UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 10-Q

(Mark One)

          (X)  QUARTERLY   REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
               SECURITIES  EXCHANGE ACT OF 1934 For the period  ended:  June 30,
               2005

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

                  For the transition period from __________ to __________

                         Commission File Number: 0-28260

                               EP MEDSYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

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

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



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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. X Yes __No

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2, of the Exchange
Act). Yes X No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
         Class                                  Outstanding at August 10, 2005
         Common Stock, without par value               25,814,176 shares



<PAGE>



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

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
PART I -- FINANCIAL INFORMATION                                                                                 Page

            Item 1.       Financial Statements

                          Consolidated Balance Sheets at June 30, 2005 (unaudited) and December 31, 2004......   3

                          Consolidated  Statements of Operations  for the three months ended June 30, 2005 and
                          2004 (unaudited)....................................................................   4

                          Consolidated  Statements  of  Operations  for the six months ended June 30, 2005 and
                          2004 (unaudited)....................................................................   5

                          Consolidated Statements of Changes in Shareholders' Equity for the Six Months Ended
                          June 30, 2005 (unaudited)...........................................................   6

                          Consolidated  Statements  of Cash Flows for the six months  ended June 30,  2005 and
                          2004 (unaudited)....................................................................   7

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

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

            Item 3.       Quantitative and Qualitative Disclosures About Market Risk..........................   27

            Item 4.       Controls and Procedures.............................................................   28

PART II -- OTHER INFORMATION

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

            Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.........................   30

            Item 3.       Defaults Upon Senior Securities.....................................................   30

            Item 4.       Submission of Matters to a Vote of Security Holders.................................   30

            Item 5.       Other Information...................................................................   30

            Item 6.       Exhibits............................................................................   30

            Signatures.......................................................................................    31

            Exhibit Index....................................................................................    32


</TABLE>


                                       2
<PAGE>




                                           PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.

                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<S>                                                                               <C> <C>
                                                                             June 30, 2005
ASSETS                                                                        (Unaudited)          December 31, 2004
                                                                           -------------------     -------------------
Current assets:
   Cash and cash equivalents                                            $          7,715,805    $           9,345,000
   Accounts receivable, net of allowances for doubtful
      accounts of $139,000, for each period respectively                           4,214,471                4,335,075
   Inventories, net of reserves                                                    2,909,717                2,947,853
   Prepaid expenses and other current assets                                         420,366                  472,654
                                                                           -------------------     -------------------
       Total current assets                                                       15,260,359               17,100,582

Property, plant and equipment, net                                                 2,158,972                2,223,421
Goodwill                                                                             341,730                  341,730
Other intangible assets, net                                                         211,070                  158,162
Other assets                                                                          47,629                  179,046
                                                                           -------------------     -------------------
       Total assets                                                     $         18,019,760   $           20,002,941
                                                                           ===================     ===================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                2,015,821               2,107,463
   Accrued expenses                                                                2,128,790               1,776,816
   Deferred revenue                                                                  507,472                 460,393
                                                                           -------------------     -------------------
       Total current liabilities                                                   4,652,083               4,344,672

Deferred warranty revenue, non-current                                               417,634                 348,184
Secured convertible note, non-current                                              1,971,404               1,958,611
                                                                           -------------------     -------------------
       Total liabilities                                                $          7,041,121    $          6,651,467
                                                                           ===================     ===================
Commitments and contingencies
Shareholders' equity:
  Preferred stock, no par value, 5,000,000 shares authorized, no shares issued
     or outstanding at June 30, 2005 and 373,779 shares issued and outstanding
     at
     December 31, 2004                                                                      -                 618,161
  Common stock, $.001 stated value, 40,000,000 shares authorized
     25,814,176 and 25,387,630 shares issued at June 30, 2005
     and December 31, 2004, respectively
                                                                                      25,815                  25,388
   Additional paid-in capital                                                     56,346,346              55,650,822
   Accumulated other comprehensive loss                                             (157,989)               (280,582)
   Treasury stock, 50,000 shares at cost                                            (100,000)               (100,000)
   Accumulated deficit                                                           (45,135,533)            (42,562,315)
                                                                           -------------------     -------------------
       Total shareholders' equity                                                 10,978,639              13,351,474
                                                                           -------------------     -------------------
       Total liabilities and shareholders' equity                       $         18,019,760   $          20,002,941
                                                                           ===================     ===================
                         The accompanying notes are an integral part of these
statements.
</TABLE>


                                       3
<PAGE>





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

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                 For the Three Months Ended
                                                                              June 30,                  June 30,
                                                                                2005                      2004
                                                                        ---------------------      -------------------
                                                                        ---------------------      -------------------

Net sales                                                            $            4,754,831     $         3,587,981
Cost of products sold                                                             1,750,040               1,575,772
                                                                        -===================     ===================
   Gross profit                                                                   3,004,791               2,012,209

Operating costs and expenses:
   Sales and marketing expenses                                                   2,173,686               2,120,307
   General and administrative expenses                                            1,389,524                 837,342
   Research and development expenses                                                588,626                 637,067
                                                                        ---------------------      -------------------

Total operating expenses                                                          4,151,836               3,594,716
                                                                        ---------------------      -------------------

   Loss from operations                                                          (1,147,045)              (1,582,507)

Interest income                                                                      46,987                    12,195
Interest expense                                                                     (65,652)               (177,775)
                                                                        ---------------------      -------------------
Net loss                                                             $            (1,165,710)   $         (1,748,087)
                                                                        =====================      ===================


Basic and diluted loss per share                                     $                (0.05)    $              (0.07)
                                                                        =====================      ===================


Weighted average shares outstanding used
to compute basic and diluted loss per share                                       25,814,176               23,413,272
                                                                        =====================      ===================





                  The accompanying notes are an integral part of these
statements.



                                       4
<PAGE>







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

                                                                                  For the Six Months Ended
                                                                              June 30,                  June 30,
                                                                                2005                      2004
                                                                        ---------------------      -------------------
                                                                        ---------------------      -------------------

Net sales                                                            $            8,230,883     $         6,471,982
Cost of products sold                                                             3,027,746               2,788,968
                                                                        ===================     ===================
   Gross profit                                                                   5,203,137               3,683,014

Operating costs and expenses:
   Sales and marketing expenses                                                   4,302,284               3,700,681
   General and administrative expenses                                            2,260,424               1,560,689
   Research and development expenses                                              1,172,940               1,238,182
                                                                        ---------------------      -------------------

Total operating expenses                                                          7,735,648               6,499,552
                                                                        ---------------------      -------------------

   Loss from operations                                                          (2,532,511)              (2,816,538)

Interest income                                                                      88,004                  27,415
Interest expense                                                                   (128,711)                (425,085)
                                                                        ---------------------      -------------------
   Net loss                                                          $           (2,573,218)    $         (3,214,208)
                                                                        =====================      ===================


Basic and diluted loss per share                                     $                (0.10)    $              (0.14)
                                                                        =====================      ===================

Weighted average shares outstanding used
to compute basic and diluted loss per share                                       25,709,053               23,324,093
                                                                        =====================      ===================


</TABLE>



                  The accompanying notes are an integral part of these
statements.



                                       5
<PAGE>






                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 2005
                                   (unaudited)

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                  Common     Common    Preferred  Preferred  Additional    Accumulated   Treasury     Accumulated      Total
                                                                              Other
                  Stock      Stock     Stock      Stock        Paid-in    Comprehensive
                   Shares     Amount    Shares     Amount      Capital        Loss         Stock        Deficit
                  ---------- --------- ---------- ---------- ------------ -------------- ----------- -------------- ------------
Balance,
December 31,
2004              25,387,630  $25,388    373,779   $618,161  $55,650,822     $(280,582)  $(100,000)  $(42,562,315)  $13,351,474
                  ---------- --------- ---------- ---------- ------------ -------------- ----------- -------------- ------------

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

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

Foreign
currency
translation               -         -          -          -            -        122,593           -              -      122,593

Net loss                  -         -          -          -            -              -           -    (2,573,218)   (2,573,218)
                  ---------- --------- ---------- ---------- ------------ -------------- ----------- -------------- ------------
Balance,          25,814,176  $25,815          -          -  $56,346,346     $(157,989)  $(100,000)  $(45,135,533)  $10,978,639
June 30, 2005
                  ========== ========= ========== ========== ============ ============== =========== ============== ============


                         The accompanying notes are an integral part of these
statements.

</TABLE>





                                       6
<PAGE>



                      EP MEDSYSTEMS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)
<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                                                    For the Six Months Ended
                                                                                June 30,                June 30,
                                                                                  2005                    2004
                                                                            ------------------      ------------------
                                                                            ------------------      ------------------
Cash flows from operating activities:
Net loss                                                                $        (2,573,218)     $        (3,214,208)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                                                    386,323                 379,355
   Accretion of note discount                                                        12,792                 148,123
   Amortization of beneficial conversion feature                                     31,245                 165,930
Changes in assets and liabilities:
   Decrease (increase) in accounts receivable                                       120,604                 (209,372)
   Increase in inventories                                                         (132,767)                (898,799)
   Decrease in prepaid expenses and other assets                                    152,460                 261,310
   Decrease in deferred tax asset                                                         -                 397,720
   (Decrease) increase in accounts payable                                          (91,642)                 38,159
   Increase (decrease) in accrued expenses and deferred revenue                     468,503                 (433,620)
                                                                            ------------------      ------------------
        Net cash used in operating activities                           $         (1,625,700)    $        (3,365,402)
                                                                            ===================     ===================
Cash flows from investing activities:
   Capital expenditures                                                             (110,407)                (68,366)
   Patent costs                                                                      (93,471)                (32,660)
                                                                            ------------------      ------------------
        Net cash used in investing activities                           $           (203,878)    $          (101,026)
                                                                            ===================     ===================
Cash flows from financing activities:
   Payments under notes payable                                                             -             (2,200,000)
   Net proceeds from issuance of common stock, net of offering
       expenses                                                                       77,790                167,722
                                                                            ===================     ===================
   Net cash provided by (used in) financing activities                  $             77,790     $        (2,032,278)
                                                                            ===================     ===================

Effect of exchange rate changes                                                      122,593                 20,129

Net decrease in cash and cash equivalents                                          (1,629,195)            (5,478,577)
Cash and cash equivalents, beginning of period                                     9,345,000             11,248,983
                                                                            ------------------      ------------------
Cash and cash equivalents, end of period                                $          7,715,805     $        5,770,406
                                                                            ==================      ==================
Supplemental cash flow information
   Cash paid for interest                                               $            74,072      $          824,303

              The accompanying notes are an integral part of these
                                  statements.

</TABLE>


                                       7
<PAGE>






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

NOTE 1.  BASIS OF PRESENTATION

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

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

         The results of operations for the respective interim periods are not
necessarily indicative of the results to be expected for the full year. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and the notes
thereto included in EP MedSystems, Inc.'s (the "Company" or "EP MedSystems'")
Annual Report on Form 10-KSB for the year ended December 31, 2004 filed with the
Securities and Exchange Commission ("SEC" or "Commission").

NOTE 2.  INVENTORIES

         Inventories are valued at the lower of cost or market with cost being
determined on a first-in, first-out basis. Inventories consist of the following
at June 30, 2005 and December 31, 2004:

                                           June 30,         December 31,
                                             2005               2004
                          (unaudited)
                                       -----------------    ------------------
  Raw materials                    $         1,201,875     $       1,201,449
  Work in process                              401,658               516,893
  Finished goods                             1,476,184             1,399,511
  Reserve for obsolescence                    (170,000)             (170,000)
                                       -----------------    ------------------
                                   $         2,909,717     $       2,947,853
                                       =================    ==================


NOTE 3.  NOTES PAYABLE

     On November 15, 2000, EP  MedSystems,  Inc.  completed a debt financing for
$3.2 million with Medtronic Asset  Management,  Inc., an affiliate of Medtronic,
Inc., and one of EP  MedSystems'  shareholders.  Approximately  $2.3 million was
utilized to repay outstanding amounts on EP MedSystems'  then-existing revolving
credit  facility.  The principal and all accrued  interest on the note was to be
repaid on  November  15,  2003,  and the note was  secured  by a pledge by David
Jenkins, EP MedSystems'  Chairman, of shares of common stock of a privately-held
corporation.  On March 12, 2003,  the due date of the note was extended to April
1, 2004. In connection  with the  extension,  the Company paid $1 million of the


                                       8
<PAGE>

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


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

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

     The portion of the  Convertible  Note against which Laurus  advances  funds
based on the Company's  accounts  receivable  bears  interest at the prime rate,
with a floor of 4%, and the balance (the "Advance  Amounts")  bears  interest at
the prime rate plus 2%, effective interest rate of 16.86%,  including  accretion
of debt discount and amortization of the beneficial conversion feature. One half
of Advance Amounts outstanding on February 28, 2005 was required to be repaid on
or before that date. However, there were no Advance Amounts on that date, as the
net collateral  exceeded the principal  amount  outstanding  on the  Convertible
Note. The remaining  balance of the Advance  Amounts  outstanding on the date of
the closing is required to be repaid on or before August 28, 2006.  The Company,
subject to certain  rights of  cancellation,  may extend the credit  facility by
Laurus,  on a year-by-year  basis,  commencing  August 28, 2006. The Company may
repay in cash,  without  penalty,  up to $500,000 of the Convertible Note in any
one calendar year, plus all Advance Amounts.

     Subject  to  certain  volume  limitations  and other  conditions,  all or a
portion of the Convertible Note was convertible into Common Stock of the Company
at the  Company's  option if the  market  price of the  Company's  Common  Stock
reached a level,  for 11 consecutive  trading days,  which was more than 120% of
the Fixed  Conversion  Price.  Through  December 14, 2004, the Fixed  Conversion
Price was $2.55 and was a price in excess of the market  price of the  Company's
Common Stock on the date of closing.  Subject to certain volume  limitations and
other  conditions,  Laurus  has the  option to  convert  all or a portion of the
Convertible  Note  into  shares  of the  Company's  Common  Stock  at the  Fixed
Conversion Price.

     Following the  conversion  into the  Company's  Common Stock by the Company
and/or  Laurus of an  aggregate of  $2,000,000  of the  principal  amount of the
Convertible  Note (a "Conversion  Event"),  the Fixed  Conversion  Price will be




                                       9
<PAGE>

adjusted  upward to a price which is 115% of the average of the closing price of
the Company's  Common Stock for the three  trading days prior to the  Conversion
Event.  On  December  15,  2004,  the  balance  of the first  $2,000,000  of the
principal  amount was converted into shares of the Company's  Common Stock.  The
fixed  conversion  price  was  adjusted  upwards  from  $2.55 to  $4.20,  on the
remaining  $2,000,000   principal  balance.   Subject  to  certain  limitations,
including the repayment  obligations  with respect to Advance Amounts  described
above, the dollar amounts of the Convertible Note converted may be re-borrowed.



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

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

     In  accordance  with the  provisions  of Emerging  Issues Task Force (EITF)
Issue 00-27,  "Application  of EITF Issue No. 98-5  'Accounting  for Convertible
Securities  with  Beneficial  Conversion  Features  of  Contingently  Adjustable
Conversion Ratios', to Certain Convertible  Securities",  the allocated value of
the Convertible Note contained a beneficial  conversion feature calculated based
on the  difference  between  the  effective  conversion  price  of the  proceeds
allocated to the Convertible Notes and the Warrants at the date of issuance. The
amount arising from the beneficial  conversion feature aggregated  approximately
$486,000  and is  being  amortized  as  interest  expense  from  the date of the
issuance of the Convertible Note to the mandatory  redemption date of August 28,
2006. The Company valued the Convertible Note and the Warrants at issuance.  The
fair value of the Warrants at the time of issue was $407,500. In accordance with
EITF 00-19,  "Accounting for Derivative  Financial  Instruments  Indexed to, and
Potentially  Settled in, a Company's Own Stock," the Company marked the Warrants
to market at September  30, 2003  incurring a non-cash  charge of $264,000.  The
registration  rights agreement  associated with the Convertible Note was amended
on November 25, 2003 and, as a result,  the amount  associated with the Warrants
was transferred to equity. The net carrying value of the Convertible Note, after
allocation of the fair value of the Warrants is being accreted to its redemption
value through  interest  expense over the term of the Convertible Note using the
effective interest method.

NOTE 4.    SHAREHOLDERS' EQUITY

PREFERRED STOCK

     EP  MedSystems  is authorized  to issue  5,000,000  shares of  undesignated
preferred  stock,  no par  value  per  share.  The  Board of  Directors  has the
authority to issue preferred stock in one or more classes,  to fix the number of


                                       10
<PAGE>

shares  constituting a class and the stated value thereof,  and to fix the terms
of any such class,  including  dividend  rights,  dividend rates,  conversion or
exchange rights, voting rights,  rights and terms of redemption,  the redemption
price and the liquidation preference of such shares or class.

     During the year ended  December 31, 2001,  EP  MedSystems  consummated  the
private sale and issuance of Series A convertible  preferred stock to Medtronic,
Inc.  ("Medtronic").  In 2002,  Medtronic  converted a portion of its  preferred
stock  into  shares  of common  stock of the  Company.  At  December  31,  2004,
Medtronic  held 373,779 of the  Company's  Series A Preferred  Shares which were
convertible  into 387,946 shares of common stock of the Company at the option of
Medtronic  or the Company in  accordance  with the terms of the  agreement  with
Medtronic.  During the first quarter of 2005,  Medtronic  converted all of their
373,779  shares of preferred  stock into  387,946  shares of common stock of the
Company.

COMMON STOCK

     EP MedSystems is authorized to issue 40,000,000  shares of common stock, no
par value,  $.001 stated  value per share,  of which a total of  25,814,176  and
25,387,630  shares were issued and 50,000 shares were held as Treasury  Stock at
June 30, 2005 and December 31, 2004.

     On December 23, 2003, the Company completed an $8,200,000 private placement
of its  common  stock  to  various  accredited  investors.  The  Company  issued
3,200,000 shares of its common stock at a purchase price of $2.56 per share.

     In May of 2004, the Company engaged a physician as a consultant to head its
clinical  affairs  department.  In connection with that  agreement,  the Company
issued 10,000 shares of the Company's  common stock to the physician and granted
the physician an option to purchase 10,000 shares of the Company's  common stock
which vests twelve months from the date of grant.  Also in  connection  with the
agreement, the Company granted the physician an option to purchase 40,000 shares
of the Company's common stock which vests in equal installments over five years.
The  exercise  price of each of the  options  was the fair  market  value of the
Company's common stock on the date of the grant. The transactions were accounted
for in accordance with Emerging  Issues Task Force Issue No. 96-18,  "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in  Conjunction  with Selling,  Goods or Services."  The fair value was measured
using the  Black-Scholes  option  pricing  model under  Statement  of  Financial
Accounting  Standard No. 123 using the following  assumptions  for each grant as
follows:  risk free rate:  3.07%,  10-year life, and a volatility  percentage of
83.86%.

     In October 2004, the Company  engaged a physician as a consultant to manage
a clinical study.  In connection  with that  agreement,  the Company granted the
physician a warrant to purchase  10,000  shares of the  Company's  common  stock
which vested immediately. The exercise price of the warrants was the fair market
value of the Company's  common stock on the date of the grant.  The  transaction
was accounted for in accordance with Emerging Issues Task Force Issue No. 96-18,
"Accounting for Equity  Instruments  That Are Issued to Other Than Employees for
Acquiring,  or in Conjunction  with Selling,  Goods or Services." The fair value
was measured using the  Black-Scholes  option  pricing model under  Statement of
Financial Accounting Standard No. 123 using the following assumptions: risk free
rate of 3.36%, 10-year life, and a volatility percentage of 77.25%.

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


                                       11
<PAGE>


NOTE 5.  STOCK BASED COMPENSATION

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

     EP MedSystems  records the fair value of stock  issuances to  non-employees
based  on  the  market  price  on the  date  issued.  The  amount  is  expensed,
capitalized  or recorded as a reduction  of paid-in  capital,  depending  on the
purpose for which the stock is issued.  It is EP  MedSystems'  policy to account
for stock options  granted to  non-employees  in accordance with Emerging Issues
Task Force Issue No. 96-18,  "Accounting for Equity  Instruments That Are Issued
to Other Than Employees for Acquiring,  or in Conjunction with Selling, Goods or
Services," and the fair value is measured using the Black-Scholes option pricing
model under SFAS No. 123.

     Had  compensation   costs  for  EP  MedSystems'  stock  option  plans  been
determined   consistent   with  SFAS  No.  123   "Accounting   for   Stock-Based
Compensation", EP MedSystems' proforma net loss and loss per share for the three
and six months ended June 30, 2005 and 2004 would have been as follows:

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                                  For the Six                              For the Three
                                                 Months Ended                              Months Ended
                                                   June 30,                                  June 30,
                                            2005               2004                   2005               2004

   Net loss, as reported                   $(2,573,218)       $(3,214,208)           $(1,165,710)       $(1,748,087)

Deduct:  Total stock-based
employee compensation expense
determined under fair value based
method for all options
                                              (317,184)          (282,810)              (140,454)          (153,214)
                                      ------------------ ------------------     ------------------ ------------------

Pro forma net loss                        $(2,890,402)       $(3,497,018)           $(1,306,164)       $(1,901,301)
                                      ================== ==================     ================== ==================

Earnings per share:
    Basic and diluted - as
    reported                                    $(0.10)            $(0.14)                $(0.05)            $(0.07)
                                      ------------------ ------------------     ------------------ ------------------
    Basic and diluted - pro
    forma                                       $(0.11)            $(0.15)                $(0.05)            $(0.08)
                                      ------------------ ------------------     ------------------ ------------------


</TABLE>



                                       12
<PAGE>




NOTE 6.  INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

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

         The following table sets forth product sales by geographic segment for
the six and three months ended June 30, 2005 and 2004.

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                  For The Six Months                For The Three Months
                                    Ended June 30,                     Ended June 30,
                                   2005             2004              2005             2004
   United States                $6,497,000        $5,302,000       $3,738,000        $3,042,000
   Europe/Middle East              945,000           837,000          433,000           444,000
   Asia and Pacific Rim            789,000           333,000          584,000           102,000
                                $8,231,000        $6,472,000       $4,755,000        $3,588,000
</TABLE>

     Sales of EP  MedSystems'  cardiac  electrophysiology  equipment and related
catheters aggregated  approximately $7,349,000 and $882,000,  respectively,  for
the six months ended June 30, 2005, and  $5,722,000 and $750,000,  respectively,
for the  comparable  period  in  2004.  EP  MedSystems'  long-lived  assets  are
primarily  located in the U.S. One customer  accounted  for 13% of the Company's
sales for the three months ended June 30, 2005.

     Net  sales  for the six  months  ended  June 30,  2005  were  billed in two
currencies:  $7,911,000 in U.S. dollars and the equivalent of $320,000 in Euros.
Management  has  determined  the impact of foreign  currency risk on sales to be
minimal since a majority of sales are billed in U.S. dollars. EP MedSystems does
incur translation gains and losses, which are recorded in shareholders'  equity.
Cumulative  translation losses amounted to approximately $158,000 as of June 30,
2005. In addition,  EP MedSystems had not entered into any derivative  financial
instruments for hedging or other purposes.

NOTE 7.  NET LOSS PER SHARE

     Basic net loss per share is computed using the  weighted-average  number of
shares of common stock outstanding.  Due to the losses incurred for the quarter,
diluted net loss per share does not differ from basic net loss per share,  since
potential  shares of common stock  issuable upon the exercise of stock  options,
warrants,  and convertible  debt are  anti-dilutive  for all periods  presented.
Accordingly,  potential  common  shares of 3,775,000  and  4,840,000 for the six
months ended June 30, 2005 and 2004,  respectively,  have been excluded from the
diluted per share calculation.

NOTE 8.  COMPREHENSIVE INCOME/LOSS

     For  the  six  months  ended  June  30,  2005  and  2004,  EP   MedSystems'
comprehensive  loss  consisted  of net loss  and  foreign  currency  translation
adjustments.  The comprehensive  losses for the three months ended June 30, 2005
and  2004  were  approximately  $1,043,000  and  $1,723,000,  respectively.  The
comprehensive  losses for the six  months  ended  June 30,  2005 and 2004,  were
approximately $2,451,000 and $3,194,000, respectively.


                                       13
<PAGE>



NOTE 9.  RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

     On December 16, 2004 the FASB issued SFAS No. 123(R),  Share-Based Payment,
which is an amendment to SFAS No. 123, Accounting for Stock-Based  Compensation.
This new standard eliminates the ability to account for share-based compensation
transactions   using  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,   and  generally   requires  such
transactions  to be  accounted  for  using  a  fair-value-based  method  and the
resulting  cost  recognized  in our financial  statements.  This new standard is
effective for awards that are granted,  modified or settled in cash beginning in
the first  fiscal year  beginning  after June 15, 2005.  In  addition,  this new
standard will apply to unvested  options granted prior to the effective date. We
will adopt this new standard  effective for the first quarter of 2006,  and have
not yet determined what impact this standard will have on our financial position
or results of  operations,  but it is likely the adoption of this  standard will
have a material impact on our results of operations.

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




                                       14
<PAGE>

June 15, 2005. Earlier  application is permitted for nonmonetary asset exchanges
incurred  during  fiscal  years  beginning  after the date of this  statement is
issued.  Management  believes the adoption of this Statement will have no impact
on the financial statements of the company.

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

     At its September  29-30,  2004,  meeting,  the FASB reached a conclusion on
Emerging  Issues Task Force (EITF) Issue No. 04-8,  "The Effect of  Contingently
Convertible Debt on Diluted Earnings Per Share",  that contingently  convertible
debt instruments will be subject to the if-converted method under FASB Statement
No.  128 (SFAS No.  128),  Earnings  Per  Share,  regardless  of the  contingent
features  included  in  the  instrument.  Under  current  practice,  issuers  of
contingently  convertible  debt  instruments  exclude  potential  common  shares
underlying the debt  instruments  from the  calculation of diluted  earnings per
share  until the market  price or other  contingency  is met.  Due to the losses
incurred for the quarter,  diluted net loss per share does not differ from basic
net loss per share,  since  potential  shares of common stock  issuable upon the
conversion of the convertible debt are anti-dilutive for all periods  presented.
EITF 04-8 could have a future impact on the  Company's  results of operations in
the event that the potential  shares of common stock issuable upon conversion of
the  convertible   debt  were  included  in  the  diluted   earnings  per  share
calculation.  The effective date for Issue 04-8 is for reporting  periods ending
after December 15, 2004.

NOTE 10.  COMMITMENTS AND CONTINGENCIES

     During the second quarter of 2005, the Company  received an  Administrative
Subpoena  from the Bureau of Industry  and  Security of the U.S.  Department  of
Commerce  (the  "Department  of  Commerce")  seeking  production  of records and
documents  relating to the sale and/or export of the Company's  products to Iran
and to Syria.  Subsequent to the end of the second  quarter of 2005, the Company
was informed  that the United States  Attorney's  Office for the District of New
Jersey had commenced a criminal investigation into the same matter.

         The Company is cooperating fully with the federal government in
connection with these matters.

     Based on the  Company's  investigation  of this matter to date,  management
believes  that a limited  number of the  Company's  heart  monitor  systems were
distributed  to  medical  facilities  in  Iran in  prior  periods  without  U.S.
government  authorization.  Management believes the aggregate revenues generated
by these  transactions were not material to the Company's  cumulative  financial
results during the period in which such transactions  occurred,  and the Company
has taken steps to implement certain control procedures  designed to prevent the




                                       15
<PAGE>

Company's products or services from being provided to any foreign countries
in violation of applicable law.

     The  fact  that  certain  of  the  Company's  heart  monitor  systems  were
distributed to medical facilities in Iran without U.S. government  authorization
was  voluntarily  disclosed by the Company in 2003 to the Department of Commerce
and to the Office of Foreign Assets Control of the U.S. Treasury Department. The
federal  government is also investigating the accuracy and completeness of those
voluntary disclosures.

     Separately,  the Audit  Committee  of the  Company's  Board of Directors is
conducting  an  independent  investigation  into these  matters and has retained
outside counsel to assist it.

     Violations  of  applicable  law may  result  in  civil,  administrative  or
criminal  fines  or  penalties,  but due  primarily  to the  early  stage of the
investigations referred to above, it is not possible at this time to predict the
outcome of the ongoing  investigations or the impact of the ultimate  resolution
of this matter on the Company's  results of  operations or financial  condition.
Management  currently  estimates  that the legal fees and other  expenses  to be
incurred by the Company and the Audit Committee in connection with those matters
will be between $600,000 and $700,000,  but cannot predict whether such fees and
other expenses will be  significantly  higher or the aggregate impact the amount
of such fees or  expenses or any fines or  penalties  which might be incurred by
the Company in connection with these matters with these matters will have on the
Company's results of operations or financial condition.


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

OVERVIEW

     EP  MedSystems  was  incorporated  in January 1993 and operates in a single
industry segment.  We develop,  manufacture,  market and sell a line of products
for the cardiac rhythm  management,  or  electrophysiology  (EP), market used to
diagnose,   monitor,   visualize  and  treat  irregular   heartbeats   known  as
arrhythmias.  Since our  inception,  we have acquired  technology  and marketing
rights,   have  developed  new  products  and  have  begun   marketing   various
electrophysiology   products,    including   our   EP-WorkMate(R)   computerized
electrophysiology  workstation,  the RPM(TM)  RealTime  Position  Management(TM)
navigation  technology,  our EP  3(TM)  Stimulator,  our  EP-4(TM)  Computerized
Cardiac Stimulator, diagnostic electrophysiology catheters (including our unique
one-piece catheter) and our ALERT(R) System (including the ALERT(R) Companion II
and  ALERT(R)   family  of  internal   cardioversion   catheters),   ViewMate(R)
intracardiac ultrasound catheter system and related disposable supplies.

     Our core diagnostic product is the EP-WorkMate(R) which consists of the EP-
WorkMate(R),  the  EP-WorkMate(R)  integrated  with  RPM(TM)  RealTime  Position
Management(TM)  System and the EP-4(TM)  Computerized  Cardiac  Stimulator.  The
EP-WorkMate(R)  is a computerized  electrophysiology  workstation  that monitors
displays and stores cardiac electrical  activity and arrhythmia data. It offers,
among other  features,  display and storage of up to 192  intracardiac  signals,
real-time diagnosis,  analysis and integration with our own proprietary systems,
such as our  EP-4(TM)  Stimulator,  as well as with the systems of other  market
leaders  and with  other  technologies  and  systems.  We  received  FDA  market
clearance  to sell  the  EP-WorkMate(R)  integrated  with the  RPM(TM)  RealTime
Position  Management(TM)  System in the third quarter of 2003. This approval was




                                       16
<PAGE>

the  culmination  of  a  strategic  joint  development  project  between  Boston
Scientific  Corporation  and EP Med. It is the only EP  recording  system on the
market to integrate  advanced  recording and stimulation with anatomic modeling,
advanced mapping and 3-D navigation features, allowing electrophysiology studies
to  be  more  efficient  and  user  friendly.   The  EP-4(TM)  Stimulator  is  a
computerized  signal  generator and processor  which,  when  integrated with the
EP-WorkMate(R), is used to stimulate the heart with electrical impulses in order
to locate  arrhythmia.  For the six  months  ended June 30,  2005 and 2004,  the
EP-WorkMate(R)  platform accounted for approximately 88% and 84%,  respectively,
of our  total  sales.  We also  market  a line of  diagnostic  electrophysiology
catheters   for   stimulation   and  sensing  of   electrical   signals   during
electrophysiology  studies,  which  represented  approximately  3% and 4% of our
total  sales  revenues  for the  six  months  ended  June  30,  2005  and  2004,
respectively.

     We have also developed the  ViewMate(R)  intracardiac  ultrasound  catheter
system,  including the  ViewMate(R)  ultrasound  imaging  console and ViewFlexTM
intracardiac imaging catheters. These products offer high-resolution,  real-time
ultrasound  capability  designed to improve a physician's or clinician's ability
to  visualize  inside the  chambers  of the heart.  We believe  the  ViewMate(R)
Ultrasound  System may play an  important  role for a broad  range of  potential
applications in electrophysiology and cardiology.  In April of 2003, we received
CE approval to market the  ViewMate(R)  in Europe.  In October 2003, we received
FDA market clearance to sell the ViewMate(R) System in the United States.  Sales
of the  ViewMate(R)  system and related  ViewFlex(TM)  catheters  accounted  for
approximately 5% and 7% of our total sales revenues in the six months ended June
30, 2005 and 2004, respectively.

     We have also  developed a product for the treatment of atrial  fibrillation
known as the  ALERT(R)  System,  which uses a  patented  electrode  catheter  to
deliver  measured,  variable,  low-energy  electrical  impulses  directly to the
inside of the heart to convert atrial  fibrillation to a normal heart rhythm. We
have  obtained  Class  III  Design  Examination  Certification  from a  European
Notified  Body  allowing  us to label the  ALERT(R)  System  with a CE Mark,  an
international symbol of adherence to quality assurance standards, design reviews
and  hazard  analysis,  which  permits  us to sell the  ALERT(R)  System  in the
European  Community.  In September 2003, we received pre-market approval to sell
the ALERT(R) Companion II in the United States. Sales of the ALERT(R) System and
related  catheters  accounted  for  approximately  4% and 5% of our total  sales
revenues for the six months ended June 30, 2005 and 2004,  respectively.  We are
in the process of  redesigning  the ALERT(R)  System console to give it the same
look and feel as the  EP-4(TM)  to  eventually  integrate  the  system  into the
WorkMate(R) for ease of use by the physician.

CRITICAL ACCOUNTING POLICIES

     Financial  Reporting  Release No. 60 requires  all  companies  to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. The SEC indicated that a critical accounting policy is one
which is important to the  portrayal of the  company's  financial  condition and
results  and  requires  management's  most  difficult,   subjective  or  complex
judgments,  often as a result of the need to make estimates  about the effect of
matters that are inherently  uncertain.  Note 2 of our Notes to the Consolidated
Financial Statements included in our Annual Report on Form 10-KSB for the period
ended  December  31,  2004  includes  a summary  of the  significant  accounting
policies  and methods  used in the  preparation  of our  Consolidated  Financial
Statements.  In  addition,  Financial  Reporting  Release  No. 61  requires  all
companies to include a discussion  to address,  among other  things,  liquidity,
off-balance   sheet   arrangements,   contractual   obligations  and  commercial




                                       17
<PAGE>

commitments.  The  information  provided  below  describing  our debt and future
commitments  is provided to  facilitate  a review of our  liquidity  and capital
resources.  The  following  is  a  brief  discussion  of  the  more  significant
accounting policies and methods used by us.

General

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

Revenue Recognition

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

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

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



                                       18
<PAGE>

<TABLE>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                                For the Six Months Ended               For the Three Months Ended
                                        June 30,                                June 30,
                                 2005                2004               2005                 2004
                             --------------     ---------------     --------------      ---------------
  Beginning balance     $        331,000    $       126,000     $       299,000    $        132,000
  Warranties                     187,000            141,000             122,000              61,000
  Warranty payments             (206,000)          (114,000)           (109,000)            (40,000)
                             --------------     ---------------     --------------      ---------------

  Ending balance        $        312,000    $       153,000     $       312,000    $        153,000
                             ==============     ===============     ==============      ===============
</TABLE>


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

Valuation of Accounts Receivable

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

Valuation of Inventory

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

Valuation of Goodwill, Intangible Assets, and Other Long-Lived Assets

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

          o  significant  underperformance  relative to expected  historical  or
          projected future operating results;

          o significant  changes in the manner of our use of the acquired assets
          or the strategy for our overall business;

          o  significant  negative  industry or economic  trends;  o significant
          decline in our stock price for a sustained period; and

          o our market capitalization relative to net book value.



                                       19
<PAGE>

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

Income Taxes

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

Accounting for Stock-Based Compensation.

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

     A different  method for  accounting for employee stock option grants is the
fair  value  method.  Under the fair value  method,  a company  is  required  to
determine  the fair value of options  granted  to  employees  based on an option
pricing  model  which  incorporates  such  factors as the current  stock  price,
exercise prices of the options,  expected  volatility of future movements in the
price of the underlying stock, risk-free interest rates, the term of the options
and any  dividends  expected to be paid.  The fair value  determined  under this
method is then amortized over the vesting period of the related options.  Had we
chosen to account for employee  stock options  using the fair value  method,  we
would have recorded additional stock based compensation expense of approximately
$317,000  and  $283,000  for the six  months  ended  June 30,  2005,  and  2004,
respectively.

     On December 16, 2004 the FASB issued SFAS No. 123(R),  Share-Based Payment,
which is an amendment to SFAS No. 123, Accounting for Stock-Based  Compensation.
This new standard eliminates the ability to account for share-based compensation
transactions   using  Accounting   Principles  Board  ("APB")  Opinion  No.  25,
Accounting  for  Stock  Issued  to  Employees,   and  generally   requires  such
transactions  to be  accounted  for  using  a  fair-value-based  method  and the
resulting  cost  recognized  in our financial  statements.  This new standard is
effective for awards that are granted,  modified or settled in cash beginning in
the first  fiscal year  beginning  after June 15, 2005.  In  addition,  this new
standard will apply to unvested  options granted prior to the effective date. We
will adopt this new standard  effective for the first quarter of 2006,  and have
not yet determined what impact this standard will have on our financial position
or results of  operations,  but it is likely that the adoption of this  standard
will have a material impact on our results of operations.



                                       20
<PAGE>

RESULTS OF OPERATIONS.

SIX MONTHS ENDED JUNE 30, 2005 AND 2004.

     The Company had net sales of  $8,231,000  for the six months ended June 30,
2005,  as  compared  to  $6,472,000  for the  comparable  period  in 2004.  This
$1,759,000  (or 27%)  increase was  primarily due to an increase in sales of our
WorkMate(R) product as we won a significant multi-system deal at a key reference
site. Our sales of consumable  products  increased 18% primarily driven by a 72%
growth  in the  ViewFlex(TM)  product.  While  our  sales in the  United  States
continued to be strong, in excess of 78% of our overall revenue,  we also saw an
increase  in sales to Asia as we  renewed  our  relationship  with our  Japanese
distributor.

     Gross profit on sales for the six months ended June 30, 2005 was $5,203,000
as  compared  with  $3,683,000  for the same period in 2004.  Gross  profit as a
percentage  of sales  increased  from 57% to 63%,  primarily due to strong sales
within the United States where overall  margins are higher,  and higher  overall
sales covering fixed manufacturing costs.

     Sales and marketing  expenses increased $602,000 (or 16%) to $4,302,000 for
the six months ended June 30, 2005 as compared to the same period in 2004.  This
increase  was a result of an increase in  salaries,  benefits,  commissions  and
recruiter  fees of  $461,000  related to higher  sales and  headcount.  With the
increase in salaries  and sales,  there was a  corresponding  increase in travel
related  costs of $79,000.  Primarily in  connection  with our clinical  affairs
department  and our  efforts in Asia,  we  incurred  an  additional  $115,000 in
consulting and  honorarium  costs.  Our clinical  affairs  department,  which we
initiated in the second quarter of 2004, accounted for approximately $275,000 of
the overall cost increase for sales and marketing.  The additional  expenditures
noted above were offset by lower royalty costs and lower bad debt losses.

     General  and  administrative   expenses  increased  $700,000  (or  45%)  to
$2,260,000 for the six months ended June 30, 2005 as compared to the same period
in 2004. The increase in general and administrative expenses was due to a number
of factors.  There was an increase in our legal costs of $405,000 as a result of
legal fees associated with the Company's receipt of the Administrative  Subpoena
described in Note 10 of the Consolidated  Financial  Statements included in this
Quarterly  Report on Form 10-Q.  Subsequent to the end of the second  quarter of
2005, we were informed that the United States Attorney's Office for the District
of New Jersey had commenced a criminal  investigation  into the same matter.  We
anticipate  additional  legal costs in the coming quarters as we work to resolve
these matters and continue to implement control  procedures  designed to prevent
our  products  or services  from being  provided  to any  foreign  countries  in
violation  of  applicable  law.  We have  made  no  provision  in our  financial
statements   for  any  legal  or  other  costs   relating  to  the  inquires  or
investigations  or for any fines or  penalties  that might be  incurred in these
matters.  Management  currently estimates that the legal fees and other expenses
to be incurred by the Company and the Audit  Committee in connection  with those
matters will be between  $600,000 and $700,000,  but cannot predict whether such
fees and  expenses  will be  significantly  higher or the  aggregate  impact the
amount  of such  fees or  expenses  or any  fines or  penalties  which  might be
incurred  by the  Company  in  connection  with these  matters  will have on the
Company's results of operations or financial condition. In addition to increased
legal costs, we had an increase in non-cash  expenses of $130,000 as a result of
fluctuations  in foreign  currency.  Expenses in connection  with being a public
company  increased  significantly  in the first half of 2005 as we  incurred  an
additional  $83,000 in costs of complying with section 404 of Sarbanes-Oxley and
an increase in other public  company  expenses of $22,000 and  compensation  and
benefits of $88,000.


                                       21
<PAGE>

     Research and development  expenses  decreased $65,000 (or 5%) to $1,173,000
for the six months  ended June 30,  2005 as compared to the same period in 2004.
The decrease was due to lower overall  project costs of $30,000 as products were
launched  in 2004  and  lower  patent  costs  of  $49,000  associated  with  the
conclusion of certain patent strategies.  Costs for research and development can
fluctuate  on a  quarter-by-quarter  basis  depending  on status of projects and
intellectual property strategies.

     Interest  expense  decreased  $296,000 to $129,000 for the six months ended
June 30, 2005, as compared to the same period in 2004. This decrease in interest
expense  is a result of a  decrease  in the  beneficial  conversion  feature  of
$139,000 and decrease in the  accretion of debt discount of $135,000 as a result
of the  conversion of debt to equity related to the  convertible  note issued to
Laurus.  The decrease in interest  expense was offset by the  repayment,  in the
first quarter of 2004, of the principal and all accrued interest on the note due
to Medtronic, and higher interest rates in 2005.

THREE MONTHS ENDED JUNE 30, 2005 VERSUS JUNE 30, 2004

     Net sales were  $4,755,000  for the three months  ended June 30,  2005,  as
compared to $3,588,000 for the comparable  period in 2004.  This  $1,167,000 (or
33%) increase is a result of an increase in sales of our WorkMate(R) product, as
we won a significant  multi-system  deal at a key reference  site.  Our sales of
consumable  products were primarily  driven by a 94% growth in the  ViewFlex(TM)
product.  While our sales in the United States continued to be strong, in excess
of 78% of our  overall  quarterly  revenue,  we also saw an increase in sales to
Asia as we renewed our relationship with our Japanese distributor.

     Gross  profit  on sales  for the  three  months  ended  June  30,  2005 was
$3,005,000,  as compared to  $2,012,000  for the same period in 2004.  The gross
profit increased as a percentage of sales from 56% to 63%. The increase in gross
profit is a result of strong sales in the United  States where  overall  margins
are higher, and higher overall sales covering fixed manufacturing costs.

     Sales and marketing  expenses  increased  $53,000 (or 3%) to $2,174,000 for
the three months  ended June 30,  2005,  as compared to the same period in 2004.
The  increase  in sales and  marketing  expenses  is a result of an  increase in
salaries, benefits, commissions and recruiter fees of $192,000 related to higher
sales and  headcount.  With the  increase  in  salaries  and sales,  there was a
corresponding  increase  in  travel-related  costs  of  $41,000.   Primarily  in
connection  with our clinical  affairs  department  and our efforts in Asia,  we
incurred an additional  $43,000 in consulting and honorarium costs. Our clinical
affairs department,  which we initiated in the second quarter of 2004, accounted
for approximately $122,000 of the overall cost increase for sales and marketing.
The  additional  expenditures  noted above were offset by lower  royalty  costs,
lower bad debt losses and lower freight costs.

     General  and  administrative   expenses  increased  $552,000  (or  66%)  to
$1,390,000  for the three  months  ended June 30,  2005 as  compared to the same
period in 2004. The increase in general and administrative expenses was due to a
number of  factors.  There was an  increase  in our legal costs of $390,000 as a
result of legal fees associated with the Company's receipt of the Administrative
Subpoena described in Note 10 of the Consolidated  Financial Statements included
in this  Quarterly  Report on Form  10-Q.  Subsequent  to the end of the  second
quarter of 2005, we were informed that the United States  Attorney's  Office for
the District of New Jersey had commenced a criminal  investigation into the same
matter.  We anticipate  additional legal costs in the coming quarters as we work




                                       22
<PAGE>

     to resolve  these  matters and  continue to  implement  control  procedures
designed to prevent our products or services from being  provided to any foreign
countries  in  violation  of  applicable  law. We have made no  provision in our
financial  statements  for any legal or other costs relating to the inquiries or
investigations  or for any fines or  penalties  that might be  incurred in these
matters.  Management  currently estimates that the legal fees and other expenses
to be  incurred  by the  Company and the Audit  Committee  in  connection  those
matters will be between  $600,000 and $700,000,  but cannot predict whether such
fees and  expenses  will be  significantly  higher or the  aggregate  impact the
amount  of such  fees or  expenses  or any  fines or  penalties  which  might be
incurred  by the  Company  in  connection  with these  matters  will have on the
Company's results of operations or financial condition. In addition to increased
legal costs,  we had an increase in non-cash  expenses of $69,000 as a result of
fluctuations  in foreign  currency.  Expenses in connection  with being a public
company  increased  significantly  in the first half of 2005,  as we incurred an
additional  $64,000 in costs of complying with section 404 of Sarbanes-Oxley and
an increase in other public  company  expenses of $16,000 and  compensation  and
benefits of $39,000 for the quarter.

     Research and development expenses decreased $48,000 (or 8%) to $589,000 for
the three months ended June 30, 2005 as compared to the same period in 2004. The
decrease  was due to lower  overall  project  costs of $27,000 as products  were
launched  in 2004 and lower  patent  costs of  $40,000  with the  conclusion  of
certain patent  strategies.  These costs in the quarter were offset by increased
salaries in  connection  with a higher  headcount of $22,000 and FDA filing fees
for the ALERT(R) CS/RA filing in May of 2005. Costs for research and development
can fluctuate on a quarter-by-quarter  basis depending on status of projects and
intellectual property strategies.

     Interest  expense  decreased  $112,000  for the three months ended June 30,
2005, as compared to the same period in 2004.  The decrease in interest  expense
is a result of a decrease in the  beneficial  conversion  feature of $56,000 and
decrease  in the  accretion  of debt  discount  of  $57,000  as a result  of the
conversion of debt to equity.

LIQUIDITY AND CAPITAL RESOURCES

     Since our  incorporation in January 1993, our expenses have exceeded sales,
resulting in an accumulated  deficit of approximately  $42.6 million at December
31, 2004 and approximately $45.1 million at June 30, 2005.

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

     During the year ended  December 31, 2001, we  consummated  the private sale
and issuance of our Series A  convertible  preferred  stock to  Medtronic,  Inc.
("Medtronic").  In 2002,  Medtronic  converted a portion of its preferred  stock
into shares of our common  stock.  At September  30, 2004 and December 31, 2003,




                                       23
<PAGE>

Medtronic held 373,779 of our Series A Preferred  Shares which were  convertible
into  387,946  shares of our common  stock at the option of  Medtronic  or us in
accordance  with the terms of the  agreement  with  Medtronic.  During the first
quarter of 2005,  Medtronic  converted all of its shares of our preferred  stock
into 387,946 shares of our common stock.

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

     At the closing of the transaction, we issued the Laurus Convertible Note to
Laurus  having a principal  amount of  $4,000,000  and  received net proceeds of
$2,661,600.  An  additional  $1,000,000  of  the  Laurus  Convertible  Note  was
previously restricted. Those restrictions were released during the third quarter
of 2004, and that amount became available to us. The balance of the proceeds was
used  to pay  fees  incurred  in  connection  with  this  transaction.  Deferred
financing fees are being amortized over the life of the Laurus  Convertible Note
using the effective interest method. In addition,  we paid a portion of the fees
payable to an  intermediary,  Biscayne Capital Markets,  Inc.  ("Biscayne"),  in
40,000  shares of our common  stock having a market value on the date of closing
of  this  transaction  equal  to  $100,000.  The  net  proceeds  of  the  Laurus
Convertible  Note have been, and will be, used for working capital  purposes and
payment of outstanding debt.

     The portion of the Laurus  Convertible  Note against which Laurus  advances
funds based on our accounts  receivable bears interest at the prime rate, with a
floor of 4%, which is an effective interest rate of approximately 17% (including
accretion of discount and amortization of beneficial  conversion  feature),  and
the balance (the "Advance  Amounts")  bears  interest at the prime rate plus 2%.
One half of Advance Amounts  outstanding on February 28, 2005 was required to be
repaid  on or  before  that  date.  However,  there  were no  "Advance  Amounts"
outstanding  on that date, as the net collateral  exceeded the principal  amount
outstanding on the Laurus Convertible Note. The remaining balance of the Advance
Amounts  outstanding  on the date of the  closing is required to be repaid on or
before August 28, 2006. Subject to certain rights of cancellation, we may extend
the Laurus credit facility, on a year-by-year basis, commencing August 28, 2006.
We may repay in cash, without penalty,  up to $500,000 of the Laurus Convertible
Note in any one calendar year, plus all Advance Amounts.

     Subject  to  certain  volume  limitations  and other  conditions,  all or a
portion of the Laurus  Convertible Note was convertible into our common stock at
our  option if the  market  price of our common  stock  reached a level,  for 11
consecutive  trading  days,  which was more than 120% of the  "Fixed  Conversion
Price".  Through December 14, 2004, the Fixed Conversion Price was $2.55,  which
was a price that was greater  than the market  price of our common  stock on the
date of closing.  Subject to certain volume  limitations  and other  conditions,
Laurus has the option to convert all or a portion of the Laurus Convertible Note
into shares of our common stock at the Fixed Conversion Price.

     Following  the  conversion  into our common stock by us and/or Laurus of an
aggregate of $2,000,000 of the principal  amount of the Laurus  Convertible Note
(a "Conversion  Event"), the Fixed Conversion Price will be adjusted upward to a
price which is 115% of the average of the closing  price of our common stock for
the three trading days prior to the Conversion  Event. On December 15, 2004, the




                                       24
<PAGE>

balance of the first  $2,000,000  of the  principal  amount was  converted  into
shares  of our  common  stock and the Fixed  Conversion  Price on the  remaining
$2,000,000 principal balance was adjusted upward from $2.55 to $4.20. Subject to
certain limitations, including the repayment obligations with respect to Advance
Amounts  described  above,  the dollar  amounts of the Laurus  Convertible  Note
converted  may  be  re-borrowed.  The  Fixed  Conversion  Price  is  subject  to
adjustment,  with  customary  exceptions  and on a  weighted-average  basis,  in
connection with sales of our securities below the Fixed Conversion Price then in
effect, and is also subject to adjustment for stock splits, combinations,  stock
dividends and similar events.

     As part of the credit  facility  transaction,  Laurus and the  intermediary
also received  warrants to purchase an aggregate of 240,750 shares of our common
stock (the "Warrants"), with exercise prices set as follows: $2.93 per share for
the purchase of up to the first 133,750 shares, $3.19 per share for the purchase
of up to the next 80,250  shares,  and $3.70 per share for the purchase of up to
the final 26,750 shares. The expiration date of the Warrants is August 28, 2010.
The  exercise  price of the  Warrants  and the number of shares  underlying  the
Warrants  are  subject to  adjustments  for stock  splits,  combinations,  stock
dividends and similar events.

     In October  2003,  we  registered,  under the  Securities  Act of 1933,  as
amended,  1,500,000  shares of our common  stock which may be received by Laurus
upon conversion of the Laurus Convertible Note and exercise of the Warrant,  and
the  remaining  293,628 of such shares were  registered  in  November  2004.  In
accordance with the provisions of Emerging Issues Task Force (EITF) Issue 00-27,
"Application of EITF Issue No. 98-5 `Accounting for Convertible  Securities with
Beneficial Conversion Features of Contingently Adjustable Conversion Ratios', to
Certain Convertible  Securities",  the allocated value of the Laurus Convertible
Note  contained  a  beneficial   conversion  feature  calculated  based  on  the
difference  between the effective  conversion price of the proceeds allocated to
the Laurus Convertible Note and the Warrants at the date of issuance. The amount
arising from the beneficial conversion feature aggregated approximately $486,000
and is being amortized as interest  expense from the date of the issuance of the
Laurus Convertible Note to the mandatory  redemption date of August 28, 2006. We
valued the Laurus Convertible Note and the Warrants at issuance.  The fair value
of the  Warrants  at the time of issue was  $407,500.  In  accordance  with EITF
00-19,   "Accounting  for  Derivative  Financial  Instruments  Indexed  to,  and
Potentially Settled in, a Company's Own Stock," we marked the Warrants to market
at September 30, 2003 incurring a non-cash charge of $264,000.  The registration
rights  agreement  associated  with the Laurus  Convertible  Note was amended on
November 25, 2003 and, as a result,  the amount associated with the warrants was
transferred  to  equity.  We marked  the  Warrants  to market at the date of the
amendment  which  reduced  the overall  expense to  $210,750  for the year ended
December 31, 2003. The net carrying value of the Laurus  Convertible Note, after
allocation  of the fair value of the  Warrants,  is being  accreted  to interest
expense over the life of the agreement using the effective interest method.

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

     In May of 2004, we engaged a physician as a consultant to head our clinical
affairs department.  In connection with that agreement,  we issued 10,000 shares
of the  Company's  common stock to the  physician  and granted the  physician an
option to purchase  10,000  shares of the common stock which vests twelve months
from the date of grant.  Also in connection  with the agreement,  we granted the




                                       25
<PAGE>

physician an option to purchase 40,000 shares of our common stock which vests in
equal  installments  over five years.  The exercise price of each of the options
was the fair  market  value of our common  stock on the date of the  grant.  The
transactions  were accounted for in accordance  with Emerging  Issues Task Force
Issue No. 96-18,  "Accounting  for Equity  Instruments  That Are Issued to Other
Than  Employees  for  Acquiring,  or  in  Conjunction  with  Selling,  Goods  or
Services."  The fair value was measured using the  Black-Scholes  option pricing
model  under  Statement  of  Financial  Accounting  Standard  No.  123 using the
following  assumptions for each grant as follows: risk free rate: 3.07%, 10-year
life, and a volatility percentage of 83.86%.

     In  October  2004,  we  engaged a  physician  as a  consultant  to manage a
clinical study.  In connection  with that agreement,  we granted the physician a
warrant to purchase 10,000 shares of our common stock, which vested immediately.
The exercise price of the warrants was the fair market value of our common stock
on the date of the grant.  The  transaction was accounted for in accordance with
Emerging Issues Task Force Issue No. 96-18,  "Accounting for Equity  Instruments
That Are Issued to Other Than  Employees for Acquiring,  or in Conjunction  with
Selling, Goods or Services." The fair value was measured using the Black-Scholes
option pricing model under  Statement of Financial  Accounting  Standard No. 123
using the following  assumptions:  risk free rate of 3.36%,  10-year life, and a
volatility percentage of 77.25%.

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

     Net cash used in  operating  activities  for the six months  ended June 30,
2005 decreased by $1,739,000  from  $3,365,000 as of June 30, 2004 to $1,626,000
at June 30, 2005. The decrease in our net use of cash in operations  during 2005
was  primarily  due to a decrease in our net loss of $641,000 and an increase in
accrued  expense  and  deferred  revenue in 2005,  as  compared  to 2004,  which
included  the payment to Medtonic  of  $707,000  in accrued  interest.  This was
partially offset by an decrease in accounts payable. Inventory on hand increased
at a lower  rate in 2005 as a  result  of  higher  inventory  in 2004 due to the
number of new product  lines  approved in the second half of 2003,  and accounts
receivable   decreased  as  we  successfully   pursued  the  collection  of  our
receivables.  Capital  expenditures were $110,000 and $68,000 for the six months
ended  June 30,  2005 and 2004,  respectively.  We expect  to  purchase  capital
equipment in 2005 as we grow. We lease office space and certain office equipment
under  operating  leases.  In  connection  with  certain  intellectual  property
strategies, we spent $93,000 in patent filings in the first six months of 2005.

     Assets  decreased by $1,983,000  from  $20,003,000  at December 31, 2004 to
$18,020,000  at June 30,  2005.  The  change  in  assets  was due to a number of
factors.  Cash and cash equivalents,  decreased by $1,629,000 from $9,345,000 at
December 31, 2004 to $7,716,000 at June 30, 2005,  primarily due to our net loss
and a reduction  of accounts  payable,  and  partially  offset by a reduction in
inventory and in accounts receivable.

     Liabilities  increased  approximately  $390,000 from $6,651,000 at December
31, 2004 to $7,041,000  at June 30, 2005.  This increase was primarily due to an
increase in our accrued legal expenses associated with the previously  discussed
Administrative Subpoena.

     We evaluate the collectability of our receivables quarterly.  The allowance
for bad debts is based upon  specific  identification  of customer  accounts for
which  collection  is doubtful and our estimate of the  likelihood  of potential
loss. To date, we have experienced only modest credit losses with respect to our




                                       26
<PAGE>

accounts  receivable.  To  date,  we have  experienced  insignificant  inventory
write-downs, and the reserve is consistent with management's expectations.

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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to a variety of risks,  including  changes in interest rates
affecting our  outstanding  debt balance and fixed rate  investments of our cash
and cash  equivalents and foreign  currency  fluctuations.  The Company does not
have any market risk with respect to such factors as commodity  prices or equity




                                       27
<PAGE>

prices.  We do not  invest  in, or  otherwise  use,  foreign  currency  or other
derivative financial or derivative commodity  instruments,  and we do not engage
in hedging transactions for speculative or trading or any other purposes.

         INTEREST RATE RISK.

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

     At June 30, 2005,  we had a Secured  Convertible  Note  outstanding  in the
approximate  amount of $2,000,000.  Interest on the Secured  Convertible Note is
based on the prime rate. This floating rate debt may lead to additional interest
expense if interest rates increase. Because management does not believe that our
exposure  to interest  rate  market  risk is material at this time,  we have not
developed or  implemented  a strategy to manage this market risk through the use
of  derivative   financial   instruments  or  otherwise.   We  will  assess  the
significance of interest rate market risk from time to time and will develop and
implement strategies to manage that market risk as appropriate.

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

     Our portfolio  includes money markets funds and/or  government  securities.
The diversity of our portfolio helps us to achieve our investment objective.  As
of June 30, 2005,  100% of our  investment  portfolio  matures less than 90 days
from the date of purchase. Due to the short-term nature of these investments, we
believe that we are not subject to any material  market risk exposure,  and as a
result,  the estimated fair value of our cash and cash equivalents  approximates
their principal amounts.  If market interest rates were to increase  immediately
and  uniformly  by 10% from levels at June 30, 2005,  we estimate  that the fair
value of investment portfolio would decline by an immaterial amount.

         FOREIGN CURRENCY RISK.

     Our  international  revenues were 21% and 15% of our total  revenues in the
quarters ended June 30, 2005 and 2004, respectively. Our international sales are
made  through  international  distributors,  our direct sales force and sales to
alliance partners,  with payments to the Company typically denominated in United
States  dollars  and  the  Euro.  Approximately  18% of our  foreign  sales  are
denominated in the Euro.  Management  has determined  that the impact of foreign
currency  risk is  minimal  since a  majority  of our sales are billed in United
States  dollars.  Our  international  business is subject to risks typical of an
international  business,  including,  but not  limited  to,  differing  economic
conditions,  changes in  political  climate,  differing  tax  structures,  other
regulations and restrictions, and foreign exchange rate volatility. Accordingly,
our future results could be materially adversely affected by changes in these or
other factors. We do not hedge our foreign currency exposure at present.

ITEM 4.  CONTROLS AND PROCEDURES.

     As of the end of the period covered by this report,  the Company  conducted
an evaluation, under the supervision and with the participation of our principal
executive officer and principal  financial officer,  of the effectiveness of the




                                       28
<PAGE>

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

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


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

        Not Applicable.

OTHER DEVELOPMENTS

     During the second quarter of 2005, we received an  Administrative  Subpoena
from the Bureau of Industry and Security of the U.S. Department of Commerce (the
"Department of Commerce")  seeking  production of records and documents relating
to the sale and/or  export of our products to Iran and to Syria.  Subsequent  to
the end of the second  quarter of 2005,  we were informed that the United States
Attorney's  Office  for the  District  of New Jersey  had  commenced  a criminal
investigation into the same matter.

     We are  cooperating  fully with the federal  government in connection  with
these matters.

     Based on the  Company's  investigation  of this matter to date,  management
believes  that a limited  number of the  Company's  heart  monitor  systems were
distributed  to  medical  facilities  in  Iran in  prior  periods  without  U.S.
government  authorization.  Management believes the aggregate revenues generated
by these  transactions were not material to the Company's  cumulative  financial
results during the period in which such transactions occurred, and we have taken
steps to implement certain control  procedures  designed to prevent our products
or services  from being  provided  to any  foreign  countries  in  violation  of
applicable law.

     The fact that  certain of our heart  monitor  systems were  distributed  to
medical facilities in Iran without U.S. government authorization was voluntarily
disclosed  by us in 2003 to the  Department  of  Commerce  and to the  Office of
Foreign Assets Control of the U.S. Treasury  Department.  The federal government
is  also   investigating  the  accuracy  and  completeness  of  those  voluntary
disclosures.

     Separately,  the Audit Committee of our Board of Directors is conducting an
independent  investigation  into these  matters and has retained the law firm of




                                       29
<PAGE>

Covington & Burling to assist it.

     Violations  of  applicable  law may  result  in  civil,  administrative  or
criminal  fines  or  penalties,  but due  primarily  to the  early  stage of the
investigations referred to above, it is not possible at this time to predict the
outcome of the ongoing  investigations or the impact of the ultimate  resolution
of this matter on our results of operations or financial  condition.  Management
currently estimates that the legal fees and other expenses to be incurred by the
Company and the Audit Committee in connection with those matters will be between
$600,000 and $700,000,  but cannot predict  whether such fees and other expenses
will be significantly  higher or the aggregate impact the amount of such fees or
expenses  of any fines or  penalties  which  might be incurred by the Company in
connection  with these matters will have on the Company's  results of operations
or financial condition.

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

         (a) Not applicable.

         (b) Not applicable.

         (c) Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

         (a)  None.

         (b)  None.

ITEM 6. EXHIBITS.

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


                                       30
<PAGE>





                                   SIGNATURES

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


                               EP MEDSYSTEMS, INC.
                                  (Registrant)



Date:  August 11, 2005      By: /s/ REINHARD SCHMIDT
                             Reinhard Schmidt
                             President and Chief Executive Officer and Director
                             (Principal Executive Officer)


Date:  August 11, 2005        By: /s/ MATTHEW C. HILL
                              Matthew C. Hill
                              Chief Financial Officer
                              (Principal Financial and Accounting Officer)




                                       31
<PAGE>

                                Index to Exhibits

Exhibit Number    Description

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

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

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

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

          3.5  Certificate of Amendment to the Amended and Restated  Certificate
               of Incorporation of EP MedSystems, Inc., filed with the Secretary
               of the State of New Jersey on January 12, 2005 (25)

          3.6  Bylaws, as amended (1)

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

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

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

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

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

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

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


                                       32
<PAGE>


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       33
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       34
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          10.18* Form of Senior Management Incentive Agreement (27)

          21.1 Subsidiaries of the Registrant (23)

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

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

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

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

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


                                       35
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       36
<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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

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

27.      Incorporated by reference from EP MedSystems, Inc.'s Quarterly Report
         on Form 10-Q for the quarter ended March 31, 2005 previously filed with
         the commission.



                                       37