdrew the  registration  statement  relating to the Fusion  Agreement  and on
November  13,  2002 the  parties  mutually  agreed to  terminate  the  agreement
effective January 15, 2003. (See Note 12)

     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 by EP MedSystems and BSC in the field
of cardiac electrophysiology.  It is expected that this development plan will be
completed over the next calendar year. Should EP MedSystems  abandon the project
without cause, an abandonment  fee of $1 million in cash or EP MedSystems  stock
would be due BSC.  Following the  completion of the  development,  EP MedSystems
will have  marketing  rights to the technology and pay royalties to BSC based on
the market  value of the  technology  at the time of sale.  This stock  purchase
agreement with BSC allows for the sale of up to $3,000,000 of common stock based
on  milestones  in  the   development  of  certain   cardiac   electrophysiology
technology.  The  common  stock  is sold at the  lesser  of the ten day  average
trading price per share prior to the closing of each installment  purchase,  and
$5.00 per share. Upon signing of the agreement,  EPMedSystems  received $500,000
for  210,084  shares  issued at the ten day average  trading  price of $2.38 per
share.  Pursuant to a registration  rights  agreement  between EP MedSystems and
BSC, BSC has been granted demand  registration  rights (exercisable on up to two
occasions)  and piggyback  registration  rights with respect to the common stock
purchased  pursuant to the stock  purchase  agreement.  The demand  registration
rights  may not be  exercised  until  the first  anniversary  of the date of the
registration  rights agreement  unless certain  milestones have been achieved or
the license agreement has been earlier  terminated.  The piggyback  registration
rights may be exercised for a period commencing six months after the date of the
registration  rights agreement and ending on the second anniversary of the final
installment purchase under the stock purchase agreement.

NOTE 5. STOCK COMPENSATION

     In connection  with the hiring of Reinhard  Schmidt as EP  MedSystems'  new
President and Chief Operating  Officer during August 2001, Mr. Schmidt purchased
100,000 shares (the "Shares") of EP MedSystems  common stock at $2.20 per Share.
EP  MedSystems  provided a  two-year,  interest-free,  non-recourse  loan in the
amount of $220,000 to finance the purchase  price of the Shares,  which loan was
secured by a pledge to EP MedSystems of the Shares, and the principal balance of
which was to be forgiven  ratably  over the term of the loan.  In July 2002,  EP
MedSystems and Mr. Schmidt agreed to rescind the stock purchase transaction with
respect to 75,000 of the Shares (the portion

                                       9
<PAGE>

which had not  already  been paid for  through  forgiveness  of the loan) and to
cancel the  unpaid  portion  of the loan in  consideration  for the grant to Mr.
Schmidt of an incentive  stock option to purchase  75,000 shares of common stock
pursuant to the 2002 Stock Option Plan (subject to shareholder  approval of such
plan at the 2002 annual meeting of  shareholders)  at an exercise price equal to
$2.20 per share (the original  purchase price established in connection with Mr.
Schmidt's  stock  purchase  rights and greater than the fair market value of the
common stock on the date of grant of the stock option).  This stock option vests
over four years from the date of grant.  EP  MedSystems  recognized a de minimus
compensation  charge,  related to this stock option as the share price on August
29,  2002 (the date of the 2002  annual  meeting of  shareholders  when the 2002
Stock Option Plan was approved) was greater than $2.20. The compensation  charge
is amortized over the vesting period of 4 years.

     Until the  stock  purchase  transaction  was  rescinded  in July  2002,  EP
MedSystems  determined  that the  treatment for the valuing and recording of the
restricted shares purchased would be similar to the accounting for stock options
that qualify for variable plan accounting  pursuant to footnote 2 of APB No. 25.
Based on the purchase price of the Shares at the time of issuance, the intrinsic
value of these  instruments was zero and, as such, no  compensation  expense was
recorded.  The Shares were  re-measured  on a quarterly  basis and  compensation
expense was determined as the  difference  between the fair market value and the
purchase  price of the stock at the end of the  reporting  period.  The purchase
price was adjusted  downward in conjunction  with the loan amount  forgiven on a
quarterly  basis as defined in the  promissory  note.  For the nine months ended
September 30, 2002,  EP  MedSystems  recorded  $55,000 in  compensation  expense
related to the  forgiven  portion of the note and a recorded a fair market value
adjustment of $28,000.

     Mr.  Schmidt was also  granted an option in  September  2001 under the 1995
Director  Option Plan to purchase  60,000  shares of common stock at an exercise
price of $1.85 per share  (the  price of the  stock on the date of  grant);  the
option  vested 1,000 shares per month.  Because Mr.  Schmidt was not entitled to
participate in the 1995 Director  Option Plan, this option was cancelled in July
2002 in consideration  for the grant to Mr. Schmidt of an incentive stock option
to purchase 60,000 shares of common stock pursuant to the 2002 Stock Option Plan
(subject to  shareholder  approval  of such plan at the 2002  annual  meeting of
shareholders)  at an  exercise  price  equal to $2.10 per share (the fair market
value of the common stock on the date of grant).  EP MedSystems  recognized a de
minmus compensation  charge,  related to this stock option as the share price on
August 29, 2002 (the date of the 2002 annual  meeting of  shareholders  when the
2002 Stock Option Plan was  approved) was greater than $2.10.  The  compensation
charge is amortized over the vesting period of 4 years.

NOTE 6. SALE OF STATE NET OPERATING LOSSES

     During the nine months ended  September  30, 2002 and 2001,  EP  MedSystems
received approximately $475,000 and $419,000, respectively,  related to the sale
of a portion  of its  cumulative  unused  New Jersey  State Net  Operating  Loss
("State NOL")  carryforwards  for its statutory  subsidiaries.  The sales of the
cumulative  net operating  losses are a result of a New Jersey State law enacted
January 1, 1999 allowing  emerging  technology  and  biotechnology  companies to
transfer or "sell" their unused State NOL  carryforwards and New Jersey research
and  development  tax credits to any profitable

                                       10
<PAGE>

New Jersey company  qualified to purchase them for cash. As of December 31, 2001
and 2000,  EP  MedSystems  had recorded  approximately  $475,000  and  $419,000,
respectively,  in deferred tax assets related to these sales. These deferred tax
assets were  reversed  upon receipt of cash from the sales of these  benefits to
third parties in the nine months ended September 30, 2002 and 2001.

NOTE 7. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

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

     The following table sets forth product sales by geographic  segment for the
nine months ended September 30, 2002 and 2001.

                                          FOR THE NINE MONTHS
                                          ENDED SEPTEMBER 30,

                                          2002         2001
                                        ----------   ----------
                 United States          $5,910,000   $4,113,000
                 Europe/Middle East      1,942,000    1,939,000
                 Asia and Pacific Rim    1,643,000      912,000
                                        ----------   ----------
                                        $9,495,000   $6,964,000
                                        ==========   ==========

     Sales of EP  MedSystems'  cardiac  electrophysiology  equipment and related
catheters aggregated approximately $8,676,000 and $819,000 respectively, for the
nine months ended September 30, 2002 and $6,036,000 and $928,000,  respectively,
for the comparable period in 2001. EP MedSystems'  long-lived assets are located
in the U.S.

     Net sales for the nine months ended  September  30, 2002 were billed in two
currencies:  $9,166,000  in U.S.  dollars  and 329,000 in Euro.  Management  has
determined  the impact of foreign  currency  risk on sales to be minimal since a
majority  of  sales  are  billed  in U.S.  dollars.  EP  MedSystems  does  incur
translation gains/losses, which are recorded in Shareholders' Equity. Cumulative
translation  losses amounted to approximately  $90,000 as of September 30, 2002.
In  addition,  EP  MedSystems  had not  entered  into any  derivative  financial
instruments for hedging or other purposes.

NOTE 8. NET LOSS PER SHARE

     Basic net loss per share is computed using the  weighted-average  number of
shares of common stock outstanding.  Due to the losses incurred for the quarter,
diluted net loss per share does not differ from basic net loss per share,  since
potential shares of common stock from the exercise of stock options and warrants
are  anti-dilutive  for all periods  presented.  Accordingly,  potential  common
shares of 2,950,294 and  2,515,758 for the nine months ended  September 30, 2002
and  2001,  respectively,   have  been  excluded  from  the  diluted  per  share
calculation.

NOTE 9. COMPREHENSIVE INCOME

                                       11
<PAGE>

     For the nine  months  ended  September  30, 2002 and 2001,  EP  MedSystems'
comprehensive  income  approximated  net  income,  except for  foreign  currency
translation  adjustments.  The  comprehensive  losses for the nine months  ended
September  30,  2002 and 2001  were  approximately  $3,900,000  and  $3,729,000,
respectively.

NOTE 10.  ADOPTION OF SFAS NO. 142

     In June 2001, the FASB issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS No. 142"),  "Goodwill and Other Intangible  Assets." SFAS No. 142
supercedes Accounting Principles Board Opinion No. 17, "Intangible Assets." SFAS
No. 142 primarily  addresses the accounting  for goodwill and intangible  assets
subsequent to their  acquisition.  The  provisions of SFAS No. 142 are effective
for fiscal years  beginning  after December 15, 2001,  therefore,  EP MedSystems
adopted SFAS No.142 on January 1, 2002. The primary changes made by SFAS No. 142
are: (1)  goodwill  and  indefinite  lived  intangible  assets will no longer be
amortized,  (2) goodwill will be tested for  impairment at least annually at the
reporting unit level,  (3) intangible  assets deemed to have an indefinite  life
will be tested for impairment at least annually, and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty years.
In connection  with the adoption of this standard,  EP  MedSystems'  unamortized
goodwill  balance is no longer  amortized,  but will  continue  to be tested for
impairment.  EP  MedSystems  plans  to test  impairment  of  goodwill,  at least
annually, using a two-step impairment test consisting of comparing goodwill fair
value and book value of determined reporting units and, if applicable, measuring
the excess of the  recorded  amount of  goodwill  with its  implied  fair value.
During the second  quarter of 2002,  EP MedSystems  completed  the  transitional
goodwill  impairment  test and,  determined that as of January 1, 2002, the fair
value of goodwill exceeds its carrying value.  Therefore,  EP MedSystems has not
recorded  any  goodwill  transitional  impairment  loss  and  step  two  of  the
transitional test is not required.

     The  following  table  presents  the impact of SFAS No. 142 on net loss and
loss per share had the  standard  been in  effect  for the three and nine  month
period ended September 30, 2002 and 2001:

<TABLE>
<CAPTION>
                                  FOR THE THREE MONTHS ENDED    FOR THE NINE MONTHS ENDED
                                          SEPTEMBER 30,                 SEPTEMBER 30,
                                        2002         2001           2002            2001
                                   -----------    -----------    -----------    -----------
<S>                                <C>            <C>            <C>            <C>
Reported net loss                  $(2,554,971)   $(1,104,965)   $(3,890,653)   $(3,550,096)
Add back:  Goodwill amortization            --         12,903             --         38,707
                                   -----------    -----------    -----------    -----------
Adjusted net loss                  $(2,554,971)   $(1,092,062)   $(3,890,653)   $(3,511,389)

Basic and diluted loss per share:
  Reported net loss                      $(.17)         $(.08)         $(.26)         $(.27)
Goodwill amortization                       --             --             --             --
                                   -----------    -----------    -----------    -----------
Adjusted net loss                        $(.17)         $(.08)         $(.26)         $(.27)
                                   ===========    ===========    ===========    ===========
</TABLE>


At September 30, 2002 and 2001,  other  intangible  assets consist  primarily of
patent costs.  Accumulated  amortization at September 30, 2002 was approximately
$156,000.  For the nine months ended  September 30, 2002 and 2001, EP MedSystems
recorded  approximately  $25,000 and $18,000 in  amortization  expense for other
intangible assets.

                                       12
<PAGE>

For the  year  ended,  December  31,  2002 and  2003,  amortization  expense  is
estimated to be approximately $33,000 and $10,000, respectively.

NOTE 11. RECENTLY ISSUED ACCOUNTING STANDARDS

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS No. 143"),  "Accounting for Asset Retirement  Obligations."  This
standard  requires that  obligations  associated with the retirement of tangible
long-lived  assets  be  recorded  as  liabilities  when  those  obligations  are
incurred,  with the amount of the  liability  initially  measured at fair value.
Upon initially  recognizing a liability for an asset retirement  obligation,  an
entity must  capitalize  the cost by  recognizing  an  increase in the  carrying
amount of the related long-lived asset. Over time, this liability is accreted to
its present value,  and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS No. 143 is  effective  for  financial  statements  issued for fiscal  years
beginning after June 15, 2002,  which for EP MedSystems  means the standard will
be adopted on January 1, 2003. EP MedSystems is currently  evaluating the impact
the adoption of this statement will have on its results of operations, financial
position or cash flows.

     In  October  2001,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 144 ("SFAS No. 144"),  "Accounting  for the Impairment or Disposal
of  Long-Lived  Assets,"  which  supercedes  Statement of  Financial  Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all
long-lived assets,  including discontinued  operations,  and consequently amends
Accounting   Principles  Board  Opinion  No.  30,   "Reporting  the  Results  of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary,  Unusual and  Infrequently  Occurring  Events and  Transactions."
Based on SFAS No. 121, SFAS No. 144 develops one accounting model for long-lived
assets that are to be disposed of by sale,  as well as addresses  the  principal
implementation  issues. SFAS No. 144 requires that long-lived assets that are to
be disposed of by sale be measured at the lower of book value or fair value less
cost to sell.  Additionally,  SFAS No.  144  expands  the scope of  discontinued
operations to include all components of an entity with  operations  that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing  operations  of the  entity in a disposal  transaction.  SFAS No. 144 is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001,  therefore EP  MedSystems  adopted the standard on January 1,
2002.  The  adoption  had no  impact on its  results  of  operations,  financial
position or cash flows.

     On April 30,  2002,  the FASB  issued  Statement  of  Financial  Accounting
Standards No. 145 ("SFAS No. 145"), "Recission of FASB Statements No. 4, 44, 64,
Amendment of FASB No. 13 and Technical  Corrections".  This statement eliminates
the  requirement  that  gains  and  losses  from the  extinguishment  of debt be
aggregated  and classified as an  extraordinary  item, net of the related income
tax. In addition,  SFAS No.145 requires that capital leases that are modified so
that the  resulting  lease  agreement is  classified  as an  operating  lease be
accounted for in the same manner as sale-lease back transactions. SFAS No.145 is
generally effective for transactions occurring after May 15, 2002. EP MedSystems
does not expect that the adoption of SFAS No. 145 will have a material impact on
its results of its operations, financial position or cash flows.

                                       13
<PAGE>

     On July 30,  2002,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 146 ("SFAS No. 146"),  "Accounting for Costs  Associated with Exit
or Disposal  Activities."  This  statement  requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also establishes that fair value is the objective for the
initial measurement of the liability. SFAS No. 146 will be effective for exit or
disposal  activities  that are initiated  after December 31, 2002. EP MedSystems
does not expect the  adoption  of SFAS No. 146 to have a material  impact on its
results of its operations, financial position or cash flows.

NOTE 12. SUBSEQUENT EVENT

     On October 29, 2002, EP MedSystems  withdrew the registration  statement on
Form SB-2 relating to the Fusion  Agreement and on November 13, 2002 the parties
mutually agreed to terminate the agreement  effective January 15, 2003 (See Note
4).

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

OVERVIEW
--------

     EP MedSystems ("EP Med") was incorporated in January 1993 and operates in a
single  industry  segment.  We develop,  manufacture,  market and sell a line of
products for the cardiac electrophysiology market used to diagnose,  monitor and
treat irregular  heartbeats known as arrhythmias.  Since EP Med's inception,  we
have acquired  technology and marketing rights,  have developed new products and
have  begun  marketing  various   electrophysiology   products,   including  the
EP-WorkMate(R)   computerized   electrophysiology   workstation,   the  EP-3(TM)
Stimulator,  diagnostic  electrophysiology  catheters  and the ALERT(R)  System,
including the ALERT(R) Companion and ALERT(R) internal  cardioversion  catheters
and related disposable  supplies.  To date, these products have generated nearly
all of EP Med's sales.

     EP Med's leading diagnostic product is the  EP-WorkMate(R),  a computerized
electrophysiology   workstation  that  monitors,  displays  and  stores  cardiac
electrical activity and arrhythmia data. The EP-WorkMate(R)  offers, among other
features,  display  and  storage of up to 192  intracardiac  signals,  real-time
analysis and integration with our own proprietary systems,  such as the EP-3(TM)
Stimulator,  as  well as with  other  technologies  and  systems.  The  EP-3(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 produce,  and thereby locate an arrhythmia.  For
the nine months ended September 2002, the EP-WorkMate(R) and EP-3(TM) Stimulator
accounted for  approximately  78% of total sales.  EP Med also markets a line of
diagnostic electrophysiology catheters for stimulation and sensing of electrical
signals during electrophysiology  studies, which represented approximately 4% of
EP Med's total sales revenues for the nine months ended September 2002. The sale
of fluoroscopy  units in the third  quarter,  accounted for 13% of sales for the
nine months ended September,  2002. While we no longer have an agreement to sell
these types of units, we are evaluating strategic opportunities in this area.

     We have  identified the diagnosis and treatment of atrial  fibrillation,  a
particular  type of arrhythmia,  as a primary focus for our ongoing  development
efforts. Atrial fibrillation is a condition where erratic electrical signals are
present within the atria, the

                                       14
<PAGE>

upper chambers of the heart,  causing  fibrillation of the atria, which prevents
the atria from providing  appropriate blood flow output. In an effort to address
this  medical   condition,   we  have  developed  a  new  product  for  internal
cardioversion of atrial fibrillation known as the ALERT(R) System,  which uses a
patented electrode catheter to deliver measured, low-energy bi-phasic 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.  International  sales of the  ALERT(R)  System  and
related  catheters  accounted  for  approximately  5% of EP  Med's  total  sales
revenues for the nine months ended  September  2002. The ALERT(R)  System is not
approved for sale in the United States,  but we have completed  clinical  trials
and have submitted our application for pre-market  approval of the device to the
U.S.  Food and  Drug  Administration  and have  responded  to FDA  requests  for
supplemental information; we are awaiting further action on this application and
on other regulatory  matters.  As such, approval to market and sell the ALERT(R)
System in the U.S. may take until fourth  quarter of 2002 or later,  if approved
at all.

     We are also  involved  in the  development  of an  intracardiac  ultrasound
product  line  including  the  ViewMate(TM)   ultrasound   imaging  console  and
intracardiac imaging catheters. These products offer high-resolution,  real-time
ultrasound  capability  designed to improve a physician's or clinician's ability
to  visualize  the  inside of the  chambers  of the heart.  We believe  that the
ViewMate(TM)  Ultrasound  System may play an important  diagnostic role allowing
more  effective  treatment  options  of  complex  cardiac  arrhythmias  such  as
ventricular  tachyarrhythmia  and atrial  fibrillation.  Our ultrasound products
currently  are not  approved  for sale.  We expect to file our  application  for
510(k) approval and CE Mark  authorization  in the fourth quarter of 2002. We do
not anticipate  receiving  approval to sell the ViewMate(TM)  Ultrasound  System
until at least the first quarter of 2003, if approved at all.

     EP Med has 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,   clinical  trials  in  support  of  regulatory
approvals, increased manufacturing activity and expansion of sales and marketing
activities. The amount and timing of future losses will be dependent upon, among
other things, increased sales of our existing products, the timing of regulatory
approval and market  acceptance of the ALERT(R)  System and ultrasound  products
and  developmental,   regulatory  and  market  success  of  new  products  under
development  as well as EP Med's  ability to  establish,  preserve  and  enforce
intellectual property rights to its products. There can be no assurance that any
of our  development  projects  will be  successful  or that  if  development  is
successful, that the products will generate any sales.

NINE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001

     Net sales were  $9,495,000 for the nine months ended  September 30, 2002 as
compared to $6,964,000 for the comparable  period in 2001.  This  $2,531,000 (or
36%)  increase  is  primarily  due  to a  13%  increase  in  the  number  of  EP
WorkMates(R)  sold in the nine months ended  September  30, 2002 compared to the
same period in 2001 due to

                                       15
<PAGE>

continued  market  acceptance of our new NT Platform coupled with improved sales
in our domestic market.  In addition,  revenue of $1,249,000 was recorded in the
three months ended September 30, 2002 in connection with the sale of fluoroscopy
units. While we no longer have an agreement to sell fluoroscopy units, EP Med is
currently evaluating strategic opportunities in this area.

     Net sales  for the nine  months  ended  September  2002 were  billed in two
currencies:  $9,166,000  in U.S.  dollars  and 329,000 in Euro.  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 Med does  incur  translation
gains/losses  in  Stockholder's  Equity.  EP Med incurred a translation  loss of
approximately  $10,000 for the nine months ended  September 30, 2002. EP Med has
not  entered  into any  derivative  financial  instruments  for hedging or other
purposes.

     Gross  profit on sales for the nine  months  ended  September  30, 2002 was
$4,998,000 as compared with $3,737,000 for the same period in 2001. Gross profit
decreased as a percentage of sales from 54% to 53%, due to a lower margin on the
fluoroscopy  units,  net of reductions in  manufacturing  labor costs (primarily
resulting from the cost initiatives initiated in the fourth quarter of 2001) and
lower raw  material  component  costs.  We  anticipate  improvement  in EP Med's
overall  gross  profit  percentage  as sales of the  ALERT(R)  System  and other
catheter products increase,  which should offset the fixed costs associated with
maintaining a catheter manufacturing operation.

     Sales and marketing  expenses  decreased  $98,000 (or 3%) to $3,384,000 for
the nine months ended September 30, 2002 as compared to the same period in 2001.
The decrease  during this period was  primarily due to a reduction in head count
and advertising costs.

     General  and  administrative   expenses  increased  $236,000  (or  15%)  to
$1,861,000 for the nine months ended  September 30, 2002 as compared to the same
period in 2001.  This was primarily  due to an increase in legal and  accounting
fees in connection  with various  agreements  and business  insurance and travel
costs, net of a decrease in foreign exchange changes.

     Research and development expenses increased $439,000 (or 23%) to $2,371,000
for the nine months ended  September  30, 2002 as compared to the same period in
2001.  This  is  primarily  due to  professional  fees  related  to  our  latest
development  initiatives around the ALERT(R) System and ViewMate(TM)  ultrasound
imaging  console  and  intracardiac  imaging  catheters  and costs  relating  to
addressing regulatory and submission requirements.  EP Med expects that research
and development  expenses are likely to increase in future periods,  in part due
to ongoing expenses related to the ALERT(R) and ViewMate(TM) Ultrasound Systems,
new product  development  activities  and continued  costs  associated  with the
regulatory approval process.

     In connection with the stock purchase  agreement with Fusion  Capital,  the
Company had recorded deferred offering costs of approximately $1 million,  which
were recorded in other assets and  additional  paid-in  capital,  and were to be
offset against  proceeds as the common stock was sold to Fusion Capital.  During
the third quarter, the Company determined it was no

                                       16
<PAGE>

longer  probable  that shares would be sold under this  agreement,  based on new
financing  opportunities  initiated by the Company,  and  therefore,  the entire
amount of the deferred offering costs were written off. This non-cash charge, as
well as $76,000 of  additional  cash  expenditures,  were recorded as a separate
line item labeled "Offering costs" within operating expenses in the Statement of
Operations.  On October  29,  2002,  EP  MedSystems  withdrew  the  registration
statement  relating to the Fusion Agreement and on November 13, 2002 the parties
mutually agreed to terminate the agreement effective January 15, 2003.

     Interest expense  decreased $91,000 (or 36%) to $16,000 for the nine months
ended  September  30, 2002 as  compared  to the same period in 2001.  This was a
result of a  reduction  in the prime  interest  rate in the first nine months as
compared  to the same period in 2001 and the  paydown of  long-term  debt in the
first quarter of 2002.

THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001.

     Net sales were  $3,411,000 for the three months ended September 30, 2002 as
compared to $2,483,000 for the comparable period in 2001. This $928,000 (or 37%)
increase is the result of revenue of $1,249,000  which was recorded in the three
months ended  September  30, 2002 in  connection  with the sale of a fluoroscopy
units. While we no longer have an agreement to sell fluoroscopy units, EP Med is
currently evaluating strategic opportunities in this area.

     Net  sales  for  the  three  months  September  2002  were  billed  in  two
currencies:  $3,386,000  in U.S.  dollars  and  25,000 in Euro.  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 Med does  incur  translation
gains/losses,  which are recorded in Shareholder's  Equity. EP Med's translation
loss for the three months ended September 30, 2002 was approximately $4,000.

     Gross  profit on sales for the three months  ended  September  30, 2002 was
$1,442,000  as compared  to  $1,337,000  for the same period in 2001.  The gross
profit decreased as a percentage of sales from 54% to 42%, due to a lower margin
on the  fluoroscopy  units and a higher  number of units sold outside the United
States which have a lower overall  margin;  net of  reductions in  manufacturing
labor costs  (primarily  resulting  from the cost  initiatives  initiated in the
fourth quarter of 2001) and lower raw material component costs.

     Sales and marketing  expenses  remained  essentially the same at $1,190,000
for the three months ended  September 30, 2002 as compared to the same period in
2001.  Costs  decreased  as a  percentage  of total  sales to 35% for the  third
quarter  of 2002 as  compared  to 49% for the  same  period  in  2001.  This was
primarily  due to a  reduction  of travel,  head count and  advertising  with an
increase in sales as compared to the same period in 2001.

     General and administrative expenses increased $278,000 (or 51%) to $822,000
for the three months ended  September 30, 2002 as compared to the same period in
2001.  This was  primarily  due to an increase in legal and  accounting  fees in
connection with various agreements and in business insurance and travel costs

                                       17
<PAGE>

     Research and development  expenses  increased $179,000 (or 28%) to $813,000
for the three months ended  September 30, 2002 as compared to the same period in
2001.  This  was  primarily  due to  professional  fees  related  to our  latest
development  initiatives around the ALERT(R) System and ViewMate(TM)  ultrasound
imaging  console  and  intracardiac  imaging  catheters  and costs  relating  to
addressing regulatory and submission requirements.  EP Med expects that research
and development  expenses are likely to increase in future periods, in part, due
to ongoing expenses related to the ALERT(R) and ViewMate(TM) Ultrasound Systems,
new product  development  activities  and continued  costs  associated  with the
regulatory approval process.

     In connection with the stock purchase  agreement with Fusion  Capital,  the
Company had recorded deferred offering costs of approximately $1 million,  which
were recorded in other assets and  additional  paid-in  capital,  and were to be
offset against  proceeds as the common stock was sold to Fusion Capital.  During
the third quarter,  the Company determined it was no longer probable that shares
would  be sold  under  this  agreement,  based  on new  financing  opportunities
initiated  by the  Company,  and  therefore,  the entire  amount of the deferred
offering  costs were written off.  This non-cash  charge,  as well as $76,000 of
additional  cash  expenditures,  were  recorded as a separate  line item labeled
"Offering  costs" within operating  expenses in the Statement of Operations.  On
October 29, 2002, EP MedSystems withdrew the registration  statement relating to
the Fusion  Agreement  and on November 13, 2002 the parties  mutually  agreed to
terminate the agreement effective January 15, 2003.

     Interest expense decreased $28,000 for the three months ended September 30,
2002 as compared to the same period in 2001.  This was the result of a reduction
in the prime  interest  rate in the third  quarter of 2002 as compared  with the
second  quarter of 2001 and the pay down of long-term  debt in the first quarter
of 2002.

LIQUIDITY AND CAPITAL RESOURCES.

     Since EP Med's incorporation in January 1993, EP financial  performance has
resulted in an accumulated  deficit of  approximately  $26.2 million at December
31, 2001 and approximately $30 million at September 30, 2002.

     In November 2000, EP Med Systems  completed a debt financing with Medtronic
Asset  Management,  Inc.,  an  affiliate  of  Medtronic,  Inc.,  one of EP Med's
shareholders,  which  provided  an  aggregate  of $3.2  million.  The  financing
transaction,  evidenced by a note purchase agreement and secured promissory note
bearing  interest at two  percentage  points over the prime rate,  provides that
principal and all accrued  interest on the note are to be repaid on November 15,
2003 and that the note is  secured  by a  pledge  by David  Jenkins,  EP  Med's,
Chairman of the Board of 300,000 shares of common stock of Transneuronix,  Inc.,
a  privately-held  corporation  engaged  in the  development  of  neuro-muscular
stimulation  devices.  The shares pledged  amounted to  approximately  5% of the
total  outstanding  common stock of  Transneuronix,  Inc. EP Med is currently in
negotiations to extend the terms of the agreement.

     In October  2001,  EP Med  consummated  the  private  sale and  issuance of
newly-designated  Series A convertible  preferred  stock to  Medtronic,  Inc., a
shareholder  and  creditor of EP Med, and Century  Medical,  Inc.  ("CMI"),  its
Japanese  distributor.  An  aggregate  of  1,259,717  shares  was  issued in the
transactions.  The preferred  shares were

                                       18
<PAGE>

issued to CMI at a price of $2.048 per share as well as an  amendment to EP Med'
Distribution  Agreement  with  CMI,  including  an  extension  of  the  original
Distribution Agreement.  The transaction with Medtronic involved the sale of the
shares  of  preferred  stock at a price of $1.781  per  share.  EP Med  received
aggregate gross proceeds of $2.4 million from the two transactions.

     CMI  converted  all of its shares of Series A  Preferred  Stock into common
shares of EP Med in the first quarter of 2002.  Medtronic  converted  300,000 of
its  shares of Series A  Preferred  Stock into  common  stock of EP Med in April
2002. The converted  stock of both CMI and Medtronic were  registered for resale
by EP Med pursuant to a  registration  statement on Form S-3, which was declared
effective by the SEC in May 2002.

     In January 2002, EP Med received  approximately $475,000 in cash related to
the sale of a portion of its unused  cumulative  New Jersey Net  Operating  Loss
carryforwards.

     We are currently  negotiating with an  institutional  lender regarding a $2
million line of credit facility.

     We are negotiating a mortgage on our West Berlin,  New Jersey facility.  We
expect that this agreement will close in the fourth quarter of 2002.

     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 by EP MedSystems and BSC in the field
of cardiac electrophysiology.  It is expected that this development plan will be
completed over the next calendar year. Should EP MedSystems  abandon the project
without cause, an abandonment  fee of $1 million in cash or EP MedSystems  stock
would be due BSC.  Following the  completion of the  development,  EP MedSystems
will have  marketing  rights to the technology and pay royalties to BSC based on
the market  value of the  technology  at the time of sale.  This stock  purchase
agreement with BSC allows for the sale of up to $3,000,000 of common stock based
on  milestones  in  the   development  of  certain   cardiac   electrophysiology
technology.  The  common  stock  is sold at the  lesser  of the ten day  average
trading price per share prior to the closing of each installment  purchase,  and
$5.00 per share. Upon signing of the agreement,  EP MedSystems received $500,000
for  210,084  shares  issued at the ten day average  trading  price of $2.38 per
share.  Pursuant to a registration  rights  agreement  between EP MedSystems and
BSC, BSC has been granted demand  registration  rights (exercisable on up to two
occasions)  and piggyback  registration  rights with respect to the common stock
purchased  pursuant to the stock  purchase  agreement.  The demand  registration
rights  may not be  exercised  until  the first  anniversary  of the date of the
registration  rights agreement  unless certain  milestones have been achieved or
the license agreement has been earlier  terminated.  The piggyback  registration
rights may be exercised for a period commencing six months after the date of the
registration  rights agreement and ending on the second anniversary of the final
installment purchase under the stock purchase agreement.

     Net cash used in operating  activities  in the nine months ended  September
30, 2002 amounted to approximately $242,000 as compared with a net cash usage of
$2,960,000  in the same period in 2001.  This  improvement  was primarily due to
non-cash  portion of the write off of Fusion costs of  approximately  $1,042,000
and a decrease in accounts  receivable as compared to the third quarter of 2001.
Capital expenditures,  net of

                                       19
<PAGE>

disposals,  were $141,000 for the nine month period ended  September 30, 2002 as
compared to $123,000 in 2001.  We expect to purchase  capital  equipment  and to
expand our  manufacturing  and  assembly  capabilities  as we  continue to grow,
however, we currently do not have any commitments for purchases. We lease office
space and certain office equipment under operating leases.

     Working capital  decreased  $2,292,000 from December 31, 2001 to $4,523,000
at September  30, 2002.  This is  primarily  due to (1) a $363,000  reduction in
cash,  primarily  the result of the  repayment  of EP Med's term loan balance to
Fleet and current  losses;  and (2) a $475,000  reduction in deferred tax assets
due to the  receipt  from the sale of the New Jersey  State Net  Operating  Loss
noted above (3) net of  increases in  inventory  purchasing  for the nine months
ended September 30, 2002.

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

     EP Med has 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,  the volume of sales of our existing  products,
the timing of  regulatory  approval  and market  acceptance  of the ALERT(R) and
ultrasound  systems and of new products  under  development  as well as EP Med's
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,  that the products will
generate any sales. We are currently seeking sources of financing. If sources of
financing are not available, we will have to reduce costs or reduce our scope of
operations. Based upon our current plans and projections, together with expected
financings or potential cost reductions,  however,  we believe that our existing
capital  resources will be sufficient to meet our anticipated  capital needs for
at least the next twelve months.

ADOPTION OF SFAS NO. 142

     In June 2001, the FASB issued Statement of Financial  Accounting  Standards
No. 142 ("SFAS No. 142"),  "Goodwill and Other Intangible  Assets." SFAS No. 142
supercedes Accounting Principles Board Opinion No. 17, "Intangible Assets." SFAS
No. 142 primarily  addresses the accounting  for goodwill and intangible  assets
subsequent to their  acquisition.  The  provisions of SFAS No. 142 are effective
for fiscal years  beginning  after December 15, 2001,  therefore,  EP MedSystems
adopted  SFAS No. 142 on January 1, 2002.  The primary  changes made by SFAS No.
142 are: (1) goodwill and indefinite lived  intangible  assets will no longer be
amortized,  (2) goodwill will be tested for  impairment at least annually at the
reporting unit level,  (3) intangible  assets deemed to have an indefinite  life
will be tested for impairment at least annually, and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty years.
In connection with the adoption of this standard,  EP Med's unamortized goodwill

                                       20
<PAGE>

balance is no longer  amortized,  but will continue to be tested for impairment.
EP MedSystems plans to test impairment of goodwill,  at least annually,  using a
two-step  impairment test  consisting of comparing  goodwill fair value and book
value of determined reporting units and, if applicable,  measuring the excess of
the recorded  amount of goodwill with its implied fair value.  During the second
quarter of 2002, EP MedSystems  completed the transitional  goodwill  impairment
test and,  determined  that as of January 1,  2002,  the fair value of  goodwill
exceeds its  carrying  value.  Therefore,  EP  MedSystems  has not  recorded any
goodwill  transitional  impairment loss and step two of the transitional test is
not required.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143 ("SFAS No. 143"),  "Accounting for Asset Retirement  Obligations."  This
standard  requires that  obligations  associated with the retirement of tangible
long-lived  assets  be  recorded  as  liabilities  when  those  obligations  are
incurred,  with the amount of the  liability  initially  measured at fair value.
Upon initially  recognizing a liability for an asset retirement  obligation,  an
entity must  capitalize  the cost by  recognizing  an  increase in the  carrying
amount of the related long-lived asset. Over time, this liability is accreted to
its present value,  and the capitalized cost is depreciated over the useful life
of the related asset. Upon settlement of the liability, an entity either settles
the obligation for its recorded amount or incurs a gain or loss upon settlement.
SFAS No. 143 is  effective  for  financial  statements  issued for fiscal  years
beginning after June 15, 2002,  which for EP MedSystems  means the standard will
be adopted on January 1, 2003. EP MedSystems is currently  evaluating the impact
the adoption of this statement will have on its results of operations, financial
position or cash flows.

     In  October  2001,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 144 ("SFAS No. 144"),  "Accounting  for the Impairment or Disposal
of  Long-Lived  Assets,"  which  supercedes  Statement of  Financial  Accounting
Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all
long-lived assets,  including discontinued  operations,  and consequently amends
Accounting   Principles  Board  Opinion  No.  30,   "Reporting  the  Results  of
Operations-Reporting  the Effects of  Disposal  of a Segment of a Business,  and
Extraordinary,  Unusual and  Infrequently  Occurring  Events and  Transactions."
Based on SFAS No. 121, SFAS No. 144 develops one accounting model for long-lived
assets that are to be disposed of by sale,  as well as addresses  the  principal
implementation  issues. SFAS No. 144 requires that long-lived assets that are to
be disposed of by sale be measured at the lower of book value or fair value less
cost to sell.  Additionally,  SFAS No.  144  expands  the scope of  discontinued
operations to include all components of an entity with  operations  that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing  operations  of the  entity in a disposal  transaction.  SFAS No. 144 is
effective  for  financial  statements  issued for fiscal years  beginning  after
December 15, 2001,  therefore EP  MedSystems  adopted the standard on January 1,
2002.  The  adoption  had no  impact on its  results  of  operations,  financial
position or cash flows.

     On April 30, 2002,  the FASB issued  Statement No. 145,  "Recission of FASB
Statements  No. 4, 44, 64,  Amendment of FASB No. 13 and Technical  Corrections"
("SFAS No. 145").  This  statement  eliminates  the  requirement  that gains and
losses  from

                                       21
<PAGE>

the  extinguishment  of debt be aggregated  and  classified as an  extraordinary
item,  net of the related  income tax. In addition,  SFAS No. 145 requires  that
capital  leases  that are  modified so that the  resulting  lease  agreement  is
classified  as an  operating  lease  be  accounted  for in the  same  manner  as
sale-lease   back   transactions.   SFAS  No.145  is  generally   effective  for
transactions  occurring  after May 15, 2002. EP MedSystems  does not expect that
the  adoption of SFAS  No.145 will have a material  impact on its results of its
operations, financial position or cash flows.

     On July 30,  2002,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 146 ("SFAS No. 146"),  "Accounting for Costs  Associated with Exit
or Disposal  Activities."  This  statement  requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. SFAS No. 146 also establishes that fair value is the objective for the
initial measurement of the liability. SFAS No. 146 will be effective for exit or
disposal  activities  that are initiated  after December 31, 2002. EP MedSystems
does not expect the  adoption  of SFAS No. 146 to have a material  impact on its
results of its operations, financial position or cash flows.

ITEM 3.  CONTROLS AND PROCEDURES

     Within  90 days  prior  to the  date  of this  report,  we  carried  out an
evaluation,  under the supervision and with the  participation  of our principal
executive officer and principal  financial officer,  of the effectiveness of the
design and operation of our disclosure  controls and  procedures.  Based on this
evaluation,  our principal  executive  officer and principal  financial  officer
concluded  that our  disclosure  controls and procedures are effective in timely
alerting  them to material  information  required to be included in our periodic
SEC  reports.  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.

     In  addition,  we reviewed our  internal  controls,  and there have been no
significant  changes in our  internal  controls or in other  factors  that could
significantly  affect  those  controls  subsequent  to the  date of  their  last
evaluation.

                                       22
<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

     Not Applicable.

ITEM 2.  CHANGES IN SECURITIES

     (a)  Not applicable.

     (b)  Not applicable.

     (c) On September 5, 2002, EP MedSystems sold 201,084 shares of common stock
to Boston  Scientific  Corporation for $500,000 (or $2.38 per share, the ten day
average  trading price for the common stock  preceding the sale. See Note 4. The
sale  was  effected  without  registration  pursuant  to  Section  4(2)  of  the
Securities Act of 1933, as amended, as no general  solicitation was made, only a
single offer and sale was made, and the purchaser was financially  sophisticated
and capable of evaluating the merits and risks of its investment.

     (d) Not applicable.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

     None.

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

     EP MedSystems held its 2002 Annual Meeting of Shareholders  (the "Meeting")
on August 29, 2002. The following were the matters voted upon at the Meeting:

     1.  Election of  Directors.  The  following  directors  were elected at the
Meeting: Abhijeet Lele, Paul L. Ray and Richard C. Williams. The number of votes
cast for and withheld from each director are as follows:

                                         Number of Shares
                                         ----------------

                                          For          Withheld
                                          ---          --------

                 Abhijeet Lele         12,578,528      624,950

                 Paul L. Ray           12,540,128      663,350

                 Richard C. Williams   12,576,628      626,850

David A. Jenkins and Reinhard Schmidt continued as directors after the Meeting.

     2.  Approval  of 2002 Stock  Option  Plan.  The 2002 Stock  Option Plan was
approved by the following vote of the common stock:

                                       23
<PAGE>

                                        Number of Shares
                                        ----------------

                           For              Against           Abstained
                           ---              -------           ---------

                        6,997,311           906,646             10,450

     3. Approval of Amendment to 1995 Director Option Plan. The amendment to the
1995 Director Option Plan increasing the shares issuable thereunder from 360,000
to 540,000 was approved by the following vote of the common stock:

                                        Number of Shares
                                        ----------------

                           For              Against           Abstained
                           ---              -------           ---------

                       6,938,159             963,798           12,450

ITEM 5.  OTHER INFORMATION

     Not applicable

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          The  exhibits  are listed in the Exhibit  Index  appearing  at page 24
     herein.

     (b)  Reports on Form 8-K.

          None.



                                       24
<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:  November 14, 2002  By: /s/  Reinhard Schmidt
                              --------------------------------------------
                              Reinhard Schmidt
                              President and Chief Executive Officer and Director
                              (Principal Executive Officer)




                                       25
<PAGE>



                                  CERTIFICATION

     I,  Reinhard   Schmidt,   President  and  Chief  Executive  Officer  of  EP
MedSystems, Inc., certify that:

     1. I have reviewed this  quarterly  report on Form 10-QSB of EP MedSystems,
Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a) designed  such  disclosure  controls and  procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

          c)  presented  in this  quarterly  report  our  conclusions  about the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board or directors  (or persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls;  and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 14, 2002          /s/ Reinhard Schmidt
                                  ----------------------------------------------
                                  Reinhard Schmidt
                                  President and Chief Executive Officer
                                  (Principal Executive Officer)

                                       26
<PAGE>

                                  CERTIFICATION

     I, Matthew Hill, Controller of EP MedSystems, Inc., certify that:

     1. I have reviewed this  quarterly  report on Form 10-QSB of EP MedSystems,
Inc.;

     2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made, not  misleading  with respect to the period covered by this quarterly
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

     4. The  registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

          a) designed  such  disclosure  controls and  procedures to ensure that
     material information relating to the registrant, including its consolidated
     subsidiaries,  is  made  known  to  us by  others  within  those  entities,
     particularly  during  the period in which  this  quarterly  report is being
     prepared;

          b) evaluated the effectiveness of the registrant's disclosure controls
     and procedures as of a date within 90 days prior to the filing date of this
     quarterly report (the "Evaluation Date"); and

          c)  presented  in this  quarterly  report  our  conclusions  about the
     effectiveness  of the  disclosure  controls  and  procedures  based  on our
     evaluation as of the Evaluation Date;

     5. The registrant's other certifying  officers and I have disclosed,  based
on our most  recent  evaluation,  to the  registrant's  auditors  and the  audit
committee of the  registrant's  board or directors  (or persons  performing  the
equivalent function):

          a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the  registrant's  ability to record,
     process,  summarize and report  financial data and have  identified for the
     registrant's auditors any material weaknesses in internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
     other employees who have a significant  role in the  registrant's  internal
     controls; and

     6. The registrant's other certifying  officers and I have indicated in this
quarterly  report  whether or not there  were  significant  changes in  internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.


Date:  November 14, 2002          /s/ Matthew Hill
                                  ----------------------------------------------
                                  Matthew Hill
                                  Controller
                                  (Principal Financial Officer)

                                       27
<PAGE>

                                  EXHIBIT INDEX
                                  -------------


Exhibit #                    Description                            Location
---------                    -----------                            --------

10.1      Stock Purchase Agreement dated September 5, 2002
          between EP MedSystems and Boston Scientific
          Corporation (without exhibits)                         Filed herewith

10.2      Registration Rights Agreement dated as of
          September 5, 2002 between EP MedSystems and Boston
          Scientific Corporation (without exhibits)              Filed herewith

99.1      Certification pursuant to Section 906 of
          Sarbanes-Oxley Act of 2002                             Filed herewith


                                       28