DRAFT 3/24/04
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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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

                                   FORM 10-KSB

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE
       ACT OF 1934

       For the fiscal year ended December 31, 2003

[ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934

       For the transition period from  _________ to _________


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

                        Commission File Number: 000-32603


                              ARBIOS SYSTEMS, INC.
                 (Name of small business issuer in its charter)


             NEVADA                                           91-19553323
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                           Identification No.)


        110 NORTH GEORGE BURNS ROAD
               SUITE D-4018
             LOS ANGELES, CA                                      90048
 (Address of principal executive offices)                       (Zip Code)


                     Issuer's Telephone Number: 310-423-7702

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001
par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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.
Yes [X]  No [ ]

Check if disclosure of delinquent  filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of the registrant's  knowledge,  in definitive  proxy or information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB. [__]

Issuer's revenues for its most recent fiscal year:  $ 138,000

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity,  as of March 23,
2004 was approximately $17,091,194 based the closing sales price reported by the
OTC Bulletin Board on such date.

There were 13,150,598  shares of the Company's common stock outstanding on March
29, 2004.

Transitional Small Business Disclosure Format (check one):  YES [ ]  NO [X]

DOCUMENTS INCORPORATED BY REFERENCE:  None.

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                                TABLE OF CONTENTS

                                     PART I

1.   Description of Business................................................  1
2.   Description of Property................................................  14
3.   Legal Proceedings......................................................  14
4.   Submission of Matters to a Vote of Security Holders....................  14

                                     PART II

5.   Market for Common Equity and Related Stockholder Matters...............  15
6.   Management's Discussion and Analysis or Plan of Operation..............  15
7.   Financial Statements...................................................  25
8.   Changes In and Disagreements With Accountants on Accounting and
     Financial Disclosure...................................................  25
8A.  Controls and Procedures................................................  26

                                    PART III

9.   Directors, Executive Officers, Promoters and Control Persons;
     Compliance with Section 16(a) of the Exchange Act......................  26
10.  Executive Compensation.................................................  28
11.  Security Ownership of Certain Beneficial Owners and Management and
     Related Stockholder Matters............................................  31
12.  Certain Relationships and Related Transactions.........................  32
13.  Exhibits and Reports on Form 8-K.......................................  33
14.  Principal Accountant Fees and Services.................................  35





INTRODUCTORY COMMENT

      Throughout this Annual Report on Form 10-KSB, the terms "we," "us," "our,"
and "our company" refer to Arbios Systems,  Inc., a Nevada corporation  formerly
known as Historical  Autographs U.S.A.,  Inc., and, unless the context indicates
otherwise, also includes our wholly-owned subsidiary, Arbios Technologies, Inc.,
a Delaware corporation.

FORWARD LOOKING STATEMENTS

      This annual report contains forward-looking  statements within the meaning
of the federal securities laws. These include statements about our expectations,
beliefs,  intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate,"  "expect," "intend," "plan," "will," "we believe,"
"the  company  believes,"   "management  believes"  and  similar  language.  The
forward-looking statements are based on our current expectations and are subject
to certain risks,  uncertainties  and assumptions,  including those set forth in
the discussion under "Description of Business" and "Management's  Discussion and
Analysis  or Plan of  Operation  - Factors  that May Affect  Future  Results and
Market  Price of Our  Stock."  Our actual  results  may differ  materially  from
results   anticipated  in  these   forward-looking   statements.   We  base  our
forward-looking  statements  on  information  currently  available to us, and we
assume  no  obligation  to  update  them.   All   subsequent   written  or  oral
forward-looking  statements  attributable  to us or persons acting on our behalf
are  expressly  qualified  in their  entirety by  "Management's  Discussion  and
Analysis  or Plan of  Operation  - Factors  that May Affect  Future  Results and
Market Price of Our Stock."

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

COMPANY OVERVIEW

      Arbios  Systems,  Inc.  is a  Nevada  corporation  based  in Los  Angeles,
California.  Through our wholly  owned  subsidiary,  Arbios  Technologies,  Inc.
("ATI"),  a Delaware  corporation,  we seek to develop,  manufacture  and market
liver assist  devices to meet the urgent need for therapy of liver  failure.  We
currently have two products in development;  a novel blood purification  therapy
called selective plasma exchange therapy ("SEPET(TM)") and a novel bioartificial
liver  device  ("LIVERAID(TM)").  Both of our  products  consist of a single-use
cartridge  through which the patient's  plasma is circulated to provide  various
liver support functions. The SEPET cartridge is designed to remove toxins in the
patient's blood, while the LIVERAID  cartridge, which contains sterile pig liver
cells, is designed to artificially provide liver functions.

      Arbios  Systems,  Inc. was  originally  incorporated  in February  1999 as
Historical  Autographs  U.S.A.,  Inc.  ("HAUSA").  HAUSA was an e-commerce based
company engaged in the business of acquiring and marketing historical documents,
such as letters,  photographs and signatures of political and military  figures,
inventors, Nobel Prize winners,  entertainers,  musicians,  composers,  authors,
artists,   and  well-known   athletes.   HAUSA's  e-commerce  business  was  not
successful.  Since its inception  through June 30, 2003, it generated  less than
$200,000  of  revenues,  while  incurring  a  cumulative  loss of  approximately
$45,000. Accordingly,  HAUSA sought other business opportunities,  including the
acquisition of ATI.

      On   October   30,   2003,   HAUSA   completed   a   reorganization   (the
"Reorganization") in which HAUSA, through its wholly-owned subsidiary,  acquired
all of the  outstanding  shares of ATI in exchange for 11,930,598  shares of our
common stock.  As a result of the  Reorganization,  ATI became the  wholly-owned
subsidiary  of HAUSA.  Shortly  thereafter,  HAUSA  changed  its name to "Arbios
Systems,  Inc." In the  Reorganization,  HAUSA also  replaced  its  officers and
directors  with those of ATI.  Following the  Reorganization,  we closed HAUSA's
offices,  ceased HAUSA'a e-commerce  business,  and moved HAUSA's offices to our
current offices in Los Angeles,  California. We currently do not plan to conduct
any business other than operations heretofore conducted by ATI.


                                       1



PRODUCT OVERVIEW

      LIVERAID(TM)  is a  single-use  cartridge  that  contains pig liver cells,
certain sorbents, and specially designed porous tubes. When a patient's blood is
pumped through the cartridge,  substances normally  metabolized by the liver and
accumulated  in the blood during liver failure move across the porous tubes into
two compartments, one of which is filled with pig liver cells and the other that
incorporates chemical particles (sorbents) capable of removing toxins that cause
liver  failure.  At the same time,  substances  produced by pig liver cells move
across  the  porous  wall into the blood  compartment.  As a result of these two
processes (provision of whole liver functions by the pig liver cells and removal
of  toxins by the  sorbents),  the  levels  of  pathological  and  normal  blood
components move toward normal ranges.

      SEPET(TM) is a  single-use  cartridge  that  contains  specially  designed
porous tubes.  When patient's  blood is pumped  through these tubes,  substances
normally  metabolized  by the liver and  accumulated  in the blood  during liver
failure move across the porous wall and are discarded. As a result of this blood
purification   (detoxification)   process,  the  levels  of  pathological  blood
components move toward normal ranges.

      In order to provide LIVERAID(TM) or SEPET therapy,  each of the cartridges
is placed on a blood perfusion  apparatus  (such as a dialysis  machine) that is
attached to the patient's blood circulation system. At the end of the treatments
with either of our products,  the disposable  cartridges are discarded,  and new
cartridges are used for the next therapy.

BACKGROUND OF ARBIOS TECHNOLOGIES, INC.

      ATI was formed in August of 2000 by Drs. A. A. Demetriou and J. Rozga, two
leaders in the field of artificial  liver therapy.  As employees of Cedars-Sinai
Medical Center,  Drs. A. A. Demetriou and J. Rozga previously  developed a first
generation  bioartificial liver that was licensed by Cedars-Sinai Medical Center
in 1994 to W.R. Grace & Co. and then subsequently transferred to other entities.
However,  this  first  generation  device  and  has not yet  been  approved  for
marketing.  ATI was organized by its founders for the purpose of developing more
advanced  and  effective  liver  support  therapies  than  the  first-generation
bioartificial liver that was originally licensed to W.R. Grace & Co.

      To date,  ATI has been  funded the  research  and  development  of its two
products through funds derived from the sale of approximately  $5,485,000 of its
equity  securities and $304,000 of Small  Business  Innovation  Research  (SBIR)
grants  that  have been  awarded  to ATI by the  United  States  Small  Business
Administration.  We intend to apply for additional SBIR grants to fund a portion
of our research expenditures. However, whether or not we receive additional SBIR
grants,  we will have to raise  substantial  additional funds to fund our future
clinical  development expenses and our on-going working capital needs. See "Item
6, Management's Discussion and Analysis or Plan of Operation--Factors Associated
with our Business."

      Our  offices  and   laboratories   (and  those  of  ATI)  are  located  at
Cedars-Sinai Medical Center, Los Angeles,  California. Under our lease agreement
and  other  arrangements  with  Cedars-Sinai,  we have  access to all of the key
development  resources of that leading  medical center (e.g.,  animal  facility,
surgical core facility,  clinical laboratory and others).  Cedars-Sinai  Medical
Center will be considered as the primary clinical testing site.

      We have also entered into various  agreements with Spectrum  Laboratories,
Inc.  ("Spectrum  Labs"),  including  research and  development  agreements  and
manufacturing  agreements.  Spectrum is expected to be the  manufacturer  of the
cartridges to be used in both liver assist  devices.  Spectrum Labs is a company
that  specializes in the  development  and  manufacture of innovative  molecular
separation  products for the  research  community  and is a leading  supplier of
dialysis and ultrafiltration  membranes used for biomedical research,  molecular
biology and clinical diagnostics throughout the world.


                                       2



MARKETS

      The  total  market  opportunity  for   extracorporeal   liver  support  is
substantial  and unserved.  According to the American  Liver  Foundation and the
National Center for Health Statistics  (NCHS),  liver failure is the 7th leading
cause of death in the U.S. In 2000, nearly 700,000 Americans were diagnosed with
liver disease and over 250,000 liver  patients  were  hospitalized  due to acute
liver  failure.  Of those,  nearly  50,000 (20%) died because no donor liver was
available   or  because   these   patients   had   contraindications   to  liver
transplantation.  The  remaining  200,000  patients  were  discharged  from  the
hospital  because they either  received a liver  transplant  or their  condition
improved  after  receiving  conventional  care.  Remarkably,  half of them  were
hospitalized  again in the same year due to  another  episode  of liver  failure
requiring full medical  support and/or organ  replacement.  Based on these data,
the  NCHS  estimates  that  more  than  200,000   extracorporeal  liver  support
treatments are needed annually in the U.S. alone as a bridge to recovery with or
without transplantation.

      Due to the  critical  nature of liver  failure and the  resulting  adverse
effects on other organs,  the  in-patient  cost of liver  failure  treatment can
reach $200,000 without a transplant.  Liver transplants can cost, in some cases,
over $300,000 and that  excludes the $30,000 in  anti-rejection  drugs  required
annually  for life.  Although  our  products  have not yet been  developed  and,
therefore,  it is uncertain what the cost would be for  treatments  using either
the  LIVERAID(TM)  therapy or SEPET(TM)  treatment,  we  currently  believe that
treatments using our technologies will be significantly  less expensive than the
cost of the currently available treatments. Thus, the potential market for these
two therapies in the U.S. alone is significant,  with  opportunities  throughout
the  rest of the  world.  In  addition  to the  potential  cost  savings  on the
treatments  of liver  failure,  the use of our  potential  products  could  also
shorten the time of  hospitalization  for patients with liver  failure,  thereby
also reducing the overall costs of hospitalization.

STRATEGY

      We have  established  collaborations  with  Cedars-Sinai  Medical  Center,
Spectrum Labs. These  collaborations  are expected to facilitate the development
of SEPET(TM) and  LIVERAID(TM)  and could  potentially  accelerate  the clinical
testing,  regulatory  approval and  commercialization  of those  products in the
United States and other markets.

      We believe that the testing and regulatory requirements for SEPET(TM) will
be shorter than for LIVERAID(TM). Accordingly, because of the shorter regulatory
period and the ability of  SEPET(TM)  to operate  through the use of a standard,
currently  available kidney dialysis unit, we expect to complete the development
of SEPET(TM)  before the development of LIVERAID(TM) is completed.  However,  we
will need to raise  significant  additional  capital to be able to generate  the
research,  clinical and manufacturing data necessary to support  applications of
our two products to the United States Food and Drug  Administration  ("FDA") and
regulatory agencies in other countries. We have engaged a consultant to evaluate
whether  SEPET(TM) could qualify to receive market approval from the FDA through
a less complex,  less  time-consuming  and less expensive  procedure  known as a
Section  510(k)  notification  procedure.  We do not know if we will  attempt to
obtain FDA marketing  approval under Section 510(k), of if we do decide to apply
under that section,  whether the FDA will grant us clearance under that section.
We  expect  to make a  determination  on  whether  to  submit a  Section  510(k)
notification later this year.

      We have already concluded in vitro and in vivo testing of the LIVERAID(TM)
prototype  devices and currently plan to commence  clinical testing of SEPET(TM)
during 2004 and clinical  testing of  LIVERAID(TM)  in  2005/2006.  Based on our
current  estimates,  we anticipate  that we will be able to file an  application
requesting  market  approval  of  the  SEPET(TM)  in  2007  and  an  application
requesting marketing approval of the LIVERAID(TM) in 2008.


                                       3



LIVER FUNCTION BACKGROUND

      The liver controls, or affects, almost every aspect of metabolism and most
physiologic  regulatory  processes,  including protein synthesis,  sugar and fat
metabolism, blood clotting, the immune system, detoxification (alcohol, chemical
toxins,  drugs) and waste removal.  Loss of liver function is a devastating  and
life threatening condition.  Liver failure affects all age groups and may be due
to many  causes,  including  viral  infection  (hepatitis),  ingestion of common
medications, alcohol, and surgical liver removal for trauma and cancer.

      For many years,  it was assumed that the toxins that cause coma in hepatic
failure are small dialyzable  molecules.  As a result of this belief, most liver
support   systems  and   therapeutic   regimens  used  in  the  past  relied  on
detoxification,  usually by use of sorption  therapy.  This was performed either
directly on whole blood or plasma,  or coupled with  hemodialysis/hemofiltration
to treat either the dialysate or  hemofiltrate.  None of these  modalities  have
achieved  wide  clinical use or ability to arrest or reverse  liver  failure and
improve survival.  As a consequence,  liver failure patients must either undergo
liver  transplantation or endure prolonged  hospitalization with low probability
of survival.  In  addition,  many  patients do not qualify for  transplantation.
Still others do not recover after transplantation  because of irreversible brain
damage caused by liver failure. Although the liver has a remarkable capacity for
regeneration,  the  repair  process  after  massive  liver  damage  is  markedly
impaired.

      There is a need to develop  artificial means of liver  replacement  and/or
assistance with the aim of either supporting patients with borderline functional
liver cell mass until their  liver  regenerates  or until a donor liver  becomes
available for  transplantation.  Such an "artificial  liver" should also support
patients  during recovery after  transplantation  with marginal livers and after
extended  liver  resections for trauma or cancer.  To achieve these effects,  an
effective  liver  support  system  should  be  able to  lower  blood  levels  of
substances  toxic to the brain and liver and to provide  whole liver  functions,
which are impaired or lost.

      It is generally  believed  that liver  support at this level of complexity
requires utilization of viable isolated liver cells (hepatocytes).  The founders
of  ATI  as  well  as  investigators  not  associated  with  this  company  have
demonstrated  in vitro and in animal  models of liver  failure  that  cell-based
bioartificial  livers can provide  whole liver  functions.  However,  only a few
bioartificial  livers  were  tested in humans and it remains to be seen  whether
systems utilizing  hepatocytes as the only means of liver support are effective.
We believe that in order to provide the maximum  support for the failing  liver,
porcine hepatocyte therapy should be combined with blood  detoxification.  Based
on this principle, the founders of ATI have previously developed at Cedars Sinai
Medical Center a first-generation  bioartificial  liver system that was licensed
by  Cedars-Sinai  Medical Center to W.R. Grace & Co. in 1994. A Phase I clinical
trial was  carried  out at  Cedars-Sinai  Medical  Center and the  results  were
encouraging (16 out of 18 liver failure patients were successfully  "bridged" to
transplantation;  one  bioartificial  liver-treated  patient  recovered  without
transplantation   and  one   patient   died   because  of   concomitant   severe
pancreatitis).   This   first   generation   bioartificial   liver   (known   as
HepatAssist(TM)  System,  and  owned  by  Circe  Biomedical,   Inc.,  Lexington,
Massachusetts) was recently tested in FDA-approved Phase II/III clinical trials.
To our  knowledge,  these trials of the  HepatAssit  System were the first large
(171  patients)   prospective,   randomized,   controlled   multi-center   trial
demonstrating a survival advantage for an extracorporeal  liver assist system in
a subgroup of patients with fulminant and subfulminant hepatic failure.

      Our  LIVERAID(TM)  was designed to become a more advanced,  simpler,  less
costly and more effective  application of the basic bioartificial liver concept.
In our system, liver cell therapy (porcine hepatocytes) and blood detoxification
(selective  plasma  exchange or sorbent based plasma  therapy) are combined in a
single device. Depending on the cause of liver disease,  severity of illness and
deficiency of specific liver functions,  these LIVERAID(TM) modes of therapy can
be  provided  individually,  simultaneously  or  sequentially.  Because of these
features, we believe that the system is well suited to treat patients with liver
failure of all etiologies and severity,  including those requiring maximum liver
support.  While  pre-clinical  data has  indicated  that  LIVERAID(TM)  improved
hemodynamic  status,  clearance of ammonia and ICG (a liver  function  test) and
prolonged  survival time of pigs with total liver failure,  our beliefs have not
been  clinically  proven,  and we  will  have to  demonstrate  the  efficacy  of
LIVERAID(TM) in  FDA-approved  clinical trials before our product can be used by
human patients.


                                       4



      In  liver  failure   patients,   the  clearing  of  blood  of  neuro-  and
hepatotoxins  is highly  desirable  and there is a need for an  effective  blood
purification  therapy.  SEPET(TM) (selective plasma exchange) is a novel form of
such therapy.  During SEPET(TM) the plasma fraction  containing  substances that
are toxic to the brain, the liver and other internal organs and tissues would be
removed from  patient  blood and replaced  with normal human  plasma.  Recently,
preliminary  proof of  feasibility  for  selective  removal of the toxic  plasma
fraction  was  provided by a group of  investigators  from Hong Kong  University
School of  Medicine.  In their  studies,  pigs with toxic  liver  injury  showed
improved  survival  and  regeneration  of the diseased  liver when  subjected to
selective plasma filtration.

THE PRODUCTS WE ARE DEVELOPING

      SEPETTM

      We are developing SEPET(TM) (selective plasma exchange therapy) as a blood
purification  measure to provide  temporary  liver  support  during  acute liver
failure and acute exacerbation of chronic liver disease.  SEPET(TM) therapy will
be provided through a single-use,  disposable  cartridge  containing a bundle of
hollow fibers made of polysulfone or a similar bio- and hemo-compatible material
and being capable of sieving  substances with molecular weight of up to 100 kDa.
We have entered into an agreement  with  Spectrum  Labs for the  manufacture  of
these    disposable     cartridges.     See,    "Item    1.    Description    of
Business--Manufacturing,"  below.  The  SEPET(TM)  is designed  for use with any
commercially  available  kidney  dialysis  unit and/or plasma  apheresis  system
utilizing  hollow-fiber  cartridges.  Accordingly,  no  apparatus  needs  to  be
developed or manufactured for SEPET(TM).  Accessory components for the SEPET(TM)
(e.g.,  tubings,  connectors,  pressure gauges,  etc.), will consist of standard
components  that are  currently  used in renal  dialysis.  We expect  that these
accessory components will be manufactured for us by third-party vendors.

      During therapy,  ultrafiltrate  containing toxins with molecular weight of
100 kDa or less will be recovered from the side port of the cartridge,  while at
the same time,  commercially  available  (e.g.,  blood bank) fresh frozen plasma
and/or its synthetic substitute will be administered to the patient.

      It is  expected  that as a result of these two  processes,  the  levels of
pathological  and normal blood components  present in the patient's  circulation
will move  toward  normal  ranges,  thereby  facilitating  recovery  from  liver
failure.  Based on  published  medical  literature,  rapid and  efficient  blood
detoxification is expected to protect the liver,  brain and other organs against
further injury,  accelerate healing of the native liver and improve its residual
functions.

      We expect that SEPET(TM) may:

      o     Help keep liver failure  patients  alive and  neurologically  intact
            before, during and immediately after transplantation.

      o     Allow, in selected cases,  survival without a transplant (a "bridge"
            to liver regeneration).

      o     Support   patients   during  periods  of  functional   recovery  and
            regeneration  after  extensive  removal due to liver  trauma  and/or
            cancer.

      o     Accelerate   recovery  from  acute  exacerbation  of  chronic  liver
            disease.

      o     Shorten length of stay in intensive care units.

      o     Shorten hospital stay.

      o     Reduce the cost of care.

      o     Reduce intractable itching associated with severe jaundice.

      We expect to demonstrate  that SEPET(TM) can achieve these effects because
it can lower  blood  levels of  substances  that are toxic to both the brain and
liver.  However,  proof of feasibility is lacking at this time, and the clinical
utility  of  this  product  still  needs  to  be   demonstrated   in  vivo  with
experimentally-induced acute liver failure.


                                       5



      LIVERAID(TM)

      We have designed and are attempting to demonstrate  that our  LIVERAID(TM)
product can provide temporary liver support during acute liver failure and acute
exacerbation  of  chronic  liver  disease.  The  LIVERAID(TM)  utilizes a unique
multi-compartment hollow fiber module incorporating viable pig liver cells and a
blood detoxification  circuit. The module is attached to a base instrument which
facilitates  perfusion of the LIVERAID(TM) with a patient's  plasma.  The hollow
fibers will be made of a  polyethersulfone  membrane or a similar material based
on our  proprietary  fiber-within-a-fiber  geometry.  This  geometry  allows for
integration of at least two functions  within a single module.  Depending on the
etiology of liver disease,  severity of illness and deficiency of specific liver
functions,  the  LIVERAID(TM)  is designed to offer  liver cell  therapy,  blood
detoxification or a combination thereof.  During treatment,  individual modes of
therapy may be added or removed. We currently are attempting to demonstrate that
pig liver cells can be harvested and cryopreserved  through  proprietary  patent
protected  technology  that has been  exclusively  licensed  to ATI.  The  other
components of  LIVERAID(TM),  including blood  purification  columns  (charcoal,
resin), are available from third party vendors.

      The critical  aspects of  LIVERAID(TM)  technology  include the source and
procurement of liver cells,  the storage of the liver cells, the number of cells
to be used  during  therapy,  the  cell  module  engineering,  and  LIVERAID(TM)
perfusion  technique.  The following  addresses our current plans and procedures
regarding viable liver cells (hepatocytes);

HEPATOCYTE DONORS.  Ideally, human hepatocytes should be used in a bioartificial
liver.  However,  there  is a  shortage  of  organ  donors  and  published  data
demonstrated  that pig liver cells  outperform  animal and even human liver cell
lines,  including  those derived from liver cancers.  In addition,  use of human
cancer-derived cells raises safety concerns.  At this time, we intend to utilize
normal pig liver cells.

HEPATOCYTE  HARVEST.  The  founders  of our  ATI  subsidiary  have  developed  a
semi-automated  method for large-scale harvest of pig hepatocytes with excellent
yield and cell viability. The method of harvesting and collecting liver cells is
covered by two patents,  which patents have been licensed to ATI by Cedars-Sinai
Medical Center.

HEPATOCYTE STORAGE. Hepatocyte storage, quality control and shipment of cells to
treatment   sites   are  best   achieved   by  use  of  cell   freezing   (i.e.,
cryopreservation).   Cryopreservation  also  provides  greater  protection  from
bacterial  and viral  contamination  because  frozen  cells can be stored  until
microbiologic testing is completed and cells are then released for clinical use.
Prior to use,  cells are  rapidly  thawed and their  viability  is  tested.  The
founders  of  ATI  have   developed  a  patented   hepatocyte   cryopreservation
technology,  which technology is now owned by Cedars-Sinai  Medical Center.  The
patent for this  technology  has been  licensed to ATI by  Cedars-Sinai  Medical
Center.  However, the work on adjusting this technology to clinical needs has as
yet not been done.

HEPATOCYTE  MODULE.  The  LIVERAID(TM)  is  designed  to  utilize a  proprietary
three-compartment  hollow-fiber module with fiber-in-fiber  geometry that allows
integration of two different functions.

BIOARTIFICIAL LIVER PERFUSION  TECHNIQUE.  At present,  most bioartificial liver
systems are perfused with plasma rather than blood.  LIVERAID(TM) is designed to
be perfused with a patient's plasma to prevent leakage of porcine cells and cell
debris into patient blood circulation.  The platform will utilize a commercially
available oxygenator and a disposable tubing kit.

      The  pig  liver  cells  will  be   harvested   from  young   purpose-bred,
pathogen-free,  vaccinated  pigs  raised  in  an  United  States  Department  of
Agriculture  ("USDA")  certified facility  specifically for biomedical  research
purposes.  Each batch of  cryopreserved  pig liver  cells will be  released  for
clinical   use   only   after    proper    verification    of   biosafety    and
viability/functionality   of  the  cells.  We  intend  to  develop   appropriate
laboratory and quality assurance protocols in compliance with FDA requirements.


                                       6



      LIVERAID(TM) is designed to be used in the same manner as any other plasma
therapy device.  In a typical  clinical  procedure,  the operator will install a
LIVERAID(TM)  module and tubing set containing  sorbent  detoxification  columns
into the  blood/plasmaperfusion  platform.  Approximately  15 billion viable pig
hepatocytes  will be seeded into the  extra-fiber  space through the module side
ports.  At the start of treatment,  the platform will be attached to the patient
and the module will be perfused with the  patient's  oxygenated  plasma.  At the
same time, fresh frozen plasma will be recirculated  through the sorbent columns
in the diafiltration  circuit.  Alternatively,  LIVERAID(TM)  modules with inner
fibers that allow selective plasma exchange therapy could be used. At the end of
treatment, the disposables will be discarded as biohazardous waste.

      We  expect  to  demonstrate  that  during  therapy,   substances  normally
metabolized by the liver and  accumulated in the blood during liver failure will
diffuse freely across the porous  membrane into the  compartment  containing pig
liver  cells.  At the same  time,  products  of pig liver cell  metabolism  will
diffuse back into the plasma compartment and then into the blood circuit.  It is
anticipated that as a result of these two processes,  the levels of pathological
and normal  blood  components  present in the  patient's  circulation  will move
toward  normal  ranges,   thereby  facilitating  recovery  from  liver  failure.
Additional   therapeutic   benefits  may  be  provided  by  blood   purification
(detoxification) therapy. In this mode of therapy, small and large protein-bound
toxins,  which  accumulate  in the blood during liver failure are expected to be
removed  either  by  sorbents  (hemodiafiltration)  or during  selective  plasma
exchange. Blood detoxification is believed to protect the liver, brain and other
organs  against  further  injury,  accelerate  healing of the  native  liver and
improve its residual  functions.  Decreased  blood  toxicity is also expected to
prolong the life and  metabolic  activity  of pig  hepatocytes  in  LIVERAID(TM)
module.

      We expect that LIVERAID(TM) may:

      o     Help keep liver failure  patients  alive and  neurologically  intact
            before, during and immediately after transplantation.  Thus, it will
            serve as a "bridge" to  transplantation  and/or functional  recovery
            after transplantation with marginal livers.

      o     Allow   survival   without  a   transplant   (a  "bridge"  to  liver
            regeneration).

      o     Support   patients   during  periods  of  functional   recovery  and
            regeneration  after  extensive  removal due to liver  trauma  and/or
            cancer.

      o     Accelerate   recovery  from  acute  exacerbation  of  chronic  liver
            disease.

      o     Shorten length of stay in intensive care units.

      o     Shorten hospital stay.

      o     Reduce the cost of care.

      o     Reduce intractable itching associated with severe jaundice.

PRODUCT ADVANTAGES

      We believe that  SEPET(TM)as  a blood  purification  therapy will be found
more effective than sorbent-based devices (e.g., charcoal,  resin, silica, etc.)
and whole plasma exchange therapy.

      To the best of our knowledge, LIVERAID(TM) is the only liver assist device
under  development  that is capable of providing  both liver cell  functions and
blood  purification  either  simultaneously  or  sequentially in a versatile and
customized manner depending on the cause and severity of liver failure.

      We  believe  that use of  currently  available  hospital  kidney  dialysis
systems to provide SEPET(TM) therapy may offer the following advantages:


                                       7



      o     Ease of  use.  The  systems  bring  user  friendliness  (e.g.,  pump
            integration,   automation  and  an  intuitive  user   interface)  to
            traditionally complex liver support procedures.

      o     Simplicity.   Kidney  dialysis   systems  are  routinely  used  and,
            therefore, there may be no need for extensive personnel training for
            use of these similar systems in the SEPET(TM).

      o     Low cost.  The cost of therapy is expected to be lower than with any
            other liver assist device that is currently under development.

      o     No  Intensive  Care Unit needed to provide  treatment.  With further
            developments,  SEPET(TM)  may  become  available  for  treatment  of
            patients outside of intensive care unit settings.

      Drs.   Demetriou  and  Rozga,  the  founders  of  ATI  and  the  principal
stockholders of this company,  have previously  demonstrated that  cryopreserved
pig hepatocytes  remain alive (>80%  viability)  after thawing.  Moreover,  they
quickly  aggregate,  forming  liver-like 3-D units,  and resume basic  functions
(e.g.,  drug  metabolism)  at levels  comparable to those seen in intact livers.
Drs.  Demetriou  and Rozga have also  reported  that  treatment  of animals  and
patients with fulminant  hepatic failure with a bioartificial  liver loaded with
freshly  thawed  pig  hepatocytes   prolonged  life,   alleviated   intracranial
hypertension and improved blood chemistry.  In addition, in experimental animals
bioartificial  liver  therapy  improved  native  liver  function  and  triggered
mechanisms regulating liver regeneration.  In addition,  LIVERAID(TM)  treatment
can  be  commenced  with  2-3  hours  of  patient  preparation,  thereby  making
LIVERAID(TM)  therapy  available  on demand.  In  contrast,  other liver  assist
devices under  development  require longer time for preparation prior to patient
treatment (up to several days in some instances).

CLINICAL UTILITY

      The clinical  performance of the SEPET(TM) and  LIVERAID(TM)  has not been
assessed yet.  However,  in vivo large animal  studies have  provided  proofs of
feasibility and clinical efficacy for LIVERAID(TM).  Additionally, virtually all
basic aspects of these new  technologies  (effect of blood  purification,  liver
cell  function,  utility  of  hollow-fiber  membranes,  performance  of a design
incorporating  both pig liver cells and sorbent) have been validated in the past
by Drs.  Demetriou  and Rozga,  the  founders of ATI,  and other  investigators.
Furthermore, the animal and clinical data generated and published to date on the
first-generation  bioartificial  liver,  indicate  that the basic  concept  of a
bioartificial   liver  utilizing   cryopreserved   pig  liver  cells  and  blood
detoxification, is valid and that repeated 6-hour bioartificial liver treatments
are safe and yield measurable therapeutic benefits. Accordingly, we believe that
our  novel,   next-generation   products  will  represent   improvements  and/or
enhancements of earlier technologies.

MARKET OPPORTUNITY

      There is an urgent need for artificial means of liver  replacement  and/or
assistance to facilitate  recovery from liver failure  without a transplant.  An
effective  liver assist device could also help maintain  liver failure  patients
alive until an organ becomes  available for  transplantation.  The SEPET(TM) and
LIVERAID(TM) are designed to treat patients with liver failure of all etiologies
and severity, including acute exacerbation of chronic liver disease.

      The  patient  and  market  opportunity  is  substantial  and  underserved.
According to the American Liver  Foundation,  NCHS and data published in medical
literature, it is estimated that five million Americans have viral hepatitis and
each year as many as 700,000  patients in the United States are  diagnosed  with
liver disease.

      According  to  NCHS,   approximately  250,000  patients  are  hospitalized
annually in the U.S. due to liver  failure.  Of those,  nearly 50,000 (20%) died
(7th  leading  cause of death)  because no donor liver was found or because they
had  contraindications  to transplantation.  The remaining 200,000 patients were
discharged from the hospital  because they either received a liver transplant or
their condition improved after receiving standard of care.  Remarkably,  half of
them were  hospitalized  again in the same year due to another  episode of liver
failure  requiring full medical  support.  At the same time, 2,000 patients with
fulminant hepatic failure were added to the list for urgent transplantation.  As
of April 2002, the United  Network for Organ Sharing  national  patient  waiting
list for liver transplants was 17,641 names long; at least a third of those have
end-stage  hepatitis  C, and within the year almost 2,000 will die waiting for a
transplant.  Because of the hepatitis C epidemic, the transplant waiting list is
expected to increase 500% by 2008.


                                       8



      Based on these  data and NCHS  projections,  we  estimate  that  more than
200,000  extracorporeal  liver support  treatments may be needed annually in the
United  States alone to help keep liver failure  patients  alive until either an
organ becomes  available for  transplantation  or the native liver recovers from
injury.  We believe that SEPET(TM) and LIVERAID(TM) may address this demand and,
based on  published  data,  estimates  that  there  were  approximately  250,000
patients  hospitalized  in the  United  States in 2001 who had  indications  for
SEPET(TM) and/or LIVERAID(TM) therapy.

      At present no direct  treatment  for liver  failure is available  and such
patients  must receive a liver  transplant or endure  prolonged  hospitalization
with significant mortality. Moreover, no prognostic test is available that would
help predict which liver failure patient is likely to survive on medical therapy
alone.  Due to the critical  nature of liver failure and the  resulting  adverse
effects on other organs, the hospitalization costs can be as high as $20,000 per
day.  In fact,  it is  estimated  that  the  in-patient  cost of  liver  failure
treatment  can reach  $200,000  per episode  without a  transplant.  While liver
transplants  have  significantly  increased the chances of survival for patients
with liver failure,  due to a severe shortage of donor livers,  less than 10% of
liver  failure  patients  received a  transplant.  Further,  many liver  failure
patients  were  excluded from the waiting list because of alcohol or drug abuse,
cancer, cardiovascular disease or inadequate post-operative support by family or
others.

      At this time,  based on the  preliminary  information  available to us, we
estimate that the cost of a single treatment with the SEPET(TM) therapy could be
within a $2,000 - $4,000 range and that cost of the  LIVERAID(TM)  therapy could
be  approximately  $20,000.  We anticipate  that SEPET(TM)  and/or  LIVERAID(TM)
therapy will have to be repeated up to 5-7 times before a satisfactory  clinical
outcome  is  obtained.   Based  on  these  estimates  and  the  above  mentioned
projections,  the  potential  U.S.  market for  SEPET(TM)  and  LIVERAID(TM)  is
significant,  with similar  opportunities in countries outside the U.S. However,
we have not confirmed the potential size of these markets through an independent
marketing study.

      If we are successful in demonstrating  the clinical utility of one or both
of our products,  liver failure patients treated with our products may be spared
liver  transplantation  and  the  need  for  life  long  immune-suppression.  In
addition,  these patients can be treated  outside of the intensive care unit and
could be discharged  from the hospital after shorter  stays,  all of which would
reduce costs for healthcare providers and generate a demand for the use of these
products.

      In addition to the U.S.,  the potential  market for our products  includes
Europe and Asia. In China,  liver disease  represents a pressing  health problem
and the need for an effective  liver support therapy is more urgent than in most
other markets.  It has been estimated that there are  approximately  200 million
carriers of the hepatitis  virus B or C in China,  and primary liver cancer is a
common malignancy.  In Japan,  demand for alternative liver  support/replacement
therapies is significant because  transplantation of cadaver livers is virtually
nonexistent.

SALES, MARKETING & DISTRIBUTION

      We currently do not have any  agreements  in place to market either of our
SEPET(TM) and LIVERAID(TM)  products if and when those products are commercially
released,  and we do not currently expect to establish an in-house marketing and
sales program to distribute our products.  We currently  expect to outsource the
sales,  marketing  and  distribution  of  our  products  to  third  parties  who
specialize  in the  sales,  marketing  and  distribution  of  medical  products.
Alternatively,  we may  enter  into  strategic  alliances  with  larger  medical
companies  or license the rights to our  products to such larger  companies.  We
currently  expect that our  products  will be  marketed in the U.S.,  Europe and
Asia.


                                       9



MANUFACTURING

      Through  our  ATI  subsidiary,  we are a party  to  agreements  with  both
Spectrum   Labs  and   Cedars-Sinai   Medical   Center  that  cover  our  future
manufacturing  needs. We currently  anticipate that LIVERAID(TM) devices will be
commercially   manufactured   by  Spectrum   Labs   according   to  an  existing
manufacturing  and supply  agreement  that ATI  entered  into with  Spectrum  in
December 2001. Under that agreement,  the parties agreed that Spectrum Labs will
manufacture  for ATI the hollow fiber  cartridges with  fiber-in-fiber  geometry
that ATI will need for its bioartificial  liver. The agreement provides that the
price of the hollow fiber-in-fiber cartridges to be sold by Spectrum Labs to ATI
will be  determined  by good faith  negotiations  between the  parties.  ATI has
agreed that it will not purchase  cartridges with  fiber-in-fiber  geometry from
any other  manufacturer  unless  Spectrum  Labs is either unable or unwilling to
manufacture  the  cartridges.  See "Item 12. Certain  Relationships  and Related
Transactions."

      With respect to cartridges that we expect will be needed for SEPET(TM), we
anticipate  that such  cartridges  will be  commercially  manufactured by either
Spectrum Labs or a manufacturer of clinical hemodialyzers. Additional disposable
components (tubing kits) may also be manufactured by third party subcontractors.

      The kidney  dialysis  unit that will be used as a platform  for  SEPET(TM)
therapy is not expected to require any  technical  adjustments.  Since  pressure
monitors  and  hemoglobin  detectors  are standard in kidney  dialysis  systems,
addition  of   additional   safety   features   may  not  be   required.   Blood
oxygenator/heat exchangers are available from third party vendors who sell these
products.

      The  platform  we  currently  expect  to use for  LIVERAID(TM)  will be an
existing instrument  manufactured and marketed by an unaffiliated medical device
manufacturer.  The  instrument  we expect to  purchase  has been  certified  and
approved in Europe for  bioartificial  liver use. In order to commence  clinical
testing of  LIVERAID(TM),  by the end of this  current  fiscal year we intend to
purchase two of the instruments  that are outfitted with  custom-made  software,
hook-ups  and  associated  components  (tubing  set)  specifically  for use with
LIVERAID(TM).

      The  pig  liver  cells  will  be   harvested   from  young   purpose-bred,
pathogen-free, vaccinated pigs raised in an USDA certified facility specifically
for biomedical  research purposes.  We have identified a facility that currently
breeds pigs that meet the FDA's requirements.  The liver cells will be harvested
and cryopreserved  under aseptic conditions using our proprietary  technology as
well as commercially available equipment.

      As regards  cell  procurement/cryopreservation,  we do not yet own our own
specialized and certified  bio-secure  porcine liver cell  manufacturing  plant.
Currently,  we expect to subcontract  the manufacture of the porcine liver cells
needed to conduct  Phase  I/II/III  clinical  trials and during  early stages of
commercialization  from one or more third parties who already  manufacture  such
cells. At the conclusion of Phase I/II clinical testing of the LIVERAID(TM),  we
will have to determine whether to build a cell procurement  facility to meet the
expected  requirements  for commercial  sales,  which will require a substantial
capital  investment,  or to continue to purchase such cells from third  parties.
This decision will be based on technical evaluation of the project as well as an
economic evaluation of company performance.

PATENTS AND PROPRIETARY RIGHTS

      Our  subsidiary,  ATI,  has  obtained  exclusive,  worldwide  rights  from
Cedars-Sinai  Medical  Center and  Spectrum  Labs to seven  issued U.S.  patents
protecting  LIVERAID(TM)  and  accompanying  cell   procurement/cryopreservation
technologies. The founders of ATI (Dr. Rozga and Dr. Demetriou) are co-inventors
of both the  semi-automated  methods  for  large-scale  production  of  isolated
pig/human  hepatocytes and  cryopreservation of isolated pig/human  hepatocytes.
Our key  proprietary  LIVERAID(TM)technologies  include the  following  licenses
patents:


                                       10


      1.    A hollow fiber module with unique fiber-in-fiber geometry (US Patent
            #5,015,585  "Method and  Apparatus  for  Culturing  and  Diffusively
            Oxygenating  Cells on Isotropic  Membranes" issued on May 14, 1991).
            We have licensed this patent from Spectrum Labs.

      2.    A  bioartificial  liver system in which liver cell therapy and blood
            detoxification are integrated in a single  fiber-in-fiber module (US
            Patent # 6,582,955  B2 for  "Bioreactor  With  Application  as Blood
            Therapy  Device" issued in June 2003).  We have licensed this patent
            from Spectrum Labs.

      3.    Semi-automated  large-scale  liver cell  procurement  technology (US
            Patent  #5,888,409 for "Methods for Cell  Isolation and  Collection"
            issued on March 30,  1999 and US Patent  #5,968,356  for "System for
            Hepatocyte  Cell  Isolation  and  Collection"  issued on October 19,
            1999,  and related  European  Patent #0 830 099 for  "Apparatus  and
            Method  for Cell  Isolation  and  Collection").  We  licensed  these
            patents from Cedars-Sinai Medical Center.

      4.    Liver cell  cryopreservation  technology  (US Patent  #6,140,123 for
            "Method for Conditioning and Cryopreserving Cells" issued on October
            31, 2000). We licensed this patent from Cedars-Sinai Medical Center.

      5.    A bioartificial  liver device with integrated tubes ("Bioreactor and
            Related Method" US Patent  #6,242,248 B1 issued on June 5, 2001). We
            licensed this patent from Cedars-Sinai Medical Center.

      6.    A  bioartificial  liver device  ("Bioreactor  and Related Method" US
            Patent  #6,207,448  B1 issued on March 27,  2001).  We licensed this
            patent from Cedars-Sinai Medical Center.

      Cedars-Sinai  Medical Center Licenses.  On June 19, 2001, ATI entered into
an agreement with  Cedars-Sinai  Medical Center  pursuant to which  Cedars-Sinai
granted to ATI exclusive and worldwide  rights to the foregoing five patents and
to certain other technical  information.  These rights are and remain  exclusive
over the legal life of the various patents and include,  subject to limitations,
the right to sublicense the patent rights to third parties. In order to maintain
its rights under the license,  ATI is required to expend an aggregate  amount of
$1,760,000  in research and  development  expenses  toward the  development  and
promotion of products  derived from the patents.  ATI's research and development
commitment remains in full force and effect until June 30, 2008. Under the terms
of the  license,  ATI is  obligated  to meet  expenditure  milestones  per annum
through  2008 in order to reach the  required  $1,760,000.  If ATI  expenditures
exceed a given year's milestone, however, such excess may be carried over to the
following  year. To date,  we have spent  approximately  $1,010,000  towards the
fulfillment of this obligation.  Additionally,  Cedars-Sinai  Medial Center will
have nonexclusive  rights to any products derived from the patents. We will have
to pay Cedars-Sinai Medical Center royalty fees equal to 1.5% of the gross sales
price of royalty bearing products. From the third to tenth years of the license,
the royalty fee percent will phase out evenly to 0%. Cedars-Sinai Medical Center
is a major stockholder of this company. See "Item 12. Certain  Relationships and
Related Transactions."

      Spectrum Labs License Agreement.  On December 26, 2001, ATI entered into a
license agreement with Spectrum Labs, pursuant to which Spectrum Labs granted to
ATI an  exclusive,  worldwide  license  to  develop,  make,  use and  distribute
products based on Spectrum Labs' hollow  fiber-in-fiber  technology,  solely for
applications in ATI's liver assist devices.  The license  includes the rights to
the two issued patents referred to above. Provided that ATI purchases the hollow
fiber  cartridges  that it  expects  that it will  need  for its  products  from
Spectrum Labs, ATI will not have to pay a royalty for the license.  In the event
that Spectrum Labs is not the manufacturer of the hollow fiber  cartridges,  ATI
will  have to pay  Spectrum  Labs a  royalty  for the  license  (see,  "Item  1.
Description  of  Business--Manufacturing,"  above).  Unless  the  Spectrum  Labs
license agreement is terminated sooner due to a breach of the license,  the term
of the license will continue until the  expiration of the two patents.  Spectrum
Labs also  agreed to grant ATI a right of first  refusal  to obtain a license to
make,  use,  develop or distribute  products based on Spectrum Labs'  technology
other than in liver assisted products,  provided that such other products are in
the  fields of  artificial  blood  therapy  and  bioprocessing  and  therapeutic
devices. See "Item 12. Certain Relationships and Related Transactions."


                                       11



      In addition to the licenses and technologies  related to LIVERAID(TM),  we
also have the rights to a SEPETTM patent  application  and certain related trade
secrets.  In August 2002, we filed a patent application  regarding our selective
plasma exchange therapy (SEPET(TM)) technology.

      We have not filed for any copyright or trademark protection to date.

RESEARCH AND DEVELOPMENT

      ATI and Spectrum  Labs also entered  into a four-year  research  agreement
pursuant to which ATI and Spectrum  Labs agreed to combine  their  expertise and
their respective technologies to enable ATI to (i) develop liver assist systems,
(ii)  conduct  pre-clinical  and Phase  I-III  clinical  testing,  (iii)  obtain
regulatory approvals and (iv) commercialize such liver assist systems. Under the
terms of the  agreement,  Spectrum  Labs agreed to perform  certain  research on
liver  assist  devices  for ATI during  product  development,  pre-clinical  and
clinical  testing at no cost to ATI.  Spectrum  Labs also  agreed to pay for all
costs and  expenses  in  connection  with the  research  program  and  agreed to
allocate a total of $550,000 to the program  during the research  term.  ATI and
Spectrum  Labs have  recently  agreed that  Spectrum  Labs has now satisfied its
obligations to develop and manufacture  clinical-grade,  second-generation liver
assist devices and that we will pay Spectrum Labs an additional  $54,960 over an
18-month  period.  Spectrum Labs has agreed to perform  additional  research and
development  work as may we may request,  which  additional  future work will be
provided by Spectrum Labs on terms that we may in the future agree to.

COMPETITION

      Our products will compete with numerous  other  products and  technologies
that are currently used or are being  developed by companies,  academic  medical
centers  and  research  institutions.  These  competitors  consist of both large
established  companies  as well  as  small,  single  product  development  stage
companies.  We expect  substantial  competition  from  these  companies  as they
develop  different  and/or novel  approaches to the treatment of liver  disease.
Some of these  approaches  may directly  compete  with the products  that we are
currently developing.

      Other therapies currently available include whole plasma exchange therapy,
a procedure  involving massive plasma  transfusions that is being used primarily
for correction of coagulopathy  in patients with severe acute liver failure.  In
addition,   two  extracorporeal  blood  detoxification   systems  are  currently
available in the U.S. for  treatment of liver  failure:  (1) the Adsorba  column
(Gambro,  Hechingen,  Germany)  which  contains  activated  charcoal and (2) the
BioLogic-DT system (HaemoCleanse,  West Lafayette,  Indiana) utilizing a mixture
of  charcoal,  silica  and  exchange  resins.  Another  therapy,  known  as MARS
(molecular adsorbents  recirculating  system),  combines the specific removal of
the  toxins  of  liver  failure  (albumin  bound  toxins)  using a  hollow-fiber
cartridge  impregnated  with  albumin,  which  is also  added  to the  dialysate
solution.  In Europe and Asia, initial results using MARS in patients with acute
exacerbation of chronic liver disease were encouraging.  Excorp Medical, Inc., a
U.S.  company,  is developing a freestanding  blood perfusion  system  including
pumps, a heat exchanger,  an oxygenator,  pressure  gauges,  safety features and
computer-assisted  monitoring.  Algenix,  Inc. has a device  (LIVE-Rx 2000) that
utilizes pig liver cells and a commercially  available dialysis  cartridge.  The
technology of VitaGen, Inc. (formerly Hepatix) utilizes a cell line derived from
human liver  cancer  tissue and a  conventional  hollow fiber  bioreactor.  RanD
S.r.I.,  an Italian  company,  has developed a radial-flow  bioreactor for liver
cell culture and an integrated  pumping  apparatus in which the patient's plasma
is recirculated  through the bioreactor  loaded with 200 gm of freshly  isolated
pig hepatocytes.  The  bioartificial  liver system has been successfully used in
some patients with fulminant hepatic failure. Hep-Art Co., a Dutch company, also
is clinically testing a bioartificial liver that uses pig hepatocytes.


                                       12



      Several other technologies could potentially  compete with a bioartificial
liver.  These  include  xenotransplantation  (use  of  pig  organs  in  humans),
transplantation of isolated hepatocytes and ex vivo whole liver perfusions.

GOVERNMENT REGULATION

      In  order  to  clinically  test,  manufacture,  and  market  products  for
therapeutic  use, we will have to satisfy  mandatory  procedures  and safety and
effectiveness  standards established by various regulatory bodies. In the United
States,  the Public Health Service Act and the Federal Food,  Drug, and Cosmetic
Act, as amended, and the regulations promulgated  thereunder,  and other federal
and state  statutes and  regulations  govern,  among other things,  the testing,
manufacture,  labeling,  storage,  record keeping,  approval,  advertising,  and
promotion  of  our  products.  Product  development  and  approval  within  this
regulatory  framework  takes a number of years and involves the  expenditure  of
substantial  resources.  After  laboratory  analysis and preclinical  testing in
animals,  an investigational new drug application is filed with the FDA to begin
human testing.  Typically,  a three-phase human clinical testing program is then
undertaken.  In phase 1, small  clinical  trials are  conducted to determine the
safety of the  product.  In phase 2,  clinical  trials are  conducted  to assess
safety and gain preliminary evidence of the efficacy of the product. In phase 3,
clinical trials are conducted to provide  sufficient data for the  statistically
valid proof of safety and  efficacy.  The time and  expense  required to perform
this  clinical  testing can vary and is  substantial.  No action can be taken to
market  any  new  drug  or  biologic  product  in the  United  States  until  an
appropriate  marketing  application  has been  approved  by the FDA.  Even after
initial FDA approval has been obtained,  further clinical trials may be required
to provide  additional data on safety and effectiveness and are required to gain
clearance  for the use of a product as a treatment  for  indications  other than
those initially approved.  In addition,  side effects or adverse events that are
reported  during  clinical  trials  can  delay,  impede,  or  prevent  marketing
approval.  Similarly,  adverse events that are reported after marketing approval
can result in  additional  limitations  being placed on the  product's  use and,
potentially,  withdrawal  of the  product  from the market.  Any adverse  event,
either  before or after  marketing  approval,  can result in  product  liability
claims against us.

      In addition to regulating  and auditing  human  clinical  trials,  the FDA
regulates  and  inspects  equipment,  facilities,  and  processes  used  in  the
manufacturing and testing of such products prior to providing approval to market
a product.  If after receiving clearance from the FDA, a material change is made
in manufacturing equipment,  location, or process,  additional regulatory review
may be  required.  We will also have to adhere  to  current  Good  Manufacturing
Practice  and  product-specific  regulations  enforced  by the FDA  through  its
facilities inspection program. The FDA also conducts regular, periodic visits to
re-inspect  equipment,  facilities,  laboratories,  and processes  following the
initial approval. If, as a result of these inspections,  the FDA determines that
any  equipment,  facilities,  laboratories,  or  processes  do not  comply  with
applicable FDA regulations and conditions of product approval,  the FDA may seek
civil,  criminal,  or  administrative  sanctions  and/or  remedies  against  us,
including the suspension of the manufacturing operations

      The FDA has separate  review  procedures  for medical  devices before such
products may be commercially  marketed in the United States. There are two basic
review procedures for medical devices in the United States. Certain products may
qualify for a Section 510(k) procedure,  under which the manufacturer  gives the
FDA a Pre-Market  Notification,  or 510(k)  Notification,  of the manufacturer's
intention  to  commence  marketing  of the  product at least 90 days  before the
product will be  introduced  for  clinical  use.  The  manufacturer  must obtain
written  clearance  from the FDA before it can commence  marketing  the product.
Among  other  requirements,  the  manufacturer  must  establish  in  the  510(k)
Notification  that the product to be marketed is  "substantially  equivalent" to
another  legally-marketed,  previously  existing  product.  If a device does not
qualify for the 510(k)  Notification  procedure,  the  manufacturer  must file a
Pre-Market Approval  Application.  The Pre-Market Approval  Application requires
more extensive  pre-filing  testing than the 510(k)  Notification  procedure and
involves a significantly  longer FDA review  process.  We do not know if we will
attempt to obtain FDA marketing  approval under Section 510(k) for SEPET,  of if
we do  decide  to apply  under  that  section,  whether  the FDA  will  grant us
clearance for the use of SEPET under that section.  We have engaged a consultant
to advise us with respect to the  availability of a Section 510(k)  notification
and  expect to make a  determination  on  whether  to  submit a  Section  510(k)
notification later this year.


                                       13


      We expect  SEPET(TM)  to be  classified  by the FDA as a Class II  medical
device.  Accordingly,  unless  Section  510(k) is available,  SEPET(TM)  will be
subject  to a  two-step  approval  process  starting  with  a  submission  of an
investigational  new drug exemption  application  to conduct human studies,  and
followed by the  Product and  Establishment  Licensing  applications  (including
Product Marketing Approval or "PMA").

      We  expect  LIVERAID(TM)  to be  classified  by the  FDA  as a  biological
therapeutic and Class III medical device.  Accordingly,  it will be subject to a
two-step approval process starting with a submission of an  investigational  new
drug  application  to conduct  human  studies  followed by the  submission  of a
Product Marketing  Approval and a new drug application.  The latter, if and when
accepted, allows the commercialization of the product.

EMPLOYEES

      We currently employ five full-time employees,  one part-time employee, one
full-time consultant,  and three independent contractors who provide services to
us on a part-time  basis. Of the foregoing  employees and  contractors,  six are
primarily engaged in  administration/management,  and remaining four persons are
involved  in  scientific   research,   product   development  and/or  regulatory
compliance  matters.  In  addition,  certain  members of our Board of  Directors
provide us with  research and  development  assistance  on a part-time,  limited
basis.  For more  information  about our  employees  and  directors see "Item 9.
Directors,  Executive Officers Promoters and Control Persons." Our employees are
not represented by a labor  organization  or covered by a collective  bargaining
agreement.  We have not  experienced  work  stoppages  and we  believe  that our
relationship with our employees is good.

ITEM 2. DESCRIPTION OF PROPERTY.

      We currently  maintain  our  laboratory  and office space at  Cedars-Sinai
Medical  Center in Los Angeles,  California,  which  facilities we lease under a
three-year  lease that expires on June 30, 2004. We currently pay rent of $6,441
per month for the 1,008  square  foot  facility  under the  lease.  Cedars-Sinai
Medical  Center  is a  stockholder  of our  company  and was one of the  initial
stockholders   of  ATI.  See  "Item  12.  Certain   Relationships   and  Related
Transactions."

      In March 2004, we signed a second lease for additional  office space.  The
new office lease will commence on April 1, 2004,  will require us to pay rent of
$5,000 per month,  and will have a term of two years. The new offices consist of
1,700  square  feet of office  space in a building  across  the street  from our
laboratories that are located at Cedars-Sinai Medical Center.

ITEM 3. LEGAL PROCEEDINGS.

      We are not a party to any material legal proceedings.

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

      On October 7, 2003,  stockholders of HAUSA owning  1,000,000 shares of our
common stock, or approximately 82% of the then issued and outstanding  shares of
voting  stock,  executed a written  consent  approving  the amendment to HAUSA's
articles of incorporation to change the name of HAUSA to "Arbios Systems,  Inc."
The  action was taken  pursuant  to Nevada  Revised  Statutes  78.320(2),  which
provides  that any  action  required  or  permitted  to be taken at a meeting of
stockholders  may be taken without a meeting if,  before or after the action,  a
written  consent  thereto  is  signed  by the  stockholders  holding  at least a
majority of the voting  power.  On November 10, 2003,  we mailed an  information
statement to the holders of our common stock  informing them of the action taken
by the majority stockholders on October 7, 2003.


                                       14



                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

      Prior to the  Reorganization,  our  common  stock  was  listed on the Pink
Sheets under the symbol "HIAU," but there was virtually no trading in the common
stock. After the Reorganization, because we changed the name of our company from
Historical Autographs U.S.A., Inc. to Arbios Systems,  Inc., we also changed our
trading  symbol to "ABOS." On March 18, 2004,  our common stock was accepted for
trading on the OTC Bulletin  Board under our  existing  "ABOS"  trading  symbol.
Between the date of the Reorganization, October 30, 2003, and December 31, 2003,
the closing  sales prices of our common  stock,  as reported by Pink Sheets LLC,
have ranged from $2.25 to $3.25 per share.

      As of December 31, 2003,  there were  approximately  137 record holders of
our common stock.  On March 26, 2004,  the closing price of our common stock was
$3.20.

DIVIDENDS AND DIVIDEND POLICY

      We have not paid any cash dividends on our common stock,  and we currently
intend to retain any future  earnings to fund the  development and growth of our
business.

RECENT SALES OF UNREGISTERED SECURITIES

      There were no issuances or sales of our securities by us during the fourth
quarter of 2003 that were not  registered  under the Securities Act of 1933 (the
"Securities  Act") other than the issuance of shares to the former  stockholders
of ATI in the Reorganization. In the Reorganization, we issued 11,930,598 shares
of our common stock to the 72  stockholders  of ATI in exchange for all of their
shares of ATI. All 72 stockholders were "accredited  investors," as that term is
defined  under Rule  501(a) of the  Securities  Act,  and the shares were issued
pursuant  to an  exemption  available  under  Section  4(2)  and Rule 506 of the
Securities  Act.  Prior  to  the  Reorganization,  in  October  2003,  ATI  sold
$1,690,000  of its Units.  Each Unit  consisted of one share of ATI common stock
and a warrant to purchase an additional  share of ATI common stock at a price of
$2.50 per  share,  The Units  were sold at a price of $1.00 per Unit.  The Units
were exchanged in the Reorganization for shares of our common stock and warrants
to purchase our common  stock.  The October 2003 private  placement of Units was
effected  under an  exemption  from  registrations  under  Rule 506 and  Section
18(b)(4)(D) of the Securities Act. The Units were sold to 24 investors, (who are
part of the 72 ATI  stockholders),  all of whom were "accredited  investors," as
that term is defined under Rule 501(a).  We did not retain any  underwriters  in
the October 2003 private placement.

REPURCHASE OF SECURITIES

      We did not  repurchase  any of our common shares during the fourth quarter
of 2003.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      This annual report contains forward-looking  statements within the meaning
of the federal securities laws. These include statements about our expectations,
beliefs,  intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate,"  "expect," "intend," "plan," "will," "we believe,"
"the  Company  believes,"   "management  believes"  and  similar  language.  The
forward-looking statements are based on our current expectations and are subject
to certain risks,  uncertainties  and assumptions,  including those set forth in
the discussion  under  "Description  of Business,"  including the "Risk Factors"
described in that section, and "Management's  Discussion and Analysis or Plan of
Operation." Our actual results may differ materially from results anticipated in
these  forward-looking  statements.  We base our  forward-looking  statements on
information  currently  available to us, and we assume no  obligation  to update
them.


                                       15



OVERVIEW

      Until October 30, 2003,  HAUSA was an e-commerce  based company engaged in
the business of acquiring and  marketing  historical  documents.  On October 30,
2003, HAUSA completed a reorganization (the "Reorganization") with ATI, in which
ATI  became  the   wholly-owned   subsidiary  of  HAUSA.  At  the  time  of  the
Reorganization,  HAUSA had virtually no assets and virtually no liabilities.  In
addition,  between the time of its inception through the  Reorganization,  HAUSA
had generated less than $200,000 of revenues,  while incurring a cumulative loss
of approximately  $45,000.  Shortly after the Reorganization,  HAUSA changed its
name to "Arbios Systems,  Inc." In the  Reorganization,  HAUSA also replaced its
officers and  directors  with those of ATI.  Following  the  Reorganization,  we
closed HAUSA's offices,  ceased HAUSA's e-commerce  business,  and moved HAUSA's
offices to our current offices in Los Angeles,  California.  We currently do not
plan to conduct any business other than operations  heretofore conducted by ATI.
Accordingly,  the prior  operating  results of HAUSA are not  indicative  of our
future operations, and none of the assets or liabilities on our balance sheet as
of December 31, 2003 relate to HAUSA prior to the Reorganization.

      Although  HAUSA  was  the  legal  acquirer  in  the  Reorganization,   for
accounting  purposes,  the  Reorganization was accounted for as a reverse merger
since the  stockholders of ATI acquired a majority of the issued and outstanding
shares of our common stock,  and the  directors  and  executive  officers of ATI
became  our  directors  and  executive  officers.   Accordingly,  the  financial
statements  attached  as Item 7 below,  and the  description  of our  results of
operations  and  financial  condition,  reflect (i) the  operations of ATI alone
prior to the  Reorganization,  and (ii) the combined results of this company and
ATI  since the  Reorganization.  No  goodwill  was  recorded  as a result of the
Reorganization.

      Since the  formation  of ATI 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 $249,000) that we received from the
United  States Small  Business  Administration.  We are  currently  preparing an
additional  application for a United Stated  governmental  grant that we plan to
submit during 2004. However, even if the application is prepared and filed and a
grant is approved, no funds from such a grant would be received during 2004.

      We currently are also  considering  purchasing  certain assets,  including
additional patents and other intellectual properties, to enhance our proprietary
rights  and  to  accelerate  the  development  and  regulatory  approval  of our
products.  While we are considering such  acquisitions,  we have not yet entered
into a definitive agreement for any such acquisition.  Future acquisitions could
affect our  financial  resources  and our  liquidity  in a manner that we cannot
currently project.

      Our current plan of operation  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, the timing
of  regulatory  submissions,  and the  possible  acquisition  of assets that may
reduce the need for certain research and development activities.  However, based
on our current estimates, we believe that we have sufficient financial resources
to conduct our planned operations beyond the next 12 months.

CRITICAL ACCOUNTING POLICIES

      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.  Certain critical accounting policies,  including the assumptions and
judgments  underlying  them,  are  disclosed  in the Note 1 to the  Consolidated
Financial Statements included in this annual report.


                                       16



RESULTS OF OPERATIONS

COMPARISON  OF FISCAL YEAR ENDED  DECEMBER  31, 2003 TO YEAR ENDED  DECEMBER 31,
2002.

      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
for fiscal  year 2003  ($138,000)  and  fiscal  year 2002  ($111,000)  represent
revenues  recognized  during those periods from two government  research  grants
that we have received.  The total amount of the two grants is $304,000, of which
we have  received  $249,000.  We  anticipate  that the balance of the  foregoing
grants, a total of $55,000, will be recognized as revenues and paid to us during
2004.

      General  and   administrative   expenses  consist  primarily  of  salaries
(including  amounts paid under our existing loan-out agreement with Cedars-Sinai
Medical Center),  office and equipment lease expenses, and professional fees and
expenses.  General and  administrative  doubled from  $173,000 in fiscal 2002 to
$340,000  in fiscal  2003 due to an  increase  in the  number of  employees  and
consultants  employed by us in fiscal 2003, and increased  professional fees. On
December  31,  2002,  we had eight  employees  and  consultants.  The  number of
employees  and  consultants  increased to ten on December 31, 2003. In addition,
professional fees increased during 2003 due to the legal and accounting fees and
expenses related to the Reorganization and the additional legal,  consulting and
accounting fees and expenses  related to our status as an active public company.
General and  administrative  expenses  are  expected to  significantly  increase
during the  current  fiscal year  ending  December  31, 2004 due to the lease of
additional office space (which new lease goes into effect on April 1, 2004), the
addition  of more  employees  and  consultants  (primarily  to  assist  with our
financial  controls 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 consisted primarily of salaries for our
scientists and technicians,  laboratory costs, and the cost scientific supplies.
Research and development expenses remained  substantially  unchanged from fiscal
2002 to fiscal 2003 because of the limited amount of capital  available to us in
2003 and because of our focus on completing the studies  sponsored and funded by
the SBIR.  However,  we expect  our  research  and  development  activities  and
expenses to increase  significantly  in the current fiscal year ending  December
31, 2004.

      Interest  expense  increased  from  $1,000 in fiscal  2002 to  $243,000 in
fiscal 2003 due the $400,000 we borrowed  from certain  investors  during fiscal
2003.  The $400,000  aggregate  amount of loans were  represented by convertible
notes that were issued to the investors.  In addition to the convertible  loans,
the investors also  received,  in the  aggregate,  warrants to purchase  300,000
shares of our common stock at an exercise  price of $1.00 per share.  All of the
loans were  converted by the  investors  in October 2003 into 400,000  shares of
common stock. The $243,000 interest expense in fiscal 2003 represents a non-cash
expense  recognized  under  accounting  rules  based on the value of  conversion
feature of the convertible notes and the value attributed to the warrants. Since
the convertible  notes have all been converted,  no additional  interest will be
accrued under these notes during the current fiscal year.

      Our net loss  increased to $886,000 in fiscal 2003 from $495,000 in fiscal
2002 due to the increased  operating and other expenses incurred in fiscal 2003.
Operating  expenses are expected to further  increase in the current fiscal year
as  we  increase  our   operations,   while  revenues  are  expected  to  remain
insignificant.

LIQUIDITY AND CAPITAL RESOURCES

      As of December 31,  2003,  we had cash of  $3,507,000  and only a total of
$169,000 of total indebtedness (both long-term and current  liabilities).  We do
not have any bank credit lines.  To date, we have funded our operations from the
sale of debt and equity  securities.  During  fiscal  2003,  these  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.


                                       17


      Our net loss for  fiscal  2003 was  $886,000.  However,  net cash  used in
operations  was only $569,000 due primarily to the non-cash  expense  related to
the debt discount  recognized in connection with the issuance of the $400,000 of
convertible loans.

      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,  we are  currently  considering  purchasing  some
intellectual property and possibly some equipment to supplement our technologies
and to possibly accelerate both the development of our products and the approval
of our products by the FDA. If we consummate  any such sales,  our cash balances
may be reduced and liquidity  will be affected.  In addition,  unexpected  costs
could arise that could deplete our existing cash balances sooner than planned.

      We do not  currently  anticipate  that we will  derive any  revenues  from
either product sales or from governmental research grants during the next twelve
months. Although we are planning to submit an application for an additional SBIR
research grant during 2004, no assurance can be given that the grant application
will be approved.  Even if the grant is approved,  it is unlikely  that we would
receive any grant funds during the next twelve months.

      The 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 12-18  months.  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.

      A summary of our contractual  cash  obligations at December 31, 2003 is as
follows:



                                                                                       2007 AND
CONTRACTUAL OBLIGATIONS               TOTAL        2004          2005         2006     THEREAFTER
-------------------------------------------------------------------------------------------------
                                                                        
Long-Term Office Leases (1)          $428,000     $137,000     $137,000     $77,000    $38,000



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

      (1) Assumes that the current lease at Cedars-Sinai  Medical Center will be
renewed in June 2004 for a three-year  period on substantially the same terms as
currently in effect.

      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

FACTORS THAT MAY AFFECT FUTURE RESULTS AND MARKET PRICE OF OUR STOCK

      We face a number of substantial risks. Our business,  financial  condition
or results of  operations  could be harmed by any of these  risks.  The  trading
price of our common  stock  could  decline due to any of these  risks,  and they
should be considered in connection with the other information  contained in this
Annual Report on Form 10-KSB.


                                       18



FACTORS ASSOCIATED WITH OUR BUSINESS

We are a development stage company subject to all of the risks and uncertainties
of a new business.

      Prior to the  Reorganization  in October  2003,  HAUSA was  unsuccessfully
engaged  in the  e-commerce  business  of  acquiring  and  marketing  historical
documents.  During  the time that we  engaged  in the  e-commerce  business,  we
generated less than $200,000 of revenues,  while  incurring a cumulative loss of
approximately  $45,000. As a result, we terminated our prior e-commerce business
at the time of the Reorganization. The company that we acquired, ATI, however is
a start-up  company that has not generated  any operating  revenues to date (its
only revenues were two government  research grants)  Accordingly,  while we have
been in existence since November 1999, 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 companies. 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 profitability.

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 one or both of  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.

We must obtain  governmental  approval for each of our products,  the receipt of
which is 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., the LIVERAID(TM) and SEPET(TM) will require FDA approval
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 LIVERAID(TM) and these  requirements may be more
costly or time-consuming than we currently anticipate.

      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 LIVERAID(TM),
SEPET(TM), and related 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.  Japan's  health  regulatory
authority has, and other  countries  regulatory  authorities  could  potentially
object  to the  marketing  of any  therapy  that  uses pig  liver  cells  (which
LIVERAID(TM)  is  expected to utilize)  due to safety  concerns.  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.


                                       19



Our products are at an early stage of development  and have never been completed
or marketed.

      Before  obtaining  regulatory  approvals  for the  commercial  sale of our
SEPET(TM) and LIVERAID(TM)  related  products,  significant and potentially very
costly   preclinical   work  will  be  necessary   for  SEPET(TM)  and  the  two
configurations  of LIVERAID(TM).  We have completed only preclinical  testing of
the LIVERAID(TM)  utilizing sorbents.  There can be no assurance that we will be
able  to  successfully   complete  preclinical  testing  of  the  SEPET(TM)  and
LIVERAID(TM)  combining liver cell therapy with selective plasma exchange (which
will take an  extended  period  of  time).  Therefore,  proofs  of  concept  and
feasibility  for both  SEPET(TM) and  LIVERAID(TM)  utilizing  selective  plasma
exchange are still lacking and there can be no assurance that we will be able to
provide such proofs for these two products. We have not independently  confirmed
any of the claims made by the licensors of any of our products and  technologies
concerning the potential safety or efficacy of these products and  technologies.
We will need to file an IND for  LIVERAID(TM)  and an IDE 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 commenced preparation of either IND or IDE 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 PMAs or new drug  applications  for these
products  or the FDA's  approval of any PMA or new drug  application  that we do
file.

Our LIVERAID(TM) product utilizes a biological component obtained from pigs that
could prevent or restrict the release and use of that product.

      Use  of  liver  cells   harvested  from  pig  livers  carries  a  risk  of
transmitting  viruses harmless to pigs but deadly to humans.  For instance,  all
pigs carry porcine endogenous retrovirus ("PERV"),  but its potential effects on
people  are  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  LIVERAID(TM)-treated
patients and cause  potentially  serious disease.  This may result in the FDA or
other health  regulatory  agencies not approving  LIVERAID(TM)  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 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 that were developing  bioartificial  liver support systems,  and it is
possible that such groups could object to our LIVERAID(TM)  product.  Litigation
instituted by any of these  organizations,  and negative publicity regarding our
use of pig liver cells in LIVERAID(TM),  could have a material adverse effect on
our business, operating results and financial condition.

Uncertain development paths and markets for our products.

      Our  products  will  represent  new  therapeutic  approaches  for  disease
conditions,  which can be treated using standard  methods.  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.


                                       20



We will  need  significant  additional  capital,  without  which we will have to
curtail or cease operations.

      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  to 18 months  from the date of this
annual report.  Furthermore,  the clinical  development expenses for each of our
products will be very  substantial,  i.e.,  well in excess of the amount of cash
that we  currently  still have.  Accordingly,  we will have to either (i) obtain
additional  debt or equity  financing  during the next 12 to 18-month  period in
order to fund the further development of our products and working capital needs,
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 two current  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.

We are subject to  significant  competition  from  numerous  large,  well funded
companies.

      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 Arbios' 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
LIVERAID(TM).  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.


                                       21



      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.

We  are  dependent  on  Spectrum  Laboratories,  Inc.  as  the  manufacturer  of
LIVERAID(TM) and SEPET(TM).

      We have an exclusive  manufacturing  arrangement for LIVERAID(TM)  devices
with  Spectrum  Laboratories,  Inc.,  which  also  has  been  providing  us with
cartridges for prototypes of the SEPET(TM).  We have encountered  certain delays
in the delivery of the  LIVERAID(TM)  and  SEPET(TM)  cartridges  from  Spectrum
Laboratories,  Inc. In addition, the current model of the SEPET(TM) cartridge is
made of the semipermeable membrane which needs to be modified to improve sieving
of  protein-bound  toxins.  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 SEPET(TM).  There can be
no assurance  that the  SEPET(TM)  cartridge  allowing  unrestricted  passage of
albumin-bound  toxins while  retaining blood  components  with molecular  weight
higher  than 100 kDa will be  developed.  Although  Spectrum  Labs has agreed to
transfer  their  know-how to another  manufacturer  for us if they are unable to
meet their  contractual  obligations to us, we may have  difficulty in finding a
replacement manufacturer or may be required to alter the design of LIVERAID (TM)
if we are unable to  effectively  transfer the Spectrum Labs know-how to another
manufacturer.

We have limited patent protection and may not be able to protect our patents and
proprietary rights.

      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  right of others. We have relied
substantially  on the patent legal work that was performed for our assignors and
licensors  and have not, in some cases,  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.  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,  and on several key members of our  management,  including,
John Vierling, MD, FACP, Chairman of the Board, Kristin P. Demetriou,  Marvin S.
Hausman,  MD, Richard W. Bank, MD, and Roy Eddleman who are members of our Board
of Directors. Each of these individuals,  except Dr. Rozga, works for us only on
a  part-time,  very  limited  basis.  We are also  dependent  upon  Achilles  A.
Demetriou,  MD, PhD, FACS,  the other  co-founder of ATI and the Chairman of our
Scientific  Advisory Board. We do not have long-term  employment  contracts with
Drs.  Jacek Rozga and  Achilles A.  Demetriou,  and the loss of the  services of
either of them 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.


                                       22



      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.

The market  success of our products  will be dependent in part upon  third-party
reimbursement policies.

      Our ability to  successfully  penetrate  the market for our  products  may
depend  significantly on the availability of reimbursement for our products from
third-party payers, such as governmental programs, private insurance and private
health  plans.  We have not yet  established  with  Medicare or any  third-party
payers what level of  reimbursement,  if any,  will be available  for SEPETTM or
LIVERAID(TM),  and we cannot  predict  whether levels of  reimbursement  for our
products,  if any, will be high enough to allow us to charge a reasonable profit
margin. Even with FDA approval, third-party payers may deny reimbursement if the
payer determines that our particular new products are unnecessary, inappropriate
or not cost  effective.  If patients are not  entitled to receive  reimbursement
similar to reimbursement  for competing  products,  they may be unwilling to use
our products since they will have to pay for the unreimbursed amounts, which may
well be  substantial.  The  reimbursement  status of newly approved  health care
products is highly  uncertain.  If levels of reimbursement  are decreased in the
future,  the demand for our products  could  diminish or our ability to sell our
products on a profitable basis could be adversely affected.

We may be subject to product liability claims.

      The development, manufacture and sale of medical products expose us to the
risk of significant damages from product liability claims. We plan to obtain and
maintain  product  liability  insurance  for  coverage  of  our  clinical  trial
activities.  However,  there can be no assurance  that we will be able to secure
such insurance for clinical  trials for either of our two current  products.  We
intend to obtain  coverage for our products when they enter the  marketplace (as
well as requiring the manufacturers of our products to maintain  insurance).  We
do not know if it will be available to us at acceptable  costs. We may encounter
difficulty in obtaining clinical trial or commercial product liability insurance
for  LIVERAID(TM)  since this therapy includes the use of pig liver cells and we
are not aware of any therapy  using these cells that has sought or obtained such
insurance.  If the cost of insurance is too high or insurance is  unavailable to
us, we will  have to  self-insure.  A  successful  claim in  excess  of  product
liability  coverage  could  have a  material  adverse  effect  on our  business,
financial  condition  and  results  of  operations.  The  costs for many form of
liability  insurance  have risen  substantially  during the past year,  and such
costs may continue to increase in the future,  which could materially impact our
costs for clinical or product liability insurance.

RISK RELATING TO THE OWNERSHIP OF OUR COMMON STOCK

Risks Relating to Low Priced Stocks.

      Although our common stock has been approved for trading on the Pink Sheets
electronic  over-the-counter  trading  systems  for  several  years,  there  was
virtually no trading in our stock before the Reorganization,  and there has been
only sporadic  trading activity in our stock since the  Reorganization.  Because
all  of our  operations  are  being  conducted  through  ATI,  our  wholly-owned
subsidiary,  and because ATI is still a  development  stage  company that has no
products or revenues,  the trading price of our common stock may be below $5.00.
If our common stock  trades  below $5.00 per share,  trading in the common stock
may be  subject  to the  requirements  of certain  rules  promulgated  under the
Securities  Exchange Act of 1934, as amended (the "Exchange Act"), which require
additional  disclosure by broker-dealers in connection with any trades involving
a stock defined as a penny stock (generally, any non-Nasdaq equity security that
has a market  price  share of less than  $5.00 per  share,  subject  to  certain
exceptions).  Such  rules  require  the  delivery,  prior  to  any  penny  stock
transaction,  of a disclosure schedule explaining the penny stock market and the
risks  associated  therewith and impose various sales practice  requirements  on
broker-dealers who sell penny stocks to persons other than established customers
and accredited  investors  (generally defined as an investor with a net worth in
excess of  $1,000,000  or  annual  income  exceeding  $200,000  individually  or
$300,000  together  with  a  spouse).  For  these  types  of  transactions,  the
broker-dealer  must make a special  suitability  determination for the purchaser
and have received the purchaser's  written  consent to the transaction  prior to
the sale. The  broker-dealer  also must disclose the commissions  payable to the
broker-dealer,  current bid and offer quotations for the penny stock and, if the
broker-dealer is the sole  market-maker,  the  broker-dealer  must disclose this
fact and the broker-dealer's  presumed control over the market. Such information
must be provided to the customer orally or in writing before or with the written
confirmation  of trade sent to the  customer.  Monthly  statements  must be sent
disclosing  recent price information for the penny stock held in the account and
information  on the  limited  market in penny  stocks.  The  additional  burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting  transactions  in our common stock which could severely limit the
market  liquidity  of the common  stock and the ability of holders of our common
stock to sell it.


                                       23



No Assurance of a Liquid Public Market for Securities.

      Although our shares of common stock are eligible for  quotation on the OTC
Bulletin Board electronic  over-the-counter  trading system,  there currently is
only a very limited trading market in our stock.  This situation is attributable
to a number of factors,  including the fact that we are a small company which is
relatively unknown to stock analysts, stock brokers, institutional investors and
others in the  investment  community.  Even if we came to the  attention  of the
investment community, many of the institutional investors or advisors tend to be
risk-averse  and would be  reluctant  to follow an  unproven  development  stage
company such as ours or purchase or  recommend  the purchase of our shares until
such time as we became more seasoned and viable. As a consequence,  there may be
periods of several days or more when  trading  activity in our shares is minimal
or  non-existent,  as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support  continuous sales without
an  adverse  effect on share  price.  We cannot  give you any  assurance  that a
broader or more active public  trading market for our common shares will develop
or be sustained.

The market price of our stock may be adversely affected by market volatility.

      The market  price of our common  stock is likely to be volatile  and could
fluctuate widely in response to many factors, including:

      o     announcements  of  the  results  of  clinical  trials  by us or  our
            competitors,

      o     developments with respect to patents or proprietary rights,

      o     announcements of technological innovations by us or our competitors,

      o     announcements  of  new  products  or  new  contracts  by us  or  our
            competitors,

      o     actual or anticipated variations in our operating results due to the
            level of development expenses and other factors,

      o     changes in financial  estimates by  securities  analysts and whether
            our earnings meet or exceed such estimates,

      o     conditions and trends in the pharmaceutical and other industries,

      o     new accounting standards,

      o     general economic, political and market conditions and other factors,
            and

      o     the occurrence of any of the risks described in this Annual Report.



                                       24



The future  issuance of common stock upon exercise of warrants and stock options
may depress the price of our common stock.

      As of March 29, 2004, we had outstanding  options to purchase an aggregate
of 629,000 shares of our common stock to our employees, officers, directors, and
consultants  under our 2001 Stock Option Plan.  We may issue options to purchase
an  additional  371,000  shares of our common  stock under the 2001 Stock Option
Plan.  There are  currently  outstanding  warrants to purchase an  aggregate  of
5,097,000 shares of common stock.

      During the respective  terms of the warrants and options  granted or to be
granted under our stock option plans or otherwise, the holders thereof are given
an  opportunity  to benefit from a rise in the market price of the common stock,
with a  resultant  dilution  of the  interests  of  existing  stockholders.  The
existence of these  warrants and options could make it more  difficult for us to
obtain additional  financing while such securities are outstanding.  The holders
may be expected to exercise  their rights to acquire  common stock and sell at a
time when we would, in all likelihood,  be able to obtain needed capital through
a new offering of  securities  on terms more  favorable  than those  provided by
these warrants and options.

ITEM 7. FINANCIAL STATEMENTS.

      The consolidated financial statements and the reports and notes, which are
attached hereto beginning at page F-1, are incorporated herein by reference.

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

      On January 27, 2004, our board of directors, by unanimous written consent,
adopted  resolutions to dismiss our former independent  accountants,  Williams &
Webster, P.S. ("Williams"). Williams' report on our financial statements for the
past two years did not contain an adverse opinion or disclaimer of opinion,  and
was not modified as to  uncertainty,  audit  scope,  or  accounting  principles,
except  that  there was an  explanatory  paragraph  relating  to our  ability to
continue as a going concern.

      During the two most recent  fiscal  years,  we had no  disagreements  with
Williams,  whether or not resolved,  on any matter of  accounting  principles or
practices,  financial  statement  disclosure,  or auditing  scope or  procedure,
which, if not resolved to Williams' satisfaction,  would have caused Williams to
make reference to the subject matter of the  disagreement in connection with its
report.  Williams  did not advise  this  company of any of the events  requiring
reporting in a Form 8-K under Item 304(a)(iv)(B).

      On January 27, 2004, our board of directors  also  approved,  by unanimous
written consent, resolutions to engage Stonefield Josephson, Inc. ("Stonefield")
as our  independent  accountants to audit our financial  statements for the year
ending December 31, 2003, and for quarterly  statements during 2004.  Stonefield
audited the financial  statements  of ATI for the past two fiscal years.  We did
not consult with Stonefield  regarding the application of accounting  principles
to a  specific,  completed  or  contemplated  transaction,  or the type of audit
opinion  that  might  be  rendered  on our  financial  statements  prior  to the
engagement.

ITEM 8A. CONTROLS AND PROCEDURES

      As of the end of the period covered by this report,  our company conducted
an evaluation,  under the  supervision and with the  participation  of our chief
executive officer and chief financial  officer,  of our disclosure  controls and
procedures (as defined in Rules  13a-15(e) of the Exchange  Act).  Based on this
evaluation,  our chief executive  officer and chief financial  officer concluded
that our company's  disclosure  controls and  procedures are effective to ensure
that  information  required  to be  disclosed  by us in reports  that we file or
submit under the Exchange Act is recorded,  processed,  summarized  and reported
within the time periods  specified in Securities and Exchange  Commission  rules
and forms.


                                       25



      There was no change in our internal  controls,  which are included  within
disclosure  controls and procedures,  during our most recently  completed fiscal
quarter that has  materially  affected,  or is  reasonably  likely to materially
affect, our internal controls.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.

      The  following  table  sets  forth our  current  directors  and  executive
officers.  Directors are elected for a period of one year and  thereafter  serve
until the next annual meeting at which their  successors are duly elected by the
stockholders.  Officers  and other  employees  serve at the will of the board of
directors.




NAME                                    AGE                 POSITION
                                                      
Jacek Rozga, M.D., Ph.D.                 55                 President, Chief Financial Officer, and Director

Kristin P. Demetriou                     55                 Director and Secretary

Roy Eddleman                             64                 Director

Marvin S. Hausman MD                     62                 Director

John Vierling, MD                        58                 Chairman of the Board and Director

Richard W. Bank, MD                      70                 Director



BUSINESS EXPERIENCE OF DIRECTORS AND MANAGEMENT

      The following  describes the backgrounds of current  directors and the key
members of the management  team. The persons who acted as officers and directors
of HAUSA prior to the Reorganization resigned effective upon the Reorganization.
All of the our officers and directors  also currently hold the same offices with
ATI.

      JACEK ROZGA, MD, PHD. Dr. Rozga is a co-founder of ATI, a director of this
company,  and  our  current  President  and  Chief  Financial  Officer.  He also
currently is this company's Chief Scientific  Officer and a professor of Surgery
at UCLA School of Medicine.  Dr.  Rozga has 20 years  experience  in  artificial
liver support system  development,  hepatocyte  transplantation and liver tissue
engineering,  and directed all research  aspects  leading to the development and
testing of the  first-generation  bioartificial  liver at  Cedars-Sinai  Medical
Center. Dr. Rozga has six patents and five patent applications  pending, most of
which have been licensed by ATI.

      KRISTIN P.  DEMETRIOU.  Former  President & CEO of Bergen Line,  Inc., New
York City (1989-94),  NY, an  international  owner/operator  of cruise and cargo
ships. Prior to that she was Director, Sales & Marketing worldwide (1982-88) for
Royal Viking Line,  Inc.,  San  Francisco,  CA. Mrs.  Demetriou  holds a B.A. in
Psychology from Columbia University,  New York, NY, and completed  post-graduate
work in accounting, finance, media and investor relations.

      ROY  EDDLEMAN.  Mr.  Eddleman has been the Chairman of the Board and Chief
Executive  Officer of  Spectrum  Laboratories,  Inc.  since July 1982.  Spectrum
Laboratories,  Inc.  is a public  company  in the  business  of  developing  and
commercializing  proprietary tubular membranes and membrane devices for existing
and emerging life sciences applications.  Mr. Eddleman also has been the founder
and/or principal and Director of each of (i) Spectrum  Separations,  Inc., now a
part of  UOP/Hitachi,  (ii)  ICM,  Inc.,  now a part of  Perstorf/Perbio,  (iii)
Facilichem, Inc., a joint venture with SRI International,  (iv) Nuclepore, Inc.,
now a part of Corning and Whatman,  and (v)  Inneraction  Chemical,  Inc., now a
part of Merck Darmstadt.  He is the founder and a benefactor of the Roy Eddleman
Research   Museum  of  Chemistry  and  the  Chemical   Heritage   Foundation  in
Philadelphia.


                                       26



      MARVIN S. HAUSMAN,  MD. Dr.  Hausman has,  since  January  1997,  been the
President and Chief Executive Officer of Axonyx,  Inc., a public company engaged
in the business of acquiring and developing novel post-discovery central nervous
system drug candidates,  primarily in areas of memory and cognition. Dr. Hausman
has 30 years  of drug  development  and  clinical  care  experience  at  various
pharmaceutical  companies,  including working in conjunction with Bristol-Meyers
International,  Mead-Johnson  Pharmaceutical  Co.,  and  E.R.Squibb.  He  was  a
co-counder of Medco Research Inc., a NYSE-traded biopharmaceutical company which
was acquired by King Pharmaceuticals, Inc. Dr. Hausman has been the President of
Northwest Medical Research Partners,  Inc. since 1995 and previously served as a
member of the Board of  Directors  of Regent  Assisted  Living,  Inc.  from 1996
through 2001.

      JOHN  VIERLING,  MD, FACP.  Director of  Hepatology,  Medical  Director of
Multi-Organ  Transplantation Program,  Cedars-Sinai Medical Center. Professor of
Medicine, UCLA School of Medicine. Councilor of the American Association for the
Study of  Liver  Diseases.  Former  Chairman  of the  Board  of  American  Liver
Foundation.  Expert  Reviewer  and  Witness  for FDA.  Former  President  of the
Southern  California  Society  for  Gastroenterology.  Member  of  numerous  NIH
advisory  committees,  including NIH Committee for Liver Tissue  Procurement and
Distribution Program. Member,  Scientific Advisory Committee, NIH Alcohol Center
Grant,  University  of Southern  California  and West Los Angeles  VAMC/UCLA and
Chairman  of the Data  Safety  Monitoring  Board  for the NIH,  NIDDK  ViraHep C
multicenter  trial.  Dr.  Vierling's  research has focused on the  mechanisms of
liver injury caused by hepatitis B and C and autoimmune and alloimmune diseases.

      RICHARD  W. BANK,  MD.  Dr.  Bank has  served as  President  and  Managing
Director of First-Tier  Biotechnology  Partners since February 1995. He has also
served as President and Secretary of BioVest Health Sciences, Incorporated since
its  organization in April 1996. From February 1995 through April 1996, Dr. Bank
served as  President  of  Biomedical  Sciences,  Incorporated.  Dr. Bank was the
Medial  Director of USAT Labs from December 1986 until January 1988,  the Senior
Research Analyst Director/ Biotechnology SBC Warburg Dillon Read 1998-1999,  and
the Entrepreneur-In-Residence In Life Sciences for Tucker Anthony Sutro for 2000
through  2001.  Currently,  Dr.  Bank  is  Clinical  Professor  Emeritus  in the
Department of Obstetrics and Gynecology at the University of Southern California
School  of  Medicine  where he has been on the  active  faculty  for the last 25
years.

      There  are  no  family  relationships  between  any of  the  officers  and
directors.  However,  Mrs. Demetriou is the wife of Dr. A. A. Demetriou,  one of
the two founders of ATI and one of the inventors of certain of the  technologies
used by this company.

AUDIT COMMITTEE

      In February 2004, our Board of Directors  established an Audit  Committee.
The Board of Directors has instructed the Audit  Committee to meet  periodically
with the  company's  management  and  independent  accountants  to,  among other
things, review the results of the annual audit and quarterly reviews and discuss
the financial statements,  recommend to the Board the independent accountants to
be retained,  and receive and consider the accountants' comments as to controls,
adequacy of staff and management  performance  and procedures in connection with
audit and financial  controls.  The Audit Committee is also authorized to review
related  party  transactions  for  potential  conflicts of  interest.  The Audit
Committee is composed of Dr. Bank,  Mrs.  Demetriou  and Dr.  Vierling.  Each of
these individuals is a non-employee director and is independent as defined under
the Nasdaq Stock Market's  listing  standards.  While each of the members of the
Audit  Committee has  significant  knowledge of financial  matters,  none of the
Audit  Committee  members has been designated as an "audit  committee  financial
expert" as defined  under Item  401(h)(2) of  Regulation  S-K of the  Securities
Exchange Act of 1934, as amended.  The Audit  Committee  operates under a formal
charter that governs its duties and conduct.


                                       27



SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.

      The  initial  report on Form 3 filed on  behalf  of each of our  directors
(Jacek  Rozga,  Kristin P.  Demetriou,  Roy Eddleman , Marvin S.  Hausman,  John
Vierling,  and Richard W. Bank)  required to be filed upon their  appointment to
our Board of Directors was filed late.

ITEM 10. EXECUTIVE COMPENSATION.

      The following table sets forth the compensation for services paid to Jacek
Rozga,  M.D.,  Ph.D. (the "Named  Executive  Officer") in all capacities for the
fiscal years ended  December 31, 2003,  December 31, 2002 and December 31, 2001.
Dr.  Rozga has been the chief  executive  officer of both this  company  and ATI
since the  Reorganization  in October 2003, and was the chief executive  officer
ATI  before  the  Reorganization.  The  information  contained  in this  Item 10
includes all compensation paid to Dr. Rozga by ATI before the  Reorganization by
ATI,  and  all  compensation  paid  to him by  both  HAUSA  and  ATI  since  the
Reorganization.  No other executive  officers of either HAUSA or ATI received an
annual salary and bonus that  collectively  exceeded  $100,000 during any of the
fiscal years ended December 31, 2003, December 31, 2002 and December 31, 2001.



                           SUMMARY COMPENSATION TABLE

                                                                                                           Long-Term
                                                                                                         Compensation
                                                                Annual Compensation                          Awards
                                                        ------------------------------------------      --------------
                                                                                                          Securities
                                                                                     Other Annual         Underlying
Name and Principal Position                 Year          Salary        Bonus        Compensation           Options
-----------------------------------------------------------------------------------------------------------------------
                                                                                         
Jacek Rozga, M.D., Ph.D                     2003(1)      $135,000      $15,000             --            18,000 (2)
   Chief Executive Officer,  Chief
   Financial Officer, and Chief             2002          $85,000       $5,000             --            18,000 (2)
   Scientific Officer
                                            2001          $85,000         --               --               ---


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

(1)   The  compensation set forth for 2003 includes amounts paid to Jacek Rozga,
      M.D., Ph.D by both ATI and Arbios Systems, Inc.

(2)   Represents  options  granted  to Jacek  Rozga,  M.D.,  Ph.D by ATI,  which
      options were assumed by this company in the Reorganization.

      During the three years prior to the Reorganization, Raymond H. Kuh was the
President of HAUSA.  During the last three years,  HAUSA did not pay Mr. Kuh, or
any other executive officer, any salary or bonus. The only compensation that Mr.
Kuh received was a commission of 6% of sales that he generated for HAUSA. During
the three fiscal years ended  December 31, 2003,  December 31, 2002 and December
31, 2001,  the  aggregate  total amount of such bonuses paid to Mr. Kuh by HAUSA
was only  $2,562.  Mr. Kuh did not  receive any other  compensation  and was not
granted  any  options.  Accordingly,  no  information  is listed in this Item 10
regarding Mr. Kuh or any other former executive officer of HAUSA.


                                       28



STOCK OPTION GRANTS

      The  following  table  contains  information  concerning  grants  of stock
options  during the  fiscal  year ended  December  31,  2003 by ATI to the Named
Executive Officer (HAUSA did not grant any options). In the Reorganization,  all
of these  options  were assumed by HAUSA and now  represent  options to purchase
shares of our common stock. We have not granted any stock appreciation rights.

              OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2003



                                              Individual Grants
                                              -----------------

                                                      % of Total
                                                        Options                    Market
                                    Number of         Granted to                   Price on
                                Shares Underlying      Employees       Exercise    Date of       Expiration
          Name                   Options Granted    In Fiscal Year       Price       Grant          Date
--------------------------------------------------------------------------------------------------------------
                                                                                
Jacek Rozga, M.D., Ph.D               18,000              8%             $1.00        (1)      April 20, 2010


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

(1)   On the date of grant,  the common  stock of ATI was not listed for trading
      on any securities  market.  Accordingly,  there was no market price on the
      date of grant.

AGGREGATE OPTIONS

      The following table sets forth the number and value of unexercised options
held by the Named  Executive  Officer as of  December  31,  2003.  There were no
exercises of options by the Named Executive Officer in fiscal year 2003.

     AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED DECEMBER 31, 2003
                          AND FY-END OPTION/SAR VALUES




                                                                    Number of Securities     Value of Unexercised
                                                                   Underlying Unexercised        In-the-Money
                                        Shares                      Option/SARs at FY-End    Option/SARs at FY-End
                                       Acquired                        (#) Exercisable/        (#) Exercisable/
             Name                    in Exercise   Value Realized       Unexercisable          Unexercisable(1)
-------------------------------------------------------------------------------------------------------------------
                                                                                 

Jacek Rozga, M.D., Ph.D                   -            -                   36,000/0              $69,300/$-0-



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

(1)   Dollar  amounts  reflect  the net  values  of  outstanding  stock  options
      computed  as the  difference  between  $2.50  (the last  reported  sale on
      December 31, 2003) and the exercise price of the options.

                      EQUITY COMPENSATION PLAN INFORMATION

      The  following  table  summarizes  as of March  29,  2004,  the  number of
securities to be issued upon the exercise of outstanding  derivative  securities
(options,  warrants,  and rights);  the  weighted-average  exercise price of the
outstanding  derivative  securities;  and the  number  of  securities  remaining
available for future issuance under our equity compensation plans.


                                       29




  ---------------------------------- ------------------------- ----------------------------- ------------------------
                                     Number of securities to
                                     be issued upon exercise    Weighted average exercise     Number of securities
                                     of outstanding options,       price of outstanding        remaining available
            Plan Category              warrants, and rights    options, warrants and rights    for future issuance
  ---------------------------------- ------------------------- ----------------------------- ------------------------
                                               (a)                         (b)                         (c)
  ---------------------------------- ------------------------- ----------------------------- ------------------------
                                                                                    
  Equity compensation plans                                               $1.32                      371,000
  approved by security holders               629,000
  ---------------------------------- ------------------------- ----------------------------- ------------------------
  Equity compensation plans not
  approved by security holders                 -0-
  ---------------------------------- ------------------------- ----------------------------- ------------------------
  Total                                      629,000                      $1.32                      371,000
  ---------------------------------- ------------------------- ----------------------------- ------------------------


The  compensation  plan approved by the security  holders is the company's  2001
Stock Option Plan.

EMPLOYMENT AGREEMENTS

      Dr. Rozga,  receives compensation from us in his capacity as the President
and Chief  Financial  Officer of this company and in his capacity as  President,
Chief  Financial  Officer  and Chief  Financial  Officer of ATI,  our  operating
subsidiary. In his capacity as the President and Chief Financial Officer of this
company, Dr. Rozga earns an annual salary of $65,000. In addition, Dr. Rozga and
three of ATI's other employees  provide services to ATI pursuant to that certain
Employee  Loan-Out  Agreement,  dated July 1, 2001, as amended,  between ATI and
Cedars-Sinai  Medical Center.  Dr. Rozga and the other employees are technically
employed  and  paid by  Cedars-Sinai  Medical  Center.  Under  the  terms of the
Loan-Out Agreement,  the medical center permits Dr. Rozga to provide services to
ATI, and ATI pays Cedars-Sinai Medical Center an amount equal Dr. Rozga's salary
plus an amount  equal to the cost of fringe  benefits and  Cedars-Sinai  Medical
Center pays to Dr. Rozga.  Through this  arrangement,  Dr. Rozga earns an annual
salary of $135,000 (which amount is paid through Cedar-Sinai but funded by ATI).
The Loan-Out Agreement expires on June 30, 2004, and may be terminated by either
party  upon  notice of  breach of the  agreement,  for  cause,  or breach of the
facilities  agreement pursuant to which the Company leases its laboratories from
Cedar-Sinai,  provided that the parties have an  opportunity to cure the breach.
Dr.  Rozga has no  obligations  to  Cedars-Sinai  other than the  services he is
providing to this company. Other than the Loan-Out Agreement, Dr. Rozga does not
have an employment contract with Cedar Sinai Medical Center.

COMPENSATION OF BOARD OF DIRECTORS

      During the fiscal  year ended  December  31,  2003,  HAUSA did not pay its
directors  any  compensation  for  serving on the Board of  Directors.  ATI did,
however,  grant each of its directors stock options to purchase 18,000 shares of
common stock at an exercise price of $1.00 per share. The options have a term of
seven years.  Providing that the directors  still are on the board at that time,
one half of the  options  vest six  months  after  the  date of  grant,  and the
remaining  options vest on the first anniversary of the grant. We currently also
reimburse all directors for any expenses incurred by them in attending  meetings
of the board of directors.

      In February 2004,  the Board of Directors  voted to increase the number of
options that each  director  would receive  annually for services  rendered as a
director from 18,000 to 30,000.  The vesting schedule  (one-half vests after six
months, the balance after one year) will remain the same as with options granted
in 2003. Director options continue to be granted at the market price on the date
of grant.

CODE OF ETHICS

      The Board of  Directors  adopted a Code of Ethics  which covers all of our
executive  officers and key employees.  The Code of Ethics  requires that senior
management  avoid  conflicts of interest;  maintain the  confidentiality  of our
confidential and proprietary  information;  engage in transactions in our common
stock  only  in  compliance   with  applicable  laws  and  regulations  and  the
requirements set forth in the Code of Ethics; and comply with other requirements
which are intended to ensure that our officers conduct business in an honest and
ethical manner and otherwise act with integrity and in the best interest of this
company.

      All of our executive  officers are required to affirm in writing that they
have reviewed and understand the Code of Ethics.

      The code of ethics is filed as Exhibit 14.1 to this annual  report on Form
10-KSB.  A copy of our Code of  Ethics  will be  furnished  to any  person  upon
written  request from any such person.  Requests  should be sent to:  Secretary,
Arbios  Systems,  Inc.,  110 North  George  Burns Road Suite D-4018 Los Angeles,
California, 90048.


                                       30



ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth certain  information  regarding  beneficial
ownership  of our common  stock as of March 29, 2004 (a) by each person known by
us to own  beneficially 5% or more of any class of our common stock, (b) by each
of our  Named  Executive  Officer  and our  directors  and (c) by all  executive
officers and  directors  of this company as a group.  As of March 29, 2004 there
were  13,150,598  shares of our  common  stock  issued and  outstanding.  Unless
otherwise noted, we believe that all persons named in the table have sole voting
and investment power with respect to all the shares  beneficially owned by them.
Except as  otherwise  indicated,  the  address  of each  stockholder  is c/o the
company at 110 North George  Burns Road Suite  D-4018 Los  Angeles,  California,
90048.





                                                             Shares
                                                          Beneficially         Percentage of
   Name and Address of Beneficial Owner                      Owned                 Class
---------------------------------------------------------------------------------------------
                                                                        
Jacek Rozga, M.D., Ph.D                                   2,536,000(2)              19.2%

Kristin P. Demetriou                                      2,536,000(3)              19.2%

John Vierling, MD                                            36,000(4)                 *

Roy Eddleman                                                398,669                  3.0%

Marvin S. Hausman MD                                        562,000(6)               4.2%

Richard W. Bank, MD                                         280,000(7)               2.1%

Achilles A. Demetriou, M.D., Ph.D                         2,500,000(8)              19.0%

Cedars-Sinai Medical Center                                 681,818                  5.2%
8700 Beverly Boulevard,
Los Angeles, California 90048

Gary Ballen (9)                                           1,017,000(9)               7.4%
140 Burlingame,
Los Angeles, California 90049

Suncraft Limited (10)
Room 2105, 21/F., West Tower                                700,000(10)              5.2%
Shun Tak Centre
168-200 Connaught Road Central
Sheung Wan, Hong Kong

All executive officers and directors as a group (6        6,348,669(11)             46.7%
persons)


*     Less than 1%.

(1)   Beneficial  ownership is determined  in  accordance  with the rules of the
      Securities  and  Exchange  Commission  and  generally  includes  voting or
      investment  power  with  respect  to  securities.  Shares of common  stock
      subject  to  options,   warrants  and  convertible   securities  currently
      exercisable or convertible,  or exercisable or convertible within 60 days,
      are deemed outstanding, including for purposes of computing the percentage
      ownership  of the person  holding  such  option,  warrant  or  convertible
      security,  but not for purposes of computing  the  percentage of any other
      holder.


                                       31



(2)   Includes currently exercisable options to purchase 36,000 shares of common
      stock.

(3)   Consists  of (i)  2,500,000  shares  owned by the A & K  Demetriou  Family
      Trust,  of which Kristin P. Demetriou is a co-trustee,  and (ii) currently
      exercisable  options to purchase  36,000  shares of common stock issued to
      Kristin P. Demetriou.

(4)   Consists of currently  exercisable  options to purchase  36,000  shares of
      common stock.

(5)   Consists of currently  exercisable  options to purchase  36,000  shares of
      common  stock,  and  362,669  shares of  common  stock  owned by  Spectrum
      Laboratories,  Inc.  Mr.  Eddleman is the  Chairman of the Board and Chief
      Executive Officer of Spectrum Laboratories, Inc.

(6)   Consists of (i) currently exercisable options to purchase 68,000 shares of
      common stock,  (ii)  currently  exercisable  warrants to purchase  150,000
      shares of common stock,  (iii) 100,000  shares owned by the Marvin Hausman
      Revocable  Trust,  and (iv)  244,000  shares  owned by  Northwest  Medical
      Research,  Inc. Dr. Hausman is the trustee of the Marvin Hausman Revocable
      Trust  and the  Chief  Executive  Officer  and  principal  stockholder  of
      Northwest Medical Research, Inc.

(7)   Includes (i) 40,000 shares of common  stock,  (ii)  currently  exercisable
      warrants to purchase  40,000 shares of common stock,  (iii) 100,000 shares
      of common stock owned by  First-Tier  Biotechnology  Partners LP, and (iv)
      currently  exercisable warrants to purchase 100,000 shares of common stock
      owned by First-Tier  Biotechnology  Partners LP. Dr. Bank is the President
      and Managing Director of First-Tier Biotechnology Partners LP.

(8)   Consists of 2,500,000 shares owned by the A & K Demetriou Family Trust, of
      which Achilles A. Demetriou, M.D., Ph.D. is a co-trustee.

(9)   Includes  (i)  417,000   shares  of  common  stock,   and  (ii)  currently
      exercisable options to purchase 600,000 shares of common stock.

(10)  Includes  (i)  350,000   shares  of  common  stock,   and  (ii)  currently
      exercisable warrants to purchase 350,000 shares of common stock.

(11)  Includes  currently  exercisable  options to  purchase  212,000  shares of
      common stock.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      We currently  maintain  our  laboratory  and office space at  Cedars-Sinai
Medical  Center in Los Angeles,  California,  which  facilities we lease under a
three-year  lease that expires on June 30,  2004.  See "Item 2.  Description  of
Property."  We currently  pay rent of $6,441 per month to  Cedars-Sinai  Medical
Center under the lease.  Cedars-Sinai  Medical Center owns approximately 5.2% of
our outstanding common stock.

      Cedars-Sinai  Medical  Center has granted ATI the  exclusive and worldwide
rights to five patents and other technical information. In consideration for the
licenses to the five patents and other technical information,  we must expend an
aggregate  amount of $1,760,000 in research and development  expenses toward the
development and promotion of products derived from the patents by June 30, 2008.
Additionally,  Cedars-Sinai  Medial Center will have nonexclusive  rights to any
products  derived from the  patents.  We will have to pay  Cedars-Sinai  Medical
Center  royalty  fees equal to 1.5% of the gross sales price of royalty  bearing
products.  From the third to tenth years of the license, the royalty fee percent
will phase out evenly to 0%. See"Item 1.  Description of  Business--Patents  and
Proprietary Rights" for a description of the licensed patents.


                                       32



      On December 26, 2001,  ATI entered into various  agreements  with Spectrum
Laboratories,  Inc.  ("Spectrum  Labs").  Concurrently  with  these  agreements,
Spectrum Labs also purchased 362,669 shares of ATI' common stock (or 2.8% of our
shares of that were  outstanding on March 29, 2004).  Mr.  Eddleman,  one of the
members of our Board of Directors, is the Chairman and CEO of Spectrum Labs. The
three  principal  agreements  entered into by ATI and Spectrum  Labs in December
2001 are the following:

      A. License Agreement. Spectrum Labs granted to ATI an exclusive, worldwide
license to develop, make, use and distribute products based on two Spectrum Labs
patents. Provided that ATI purchases the hollow fiber cartridges that it expects
that it will need for its products from Spectrum  Labs, ATI will not have to pay
a  royalty  for  the  license.  In the  event  that  Spectrum  Labs  is not  the
manufacturer of the hollow fiber cartridges,  ATI will have to pay Spectrum Labs
a royalty for the license (see,  "Manufacturing and Supply  Agreement,"  below).
Spectrum  Labs also  agreed to grant  ATI a right of first  refusal  to obtain a
license to make,  use,  develop or distribute  products  based on Spectrum Labs'
technology  other  than in liver  assisted  products,  provided  that such other
products are in the fields of  artificial  blood therapy and  bioprocessing  and
therapeutic devices.

      B. Research Agreement. ATI and Spectrum Labs also entered into a four-year
research  agreement  pursuant to which ATI and  Spectrum  Labs agreed to combine
their expertise and their  respective  technologies to enable ATI to (i) develop
liver  assist  systems,  (ii)  conduct  pre-clinical  and Phase  I-III  clinical
testing,  (iii) obtain regulatory  approvals and (iv)  commercialize  such liver
assist  systems.  Under  the terms of the  agreement,  Spectrum  Labs  agreed to
perform  certain  research  on  liver  assist  devices  for ATI  during  product
development,  pre-clinical and clinical testing at no cost to ATI. Spectrum Labs
also agreed to pay for all costs and  expenses in  connection  with the research
program and agreed to  allocate a total of  $550,000  to the program  during the
research  term. In October 2002, ATI and Spectrum Labs agreed that Spectrum Labs
has now  satisfied  its  research  and  development  obligations,  that ATI owed
Spectrum  Labs an  additional  $54,960 for  services  provided by Spectrum  Labs
(which  amount is being repaid in 18 monthly  installments  ending in May 2004),
and that the 362,669  shares of ATI common stock  previously  issued to Spectrum
Labs are now  fully  vested.  Spectrum  Labs has  agreed to  perform  additional
research  and  development  work as may be requested by ATI on such terms as the
parties may agree to in good faith negotiations.

      C.  Manufacturing  and Supply  Agreement.  ATI and Spectrum Labs have also
entered  into an  agreement  pursuant  to which the  parties  have  agreed  that
Spectrum  Labs  will  manufacture  for  ATI the  hollow  fiber  cartridges  with
fiber-in-fiber  geometry  that ATI will need for its  bioartificial  liver.  The
agreement provides that the price of the hollow fiber-in-fiber  cartridges to be
sold by  Spectrum  Labs to ATI will be  determined  by good  faith  negotiations
between the parties.  ATI has agreed that it will not purchase  cartridges  with
fiber-in-fiber  geometry  from any other  manufacturer  unless  Spectrum Labs is
either  unable or unwilling to  manufacture  the  cartridges.  In the event that
Spectrum Labs is unwilling to manufacture the fiber-in-fiber cartridges for ATI,
ATI shall have the right to have a third party  manufacture  the  cartridges for
it, in which case ATI will pay Spectrum  Labs a royalty for the license  granted
to ATI by Spectrum Labs under the License Agreement.  The royalty shall be equal
to 3% of the  net  sales  (total  sales  less  taxes,  returns,  transportation,
insurance,   and  handling  charges)  attributed  solely  to  the  liver  assist
cartridges.

      Our management believes that the foregoing  transactions with Cedars-Sinai
Medical  Center and Spectrum  Labs were on terms as favorable to this company as
could have been obtained from unrelated third parties.

      In July 2003,  ATI  granted  Dr.  Marvin  Hausman a  five-year  warrant to
purchase 50,000 shares of common stock, at an exercise price of $1.00 per share,
in consideration for Dr. Hausman's efforts in introducing ATI to an investor who
made a $250,000  investment  in ATI. Dr.  Hausman is a member of this  company's
Board of Directors and a member of ATI's Board of Directors.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

(a)   Exhibits

      The following exhibits are filed as part of this report:


                                       33



Exhibit
Number         Description
------         -----------

2.1            Agreement  and Plan of  Reorganization,  dated  October 20, 2003,
               between  the  Registrant,   Arbios   Technologies,   Inc.,  HAUSA
               Acquisition, Inc., Cindy Swank and Raymond Kuh (1)

3.1            Articles  of  Incorporation  of  Historical   Autographs  U.S.A.,
               Inc.(2)

3.2            Certificate of Amendment of Articles of Incorporation (1)

3.3            Bylaws (2)

4.1            Revised form of Common Stock certificate

4.2            Form of Warrant for the Purchase of Shares of Common Stock issued
               by the Registrant upon the assumption of the Arbios Technologies,
               Inc. outstanding Warrant

10.1           Form of 2001 Stock Option Plan (2)

10.2           Facilities  Lease,  entered  into as of  June  30,  2001,  by and
               between Cedars-Sinai Medical Center and Arbios Technologies

10.3           Standard  Multi-Tenant  Office  Lease,  dated as of February  13,
               2004, by and between  Beverly  Robertson  Design Plaza and Arbios
               Systems, Inc.

10.4           Employee Loan-Out Agreement, entered into effective as of July 1,
               2001,  by and  between  Cedars-Sinai  Medical  Center  and Arbios
               Technologies, Inc.

10.5           Second  Amendment to Employee  Loan-Out  Agreement,  entered into
               effective as of May 7, 2003, by and between  Cedars-Sinai Medical
               Center and Arbios Technologies, Inc.

10.6           License  Agreement,  entered into as of June 2001, by and between
               Cedars-Sinai Medical Center and Arbios Technologies, Inc.

10.7           Spectrum Labs License Agreement

14.1           Arbios Systems,  Inc. Code of Business Conduct and Ethics Adopted
               by the Board of Directors on January 15, 2004

16.1           Letter on Change in Certifying Accountant (3)

21.1           List of Subsidiaries

31.1           Certification  of  Principal   Executive  Officer  and  Principal
               Financial  Officer Pursuant to Section 302 of the  Sarbanes-Oxley
               Act of 2002

32.1           Certification  of  Principal   Executive  Officer  and  Principal
               Financial Officer Pursuant to 18 U.S.C. Section 1350

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


                                       34



      (1) Previously filed as an exhibit to the Company's Current Report on Form
      8-K on October 14, 2003,  which exhibit is hereby  incorporated  herein by
      reference.

      (2) Previously filed as an exhibit to the Company's Registration Statement
      Form 10-SB  filed April 26,  2001,  which  exhibit is hereby  incorporated
      herein by reference.

      (3) Previously filed as an exhibit to the Company's Current Report on Form
      8-K on January 30, 2004,  which exhibit is hereby  incorporated  herein by
      reference.

(b)   Reports on Form 8-K

      The  Company  filed the  following  reports  on Form 8-K  during  the last
quarter of the fiscal year ending December 31, 2003:

      o     On October 10, 2003,  the Company filed a Current Report on Form 8-K
            attaching a press release concerning  Historical  Autographs U.S.A.,
            Inc.'s intention to acquire ATI.

      o     On November 14, 2003, the Company filed a Current Report on Form 8-K
            to disclose the Reorganization (Item 5) and the resulting changes in
            control (Item 1).

      Stockholders of our company may obtain a copy of any exhibit referenced in
this 10-KSB Annual Report by writing to:  Secretary,  Arbios Systems,  Inc., 110
North George Burns Road Suite D-4018 Los Angeles, California, 90048. The written
request  must  specify the  stockholder's  good faith  representation  that such
stockholder is a stockholder of record of common stock of the company.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      As stated in Item 8 above,  Williams & Webster, P.S. audited the financial
statements  of our company  during the fiscal years ended  December 31, 2002 and
2001. On January 27, 2004, our board of directors  replaced  Williams & Webster,
P.S. as this company's  auditors and engaged Stonefield  Josephson,  Inc. as our
independent  accountants  to audit our financial  statements for the year ending
December 31, 2003. See, "Item 8. Changes In and  Disagreements  With Accountants
on Accounting and Financial Disclosure."

AUDIT FEES

      The  aggregate  fees we paid  Williams & Webster,  P.S.  during the fiscal
years ended  December 31, 2003 and December 31, 2002 for  professional  services
for the  audit of our  financial  statements  for and the  review  of  financial
statements included in our Forms 10-QSB were $7,951 and $3,213, respectively.

AUDIT-RELATED FEES

      Williams & Webster,  P.S. did not provide,  and it did not bill and it was
not paid any fees for, audit-related services in the fiscal years ended December
31, 2003 and 2002.

TAX FEES

      Williams & Webster,  P.S. did not provide,  and it did not bill and it was
not paid any fees for, tax compliance, tax advice, and tax planning services for
the fiscal years ended December 31, 2003 and December 31, 2002.

ALL OTHER FEES

      Williams & Webster,  P.S. did not provide,  and it did not bill and it was
not paid any fees for, any other services in the fiscal years ended December 31,
2003 and 2002.


                                       35



                             ADDITIONAL INFORMATION

      We are subject to the informational  requirements of the Exchange Act and,
in accordance  with the rules and  regulations  of the  Securities  and Exchange
Commission;  we file reports,  proxy statements and other  information.  You may
inspect such reports, proxy statements and other information at public reference
facilities  of the  Commission  at  Judiciary  Plaza,  450  Fifth  Street  N.W.,
Washington D.C. 20549;  Northwest Atrium Center, 500 West Madison Street,  Suite
1400,  Chicago,  Illinois  60661;  and 5670  Wilshire  Boulevard,  Los  Angeles,
California  90036.  Copies of such  material  can be  obtained  from the  Public
Reference  Section of the Commission at Judiciary  Plaza, 450 Fifth Street N.W.,
Washington,  D.C. 20549, at prescribed rates. For further  information,  the SEC
maintains a website that contains reports, proxy and information statements, and
other information  regarding reporting companies at  http://www.sec.gov  or call
(800) SEC-0330.



                                       36



                      ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                         (A DEVELOPMENT STAGE COMPANY)
                       CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002



                                       37



CONTENTS

                                                                       Page

INDEPENDENT AUDITORS' REPORT                                            1

FINANCIAL STATEMENTS:
  Consolidated Balance Sheet                                            2
  Consolidated Statements of Operations                                 3
  Consolidated Statement of Stockholders' Equity                        4-6
  Consolidated Statements of Cash Flows                                 7
  Notes to Consolidated Financial Statements                            8-20





                          INDEPENDENT AUDITORS' REPORT

Board of Directors
Arbios Systems, Inc. and Subsidiary
Beverly Hills, California

We have audited the accompanying  consolidated  balance sheet of Arbios Systems,
Inc.  and  Subsidiary  as of  December  31,  2003 and the  related  consolidated
statements  of  operations,  stockholders'  equity  and cash flows for the years
ended  December  31,  2003 and 2002,  and from August 23,  2000  (inception)  to
December  31,   2003.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Arbios  Systems,  Inc. and
Subsidiary as of December 31, 2003 and the results of their  operations and cash
flows for the years ended  December 31, 2003 and 2002,  and from August 23, 2000
(inception)  to December 31, 2003,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
March 9, 2004


                                      F-1



                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2003




                                                                                                    
                                      ASSETS

CURRENT ASSETS:
    Cash                                                                                  $3,507,086
    Prepaid expenses                                                                         155,986
                                                                                   ------------------

              Total current assets                                                                             $3,663,072

PROPERTY AND EQUIPMENT, net                                                                                        45,633

PATENT RIGHTS, net                                                                                                324,145

DEPOSITS                                                                                                            7,434
                                                                                                        ------------------

                                                                                                               $4,040,284
                                                                                                        ==================

                       LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable and accrued expenses                                                  $ 148,229
    Current maturities of capital lease obligation                                             8,526
                                                                                   ------------------

              Total current liabilities                                                                         $ 156,755

LONG-TERM LIABILITIES:
    Capital lease obligation, less current maturities                                          6,826
    Other liabilities                                                                          5,555
                                                                                   ------------------

              Total long-term liabilities                                                                          12,381

STOCKHOLDERS' EQUITY:
    Preferred stock, $.001 par value, 5,000,000 shares authorized
      none issued and outstanding                                                                  -
    Common stock, $0.001 par value; 25,000,000 shares
      authorized; 13,150,598 shares issued and outstanding                                    13,151
    Additional paid-in capital                                                             5,485,498
    Deficit accumulated during the development stage                                      (1,627,501)
                                                                                   ------------------

              Total stockholders' equity                                                                        3,871,148
                                                                                                        ------------------

                                                                                                               $4,040,284
                                                                                                        ==================


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

                                      F-2



                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                                                     Period from
                                                                                   August 23, 2000
                                                                                    (Inception) to
                                              Year ended          Year ended          Period Ended
                                          December 31, 2003    December 31, 2002   December 31, 2003
                                          -----------------    -----------------   -----------------
                                                                             
REVENUES                                      $   137,828         $   111,108         $   248,936
                                              -----------         -----------         -----------

OPERATING EXPENSES:
    General and administrative                    340,067             172,737             617,239
    Research and development                      436,849             431,199           1,009,674
                                              -----------         -----------         -----------

              Total operating expenses            776,916             603,936           1,626,913
                                              -----------         -----------         -----------

LOSS BEFORE OTHER EXPENSE                        (639,088)           (492,828)         (1,377,977)

INTEREST EXPENSE, NET                            (243,230)               (830)           (243,157)
                                              -----------         -----------         -----------

LOSS BEFORE PROVISION FOR INCOME TAXES           (882,318)           (493,658)         (1,621,134)

PROVISION FOR INCOME TAXES                          3,375               1,122               6,367
                                              -----------         -----------         -----------

NET LOSS                                      $  (885,693)        $  (494,780)        $(1,627,501)
                                              ===========         ===========         ===========

BASIC AND DILUTED LOSS PER SHARE              $     (0.11)        $     (0.08)        $     (0.27)
                                              ===========         ===========         ===========

BASIC AND DILUTED WEIGHTED AVERAGE
    COMMON SHARES OUTSTANDING                   7,887,237           5,897,225           6,091,089
                                              ===========         ===========         ===========


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

                                      F-3



                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

          PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO DECEMBER 31, 2003





                                   Preferred Stock              Common Stock            Additional
                               -------------------------  --------------------------     Paid-In
                                  Shares       Amount        Shares        Amount        Capital
                               -------------  ----------  --------------  ----------  ---------------
                                                                        
Balance, August 23,
   2000 (inception) restated                                          -         $ -              $ -
   for effect of reverse merger
   with Historical Autographs U.S.A., Inc.

Stock issuance
   in exchange for cash                                       5,000,000          50            4,950

Net loss
                               -------------  ----------  --------------  ----------  ---------------

Balance, December 31,
   2000, as restated                      -           -       5,000,000          50            4,950

Issuance of junior
   preferred stock for
   cash of $250,000
   and in exchange for
   patent rights,
   research and
   development costs,
   and employee loan-
   out costs less
   issuance expenses
   of $11,268,
   June 29, 2001                    681,818           7                                      958,278





                                                               Deficit
                                                             Accumulated
                                                              During the
                                                Deferred     Development
                                                  Costs         Stage          Total
                                               ------------ --------------- ------------
                                                                   
Balance, August 23,
   2000 (inception) restated                                                        $ -
   for effect of reverse merger
   with Historical Autographs U.S.A., Inc.

Stock issuance
   in exchange for cash                                                           5,000

Net loss                                                            (9,454)      (9,454)
                                               ------------ --------------- ------------

Balance, December 31,
   2000, as restated                                     -          (9,454)      (4,454)

Issuance of junior
   preferred stock for
   cash of $250,000
   and in exchange for
   patent rights,
   research and
   development costs,
   and employee loan-
   out costs less
   issuance expenses
   of $11,268,
   June 29, 2001                                  (343,553)                     614,732


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

                                      F-4




                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                  CONSOLIDTED STATEMENT OF STOCKHOLDERS' EQUITY

          PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO DECEMBER 31, 2003



                                   Preferred Stock              Common Stock            Additional
                               -------------------------  --------------------------     Paid-In
                                  Shares       Amount        Shares        Amount        Capital
                               -------------  ----------  --------------  ----------  ---------------
                                                                         
Issuance of common
   stock in exchange
   for patent rights and
   deferred research
   and development
   costs                                                        362,669           4          547,284

Services receivable
Deferred employee
   loan-out costs
   receivable earned

Net loss
                               -------------  ----------  --------------  ----------  ---------------

Balance, December
   31, 2001                         681,818           7       5,362,669          54        1,510,512

Amendment of  December
31, 2001  agreement
for the  issuance  of
common  stock agreement
in exchange for
research and development
   services                                                                                 (495,599)

Deferred employee
   loan-out costs
   receivable earned

Issuance of common
   stock for compensation                                        70,000           1           10,499

Issuance of common
   stock for cash                                               999,111           9          149,857




                                                Deficit
                                              Accumulated
                                               During the
                                 Deferred     Development
                                   Costs         Stage             Total
                                ------------ ---------------  ----------------
                                                      
Issuance of common
   stock in exchange
   for patent rights and
   deferred research
   and development
   costs                                                              547,288

Services receivable                (550,000)                         (550,000)
Deferred employee
   loan-out costs
   receivable earned                 82,888                            82,888

Net loss                                           (237,574)         (237,574)
                                ------------ ---------------  ----------------

Balance, December
   31, 2001                        (810,665)       (247,028)          452,880

Amendment of  December
31, 2001  agreement
for the  issuance  of
common  stock agreement
in exchange for
research and development
   services                         550,000                            54,401

Deferred employee
   loan-out costs
   receivable earned                171,776                           171,776

Issuance of common
   stock for compensation                                              10,500

Issuance of common
   stock for cash                                                     149,866



                                      F-5


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

          PERIOD FROM AUGUST 23, 2000 (INCEPTION) TO DECEMBER 31, 2003






                                   Preferred Stock              Common Stock            Additional
                               -------------------------  --------------------------     Paid-In
                                  Shares       Amount        Shares        Amount        Capital
                               -------------  ----------  --------------  ----------  ---------------
                                                                        
Net loss
                               -------------  ----------  --------------  ----------  ---------------

Balance, December
   31, 2002                         681,818         $ 7       6,431,780        $ 64      $ 1,175,269

Issuance of common
   stock for cash less
   issuance expense of $2,956                                   417,000         417          246,827

Issuance of common stock
   in private placement for
   cash less issuance expense
   of $519,230                                                4,000,000       4,000        3,476,770

Issuance of common stock
   for convertible debenture
   less issuance expense
   of $49,500                                                  400,000         400          350,100

Shares issued in connection with
   acquisition of Historical Autographs
   U.S.A., Inc. on October 30, 2003                           1,220,000       8,263           (8,263)

Value of warrants and beneficial
   conversion feature of bridge loan                                                         244,795

Deferred employee
   loan-out costs
   receivable earned

Preferred Stock converted
   to Common Stock                 (681,818)         (7)        681,818           7

Net loss
                               -------------  ----------  --------------  ----------  ---------------

Balance, December
   31, 2003                               -         $ -      13,150,598    $ 13,151      $ 5,485,498
                               =============  ==========  ==============  ==========  ===============





                                                             Deficit
                                                           Accumulated
                                                            During the
                                              Deferred     Development
                                                Costs         Stage             Total
                                             ------------ ---------------  ----------------
                                                                    
Net loss                                                        (494,780)         (494,780)
                                             ------------ ---------------  ----------------

Balance, December
   31, 2002                                     $(88,889)     $ (741,808)        $ 344,643

Issuance of common
   stock for cash less
   issuance expense of $2,956                                                      247,244

Issuance of common stock
   in private placement for
   cash less issuance expense
   of $568,730                                                                   3,480,770

Issuance of common stock
   for convertible debenture                                                       350,500

Shares issued in connection with
   acquisition of Historical Autographs
   U.S.A., Inc. in October 30, 2003                                                      -

Value of warrants and beneficial
   conversion feature of bridge loan                                               244,795

Deferred employee
   loan-out costs
   receivable earned                              88,889                            88,889

Preferred Stock converted
   to Common Stock

Net loss                                                        (885,693)         (885,693)
                                             ------------ ---------------  ----------------

Balance, December
   31, 2003                                          $ -     $(1,627,501)      $ 3,871,148
                                             ============ ===============  ================



                                      F-6



                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A Development Stage Company)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                                                Period from
                                                                                               August 23, 2000
                                                                                              (Inception) to
                                                          Year ended         Year ended        Period Ended
                                                       December 31, 2003  December 31, 2002   December 31, 2003
                                                       -----------------------------------------------------------
                                                                                        
CASH FLOWS USED FOR OPERATING ACTIVITIES:
   Net loss                                                 $  (885,693)     $  (494,780)        $(1,627,501)
                                                            -----------      -----------         -----------

   ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
     CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
       Amortization of debt discount                            244,795               --             244,795
       Depreciation and amortization                             40,243           33,774              92,337
       Issuance of common stock for compensation                     --           10,500              10,500
       Settlement of accrued expense                                 --           54,401              54,401
       Deferred compensation costs                               88,889          171,776             319,553

CHANGES IN ASSETS AND LIABILITIES:
     (INCREASE) DECREASE IN ASSETS:
       Prepaid expenses                                        (135,177)           8,798            (155,988)
       Deposit                                                       --               --              (7,434)

     INCREASE (DECREASE) IN LIABILITIES:
       Accrued liabilities                                       78,411           53,817             148,230
       Other                                                         --            5,556               5,556
                                                            -----------      -----------         -----------

           Total adjustments                                    317,161          338,622             711,950
                                                            -----------      -----------         -----------

           Net cash used for operating activities              (568,532)        (156,158)           (915,551)
                                                            -----------      -----------         -----------


CASH FLOWS USED FOR INVESTING ACTIVITIES -
   purchase of property and equipment                           (23,470)          (6,340)            (37,115)
                                                            -----------      -----------         -----------

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
   Proceeds from convertible promissory note                    400,000               --             400,000
   Proceeds from issuance of preferred stock                         --               --             250,000
   Proceeds from issuance of common stock                     4,250,200          149,866           4,405,066
   Payments on capital lease obligations, net                    (7,275)          (2,373)             (9,648)
   Cost of issuance of preferred stock                               --               --             (11,268)
   Cost of issuance of common stock                            (571,686)              --            (574,398)
                                                            -----------      -----------         -----------

            Net cash provided by financing activities         4,071,239          147,493           4,459,752
                                                            -----------      -----------         -----------

NET INCREASE (DECREASE) IN CASH                               3,479,237          (15,005)          3,507,086
CASH, beginning of period                                        27,849           42,854                  --
                                                            -----------      -----------         -----------

CASH, end of year                                           $ 3,507,086      $    27,849         $ 3,507,086
                                                            ===========      ===========         ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
   Interest paid                                            $        --      $        --         $        --
                                                            ===========      ===========         ===========
   Income taxes paid                                        $        --      $       800         $     2,992
                                                            ===========      ===========         ===========


SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING
     INFORMATION:

      During  the  year  ended  December  31,  2003,
      $400,000  of  convertible promissory  notes
      were  converted  into 400,000 shares of
      common stock and 681,818 shares of preferred
      stock were converted into common shares.


See Note (1) regarding the transaction with historical autographs, U.S.A. Inc.

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


                                      F-7


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002


(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

      GENERAL:

            Arbios Systems, Inc. and its wholly owned subsidiary  (collectively,
            the "Company") are engaged in developing and marketing  liver-assist
            devices  to meet  the  urgent  need  for  therapy  that  facilitates
            recovery from liver failure.  The Company's  products in development
            are called SEPET(TM),  which is a blood purification  therapy device
            for  patients  with  liver  failure,  and  LIVERAID(TM),  which is a
            bioartificial liver.

            On October 30, 2003,  Historical  Autographs U.S.A., Inc. and Arbios
            Technologies,  Inc.  consummated a reverse  merger,  in which Arbios
            Technologies,  Inc. became the wholly owned subsidiary of Historical
            Autographs  U.S.A.,  Inc.  Concurrently with the merger,  Historical
            Autographs  U.S.A.,  Inc. changed its named to Arbios Systems,  Inc.
            and is herein referred to as "Systems".  The  shareholders of Arbios
            Technologies,  Inc. transferred  ownership of one hundred percent of
            all the  issued and  outstanding  shares of their  capital  stock of
            Arbios  Technologies,  Inc. in exchange for 11,930,598  newly issued
            shares, or approximately 91%, of the common stock, $0.001 par value,
            of Systems.  At that time, the former management of Systems resigned
            and was  replaced  by the same  persons  who serve as  officers  and
            directors of Arbios Technologies, Inc. Inasmuch as the former owners
            of Arbios  Technologies,  Inc.  controlled the combined entity after
            the  merger,  the  combination  was  accounted  for as a purchase by
            Arbios  Technologies,  Inc. as acquirer,  for accounting purposes in
            accordance with Statement of Financial  Accounting Standards No. 141
            using reverse merger accounting,  and no adjustments to the carrying
            values of the assets or  liabilities  of the  acquired  entity  were
            required.  Proforma  operating  results,  as if the  acquisition had
            taken place at the beginning of the period,  have not been presented
            as the  operations  of the acquiree were  negligible.  The financial
            position  and  results of  operations  of Systems is included in the
            consolidated statements of the Company from the date of acquisition.

      DEVELOPMENT STAGE ENTERPRISE:

            The  Company  is  a  development  stage  enterprise  as  defined  in
            Statement  of  Financial   Accounting   Standards  ("SFAS")  No.  7,
            "Accounting  and Reporting by Development  Stage  Enterprises."  The
            Company is  devoting  substantially  all of its  present  efforts to
            establish a new business.  Its planned principal operations have not
            yet commenced, with the exception of research and development, which
            were initiated in 2000 and are being vigorously pursued.  All losses
            accumulated  since  inception  have been  considered  as part of the
            Company's  development  stage  activities.  Payments  received under
            contracts to fund certian research  activities are recognized in the
            period on which the  reserach  activities  are  performed.  Payments
            received in advance that are related to future  performance  will be
            deferred and  recognized  as revenue when the research  projects are
            performed.

      PRINCIPLES OF CONSOLIDATION:

            The  accompanying  consolidated  financial  statements  include  the
            accounts  of the  Systems and its wholly  owned  subsidiary,  Arbios
            Technologies,  Inc. All  material  intercompany  accounts  have been
            eliminated in consolidation.


                                      F-8



                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

      USE OF ESTIMATES:

            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 reported amounts of assets and liabilities and disclosure
            of contingent  assets and  liabilities  at the date of the financial
            statements and the reported  amounts of revenues and expenses during
            the  reporting  period.  Actual  results  could  differ  from  those
            estimates.

      FEDERAL GOVERNMENT GRANTS:

            The  Company is  partially  funded by certain  governmental  grants.
            Payments   received  under   contracts  to  fund  certain   research
            activities  are  recognized  as  revenue  in the period in which the
            research activities are performed. Payments received in advance that
            are related to future performance will be deferred and recognized as
            revenue  when the  research  project are  performed.  Reimbursements
            recorded  under  these  grants are  subject to  governmental  audit.
            Management  believes that material  adjustments will not result from
            subsequent  audits,  if any, of costs reflected in the  accompanying
            financial statements.

      COMPREHENSIVE INCOME:

            SFAS  No.  130,  "Reporting   Comprehensive   Income",   establishes
            standards for the reporting and display of comprehensive  income and
            its components in the financial statements.  As of December 31, 2003
            and 2002,  the  Company  has no items that  represent  comprehensive
            income and  therefore,  the Company  has not  included a schedule of
            comprehensive income in the financial statements.

      PROPERTY AND EQUIPMENT:

            Property and equipment are stated at cost.  Depreciation is provided
            using the  straight-line  method over estimated  useful lives of the
            assets of five years.

      PATENT RIGHTS:

            The Company  purchased the exclusive  right to certain  patents (see
            Note 3).  These  patents are recorded at fair market value as of the
            date of purchase.  They are amortized over the estimated useful life
            or  remaining  legal  life at the  date of  purchase,  whichever  is
            shorter.

      DEFERRED EMPLOYEE LOAN-OUT COSTS RECEIVABLE:

            The Company  purchased the loan-out of certain employees in exchange
            for junior  preferred  stock (see Note 4). These  loan-out costs are
            expensed as the employee services are performed.



                                      F-9


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

      FAIR VALUE OF FINANCIAL INSTRUMENTS:

            The  Company's  financial  instruments,  none of which  are held for
            trading  purposes,  include  cash and  accounts  payable and accrued
            expenses,  have carrying amounts which approximate fair value due to
            their short maturities.

      INCOME TAXES:

            Deferred  income taxes are  recognized for the tax  consequences  in
            future  years of  differences  between  the tax bases of assets  and
            liabilities and their financial reported amounts at each period end,
            based on enacted tax laws and statutory tax rates  applicable to the
            period in which  the  differences  are  expected  to affect  taxable
            income.  Valuation  allowances are established,  when necessary,  to
            reduce  deferred  tax assets to the amount  expected to be realized.
            The  provision for income taxes  represents  the tax payable for the
            period,  if any,  and the change  during the period in deferred  tax
            assets and liabilities.

      STOCK-BASED COMPENSATION:

            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.



                                      F-10


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

      STOCK-BASED COMPENSATION, CONTINUED:

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




                                                          December 31,     December 31,
                                                             2003              2002
                                                             ----              ----
                                                                      
          Net loss as reported                            $(885,693)        $(494,780)
            Compensation recognized under APB 25                 --                --
            Compensation recognized under SFAS 123          (12,710)          (18,042)
                                                          ---------         ---------

          Proforma                                        $(898,403)        $(512,822)
                                                          =========         =========

          Basic and diluted loss per common share:
            As reported                                   $   (0.11)        $   (0.08)
                                                          =========         =========
            Proforma                                      $   (0.11)        $   (0.09)
                                                          =========         =========



            The fair  value of each  option  is  estimated  on the date of grant
            using  the  Black  Scholes   option-pricing   model.  The  following
            weighted-average   assumptions   were  used  in  the  Black  Scholes
            option-pricing model; dividend yield nil, expected volatility 0.05%,
            risk free interest rate 3.0% and expected life of 7 years.

      LOSS PER SHARE:

            The Company  utilizes SFAS No. 128,  "Earning per Share." Basic loss
            per  share  is  computed  by  dividing  loss   available  to  common
            shareholders  by  the  weighted-average   number  of  common  shares
            outstanding.  Diluted  loss per share is  computed  similar to basic
            loss per share except that the  denominator  is increased to include
            the  number  of  additional  common  shares  that  would  have  been
            outstanding  if the  potential  common shares had been issued and if
            the  additional  common shares were  dilutive.  The  computation  of
            diluted  loss per share  does not  assume  conversion,  exercise  or
            contingent  exercise of securities that would have an  anti-dilutive
            effect on losses.


                                      F-11


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002



(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

      RECENT ACCOUNTING PRONOUNCEMENTS:

            During  April  2003,  the  FASB  issued  SFAS  149 -  "Amendment  of
            Statement 133 on  Derivative  Instruments  and Hedging  Activities",
            effective  for  contracts  entered  into or modified  after June 30,
            2003,   except  as  stated  below  and  for  hedging   relationships
            designated after June 30, 2003. In addition, except as stated below,
            all  provisions of this Statement  should be applied  prospectively.
            The  provisions  of this  Statement  that  relate to  Statement  133
            Implementation  Issues that have been effective for fiscal  quarters
            that began prior to June 15, 2003,  should continue to be applied in
            accordance  with their  respective  effective  dates.  In  addition,
            paragraphs  7(a) and 23(a),  which  relate to forward  purchases  or
            sales of when-issued  securities or other securities that do not yet
            exist,  should  be  applied  to  both  existing  contracts  and  new
            contracts  entered  into after June 30,  2003.  The Company does not
            participate in such transactions,  however, is evaluating the effect
            of this new  pronouncement,  if any.

            During May 2003, the FASB issued SFAS 150 - "Accounting  for Certain
            Financial  Instruments with  Characteristics of both Liabilities and
            Equity",   effective  for  financial  instruments  entered  into  or
            modified  after May 31,  2003,  and  otherwise  is  effective at the
            beginning of the first interim period beginning after June 15, 2003.
            This Statement  establishes  standards for how an issuer  classifies
            and measures certain financial  instruments with  characteristics of
            both  liabilities and equity.  It requires that an issuer classify a
            freestanding  financial  instrument  that is  within  its scope as a
            liability  (or an  asset  in  some  circumstances).  Many  of  those
            instruments  were  previously  classified  as  equity.  Some  of the
            provisions  of  this  Statement  are  consistent  with  the  current
            definition of liabilities in FASB Concepts Statement No. 6, Elements
            of  Financial   Statements.   The  Company  has   implemented   this
            pronouncement  and has  concluded  that the adoption has no material
            impact to the financial statements.

            In  December   2003,  the  FASB  issued  a  revised  SFAS  No.  132,
            "Employers'  Disclosures  about  Pensions  and Other  Postretirement
            Benefits"  which  replaces  the  previously  issued  Statement.  The
            revised  Statement  increases the existing  disclosures  for defined
            benefit  pension  plans and  other  defined  benefit  postretirement
            plans. However, it does not change the measurement or recognition of
            those plans as required  under SFAS No. 87,  "Employers'  Accounting
            for Pensions," SFAS No. 88,  "Employers'  Accounting for Settlements
            and   Curtailments   of  Defined   Benefit  Pension  Plans  and  for
            Termination  Benefits," and SFAS No. 106, "Employers' Accounting for
            Postretirement  Benefits  Other Than  Pensions."  Specifically,  the
            revised   Statement   requires   companies  to  provide   additional
            disclosures  about pension plan assets,  benefit  obligations,  cash
            flows,  and benefit costs of defined benefit pension plans and other
            defined benefit  postretirement  plans. Also, companies are required
            to provide a  breakdown  of plan assets by  category,  such as debt,
            equity and real estate,  and to provide  certain  expected  rates of
            return and target allocation percentages for these asset categories.
            The Company has  implemented  this  pronouncement  and has concluded
            that  the  adoption  has  no  material   impact  to  the   financial
            statements.


                                      F-12


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(1)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:

      RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:

            In  January   2003,   the  FASB   issued   Interpretation   No.  46,
            "Consolidation  of Variable  Interest  Entities."  Interpretation 46
            changes the criteria by which one company includes another entity in
            its consolidated financial statements. Previously, the criteria were
            based on control through voting interest. Interpretation 46 requires
            a variable  interest  entity to be consolidated by a company if that
            company  is  subject  to a  majority  of the  risk of loss  from the
            variable  interest  entity's  activities  or  entitled  to receive a
            majority of the  entity's  residual  returns or both. A company that
            consolidates  a  variable  interest  entity  is called  the  primary
            beneficiary of that entity.

            In December 2003 the FASB  concluded to revise  certain  elements of
            FIN 46,  which will be issued  shortly.  The FASB also  modified the
            effective  date of FIN 46.  For all  entities  that were  previously
            considered  special  purpose  entities,  FIN 46 should be applied in
            periods ending after December 15, 2003.  Otherwise,  FIN 46 is to be
            applied for  registrants  who file under  Regulation  S-X in periods
            ending  after March 15,  2004,  and for  registrants  who file under
            Regulation  SB, in periods  ending  after  December  15,  2003.  The
            Company  does not expect the  adoption to have a material  impact on
            the Company's financial position or results of operations.

(2)   PROPERTY AND EQUIPMENT:

      Property and equipment consisted of the following:


                                                             December 31,
                                                                 2003
                                                            ---------------
                  Office equipment                          $           866
                  Computer equipment                                 23,277
                  Medical equipment                                  37,971
                                                            ---------------

                                                                     62,114

                  Less accumulated depreciation                      16,481
                                                            ---------------
                                                            $        45,633
                                                            ===============

      Depreciation  expense was $10,641,  $4,172, and $16,481 for the year ended
      December  31,  2003  and  2002,  and  the  period  from  August  23,  2000
      (inception) to December 31, 2003, respectively.



                                      F-13


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(3)   PATENT RIGHTS:

      In June 2001,  the  Company  received  exclusive  rights to four  existing
      patents and one pending  patent.  At the date of exchange,  the  aggregate
      value of these rights was  $400,000.  At December  31, 2003 and 2002,  the
      accumulated  amortization of these rights was $75,856 and $46,253, and the
      estimated  remaining life was 8 years.  Amortization  expense was $29,602,
      $29,602,  and $75,856 for the years ended  December  31, 2003 and 2002 and
      the  period  from  August 23,  2000  (inception)  to  December  31,  2003,
      respectively.

      Future estimated amortization expense is as follows:

                  Year ending December 31,

                      2004                                   $        29,602
                      2005                                            29,602
                      2006                                            29,602
                      2007                                            29,602
                      2008                                            29,602
                      Thereafter                                     176,135
                                                             ---------------

                                                             $       324,145
                                                             ===============

      In  conjunction  with the  patents  rights  described  above,  the Company
      committed to the licensor to spend a total of  $1,760,000  in research and
      development  expenses  toward the  development  and promotion of products,
      commencing from the acquisition date until June 30, 2008.

      Future remaining minimum payments under this agreement were as follows:

                  Year ending December 31,

                      2004                                 $       150,000
                      2005                                         200,000
                      2006                                         300,000
                      2007                                         400,000
                      2008                                         500,000
                                                           ---------------

                                                           $     1,550,000
                                                           ===============

      In the event the Company  expends more than the minimum  annual  amount in
      any year, the excess may be carried over to the  subsequent  year. For the
      years ended  December  31,  2003 and 2002,  and the period from August 23,
      2000 (inception) to December 31, 2003, the research and development  costs
      incurred were $436,849,  $431,199,  and  $1,009,674,  respectively.  As of
      December 31, 2003, the Company had a $799,674 as  carryforward to apply to
      future years.

      The Company is subject to paying  royalty fees to the  licensor,  who is a
      shareholder,  equal to 1.5% of the gross  sales  price of royalty  bearing
      products. From year three to the tenth year of the license the royalty fee
      percent will phase out evenly to 0%. As of December 31, 2003 and 2002, the
      Company had not paid any  royalty  fees since it did not have any sales of
      royalty bearing products.



                                      F-14


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(4)   DEFERRED EMPLOYEE LOAN-OUT COSTS:

      In June 2001,  the  Company  received a  commitment  for the  loan-out  of
      certain  employees over a two-year period in exchange for junior preferred
      stock (see note 8). The Company has deferred the estimated  loan-out costs
      over the two-year period.  The loan-out costs are expensed as the services
      are  performed.  At the date of the  exchange,  the  cost of the  employee
      loan-out over the two-year period was $319,553.

      In December 2001, the Company paid $24,000 to purchase additional employee
      loan-out  costs.  For the years ended  December 31, 2003 and 2002, and the
      period  from  August 23,  2000  (inception)  to  December  31,  2003,  the
      amortized  employee loan-out costs were $88,889,  $171,776,  and $343,553,
      respectively.

(5)   CONVERTIBLE PROMISSORY NOTES:

      In September  2003, the Company  issued units of convertible  subordinated
      notes and  warrants,  consisting  of  convertible  promissory  notes  (the
      "Notes")  for an aggregate  principal  amount of $400,000 and warrants for
      the purchase 300,000 shares of the Company's common stock at $1 per share.
      The Notes  bore  interest  at 7% per annum and were due on the  earlier of
      March  31,  2004 or  upon  the  occurrence  of  various  other  events  or
      conditions  set forth in the  Notes.  Under the  terms of the  Notes,  the
      holders retained the right, subject to certain exceptions,  to convert all
      or any part of the principal  outstanding  under the Notes into (i) shares
      of the Company's  Common Stock at a conversion price per share equal to $1
      and (ii) warrants for the purchase of Company's  common stock at $2.50 per
      share.  The  conversion  price was subject to adjustment in the event of a
      stock  split,  combination  or like  transaction.  The  warrant  price was
      subject to adjustment in the event of a stock split,  combination  or like
      transaction.

      The Company  recorded the Notes net of a discount  equal to the fair value
      allocated to the warrants  issued of $122,390.  The Notes also contained a
      beneficial conversion feature,  which resulted in additional debt discount
      of $122,390.  The  beneficial  conversion  amount was  measured  using the
      accounting intrinsic value, i.e. the excess of the aggregate fair value of
      the  common  stock into which the debt is  convertible  over the  proceeds
      allocated to the security.

      In October 2003,  the Notes were  converted  into 400,000 shares of common
      stock at $1 per share.  The Company  recognized  interest expense totaling
      $224,401 for the unamortized  warrants and beneficial  conversion  feature
      discount in accordance with Emerging Issues Task Force 00-27.


                                      F-15


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(6)   COMMITMENTS AND CONTINGENCIES:

      Commitments

      The Company leases office  facilities and equipment  under  noncancellable
      operating  leases,  which require monthly payments of $6,441 and expire in
      June 2004.  The  Company is  required  to pay for  taxes,  insurance,  and
      maintenance. The Company is subleasing lab space for $2,777 per month.

      Rent  expense  was  $77,202,  $71,736,  and  $187,080  for the years ended
      December  31,  2003  and  2002,  and  the  period  from  August  23,  2000
      (inception) to December 31, 2003, respectively.

      Agreements

      On December 26, 2001, the Company received the exclusive  worldwide rights
      and license to use certain proprietary rights from Spectrum  Laboratories,
      Inc. ("Spectrum") partially in exchange for 362,669 shares of common stock
      (see note 8). The license  grants the Company the right to use  Spectrum's
      technology and to exploit such rights to develop and  distribute  products
      solely for use in the Company's liver-assist devices.

      In addition, the Company entered into a manufacturing and supply agreement
      with  Spectrum.  The agreement  stipulates  that the Company must contract
      with Spectrum for the manufacture  and supply of certain  products used in
      the liver-assist devices.

(7)   STOCKHOLDERS' EQUITY:

      Preferred Stock

      The Company has 5,000,000 shares of preferred stock authorized.  There are
      no shares of preferred stock issued or outstanding. The board of directors
      has  the  authority  to  set by  resolution  the  particular  designation,
      preferences and other special rights and qualification of preferred stock.

      Junior Preferred Stock

      In June 2001,  Arbios  Technologies,  Inc. issued 681,818 shares of junior
      preferred  stock,  in exchange for $250,000 in cash,  exclusive  rights to
      certain  patents and one pending  patent  valued at $400,000 (see Note 3),
      and future services of certain employees valued at $319,553 (see Note 4).



                                      F-16


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(7)   STOCKHOLDERS' EQUITY, CONTINUED:

      Junior Preferred Stock (Continued)

      In October 2003, all issued and outstanding shares of the junior preferred
      stock were converted into 681,818 shares of common stock.

      Common Stock

      In August 2000,  Arbios  Technologies,  Inc.  issued  5,000,000  shares of
      common stock,  $0.001 par value, to the Company's two officers in exchange
      for $5,000 in cash.

      In December  2001,  Arbios  Technologies,  Inc.  issued  362,669 shares of
      common stock in exchange for future research costs valued at $550,000,  an
      exclusive  license (see Note 8), a manufacturing and supply agreement (see
      Note 8), and exclusive rights to one patent and one pending patent.

      In June 2002,  Arbios  Technologies,  Inc.  issued 70,000 shares of common
      stock to a Board member as  compensation  for services  rendered valued at
      $10,500.

      In July 2002,  Arbios  Technologies,  Inc. issued 999,111 shares of common
      stock to investors in exchange for $149,866 in cash, or $.15 per share.

      In July 2002, Arbios Technologies,  Inc. issued options to purchase 18,000
      shares of common  stock to each of its five  Board  members  for  services
      rendered. The options are exercisable at $0.15 per share. The options vest
      50% in six months and 50% in 12 months from the beginning  date of service
      provided by the respective Board members.

      In July 2002,  Arbios  Technologies,  Inc.  issued a warrant  to  purchase
      100,000 shares of common stock to a Board member for services  rendered to
      the  Company.  The  warrant  is  exercisable  at $0.15 per share and has a
      7-year life. The warrant also has conversion  rights in lieu of payment of
      the exercise price and is not transferable.

      In January 2003, Arbios Technologies, Inc. issued 417,000 shares of common
      stock and  warrants  to  purchase  600,000  shares  of common  stock at an
      exercise  price of $1.00 per share to an investor in exchange for $250,200
      in cash. The Company recognized $2,956 in stock issuance expense.

      In September and October 2003, Arbios Technologies,  Inc, issued 4,000,000
      shares of common stock and warrants to purchase 4,000,000 shares of common
      stock at an exercise  price of $2.50 in exchange for  $4,000,000  in cash.
      The Company recognized $519,230 in stock issuance expense.



                                      F-17


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(7)   STOCKHOLDERS' EQUITY, CONTINUED:

      Common Stock (Continued)

      In September 2003,  convertible  promissory  notes totaling  $400,000 were
      converted into 400,000 shares of Company's common stock.

      In October 2003, Arbios  Technologies,  Inc. entered into a reorganization
      transaction  wherein the shareholders of Systems retained 1,220,000 shares
      of the reorganized entity after the transaction. Since Systems was treated
      as the acquiree for accounting  purposes,  those shares were accounted for
      as being issued as of that date.

      Stock Option Plan

      In 2001,  Systems  adopted the 2001 Stock Option Plan (the "Company Plan")
      for the purpose of granting  incentive stock options and/or  non-statutory
      stock options to employees,  consultants,  directors and others. Under the
      Company Plan, the Company is authorized to grant options to purchase up to
      1,000,000  shares.  The  Company  Plan is  administered  by the  Board  of
      Directors  of the  Company or by a  committee  of the Board.  However,  in
      connection with the reorganization  transaction between Systems and Arbios
      Technologies,  Inc. in October  2003,  Systems  assumed all of the 314,000
      outstanding  options  granted  by  Arbios  Technologies,  Inc.  under  its
      existing  stock option plan and the options  previously  issued under that
      plan  were  cancelled.  None of the  terms  of the  assumed  options  were
      changed,  the options  assumed under the Company Plan are identical to the
      options that were previously granted under the Technologies Plan.

      Transactions  under the Plan during the year ended  December  31, 2003 and
      2002 are summarized as follows:


                                                                      Weighted
                                                         Stock         Average
                                                         Option       Exercise
                                                          Plan          Price

          Balance, December 31, 2001                         --        $    --
            Granted                                      90,000        $  0.15
            Canceled                                         --        $    --
                                                        -------

          Balance, December 31, 2002                     90,000        $  0.15
            Granted                                     233,000        $  1.00
            Canceled                                      9,000        $  0.15
                                                        -------

          Balance, December 31, 2003                    314,000        $  0.78
                                                        =======

          Options exercisable, December 31, 2003        194,000        $  0.61
                                                        =======



                                      F-18


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(7)   STOCKHOLDERS' EQUITY, CONTINUED:

      Warrants:


      As of December 31, 2003,  warrants to purchase  5,050,000 shares of common
      stock at prices ranging from $0.15 to $2.50 were outstanding.

      All warrants are exercisable as of December 31, 2003 and expire at various
      dates through 2008.

(8)   RESEARCH COSTS:

      On December 26, 2001, the Company received a commitment for research costs
      in the amount of $550,000 from Spectrum  Laboratories,  Inc.  ("Spectrum")
      partially  in exchange  for 362,669  shares of common  stock (See Note 6).
      Spectrum  was  required  to expend at least  $137,500  per year toward the
      development of the Company's  liver-assist devices. The original agreement
      was to expire on November 30, 2005 and  stipulated  the  following  yearly
      minimum research costs expenditures by Spectrum:

                Year ending December 31,
                      2002                                     $    148,958
                      2003                                          137,500
                      2004                                          137,500
                      2005                                          126,042
                                                               ------------

                                                               $    550,000
                                                               ============

      In the event Spectrum  expended more than the minimum annual amount in any
      year,  the excess was carried over to the  subsequent  year. For the years
      ended  December  31,  2003 and 2002,  and the period  from August 23, 2000
      (inception)  to December 31, 2003,  the  research  and  development  costs
      incurred by Spectrum was $0,  respectively.  The Company may  repurchase a
      portion of the foregoing shares for nominal consideration if less than the
      specified amounts are expended by Spectrum.

      In July 2002, the original agreement was amended. The Company and Spectrum
      agreed that,  since the prototype  system had been  delivered  early,  all
      362,669 shares issued to Spectrum on December 26, 2001,  were deemed fully
      vested and any future obligations of $550,000 research cost commitment was
      deemed  fulfilled.  In addition,  any additional  research and development
      work requested from Spectrum by the Company and the cost of such work will
      be  negotiated  in good faith  before the work is  initiated  and that the
      Company  will  pay  for  such  work  in  36  monthly  cash   installments.
      Furthermore,  the  Company  agreed  that  billings  of  $109,360,  through
      September 29, 2002, were due for research costs already provided,  in lieu
      of the original $550,000 obligation. This amount was reduced by $54,400 in
      payment for the 362,669 shares previously received,  and the Company shall
      pay the balance of $54,960 to Spectrum in cash in monthly payments over an
      18-month period starting November 1, 2002.


                                      F-19


                       ARBIOS SYSTEMS, INC. AND SUBSIDIARY
                          (A DEVELOPMENT STAGE COMPANY)

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2003 AND 2002


(9)   INCOME TAXES:

      The actual tax benefits  differ from the expected tax benefit  computed by
      applying  the  United  States  federal  corporate  tax rate of 34% to loss
      before  income taxes as follows for the years ended  December 31, 2003 and
      2002,  and the period  from August 23, 2000  (inception)  to December  31,
      2003:



                                                                                   Period from
                                                                                 August 23, 2000
                                                Year Ended        Year Ended      (inception) to
                                               December 31,      December 31,      December 31,
                                                  2003              2002               2003
                                                ---------         ---------         ---------
                                                                           
          Expected tax benefit                  $(301,136)        $(168,226)        $(553,562)
          State income taxes, net of
            federal benefit                       (49,767)          (28,867)          (76,191)
          Other                                        --           (20,979)          (20,979)
          Changes in valuation allowance          350,903           218,072           650,732
                                                ---------         ---------         ---------

                                                $      --         $      --         $      --
                                                =========         =========         =========



      The following table summaries the significant  components of the Company's
      deferred tax asset at December 31, 2003:

                                                            December 31,
                                                                2003

            Deferred tax asset arising from
                  net operating loss carryforward          $       650,732
            Less valuation allowance                              (650,732)

                         Net deferred tax asset            $             -
                                                           ===============


      The Company  recorded a valuation  allowance of 100% for its net operating
      loss carryforward due to the uncertainty of its realization.

      For the year ended  December 31, 2003,  the Company had an operating  loss
      carryforward of approximately $1,627,000, which begins expiring in 2016.

(10)  RELATED PARTY TRANSACTION:

      In 2003,  the son of a  director  received  7,500  shares of common  stock
      valued at $1 per share as a finder's fee.



                                      F-20



                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                      ARBIOS SYSTEMS, INC.

Date:  March 29, 2004         By:     /s/ JACEK ROZGA, M.D., PH.D
                                      --------------------------------------
                                      Jacek Rozga, M.D., Ph.D,
                                      President, and Chief Financial Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.




Signature                                Title                                  Date
---------                                -----                                  ----
                                                                          

  /s/ JACEK ROZGA, M.D., PH.D            President (principal executive         March 29, 2004
---------------------------------        officer) and  Chief Financial
Jacek Rozga, M.D., Ph.D                  Officer (principal financial officer)


  /s/ JOHN VIERLING, MD                  Chairman of the Board, and Director    March 29, 2004
---------------------------------
John Vierling, MD


  /s/ KRISTIN P. DEMETRIOU               Director and Secretary                 March 29, 2004
---------------------------------
Kristin P. Demetriou


  /s/ ROY EDDLEMAN                       Director                               March 29, 2004
---------------------------------
Roy Eddleman


  /s/MARVIN S. HAUSMAN MD Marvin S.      Director                               March 29, 2004
---------------------------------
Hausman MD


  /s/ RICHARD W. BANK MD                 Director                               March 29, 2004
---------------------------------
Richard W. Bank MD






                                INDEX TO EXHIBITS

Exhibit
Number                         Description
------                         -----------

2.1         Agreement  and  Plan of  Reorganization,  dated  October  20,  2003,
            between   the   Registrant,   Arbios   Technologies,   Inc.,   HAUSA
            Acquisition, Inc., Cindy Swank and Raymond Kuh (1)

3.1         Articles of Incorporation of Historical Autographs U.S.A., Inc.(2)

3.2         Certificate of Amendment of Articles of Incorporation (1)

3.3         Bylaws (2)

4.1         Revised form of Common Stock certificate

4.2         Form of Warrant for the Purchase of Shares of Common Stock issued by
            the Registrant upon the assumption of the Arbios Technologies,  Inc.
            outstanding Warrant

10.1        Form of 2001 Stock Option Plan (2)

10.2        Facilities  Lease,  entered into as of June 30, 2001, by and between
            Cedars-Sinai Medical Center and Arbios Technologies

10.3        Standard  Multi-Tenant  Office Lease, dated as of February 13, 2004,
            by and between  Beverly  Robertson  Design Plaza and Arbios Systems,
            Inc.

10.4        Employee  Loan-Out  Agreement,  entered into effective as of July 1,
            2001,  by  and  between   Cedars-Sinai  Medical  Center  and  Arbios
            Technologies, Inc.

10.5        Second  Amendment  to  Employee  Loan-Out  Agreement,  entered  into
            effective  as of May 7, 2003,  by and between  Cedars-Sinai  Medical
            Center and Arbios Technologies, Inc.

10.6        License  Agreement,  entered  into as of June 2001,  by and  between
            Cedars-Sinai Medical Center and Arbios Technologies, Inc.

10.7        Spectrum Labs License Agreement

14.1        Arbios Systems,  Inc. Code of Business Conduct and Ethics Adopted by
            the Board of Directors on January 15, 2004

16.1        Letter on Change in Certifying Accountant (3)

21.1        List of Subsidiaries

31.1        Certification of Principal Executive Officer and Principal Financial
            Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1        Certification of Principal Executive Officer and Principal Financial
            Officer Pursuant to 18 U.S.C. Section 1350


         -------------------------------_
         (1) Previously  filed as an exhibit to the Company's  Current Report on
         Form 8-K on October  14,  2003,  which  exhibit is hereby  incorporated
         herein by reference.

         (2)  Previously  filed  as an  exhibit  to the  Company's  Registration
         Statement  Form 10-SB filed  April 26,  2001,  which  exhibit is hereby
         incorporated herein by reference.

         (3) Previously  filed as an exhibit to the Company's  Current Report on
         Form 8-K on January  30,  2004,  which  exhibit is hereby  incorporated
         herein by reference.