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 quarterly period ended: March 31, 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.)

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

                                 (973) 398-2800
                                 --------------
                           (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 May 2, 2002
      -----                                      --------------------------
      Common Stock, without par value                     14,963,652 shares

      Transitional Small Business Disclosure Format (check one): Yes |_| No |X|

<PAGE>

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

PART I -- FINANCIAL INFORMATION                                            Page
                                                                         -------

    Item 1.   Financial Statements

              Consolidated Balance Sheet at March 31, 2002
              (unaudited)                                                   3

              Consolidated Statements of Operations for three months
              ended March 31, 2002 and 2001 (unaudited)                     4

              Consolidated Statements of Cash Flows for three months
              Ended March 31, 2002 and 2001 (unaudited)                     5

              Notes to Consolidated Financial Statements (unaudited)       6-12

    Item 2.   Management's Discussion and Analysis or Plan of Operation   13-24

PART II  -- OTHER INFORMATION

    Item 1.   Legal Proceedings                                             24

    Item 2.   Changes in Securities                                       24-26

    Item 3.   Defaults Upon Senior Securities                               26

    Item 4.   Submission of Matters to a Vote of Security Holders         26-27

    Item 5.   Other Information                                             27

    Item 6.   Exhibits and Reports on Form 8-K                            27-28

    Signatures and Exhibit Index                                            29


                                       2
<PAGE>

                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                                                     March 31,
                                                                        2002
                                                                   ------------
ASSETS                                                              (unaudited)
Current assets:
  Cash and cash equivalents                                        $  1,857,818
  Accounts receivable, net of allowances for
       doubtful accounts of $76,075                                   3,737,670
  Inventory, net                                                      2,132,410
  Prepaid expenses and other current assets                             499,131
                                                                   ------------
          Total current assets                                        8,227,029

  Property and equipment, net                                         2,099,178
  Goodwill, net                                                         341,730
  Intangible assets, net                                                 33,839
  Other assets                                                          401,869
                                                                   ------------
          Total assets                                             $ 11,103,645
                                                                   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                                                 $  1,351,309
  Accrued expenses and other current liabilities                        477,898
  Deferred warranty revenue, current                                     58,502
  Customer Deposits                                                     368,635
                                                                   ------------
          Total current liabilities                                   2,256,344

  Accrued interest on long term debt, non-current                       357,606
  Deferred warranty revenue, non-current                                282,712
  Note Payable to Medtronic, Inc.                                     3,200,000
                                                                   ------------
          Total liabilities                                        $  6,096,662
                                                                   ------------

Commitments and contingencies

Shareholders' equity:
  Preferred Stock, no par value, 5,000,000 shares
      authorized, 673,779 shares issued and outstanding            $  1,164,490
  Common stock, $.001 stated value, 25,000,000
      shares authorized, 14,663,652 shares issued
      and outstanding                                                    14,664
  Additional paid-in capital                                         31,531,053
  Deferred Offering Costs                                              (554,515)
  Receivable from executive officers                                   (292,500)
  Accumulated deficit                                               (26,856,209)
                                                                   ------------
          Total shareholders' equity                                  5,006,983
                                                                   ------------
          Total liabilities and shareholders' equity               $ 11,103,645
                                                                   ============

        The accompanying notes are an integral part of these statements.


                                       3
<PAGE>

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

                                                   For the Three Months Ended
                                                    March 31,       March 31,
                                                       2002            2001
                                                   ------------    ------------

Net sales                                          $  2,988,975    $  2,068,323
Cost of products sold                                 1,225,189         950,828
                                                   ------------    ------------
Gross profit                                          1,763,786       1,117,495

Operating costs and expenses:
Sales and marketing expenses                          1,108,246       1,102,037
General and administrative expenses                     577,222         556,179
Research and development expenses                       725,647         646,123
                                                   ------------    ------------
Loss from operations                                   (647,329)     (1,186,844)

Interest expense, net                                   (54,466)        (90,010)
Other income, net                                           176           3,151
                                                   ------------    ------------
Net loss                                           $   (701,619)   $ (1,273,703)
                                                   ============    ============

Basic and diluted loss per share                   $      (0.05)   $      (0.11)
                                                   ============    ============

Weighted average shares outstanding used
to compute basic and diluted loss per share          14,507,402      12,095,549
                                                   ============    ============

        The accompanying notes are an integral part of these statements.


                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                            For the Three Months Ended
                                                             March 31,       March 31,
                                                               2002            2001
                                                           ------------    ------------
<S>                                                        <C>             <C>
Cash flows from operating activities:
Net loss                                                   $   (701,619)   $ (1,273,703)
Adjustments to reconcile net loss to net cash
 used in operating activities:
  Depreciation and amortization                                 182,654         210,480
  Non-cash compensation expense related to employee
agreement                                                        30,500              --
Changes in assets and liabilities:
  Decrease (increase) in accounts receivable                     59,352        (126,729)
  (Increase) in inventories                                    (110,849)       (315,957)
  Decrease (increase) in prepaid expenses and other
    current assets                                                8,909         (74,610)
  Decrease in deferred tax asset                                474,688         419,031
  Decrease in other assets                                       10,257           3,321
  Increase in amounts due to related parties                         --         291,001
  Increase in accounts payable                                  113,821          67,360
  (Decrease) increase in accrued expenses, deferred
    revenue, customer deposits, and accrued interest            (43,060)         44,487
                                                           ------------    ------------
         Net cash provided by (used in) operating
           activities                                      $     24,653    $   (755,319)
                                                           ------------    ------------

Cash flows from investing activities:
  Capital expenditures                                          (58,297)        (95,280)
  Patent costs                                                   (7,311)             --
                                                           ------------    ------------
         Net cash used in investing activities             $    (65,608)   $    (95,280)
                                                           ------------    ------------

Cash flows from financing activities:
  Proceeds from exercise of stock options                            --           1,600
  Net (payments) borrowings under term notes payable           (436,111)      1,571,529
  Net payments - revolving line of credit                            --        (761,560)
  Net proceeds from issuance of common stock, net of
    offering
         Expenses                                                    --       3,048,852
                                                           ------------    ------------
         Net cash (used in) provided by financing
           activities                                      $   (436,111)   $  3,860,421
                                                           ------------    ------------

Effect of exchange rate changes                                  (8,419)       (203,835)

Net  (decrease) increase in cash and cash equivalents          (485,485)      2,805,987
Cash and cash equivalents, beginning of period                2,343,303         302,279
                                                           ------------    ------------
Cash and cash equivalents, end of period                   $  1,857,818    $  3,108,266
                                                           ============    ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                       5
<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' Annual Report on Form 10-KSB/A for the year
ended December 31, 2001 filed with the Securities and Exchange 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 March 31, 2002 consist
of the following:

         Raw materials              $  1,135,177
         Work in process                 285,848
         Finished goods                  822,591
         Reserve for obsolescence      (111,206)
                                    ------------
                                    $  2,132,410
                                    ============

Note 3. Note 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., 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 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 and the note is secured by a pledge by David Jenkins, EP
MedSystems' Chief Executive Officer and a director and shareholder of EP
MedSystems, 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. In the first quarter of 2002, EP MedSystems accrued approximately $54,000
of interest expense related to this note.


                                       6
<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. The Company borrowed
approximately $2 million under the revolving line of credit, which was
subsequently repaid (as discussed above). The related term loan remained in
place through the end of 2001, and 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 Century
Medical, Inc. ("CMI"), its Japanese distributor, and Medtronic, Inc.
("Medtronic"), a shareholder and creditor of the Company. 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. In addition, the shares may be
converted by EP MedSystems at any time after receipt from the United States Food
and Drug Administration ("FDA") of 510K approval of EP MedSystems' ViewMate(TM)
Ultrasound Imaging System device or of pre-market approval of EP MedSystems'
ALERT(R) System device. The transaction with Century Medical, Inc. involved the
sale of the shares of preferred stock at a price of $2.048 per share as well as
an amendment to the Company's 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 Stockholders' equity, net
of issuance costs. In the first quarter, CMI converted all 585,938 shares of
preferred stock issued to it into an equal number of shares of EP MedSystems'
common stock.

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 EP MedSystems' Chairman of the Board and Chief Executive Officer is a
50% owner. The Company 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"), under which
Fusion Capital has committed to purchase, upon request of EP MedSystems, on each
trading day during the 25-month term of the agreement, $20,000 of EP MedSystems'
common stock, up to an aggregate of $10 million. The Board of Directors
authorized the sale to Fusion Capital of up to 2,700,000 shares (19.9% of EP
MedSystems' outstanding shares of common stock on the date that we entered into
the common stock purchase agreement), of EP MedSystems' common stock (inclusive
of 225,000 shares issued to Fusion Capital as a commitment fee).


                                       7
<PAGE>

      The $20,000 daily maximum purchase amount may be increased if the
Company's stock price reaches at least $5.00 per share for 5 consecutive trading
days; the increase may be to any amount above the $20,000 up to the aggregate
amount then remaining available under the agreement. The Company has not yet
sold any shares to Fusion Capital under this agreement and, as such, unless the
share price of EP MedSystems' stock price reaches $5.00 during the remainder of
the term, the maximum remaining amount available under this agreement will not
be the $10 million aggregate amount, but some lesser amount determined by the
maximum purchase amount multiplied by the number of days remaining under the
term of the agreement up to the 2,700,000 shares currently registered. This
agreement may be extended at the option of EP MedSystems for an additional six
months upon the maturity date of the aggreement.

      The 2,700,000 shares of our common stock that may be issued under this
agreement includes 225,000 shares of common stock issued to Fusion Capital as
compensation for its purchase commitment. The 225,000 commitment fee shares were
recorded at the fair market value of approximately $555,000 as a separate line
item labeled "Deferred Offering Costs" in Shareholders' Equity. The shares were
valued using the closing market price of EP MedSystems' stock at each of June
11, 2001, the date on which the agreement was executed, and on October 31, 2001,
the date on which the second tranche of the commitment fee was issued, in
accordance with APB No. 25. In addition, the Company paid approximately $480,000
related to the filing, legal, and accounting expenses associated with this
transaction, which is recorded in Other Assets on the Balance Sheet. The Company
intends to reclassify the balances from Deferred Offering Costs (in
Shareholders' Equity and Other Assets) to Additional Paid-In Capital, as $1
million of shares are sold to Fusion Capital. If, at any time, the Company
determines that it is no longer probable that it will sell shares of its stock
to Fusion Capital, the Company will expense any remaining amounts of Deferred
Offering Costs.

Note 5. Stock Compensation

      In connection with the Company's hiring of a new President and Chief
Operating Officer in the third quarter of 2001, EP MedSystems entered into
certain employment arrangements with the executive pursuant to which the
executive purchased 100,000 shares of EP MedSystems' common stock at $2.20 per
share, received a five-year warrant, which vested immediately, to purchase an
additional 100,000 shares of EP MedSystems' common stock, at an exercise price
of $2.75 per share, and was granted an option under the Company's Long Term
Incentive program, vesting over four years, to purchase 100,000 shares at an
exercise price of $1.91 per share (the stock price as of grant date). In
connection with the stock purchase, EP MedSystems provided the executive with a
two-year, interest-free, non-recourse loan in the amount of $220,000, which is
secured by a pledge to EP MedSystems of the shares. The principal balance of the
loan is forgiven ratably over the term of the loan. If the executive terminates
his employment prior to August 20, 2003, the remaining principal balance not
forgiven, would be due and payable. The loan is forgiven, in whole, on August
20, 2003.

      EP MedSystems also 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 of common stock at
the time of issuance, the intrinsic value of these instruments was zero and, as
such, no compensation expense was recorded.


                                       8
<PAGE>

These shares are re-measured on a quarterly basis and compensation expense is
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 is
adjusted downward in conjunction with the loan amount forgiven on a quarterly
basis as defined in the promissory note.

Note 6. Other

      During the quarters ended March 31, 2002 and 2001, the Company received
approximately $475,000 and $419,000, respectively, in cash related to the sale
of a portion of its cumulative unused New Jersey State Net Operating Loss
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 New Jersey State Net Operating Loss carryforwards and New Jersey
research and development tax credits to any profitable New Jersey company
qualified to purchase them for cash. As of December 31, 2001 and 2000, the
Company 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 quarters ended March 31, 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
three months ended March 31,

                                                 2002              2001
                                              -----------        ---------
             United States                    $ 1,873,000        $ 595,000
             Europe/Middle East                   571,000          723,000
             Asia and Pacific Rim                 545,000          750,000
                                              -----------      -----------
                                              $ 2,989,000      $ 2,068,000
                                              ===========      ===========

      Sales of EP MedSystems' cardiac electrophysiology devices and related
catheters aggregated $2,705,000 and $284,000, respectively, for the three months
ended March 31, 2002 and $1,718,000 and $350,000, respectively, for the
comparable period in 2001. EP MedSystems' long-lived assets are located in the
U.S.

      Net sales for the three months ended March 31, 2002 were billed in two
currencies: $2,835,000 in U.S. dollars and 197,000 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 Stockholder's Equity. Cumulative
translation losses amounted to $89,000 as of March 31, 2002. In addition, the
Company had not entered into any derivative financial instruments for hedging or
other purposes.


                                       9
<PAGE>

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 2,635,294 and 2,205,758 for the three months ended March 31, 2002 and
2001, respectively, have been excluded from the diluted per share calculation.

Note 9. Comprehensive Income

      For the period ended March 31, 2002 and 2001, EP MedSystems' comprehensive
income approximated net income, except for foreign currency translation
adjustments. The comprehensive losses for the periods ended March 31, 2002 and
2001 were $710,000 and $1,478,000, 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, the Company
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. The
Company is in the process of applying the impairment test of SFAS No. 142, and
expects to complete this in the second quarter of 2002.

      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 first quarter of 2002.

                                                      For the quarter ended
                                                             March 31,
                                                   ----------------------------
                                                        2002            2001
                                                   ------------    ------------
Reported net loss                                  $   (701,619)   $ (1,273,703)
Add back:  Goodwill amortization                             --          12,903
                                                   ------------    ------------
Adjusted net loss                                  $   (701,619)   $ (1,260,800)
Basic and diluted loss per share:
Reported net loss                                  $      (0.05)   $      (0.11)
Goodwill amortization                                        --          (0.001)
                                                   ------------    ------------
Adjusted net loss                                  $      (0.05)   $      (0.11)


                                       10
<PAGE>

For the quarters ended March 31, 2002 and 2001, EP MedSystems recorded
approximately $10,000 and $9,000 in amortization expense for other intangible
assets.

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, Inc. means
the standard will be adopted on January 1, 2003. EP MedSystems does not expect
that the adoption of this statement will have a material impact 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


                                       11
<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. The Company 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.

Note 12. Subsequent Events

      In April 2002, at Medtronic's request, the Company converted 300,000
shares of its designated Series A convertible preferred stock to common shares
of EP MedSystems. The converted shares of both CMI and Medtronic were registered
for resale by EP MedSystems under a registration statement which was declared
effective by the SEC in May 2002.

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

Overview

      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 locate arrhythmia. For the three months ended
March 2002, the EP-WorkMate(R) and EP-3(TM) Stimulator accounted for
approximately 90% of EP Med's 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 three months ended March 2002.

      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 upper chambers of the heart, causing fibrillation,
rapid or quivering, of the atria, which prevents the atria from providing
appropriate blood flow output. In an effort to address


                                       12
<PAGE>

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 6% of EP Med's total sales
revenues as of March 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 the second half 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 second half of 2002. We do not
anticipate receiving approval to sell the ViewMate(TM) Ultrasound System until
at least the fourth quarter of 2002, 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.

Results of Operations for the Three-Month Period Ended March 31, 2002 Compared
to the Three-Month Period Ended March 31, 2001.

      Net sales were $2,989,000 for the three months ended March 31, 2002 as
compared to $2,068,000 for the comparable period in 2001. This increase is the
result of a 47% increase in the number of EP-WorkMates(R) sold due to continued
market acceptance of our new NT Platform coupled with improved sales efforts in
our domestic market.


                                       13
<PAGE>

      Net sales for the three months ended March 2002 were billed in two
currencies: $2,835,000 in U.S. dollars and 197,000 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 cumulative
translation loss was $89,000 at March 31, 2002.

      Cost of products sold increased $274,000 (or 29%) to $1,225,000 for the
three months ended March 31, 2002 as compared to the same period in 2001. This
increase is primarily due to the increase in sales. Cost of products sold
decreased as a percentage of sales from 46% to 41% primarily due to increased
sales in the U.S. (which realize a higher average selling price than
internationally), reductions in manufacturing labor costs (primarily resulting
from the cost initiatives initiated in the fourth quarter of 2001) and lower raw
material component costs.

      Gross profit on sales for the three months ended March 31, 2002 was
$1,764,000 as compared with $1,117,000 for the same period in 2001. The gross
profit improved as a percentage of sales from 54% to 59%, primarily as a result
of the above mentioned cost improvements and the increased sales in the U.S.
which realize a higher average selling price than internationally.

      Sales and marketing expenses increased $6,000 (or 1%) to $1,108,000 for
the three months ended March 31, 2002 as compared to the same period in 2001.
However, costs decreased as a percentage of total sales to 37% for the first
quarter of 2002 as compared to 53% for the same period in 2001.

      General and administrative expenses increased $21,000 (or 4%) to $577,000
for the three months ended March 31, 2002 as compared to the first three months
of 2001. This was primarily due to increased costs for insurance of $14,000 and
foreign exchange losses of $15,000. Overall costs decreased as a percentage of
total sales to 19% for the first quarter of 2002 as compared to 27% for the same
period in 2001.

      Research and development expenses increased $80,000 (or 12%) to $726,000
for the three months ended March 31, 2002 as compared to the same period in
2001. This was the result of a $90,000 increase in salary expenses due to
continued product development and increased staffing in the regulatory area. 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.

      Interest expense net decreased $36,000 for the three months ended March
31, 2002 as compared to the same period in 2001. This was the result of over a
40% reduction in the prime interest rate in the first quarter of 2002 as
compared with the first quarter 2001.

Liquidity and Capital Resources.

      Since EP Med's incorporation in January 1993, EP Med's expenses have
exceeded sales resulting in an accumulated deficit of approximately $26.2
million at December 31, 2001 and approximately $26.9 million at March 31, 2002.


                                       14
<PAGE>

      On June 21, 1996, we completed our initial public offering of 2,500,000
shares of common stock at a purchase price of $5.50 per share, for aggregate net
proceeds of approximately $11,786,000.

      In November 2000, EP Med 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, Chief Executive
Officer and a director and shareholder of EP Med, 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.

      On March 28, 2001, EP Med consummated the sale and issuance of 1,625,000
shares of common stock and warrants for 812,500 additional shares to certain
investors for $3,250,000. Included among the investors is Cardiac Capital, LLC,
a limited liability company, of which our Chairman of the Board and Chief
Executive Officer and a shareholder of EP Med, David A. Jenkins, is a 50% owner.
The consummation of the transaction provided EP Med with approximately
$3,000,000 in working capital after expenses.

      On June 11, 2001, we entered into a common stock purchase agreement with
Fusion Capital Fund II, LLC ("Fusion Capital"), under which Fusion Capital has
committed to purchase, on each trading day during the 25-month term of the
agreement, $20,000 of EP Med's common stock up to an aggregate of $10 million,
subject to our right to suspend or terminate the agreement. The $20,000 daily
maximum purchase amount may be increased if the share price of EP Med's common
stock is at least $5.00 per day for 5 consecutive trading days; the increase may
be to any amount above the $20,000 up to the aggregate amount then remaining
available under the agreement. The Board of Directors authorized the sale to
Fusion Capital of up to 2,700,000 shares of EP Med common stock (inclusive of
225,000 shares issued to Fusion Capital as a commitment fee). Sale of any
additional shares would require shareholder approval. EP Med has not yet sold
any shares to Fusion Capital under this agreement and, as such, unless the share
price of EP Med's stock reaches the $5.00 threshold during the remainder of the
term, the maximum amount of funds available to us under the agreement will not
be the $10 million aggregate amount but some lesser amount determined by the
daily maximum purchase amount multiplied by the number of days remaining under
the term of the agreement up to the 2,700,000 shares currently registered. This
agreement may be extended at the option of EP Med Systems for an additional six
months upon the maturity date of the agreement.

      In light of the number of shares currently registered, liquidity to be
afforded to EP Med in connection with the equity line with Fusion Capital is
directly correlated to our stock price. The lower the price of our stock, the
greater the number of shares that will


                                       15
<PAGE>

need to be sold for us to obtain the same proceeds and, since a fixed number of
shares have been registered (the 2,700,000 shares), the price of our stock will
determine how much of the equity line is available to us absent shareholder
approval to issue additional shares as required by the Nasdaq Marketplace Rules
to which EP Med is subject. Assuming that we have an adequate number of shares
of common stock to sell and that we stay in compliance with the agreement,
depending on the price at which shares are sold, Fusion Capital could provide us
with sufficient funding to sustain our operations for up to two years.
Alternatively, as described above, a low stock price will limit the amount of
proceeds available to us under the equity line (absent shareholder approval to
issue a greater number of shares) and, thereby, the amount of time during which
our operations will be sustained solely from funds under the equity line.

      As noted above, EP Med issued an aggregate of 225,000 shares of EP Med
common stock to Fusion Capital as a commitment fee under the common stock
purchase agreement and recorded the fair value of such shares of approximately
$555,000 as a separate line item labeled "Deferred Offering Costs" in
Shareholders' Equity. In addition, EP Med paid approximately $480,000 related to
the filing, legal, and accounting expenses associated with this transaction,
which is recorded in Other Assets on the Balance Sheet. EP Med intends to
reclassify the balances from Deferred Offering Costs (in Shareholders' Equity
and Other Assets) to Additional Paid-In Capital, as $1 million of shares are
sold to Fusion Capital. If, at any time, EP Med determines that it is no longer
probable that it will sell shares of its stock to Fusion Capital, any remaining
amounts of Deferred Offering Costs will be expensed. EP Med currently intends to
exercise its right to sell shares prior to the expiration of the agreement.

      We currently are negotiating with an institutional lender regarding a $2
million line of credit facility in order to supplement the amounts which may be
available to us under the Fusion Capital equity line.

      In October 2001, EP Med consummated the private sale and issuance of
newly-designated Series A convertible preferred stock to Century Medical, Inc.
("CMI"), its Japanese distributor, and Medtronic, Inc., a shareholder and
creditor of EP Med. An aggregate of 1,259,717 shares was issued in the
transactions. The preferred shares were issued to CMI at a price of $2.048 per
share as well as an amendment to EP Med's 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 stock of Series A Preferred Stock into common stock of EP Med in April
2002. The converted shares of both CMI and Medtronic were registered for resale
by EP Med under a registration statement which was declared effective by the SEC
in May 2002.


                                       16
<PAGE>

      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.

      Net cash provided by operating activities in the first quarter of 2002
amounted to $25,000 as compared with a net cash usage of $755,000 in the similar
period in 2001. This improvement was primarily due to the $572,000 reduction in
our net loss and a lower increase in inventories as compared to the first
quarter of 2001. Payments to related parties are made on terms similar to those
of other suppliers. Capital expenditures, net of disposals, were $58,000 for the
three-month period ended March 31, 2002 as compared to $95,000 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 $844,000 from December 31, 2001 to $5,971,000 at
March 31, 2002. This is primarily due to (1) a $485,000 reduction in cash,
primarily the result of the repayment of EP Med's term loan balance to Fleet;
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.

      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. 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.

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 Med adopted
SFAS No. 142 on January 1, 2002. The primary changes made by SFAS No. 142 are:
(1) goodwill and indefinite lived


                                       17
<PAGE>

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 Meds' unamortized goodwill balance is no longer amortized, but
will continue to be tested for impairment. EP Med 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. EP Med is in the process of applying the impairment test of
SFAS No. 144 and expects to complete this in the second quarter of 2002.

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 Med means the standard
will be adopted on January 1, 2003. EP Med does not expect that the adoption of
this statement will have a material impact 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 Med adopted the standard on January 1, 2002. The
adoption had no impact on its results of operations, financial position or cash
flows.


                                       18
<PAGE>

      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 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 Med 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.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

      There were no material developments in legal proceedings disclosed by EP
Med in previous reports during the quarterly period ended March 31, 2002.

Item 2. Changes in Securities

      (a) Not applicable.

      (b) Not applicable.

      (c) Not applicable.

      (d) Not applicable.

Item 3. Defaults Upon Senior Securities

      None.

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

      (a) Not applicable.

      (b) Not applicable.

      (c) Not applicable.

      (d) Not applicable.

Item 5. Other Information

      In April 2002, EP Med filed a registration statement on Form S-3 with the
Securities and Exchange Commission to register the shares of certain of its
shareholders for resale. The registration statement was filed by EP Med pursuant
to obligations under


                                       19
<PAGE>

certain registration rights agreements between EP Med and each of the
shareholders. Among the shareholders participating in the registration statement
are Cardiac Capital, LLC, which purchased shares of common stock of EP Med in
its private placement in March 2001, and Century Medical, Inc. and Medtronic,
Inc., each of which purchased shares of EP Med's Series A convertible preferred
stock in October 2001 and converted some or all of their respective holdings
into common stock which was then registered. The registration statement was
declared effective by the Securities and Exchange Commission on May 9, 2002.

      Also in April 2002, EP Med appointed Abhijeet Lele to its Board of
Directors to fill the vacancy created by the sudden demise of Dr. Nigel Roberts
last November. Mr. Lele is a general partner of each of EGS Private Healthcare
Partnership and EGS Private Healthcare Partnership II, both private equity funds
focusing on investments in private and public healthcare companies. Mr. Lele has
previously acted as a consultant in the healthcare practice of McKinsey &
Company and prior to that held operating positions in the pharmaceutical and
biotechnology industries. He serves on the boards of several other companies,
including Amarin Corporation and CryoCath Technologies, Inc., which are public.
In connection with his appointment, Mr. Lele was granted an option under EP
Med's Director Option Plan to purchase 60,000 shares of EP Med's common stock at
an exercise price of $2.50, the closing price of the stock on the effective date
of his appointment. As with all options granted under the Director Option Plan,
Mr. Lele's options vest 1,000 shares per month.

Item 6. Exhibits and Reports on Form 8-K

(a)   Exhibits

      None.

(b)   Reports on Form 8-K.

      None.


                                       20
<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 15, 2002            By:  /s/  David A. Jenkins
                                    ---------------------
                                    David A. Jenkins
                                    Chairman of the Board and Chief Executive
                                    Officer (Principal Executive Officer)

Date:  May 15, 2002            By:  /s/  Reinhard Schmidt
                                    ---------------------
                                    Reinhard Schmidt
                                    President and Chief Operating Officer and
                                    Director (Principal Executive Officer)

Date: May 15, 2002             By:  /s/  Joseph M. Turner
                                    ---------------------
                                    Joseph M. Turner
                                    Vice President and Chief Financial Officer
                                    (Principal Financial and Accounting Officer)


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