WASHINGTON, D.C. 20549

                                   FORM 10-QSB






                        COMMISSION FILE NUMBER: 000-32603

                              ARBIOS SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

              Nevada                                     91-19553323
   (State or other jurisdiction                         (IRS Employer
  of incorporation organization)                       Identification No.)

          8797 Beverly Blvd., Los Angeles, California       90048
            (Address of principal executive offices)      (Zip Code)

                                 (310) 657-4898
              (Registrant's telephone number, including area code)

        110 North George Burns Road, Suite D-4018 Los Angeles, CA 90048
                 (Former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 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. Yes [X] No [_].

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest  practicable  date. On August 9, 2004, there were
13,198,097 shares of common stock, $.001 par value, issued and outstanding.


                              ARBIOS SYSTEMS, INC.
                                   FORM 10-QSB


                                                                                                    PAGE NO.

Item 1.    Condensed Consolidated Financial Statements:

                  Condensed Consolidated Balance Sheet as of June 30, 2004 (unaudited) and
                  December 31, 2003..................................................................   3

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

                  Condensed  Consolidated  Statements  of Cash Flows for the six
                  months ended June 30, 2004 and 2003 and from inception to June
                  30, 2004 (unaudited)...............................................................   5

                  Notes to Condensed Consolidated Financial Statements...............................   6

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations.....   7

Item 3.    Controls And Procedures...................................................................   16


Item 5.    Other Information.........................................................................   17

Item 6.    Exhibits and Reports on Form 8-K..........................................................   17

SIGNATURES...........................................................................................   18

CERTIFICATIONS ......................................................................................   19




                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A development stage company)

ASSETS                                                                              June 30,     December 31,
                                                                                     2004           2003
                                                                                  (Unaudited)     (Audited)
                                                                                  -----------    -----------
Current assets
  Cash                                                                            $ 2,511,938    $ 3,507,086
  Prepaid expenses                                                                    122,735        155,986
                                                                                  -----------    -----------
    Total current assets                                                          $ 2,634,673    $ 3,663,072

Net property and equipment                                                             55,213         45,633
Patent rights, net of accumulated amortization of $90,656                             309,344        324,145
Other assets                                                                           12,671          7,434
                                                                                  -----------    -----------

        Total assets                                                              $ 3,011,901    $ 4,040,284
                                                                                  ===========    ===========

Current liabilities
  Accounts payable                                                                $    40,082    $   148,229
  Accrued expenses                                                                    188,140
  Current portion of capitalized lease obligation                                       8,907          8,526
                                                                                  -----------    -----------
    Total current liabilities                                                         237,129        156,755
Long-term liabilities
  Contract commitment                                                                 250,000
  Capital lease obligation, less current portion                                        1,549          6,826
  Other liabilities                                                                                    5,555
                                                                                  -----------    -----------
    Total Long-term liabilities                                                       251,549         12,381
Stockholders' equity
  Preferred stock, $.001 par value; 5,000,000 shares authorized:
   none issued and outstanding
  Common stock, $.001 par value; 25,000,000 shares authorized; 13,198,097
    and 13,150,598 shares issued and outstanding in 2004 and 2003, respectively        13,199         13,151
  Additional paid-in capital                                                        5,759,072      5,485,498
  Deficit accumulated during the development stage                                 (3,249,048)    (1,627,501)
                                                                                  -----------    -----------
    Total stockholders' equity                                                      2,523,223      3,871,148
                                                                                  -----------    -----------

        Total liabilities and stockholders' equity                                $ 3,011,901    $ 4,040,284
                                                                                  ===========    ===========

                 The accompanying notes are an integral part of
               these condensed consolidated financial statements.


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A development stage company)

                                         For the three months           For the six months
                                            ended June 30,                  ended June 30,           Inception to
                                         2004            2003            2004           2003        June 30, 2004
                                     ------------    ------------    ------------    ------------    ------------

Revenues                             $     33,810    $     22,643    $     33,810    $     43,018    $    282,746
                                     ------------    ------------    ------------    ------------    ------------

Operating expenses:
  General and administrative              583,788          39,016         781,498          76,170       1,430,242
  Research and development                728,334          95,685         880,506         181,076       1,858,675
                                     ------------    ------------    ------------    ------------    ------------
    Total operating expenses            1,312,122         134,701       1,662,004         257,246       3,288,917
                                     ------------    ------------    ------------    ------------    ------------

Loss before other income (expense)     (1,278,312)       (112,058)     (1,628,194)       (214,228)     (3,006,171)
                                     ------------    ------------    ------------    ------------    ------------

Other income (expense):
  Interest income                           4,385                           9,707                          12,263
  Interest expense                           (223)           (763)           (485)           (363)       (246,198)
                                     ------------    ------------    ------------    ------------    ------------
    Total other income (expense)            4,162            (763)          9,222            (363)       (233,935)
                                     ------------    ------------    ------------    ------------    ------------

Loss before tax provision              (1,274,150)       (112,821)     (1,618,972)       (214,591)     (3,240,106)

Provision for taxes                                                         2,575           1,122           8,942
                                     ------------    ------------    ------------    ------------    ------------

Net loss                             $ (1,274,150)   $   (112,821)   $ (1,621,547)   $   (215,713)   $ (3,249,048)
                                     ============    ============    ============    ============    ============

Net earnings per share:
   Basic and diluted                 $      (0.10)   $      (0.02)   $      (0.12)   $      (0.03)   $      (0.46)

Weighted-average shares:
   Basic and diluted                   13,198,097       6,848,780      13,194,760       6,784,272       7,009,972

                 The accompanying notes are an integral part of
               these condensed consolidated financial statements.


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A development stage company)

                                                       For the six months
                                                          ended June 30,       Inception to
                                                     2004           2003       June 30, 2004
                                                  -----------    -----------    -----------
Net loss                                          $(1,621,547)   $  (215,713)   $(3,249,048)
Adjustments to reconcile net loss to net cash
 used in operating activities:
   Amortization of debt discount                                                    244,795
   Depreciation and amortization                       21,994         19,791        114,331
   Issuance of common stock for compensation          401,576                       412,076
   Issuance of common stock for payable                47,500                        47,500
   Settlement of accrued expense                                                     54,401
   Deferred compensation costs                                                      319,553
   Research and Development                                           85,888
   Changes in operating assets and liabilities:
     Prepaid expenses                                  33,251        (65,377)      (122,738)
      Other Assets                                     (5,237)                      (12,671)
     Accounts payable and accrued expenses            (95,460)         2,074         52,771
     Other liabilities                                 (5,556)
     Contract obligation                              250,000                       250,000
                                                  -----------    -----------    -----------
Net cash used in operating activities                (973,479)      (173,337)    (1,889,030)
                                                  -----------    -----------    -----------
 Additions of property and equipment                  (16,773)       (18,717)       (53,888)
                                                  -----------    -----------    -----------
Net cash used in investing activities                 (16,773)       (18,717)       (53,888)
                                                  -----------    -----------    -----------
   Proceeds from issuance of convertible debt                                       400,000
   Proceeds from issuance of common stock                            250,200      4,405,066
   Proceeds from issuance of preferred stock                                        250,000
   Payments on capital lease obligation, net           (4,896)        (3,907)       (14,544)
   Cost of issuance of preferred stock                                              (11,268)
   Cost of issuance of common stock                                   (2,957)      (574,398)
   Restricted cash                                                    (7,500)
                                                  -----------    -----------    -----------
Net cash provided by financing activities              (4,896)       235,836      4,454,856
                                                  -----------    -----------    -----------
Net (decrease) increase in cash                      (995,148)        43,782      2,511,938
   At beginning of period                           3,507,086         27,849
                                                  -----------    -----------    -----------

   At end of period                               $ 2,511,938    $    71,631    $ 2,511,938
                                                  ===========    ===========    ===========

                 The accompanying notes are an integral part of
               these condensed consolidated financial statements.


                         SIX MONTHS ENDED JUNE 30, 2004


In the opinion of the management of Arbios Systems,  Inc. (the  "Company"),  the
accompanying  unaudited condensed  consolidated financial statements include all
normal adjustments considered necessary to present fairly the financial position
as of June 30, 2004, and the results of operations for the periods presented.

The  unaudited  condensed   consolidated  financial  statements  and  notes  are
presented as permitted by Form 10-QSB. These condensed financial statements have
been  prepared  by the  Company  pursuant  to the rules and  regulations  of the
Securities and Exchange Commission (the "SEC"). Certain information and footnote
disclosures,  normally included in financial  statements  prepared in accordance
with generally  accepted  accounting  principles,  have been omitted pursuant to
such SEC rules and  regulations.  These financial  statements  should be read in
conjunction with the Company's audited financial statements and the accompanying
notes  included in the  Company's  Form 10-KSB for the year ended  December  31,
2003,  filed with the SEC. The results of operations for the three month and six
month periods ended June 30, 2004 are not  necessarily indicative of the results
to be expected for any subsequent quarter or for the entire fiscal year.


SFAS  No.  123,  "Accounting  for  Stock-Based  Compensation,"  establishes  and
encourages the use of the fair value based method of accounting for  stock-based
compensation  arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized  over the periods in which the related  services  are  rendered.  The
statement  also  permits  companies  to  elect to  continue  using  the  current
intrinsic  value  accounting  method  specified in Accounting  Principles  Board
("APB")  Opinion No. 25,  "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based  method  and has  disclosed  the pro forma  effect of using the fair value
based method to account for its  stock-based  compensation  issued to employees.
For non-employee  stock based  compensation the Company recognizes an expense in
accordance with SFAS No. 123 and values the equity  securities based on the fair
value of the security on the date of grant with subsequent  adjustments based on
the fair value of the equity security as it vests.

If the Company had elected to recognize  compensation cost for its stock options
and  warrants  for  employees  based on the fair  value at the grant  dates,  in
accordance with SFAS 123, net earnings and earnings per share would have been as


                                                 Three Months                   Six Months
                                                 Ended June 30,                Ended June 30,
                                              2004           2003            2004            2003
                                           -----------    -----------    -----------    -----------

Net loss as reported                       $(1,274,150)   $  (112,821)   $(1,621,547)   $  (215,713)

Compensation recognized under:
      APB 25                                        --             --             --             --
      SFAS 123                                (143,673)        (5,191)      (161,819)        (6,951)
                                           -----------    -----------    -----------    -----------

Proforma net loss                          $(1,417,823)   $  (118,012)   $(1,783,366)   $  (222,664)
                                           ===========    ===========    ===========    ===========

Basic and diluted loss per common share:
       As reported                         $     (0.10)   $     (0.02)   $     (0.12)   $     (0.03)
       Proforma                            $     (0.11)   $     (0.02)   $     (0.14)   $     (0.03)


In July, 2004, the Company entered into an agreement with 4P Management Partners
S.A. of Zurich,  Switzerland,  to perform  investor  relations  services for the
Company in Europe.  The Company  issued two warrants to 4P  Management  Partners
S.A. to purchase  an  aggregate  of 100,000  shares of common  stock.  The first
warrant for 50,000 shares vests  immediately with an exercise price of $1.50 per
share and a five year  expiration  term.  The second  warrant for 50,000  shares
vests ratably each month over one year with an exercise price of $3.50 per share
and a five year expiration term.



      In addition to historical  information,  the information  included in this
Form 10-QSB contains  forward-looking  statements  within the meaning of Section
27A of the  Securities  Act of 1933,  as amended  (the  "Securities  Act"),  and
Section 21E of the  Securities  Exchange Act of 1934, as amended (the  "Exchange
Act"),  such as those  pertaining  to our  capital  resources,  our  ability  to
complete  the  research  and  develop  our  products,  and our ability to obtain
regulatory  approval  for  our  products.   Forward-looking  statements  involve
numerous risks and uncertainties and should not be relied upon as predictions of
future events. Certain such forward-looking  statements can be identified by the
use of forward-looking terminology such as "believes," "expects," "may," "will,"
"should,"   "seeks,"   "approximately,"   "intends,"   "plans,"   "pro   forma,"
"estimates,"  or  "anticipates"  or  other  variations   thereof  or  comparable
terminology,   or  by  discussions  of  strategy,  plans  or  intentions.   Such
forward-looking  statements are necessarily  dependent on  assumptions,  data or
methods  that  may be  incorrect  or  imprecise  and may be  incapable  of being
realized.  The following factors,  among others,  could cause actual results and
future events to differ  materially  from those set forth or contemplated in the
forward-looking statements: need for a significant amount of additional capital,
lack  of  revenue,  uncertainty  of  product  development,   ability  to  obtain
regulatory approvals in the United States and other countries,  and competition.
Readers are cautioned not to place undue reliance on forward-looking statements,
which reflect our management's  analysis only. We assume no obligation to update
forward-looking statements.



      On October 30, 2003, we completed a reorganization (the  "Reorganization")
in  which  Arbios  Technologies,   Inc.,  our  operating  company,   became  our
wholly-owned subsidiary. At the time of the Reorganization,  we had virtually no
assets and  virtually no  liabilities  (prior to the  Reorganization  we were an
e-commerce  based  company  engaged in the business of acquiring  and  marketing
historical documents). Shortly after the Reorganization,  we changed our name to
"Arbios Systems, Inc." In the Reorganization,  we also replaced our officers and
directors with those of Arbios Technologies,  Inc. Following the Reorganization,
we ceased our  e-commerce  business,  closed our former  offices,  and moved our
offices to Los  Angeles,  California.  We  currently  do not plan to conduct any
business other than the operations Arbios Technologies, Inc. has conducted since
its  organization.   Accordingly,  since  our  prior  operating  results  as  an
e-commerce business are not indicative of, and have no relevance to, our current
or future operations or to our financial  statement,  all financial  information
contained  in the  enclosed  interim  financial  statements  are those of Arbios
Technologies, Inc.

      Although we acquired Arbios Technologies, Inc. in the Reorganization,  for
accounting  purposes,  the  Reorganization was accounted for as a reverse merger
since the stockholders of Arbios  Technologies,  Inc. acquired a majority of the
issued  and  outstanding  shares of our  common  stock,  and the  directors  and
executive  officers  of Arbios  Technologies,  Inc.  became  our  directors  and
executive officers.  Accordingly, the financial statements attached as Item 1 in
Part I above,  and the  description  of our results of operations  and financial
condition,  reflect (i) the operations of Arbios Technologies,  Inc. alone prior
to the Reorganization,  and (ii) the combined results of this company and Arbios
Technologies,  Inc.  since the  Reorganization.  No goodwill  was  recorded as a
result of the Reorganization.

      Since the formation of Arbios Technologies, Inc. in 2000, our efforts have
been  principally  devoted  to  research  and  development  activities,  raising
capital,  and recruiting  additional  scientific  and  management  personnel and
advisors.  To  date,  we have not  marketed  or sold  any  product  and have not
generated  any  revenues  from  commercial  activities,  and we do not expect to
generate  any revenues  from  commercial  activities  during the next 12 months.
Substantially  all of the  revenues  that we have  recognized  to date have been
Small Business  Innovation  Research grants (in an aggregate amount of $283,000)
that we received from the United States Small Business Administration.

      Our current plan of operations for the next 12 months  primarily  involves
research and development activities,  including clinical trials for at least one
of  our  two  potential   products,   and  the  preparation  and  submission  of
applications  to the FDA.  The  actual  amounts we may  expend on  research  and
development  and  related   activities  during  the  next  12  months  may  vary
significantly  depending  on  numerous  factors,  including  the  results of our
research and  development  programs,  the results of clinical  studies,  and the
timing  and  cost of  regulatory  submissions.  However,  based  on our  current
estimates, we believe that we have sufficient financial resources to conduct our
planned operations beyond the next 12 months.


      The  preparation  of financial  statements in conformity  with  accounting
principles  generally  accepted in the United States require  management to make
estimates and assumptions  that affect the reported assets,  liabilities,  sales
and  expenses in the  accompanying  financial  statements.  Critical  accounting
policies are those that require the most subjective and complex judgments, often
employing the use of estimates  about the effect of matters that are  inherently
uncertain. We do not believe that currently there are any alternative methods of
accounting  for our  operations  that  would  materially  affect  our  financial



      Certain prior year amounts have been  reclassified to conform with current
year presentation.

Results of Operations

      Since we are still  developing  our  products and do not have any products
available for sale, we have not yet generated any revenues from sales.  Revenues
of $33,810 and $22,643 for the  three-months  ended June 30, 2004 and 2003,  and
revenues of $33,810 and  $43,018 for the six month  periods  ended June 30, 2004
and 2003 represent revenues recognized from a government research grant.

      General and administrative  expenses of $583,788 and $39,016 were incurred
for the three  months ended June 30, 2004 and 2003.  General and  administrative
expenses of $781,498 and $76,170 were incurred for the six months ended June 30,
2004 and 2003. For the six months ended June 30, 2004, the significant  expenses
consist of $336,000  in non-cash  option  charges for option  grants  awarded to
consultants, $252,000 in fees incurred to outside consultants and professionals,
and $66,000 in salaries and other  administrative  expenses.  The 2003  expenses
consist primarily of legal and audit fees incurred.  Professional fees increased
due to the legal and  accounting  fees and  expenses  related to our status as a
public company and legal  expenses  associated  with the  acquisition of certain
assets  from Circe  Biomedical  Inc.  in April  2004.  In 2004 we also  incurred
additional   consulting  fees  in  connection  with  our  investigation  of  the
suitability  and   advisability  of  submitting  a  Section  510(k)   Pre-Market
Notification with the United States Food and Drug Administration ("FDA") for our
SEPETTM product. General and administrative expenses are expected to remain at a
significantly  higher level than in past periods due to the lease of  additional
office space (effective as of April 1, 2004), the addition of more employees and
consultants  (primarily  to assist  with our  financial  controls  and  investor
relations  strategies  and to evaluate and prepare  submissions to the FDA), and
additional professional and other fees related to being a public company.

      Research and  development  expenses of $728,334 and $95,685 were  incurred
for the three  months  ended June 30, 2004 and 2003.  Research  and  development
expenses of $880,506  and $181,076  were  incurred for the six months ended June
30, 2004 and 2003.  Research and  development  expenses for the six months ended
June 30, 2004  increased  by $699,430  over prior year levels  primarily  due to
$450,000 of purchased  research and  development  from Circe  Biomedical,  Inc.,
$110,000  incurred for various  research and development  consultants  regarding
manufacturing,  regulatory and product management, $65,000 non cash option grant
charges for options awarded to scientific consultants,  $54,000 in higher salary
costs for  scientists  and  technicians,  and $15,000  increase  in  preclinical
testing of  SEPETTM  and  LIVERAIDTM.  We expect our  research  and  development
activities  and expenses  specifically  related to regulatory and clinical trial
costs for  SEPETTM to increase  during the  balance of the  current  fiscal year
ending December 31, 2004.

      Interest  income of $4,385  and  $9,707  was  earned for the three and six
months ended June 30, 2004.  There was no interest income for the  corresponding
2003 periods. In September and October 2003, we raised $4,400,000 in the private
placement of our securities. As a result, during the three and six month periods
ended June 30,  2004,  we  maintained  cash  balances of over $2.5  million.  In
addition,  we used a portion of the  foregoing  offering  proceeds  to repay all
outstanding indebtedness, thereby substantially decreasing our interest expense.

      Our net loss was  $1,274,150  and $112,821 for the three months ended June
30, 2004 and 2003.  The net loss was  $1,621,547 and $215,713 for the six months
ended June 30,  2004 and 2003.  The  increase  in net loss is  attributed  to an
increase in operating  expenses  incurred in the fiscal 2004 periods as compared
to the same periods in 2003 as explained  above without an increase in revenues.
Operating  expenses are expected to further  increase in the current fiscal year
compared to last year as we increase  our  operations,  while  revenues  are not
currently anticipated.



      As of June 30,  2004,  we had cash of  $2,512,000  and  $314,000  of total
indebtedness  (both  long-term  and  current  liabilities  reduced  by  non-cash
unvested  option expense of $175,000).  We do not have any bank credit lines. To
date, we have funded our  operations  primarily from the sale of debt and equity
securities  and an SBIR  government  grant.  During  fiscal  2003,  sales of our
securities  consisted of the  following:  (i) $250,000  obtained in January 2003
from the sale of our  common  stock  sold at a price of $0.60  per  share;  (ii)
$400,000  raised  from the sale of  subordinated  convertible  promissory  notes
(which  notes were  converted  in October 2003 into common stock and warrants at
$1.00 per  share  immediately  prior to the  Reorganization);  (iii)  $2,310,000
raised in a private  offering of common  stock and  warrants  sold at a price of
$1.00  per  share;  and  (iv)  $1,690,000  obtained  immediately  prior  to  the
Reorganization  in an offering of common stock and  warrants  sold at a price of
$1.00 per share. We have not, however,  raised any capital from financings since
the end of the fiscal year ended  December 31, 2003. Of the 4.4 million  warrant
shares issued in September and October,  2003 are exercisable at $2.50 per share
and are callable by the Company if the common  stock trades at an average  price
of $4 per share for 20 consecutive trading days.

      In April  2004 we  purchased  certain  assets  of Circe  Biomedical,  Inc.
including   Circe's  patent   portfolio,   rights  to  a   bioartificial   liver
(HepatAssist)(TM),  a Phase III Investigational  New Drug application,  selected
equipment,  clinical  and  marketing  data,  and  over  400  standard  operating
procedures and technical validation protocols that have previously been reviewed
by the FDA. The purchase price paid for these assets  consisted of $200,000 paid
at the  closing and our  agreement  to make a second  payment,  in the amount of
$250,000,  on the  earlier  of  April  12,  2006 or when  we have  raised,  on a
cumulative  basis from April 12,  2004,  gross  proceeds of $4 million  from the
issuance  of  debt  or  equity   securities.   We  believe   that  the  original
HepatAssist(TM)  bioartificial  liver that we acquired can be enhanced by, among
other things, increasing the number of pig cells used in the device and by using
a  different  perfusion  platform.  As a result,  we have  recently  shifted our
emphasis from the development of LIVERAID(TM) to the further  development of the
HepatAssist(TM)  bioartificial  liver (we refer to the enhanced  version of this
bioartificial  liver as our BAL 2004  system).  Many of the  standard  operating
procedures  and  technical  protocols  that we acquired will be usable by us and
will  eliminate the need for us to  independently  develop these  procedures and

      We do not  currently  anticipate  that we will  derive any  revenues  from
either product sales or from additional  governmental research grants during the
next twelve months  (other than a $38,200 final payment from the prior  research
grant expected to be received later this year).

      Based on our current plan of operations,  we believe that our current cash
balances will be sufficient  to fund our  foreseeable  expenses for at least the
next twelve months. However, the estimated cost of completing the development of
our products and of obtaining  all required  regulatory  approvals to market our
products is  substantially  greater than the amount of funds we  currently  have
available and  substantially  greater than the amount we could possibly  receive
under  any  governmental  grant  program.  As a  result,  we will have to obtain
significant  additional  funds  during  the next 12  months in order to fund our
operations  after  that  period.  We  currently  expect  to  attempt  to  obtain
additional  financing through the sale of additional equity and possibly through
strategic  alliances  with larger  pharmaceutical  or biomedical  companies.  We
cannot be sure that we will be able to obtain additional  funding from either of
these  sources,  or that the terms under which we obtain  such  funding  will be
beneficial to this company.

      The following is a summary of our contractual cash obligations at June 30,
2004 for the balance of this fiscal year and for the following fiscal years:

                                                                                                 2007 AND
CONTRACTUAL OBLIGATIONS                         TOTAL         2004         2005         2006     THEREAFTER
Purchased Research &Development                $250,000                              $250,000
Long-Term Office Leases                        $428,000     $137,000     $137,000     $77,000    $77,000


      We do not believe that inflation has had a material impact on our business
or operations.

      We are not a party to any off-balance  sheet  arrangements,  and we do not
engage  in  trading  activities  involving  non-exchange  traded  contracts.  In
addition,  we have no financial  guarantees,  debt or lease  agreements or other
arrangements that could trigger a requirement for an early payment or that could
change the value of our assets


      We face a number of substantial risks. Our business,  financial condition,
results of operations and stock price could be harmed by any of these risks. The
following  factors should be considered in connection with the other information
contained in this Quarterly Report on Form 10-QSB.

We are an early-stage company subject to all of the risks and uncertainties of a
new  business,  including  the risk that we may never  market  any  products  or
generate revenues.

      We are a start-up company that has not generated any operating revenues to
date (our only revenues were two government research grants). Accordingly, while
we have been in existence  since November 1999, and Arbios  Technologies,  Inc.,
our  operating  subsidiary,  has been in  existence  since  2000,  we  should be
evaluated  as a  new,  start-up  company,  subject  to  all  of  the  risks  and
uncertainties  normally  associated with a new, start-up company.  As a start-up
company,  we expect to incur  significant  operating  losses for the foreseeable
future,  and  there can be no  assurance  that we will be able to  validate  and
market  products in the future that will generate  revenues or that any revenues
generated will be sufficient for us to become profitable or thereafter  maintain

We have had no product  sales to date,  and we can give no assurance  that there
will ever be any sales in the future.

      All of our products are still in research or development,  and no revenues
have been  generated to date from product  sales.  There is no guarantee that we
will ever develop  commercially viable products.  To become profitable,  we will
have to successfully  develop,  obtain regulatory approval for, produce,  market
and sell our products.  There can be no assurance  that our product  development
efforts  will be  successfully  completed,  that we will be able to  obtain  all
required regulatory approvals,  that we will be able to manufacture our products
at an acceptable cost and with acceptable  quality,  or that our products can be
successfully  marketed  in the  future.  We  currently  do not expect to receive
significant  revenues from the sale of any of our products for at least the next
few years.

Before we can market any of our products,  we must obtain governmental  approval
for  each  of  our   products,   the   application   and  receipt  of  which  is
time-consuming, costly and uncertain.

      The  development,  production and marketing of our products are subject to
extensive  regulation by government  authorities  in the United States and other
countries.  In the U.S.,  SEPET(TM)  and our  bioartificial  liver  systems will
require approval from the FDA prior to clinical  testing and  commercialization.
The process for  obtaining FDA approval to market  therapeutic  products is both
time-consuming  and costly,  with no  certainty of a  successful  outcome.  This
process  includes the conduct of extensive  pre-clinical  and clinical  testing,
which may take longer or cost more than we currently  anticipate due to numerous
factors, including without limitation, difficulty in securing centers to conduct
trials,  difficulty in enrolling  patients in conformity with required protocols
and/or  projected  timelines,  unexpected  adverse  reactions by patients in the
trials to our products,  temporary  suspension  and/or complete ban on trials of
our  products  due to the risk of  transmitting  pathogens  from the  xenogeneic
biologic component, and changes in the FDA's requirements for our testing during
the course of that testing.  We have not yet established with the FDA the nature
and number of clinical  trials that the FDA will require in connection  with its
review and approval of either SEPET(TM) or our  bioartificial  liver systems and
these  requirements  may be more  costly  or  time-consuming  than we  currently


      Each  of our  products  in  development  is  novel  both in  terms  of its
composition and function.  Thus, we may encounter unexpected safety, efficacy or
manufacturing  issues as we seek to obtain marketing  approval for products from
the FDA, and there can be no assurance  that we will be able to obtain  approval
from the FDA or any foreign  governmental  agencies for  marketing of any of our
products.  The failure to receive,  or any significant  delay in receiving,  FDA
approval, or the imposition of significant  limitations on the indicated uses of
our products,  would have a material  adverse effect on our business,  operating
results  and  financial  condition.  Japan's  health  regulatory  authority  has
objected,  and other countries' regulatory  authorities could potentially object
to  the  marketing  of  any  therapy  that  uses  pig  liver  cells  (which  our
bioartificial liver systems are designed to utilize) due to safety concerns.  If
Japan or other countries  impose a ban on the use of therapies that  incorporate
pig cells, such as our bioartificial  liver systems,  we would be prevented from
marketing  our  products  in those  countries.  If we are  unable to obtain  the
approval of the health regulatory  authorities in Japan or other countries,  the
potential market for our products will be reduced.

Because our  products are at an early stage of  development  and have never been
marketed  , we do not know if any of our  products  will  ever be  approved  for
marketing, and any such approval will take several years to obtain.

      Before  obtaining  regulatory  approvals  for the  commercial  sale of our
products,  significant and potentially very costly preclinical and clinical work
will  be  necessary.  There  can  be no  assurance  that  we  will  be  able  to
successfully  complete  all required  testing of SEPET(TM) or our  bioartificial
liver systems. While the time periods for testing our products and obtaining the
FDA's approval is dependent upon many future variable and unpredictable  events,
we estimate that it could take between one to three years to obtain approval for
SEPET(TM), three to five years for LIVERAID(TM),  and two to three years for BAL
2004.  We have not  independently  confirmed  any of the third party claims made
with respect to patents,  licenses or technologies  we have acquired  concerning
the potential  safety or efficacy of these  products and  technologies.  We will
need to file an  investigational  new drug application  ("IND") for LIVERAID(TM)
and an investigational  drug exemption for SEPET(TM) with the FDA and have these
applications  cleared by the FDA before we can begin  clinical  testing of these
two  products,  and the FDA may require  significant  revisions  to our clinical
testing  plans or require us to  demonstrate  efficacy  endpoints  that are more
time-consuming  or difficult to achieve  than what we currently  anticipate.  We
have not yet completed preparation of either the IND or the investigational drug
exemption  application,  and  there  can  be no  assurance  that  we  will  have
sufficient  experimental  data to justify the  submission of said  applications.
Because of the early stage of  development  of each of our  products,  we do not
know if we will be able to generate  clinical  data that will support the filing
of the FDA  applications for these products or the FDA's approval of any product
marketing approval application or IND that we do file.

We need FDA approval before conducting clinical studies of BAL 2004, the cost of
which exceeds our current financial resources.  Accordingly, we will not be able
to conduct such studies until we obtain additional funding.

      We are  currently  considering  requesting  FDA  approval  for a Phase III
clinical  study of the BAL 2004  system.  Such a request  will  require  that we
supplement  and/or amend the existing Phase III IND that was approved by the FDA
for the  original  HepatAssist  system  on  which  the BAL  2004 is  based.  The
preparation  of a modified or  supplemented  Phase III IND will be expensive and
difficult to prepare. Although the cost of completing the Phase III study in the
manner that we currently  contemplate  is uncertain,  if that Phase III clinical
study  is  authorized  by the  FDA,  we  currently  estimate  that  the  cost of
conducting that study would be between $10 million and $12 million. We currently
do not have  sufficient  funds to conduct this study and have not identified any
sources for obtaining the required funds. In addition, no assurance can be given
that the FDA will accept our proposed  changes to the previously  approved Phase
III IND.  The  clinical  tests  that we would  conduct  under  any  FDA-approved
protocol are very  expensive to conduct and will cost much more than our current
financial  resources.  Accordingly,  even if the FDA approves the modified Phase
III IND that we submit for BAL 2004, we will not be able to conduct any clinical
trials until we raise substantial amounts of additional financing.


Our  bioartificial  liver systems utilize a biological  component  obtained from
pigs that could prevent or restrict the release and use of those products.

      Use  of  liver  cells   harvested  from  pig  livers  carries  a  risk  of
transmitting  viruses harmless to pigs but deadly to humans.  For instance,  all
pig cells carry genetic material of the porcine endogenous  retrovirus ("PERV"),
but its ability to infect people is unknown. Repeated testing,  including a 1999
study of 160  xenotransplant  (transplantation  from animals to humans) patients
and recently  completed Phase II/III testing of the HepatAssist  system by Circe
Biomedical,  Inc., has turned up no sign of the  transmission of PERV to humans.
Still,   no  one  can  prove  that  PERV  or  another  virus  would  not  infect
bioartificial liver-treated patients and cause potentially serious disease. This
may result in the FDA or other  health  regulatory  agencies not  approving  our
bioartificial  liver  systems or  subsequently  banning  any  further use of our
product should health  concerns  arise after the product has been  approved.  At
this time, it is unclear  whether we will be able to obtain clinical and product
liability insurance that covers the PERV risk.

      In addition to the potential  health risks  associated with the use of pig
liver  cells,  our use of  xenotransplantation  technologies  may be  opposed by
individuals or  organizations on health,  religious or ethical grounds.  Certain
animal  rights  groups  and  other  organizations  are known to  protest  animal
research and  development  programs or to boycott  products  resulting from such
programs. Previously, some groups have objected to the use of pig liver cells by
other  companies,   including  Circe  Biomedical,  Inc.,  that  were  developing
bioartificial  liver support systems,  and it is possible that such groups could
object to our bioartificial liver system.  Litigation instituted by any of these
organizations,  and negative publicity regarding our use of pig liver cells in a
bioartificial  liver  device,  could  have  a  material  adverse  effect  on our
business, operating results and financial condition.

Because our products  represent new  approaches  to treatment of liver  disease,
there are many  uncertainties  regarding the development,  the market acceptance
and the commercial potential of our products.

      Our  products  will  represent  new  therapeutic  approaches  for  disease
conditions.  We may, as a result, encounter delays as compared to other products
under  development  in  reaching  agreements  with the FDA or  other  applicable
governmental agencies as to the development plans and data that will be required
to obtain  marketing  approvals from these  agencies.  There can be no assurance
that these  approaches  will gain  acceptance  among doctors or patients or that
governmental  or third  party  medical  reimbursement  payers will be willing to
provide  reimbursement  coverage for our products.  Moreover, we do not have the
marketing data resources possessed by the major pharmaceutical companies, and we
have not independently verified the potential size of the commercial markets for
any of our  products.  Since our  products  will  represent  new  approaches  to
treating  liver  diseases,  it may be  difficult,  in any event,  to  accurately
estimate the potential  revenues from our  products,  as there  currently are no
directly comparable products being marketed.


Since we only have sufficient  capital to conduct our operations for the next 12
months, we will need to obtain significant  additional capital, which additional
funding may dilute our existing stockholders.

      Based on our current  proposed plans and  assumptions,  we anticipate that
our existing  funds will only be sufficient to fund our  operations  and capital
requirements  for  approximately  12  months  from the date of this  prospectus.
Furthermore,  the clinical  development  expenses of our  products  will be very
substantial.  Based on our current  assumptions,  we  estimate  that the cost of
developing  SEPET(TM)  will be  between  $500,000  and $2  million,  the cost of
developing BAL 2004 will be between $10 million and 12 million,  and the cost of
developing  LIVERAID(TM)  will be between  $15 million  and $20  million.  These
amounts  are  well in  excess  of the  amount  of cash  that we  currently  have
available  to us.  Accordingly,  we will have to (i) obtain  additional  debt or
equity  financing  during the next 12-month  period in order to fund the further
development of our products and working capital needs,  and/or (ii) enter into a
strategic alliance with a larger pharmaceutical or biomedical company to provide
its required  funding.  The amount of funding needed to complete the development
of one or both of our products will be very  substantial and may be in excess of
our ability to raise capital.

      We have not identified  the sources for the  additional  financing that we
will require,  and we do not have  commitments from any third parties to provide
this  financing.  There can be no  assurance  that  sufficient  funding  will be
available  to us at  acceptable  terms or at all.  If we are  unable  to  obtain
sufficient financing on a timely basis, the development of our products could be
delayed  and we could be  forced to reduce  the  scope of our  pre-clinical  and
clinical trials or otherwise limit or terminate our operations  altogether.  Any
equity  additional  funding that we obtain will reduce the percentage  ownership
held by our existing security holders.

As  a  new  small  company  that  will  be  competing  against  numerous  large,
established  companies that have  substantially  greater  financial,  technical,
manufacturing, marketing, distribution and other resources than us.

      The  pharmaceutical,   biopharmaceutical  and  biotechnology  industry  is
characterized  by intense  competition and rapid and  significant  technological
advancements. Many companies, research institutions and universities are working
in a number of areas  similar to our  primary  fields of interest to develop new
products,  some of which may be  similar  and/or  competitive  to our  products.
Furthermore, many companies are engaged in the development of medical devices or
products that are or will be competitive with our proposed products. Most of the
companies with which we compete have substantially greater financial, technical,
manufacturing, marketing, distribution and other resources than us.

We will need to outsource and rely on third parties for the clinical development
and manufacture and marketing of our products.

      Our business model calls for the outsourcing of the clinical  development,
manufacturing  and  marketing of our products in order to reduce our capital and
infrastructure  costs as a means of potentially  improving the  profitability of
these  products for us. We have not yet entered into any strategic  alliances or
other  licensing  or  contract   manufacturing   arrangements  (except  for  the
contractual  manufacturing  of LIVERAID(TM)  modules by Spectrum Labs) and there
can be no assurance that we will be able to enter into satisfactory arrangements
for these services or the  manufacture or marketing of our products.  We will be
required  to expend  substantial  amounts to retain and  continue to utilize the
services of one or more clinical research management  organizations  without any
assurance that the products covered by the clinical trials conducted under their
management  ultimately  will  generate  any revenues  for  SEPET(TM)  and/or our
bioartificial liver systems. Consistent with our business model, we will seek to
enter into strategic  alliances  with other larger  companies to market and sell
our products.  In addition,  we may need to utilize  contract  manufacturers  to
manufacture  our products or even our commercial  supplies,  and we may contract
with  independent  sales and marketing firms to use their  pharmaceutical  sales
force on a contract basis.


      To the extent that we rely on other companies to manage the conduct of our
clinical trials and to manufacture or market our products,  we will be dependent
on the timeliness and  effectiveness of their efforts.  If the clinical research
management  organization  that we  utilize  is  unable  to  allocate  sufficient
qualified  personnel  to our studies or if the work  performed  by them does not
fully satisfy the rigorous requirement of the FDA, we may encounter  substantial
delays  and  increased  costs  in  completing  our  clinical   trials.   If  the
manufacturers  of the raw material and finished  product for our clinical trials
are  unable to meet our time  schedules  or cost  parameters,  the timing of our
clinical trials and development of our products may be adversely  affected.  Any
manufacturer  that we  select  may  encounter  difficulties  in  scaling-up  the
manufacture  of  new  products  in  commercial  quantities,  including  problems
involving  product yields,  product  stability or shelf life,  quality  control,
adequacy of control procedures and policies, compliance with FDA regulations and
the need  for  further  FDA  approval  of any new  manufacturing  processes  and
facilities.  Should our manufacturing or marketing company encounter  regulatory
problems  with the FDA,  FDA  approval of our  products  could be delayed or the
marketing of our products could be suspended or otherwise adversely affected.

Because we are dependent on Spectrum  Laboratories,  Inc. as the manufacturer of
our  LIVERAIDTM  cartridges,  any failure or delay by Spectrum  Laboratories  to
manufacture the cartridges will impact future operations.

      We have an exclusive manufacturing arrangement with Spectrum Laboratories,
Inc. for the  fiber-within-fiber  LIVERAID(TM)  cartridges.  Although we have no
agreement with Spectrum Laboratories,  Inc. for the manufacture of the SEPET(TM)
cartridges, Spectrum Laboratories has also been providing us with cartridges for
prototypes of the SEPET(TM) and has expressed an interest in  manufacturing  the
BAL 2004 cartridge. Spectrum Laboratories, Inc. has encountered certain problems
manufacturing the LIVERAID(TM) and SEPET(TM)  cartridges for us, which problems,
if not remedied,  may limit the amount and timeliness of cartridges  that can be
manufactured.  There can be no assurance  that we will not  encounter  delays or
other manufacturing  problems with Spectrum Labs with respect to our clinical or
commercial supplies of LIVERAID(TM) (and/or our SEPET(TM) cartridges if we agree
to have Spectrum Laboratories  manufacture the SEPET(TM)  cartridges).  Although
Spectrum  Labs has  agreed to  transfer  all of the  know-how  related  to these
products to any other manufacturer of our products,  if Spectrum Laboratories is
unable to meet its  contractual  obligations  to us, we may have  difficulty  in
finding a replacement manufacturer or may be required to alter the design of the
LIVERAID (TM)  cartridges if we are unable to effectively  transfer the Spectrum
Labs know-how to another manufacturer.

      We currently do not have a  manufacturing  arrangement  for the cartridges
used in the BAL 2004  system.  While we  believe  there  are  several  potential
contract  manufacturers  who  can  produce  these  cartridges,  there  can be no
assurance that we will be able to enter into such an arrangement on commercially
favorable terms, or at all.

We may not have sufficient  legal  protection of our proprietary  rights,  which
could result in the use of our intellectual properties by our competitors.

      Our ability to compete  successfully  will depend, in part, on our ability
to defend  patents that have issued,  obtain new patents,  protect trade secrets
and operate without  infringing the proprietary  rights of others.  We currently
own 11 U.S. patents on our liver support products,  three foreign patents,  have
one patent application  pending,  and are the licensee of seven additional liver
support patents. We have relied  substantially on the patent legal work that was
performed for our assignors and licensors  with respect to all of these patents,
application and licenses,  and have not  independently  verified the validity or
any other  aspects of the patents or patent  applications  covering our products
with our own patent counsel.


      Even when we have obtained patent protection for our products, there is no
guarantee  that the  coverage of these  patents  will be  sufficiently  broad to
protect  us from  competitors  or that we will be able to  enforce  our  patents
against potential infringers.  Patent litigation is expensive, and we may not be
able to afford the costs.  Third  parties  could also assert  that our  products
infringe patents or other proprietary rights held by them.

      We will attempt to protect our  proprietary  information  as trade secrets
through nondisclosure agreements with each of our employees, licensing partners,
consultants, agents and other organizations to which we disclose our proprietary
information.  There can be no assurance,  however,  that these  agreements  will
provide  effective  protection for our  proprietary  information in the event of
unauthorized use of disclosure of such information.

The  development  of our products is dependent  upon Dr. Rozga and certain other
persons,  and the loss of one or more of these key persons would  materially and
adversely affect our business and prospects.

      We are highly  dependent on Jacek Rozga,  MD, PhD, our President and Chief
Scientific  Officer.  To a lesser  extent,  we also  depend upon the medical and
scientific  advisory  services  that we receive from the members of our Board of
Directors, all of whom have extensive backgrounds in medicine.  However, each of
these individuals, except Dr. Rozga, works for us as an unpaid advisor only on a
part-time, very limited basis. We are also dependent upon the voluntary advisory
services of Achilles A. Demetriou, MD, PhD, FACS, the other co-founder of Arbios
Technologies,  Inc. and the Chairman of our Scientific Advisory Board. We do not
have a long-term  employment  contract with Dr. Jacek Rozga, and the loss of the
services of either of the foregoing persons would have a material adverse effect
on our business,  operations and on the  development of our products.  We do not
carry key man life insurance on either of these individuals.

      As we expand the scope of our  operations  by preparing  FDA  submissions,
conducting   multiple  clinical  trials,   and  potentially   acquiring  related
technologies, we will need to obtain the full-time services of additional senior
scientific and management personnel. Competition for these personnel is intense,
and  there  can be no  assurance  that we will be  able  to  attract  or  retain
qualified  senior  personnel.  As we  retain  full-time  senior  personnel,  our
overhead  expenses for salaries and related  items will  increase  substantially
from current levels.


Evaluation of Disclosure Controls and Procedures:

      Our management,  under the supervision and with the  participation  of our
chief executive officer/ chief financial officer, conducted an evaluation of our
"disclosure  controls and procedures" (as defined in the Securities Exchange Act
of 1934 Rules  13a-14(c))  as of the end of the June 30,  2004  fiscal  quarter.
Based on their evaluation,  our chief executive  officer/chief financial officer
concluded that as of the evaluation date, our disclosure controls and procedures
are  effective to ensure that all material  information  required to be filed in
this Quarterly Report on Form 10-QSB has been made known to him.


Changes in Internal Controls:

      Our  Board  of  Directors  has  adopted  a Code of  Ethics  for its  Chief
Executive Officer and Chief Financial  Officer,  as well as a Code of Ethics for
its  employees.  These Codes are  intended to ensure  compliance  with rules and
regulations, promote honest and ethical behavior and to prevent wrongdoing.

      Based  on  his  evaluation  as of  June  30,  2004,  the  chief  executive
officer/chief  financial  officer  has  concluded  that there  were no  material
changes in the company's  internal  controls over financial  reporting or in any
other  areas  that  could  materially  affect the  company's  internal  controls
subsequent  to the  date of his most  recent  evaluation,  including  corrective
actions with regard to significant deficiencies and material weaknesses.



      On June 14, 2004, we filed a registration  statement on Form SB-2 with the
Securities and Exchange  Commission to register  12,740,597 shares of our common
stock,  consisting  of 7,143,097  outstanding  shares owned by certain  existing
stockholders  and 5,597,500  shares  issuable to the selling  stockholders  upon
exercise  of  outstanding  warrants.  The  registration  statement  has not been
declared effective by the Securities and Exchange Commission.


     (a)    Exhibits
     31.1   Certification of Chief Executive Officer and Chief Financial Officer
     32.1   Certification Pursuant to Section 906 of the Sarbanes-Oxley Act

     (b)    Reports on Form 8-K




Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  Registrant has duly caused this Report on Form 10-QSB for the
fiscal  quarter  ended  June  30,  2004,  to be  signed  on  its  behalf  by the
undersigned, thereunto duly authorized the 12th day of August, 2004.


By:  /S/ Jacek Rozga, M.D., Ph. D
Jacek Rozga, M.D., Ph. D
Chief Executive Officer and Chief Financial Officer