================================================================================

                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549


                                 FORM 10-QSB


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


                 FOR THE QUARTERLY PERIOD ENDED June 30, 2001

                          COMMISSION FILE NO. 0-28413


                              HYPERBARIC SYSTEMS
      (Exact name of small business issuer as specified in its charter)


               CALIFORNIA                           77-0481056
  (State or other jurisdiction of      (I.R.S. Employer Identification No.)
   incorporation or organization)


                           1127 HARKER AVENUE
                       PALO ALTO, CALIFORNIA 94301
                (Address of principal executive offices)

                              650-323-0943
                       (Issuer's telephone number)

================================================================================

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

 At August 8, 2001, the registrant had outstanding  11,946,186 shares of
common stock, no par value.

        Transitional Small Business disclosure format:  Yes     No   X



                             HYPERBARIC SYSTEMS

                             TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                                                                      PAGE
BALANCE SHEET (unaudited)  - as of June 30, 2001                         3

STATEMENTS OF OPERATIONS (unaudited)
-- For the Three Month and Six Month Periods
Ended June 30, 2001 and 2000 and the period
from February 26, 1998 (Inception) through June 30, 2001                 4

STATEMENTS OF STOCKHOLDERS' DEFICIT (unaudited)
-- For the Six Months ended June 30, 2001                                5

STATEMENTS OF CASH FLOWS (unaudited)
-- For the Six Month Periods Ended June 30, 2001
and 2000 and the Period From February 26, 1998
(Inception) through June 30, 2001                                        6

NOTES TO UNAUDITED FINANCIAL STATEMENTS                                  7

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION       7

PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                              15

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS                      15

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                16

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS            16

ITEM 5.  OTHER INFORMATION                                              16

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K                               16

SIGNATURES                                                              17


PART I -- FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

<PAGE>

                        HYPERBARIC SYSTEMS
                   (a Development Stage Company)
                          BALANCE SHEETS
                          JUNE 30, 2001
                           (UNAUDITED)


                             ASSETS

Current assets
   Cash                                                  $     78,000
   Prepaid expenses and other current assets                    5,000
                                                           ----------
      Total Current Assets                                     83,000
Fixed assets, net                                               6,800
                                                           ----------
Total assets                                             $     89,800
                                                           ----------
LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities
   Accounts payable                                      $     52,200
   Accrued liabilities                                        130,200
   Stockholder payables                                       441,200
   Note payable - related party                                61,900
   Convertible note payable - related party                   166,000
   Stock subject to rescission                                 88,600
                                                           ----------
     Total current liabilities                                940,100
                                                           ----------
Total liabilities                                             940,100
                                                           ==========
 Commitments and contingencies
 Stockholders' deficit
   Common stock; no par or stated value;
   50,000,000 shares authorized,
   11,946,200 shares issued and outstanding                 5,184,400
   Unamortized loan fees related to options
   to purchase common stock
   - related party,  net                                     (562,400)
   Prepaid consulting services paid in
   common stock                                               (39,000)
   Accumulated deficit during development stage            (5,329,300)
                                                           ----------
     Total stockholders' deficit                             (850,300)
                                                           ----------
     Total liabilities and stockholders' deficit         $     89,800
                                                           ==========

See Accompanying Notes To Financial Statements.


<PAGE>


                           HYPERBARIC SYSTEMS
                      (a Development Stage Company)
                        STATEMENTS OF OPERATIONS
                              (UNAUDITED)
<table>
<caption>

                                         <c>             <c>             <c>             <c>             <c>

                                                  Three Months Ended                Six Months Ended       February 26, 1998
                                                       June 30,                          June 30,             (Inception)
                                                                                                                 Through
                                                 2001           2000             2001           2000         June 30, 2001

Revenue                                     $         --    $        --     $         --    $         --    $             --
Operating expenses
 General and administrative
    Stock based compensation                      59,800        608,100          724,500         840,800           2,513,200
    Other general and administrative
    expenses                                     160,400        138,100          293,800         399,300           1,651,700
                                             -----------     ----------       ----------      ----------          ----------
 Total general and administrative                220,200        746,200        1,018,300       1,240,100           4,164,900
 Research and development                         67,100         95,600          141,100         161,900             707,100
 Sales and marketing                              12,700         21,300           25,400          40,400             155,400
                                             -----------     ----------       ----------      ----------          ----------
 Total operating expenses                        300,000        863,100        1,184,800       1,442,400           5,027,400
                                             -----------     ----------       ----------      ----------          ----------
Loss from operations                            (300,000)      (863,100)      (1,184,800)     (1,442,400)         (5,027,400)
Other income (expense)
 Interest income                                      --             --               --             400               2,500
 Interest expense                                (68,000)       (57,600)        (138,600)        (58,300)           (302,000)
                                             -----------     ----------
Loss before provision for income taxes          (368,000)      (920,700)      (1,323,400)     (1,500,300)         (5,326,900)
Provision for income taxes                            --            800               --             800               2,400
                                             -----------     ----------      -----------      ----------          ----------
Net loss                                    $   (368,000)   $  (921,500)    $ (1,323,400)   $ (1,501,100)   $     (5,329,300)
                                             -----------     ----------      -----------      ----------          ----------
Basic and diluted loss per share            $      (0.03)   $     (0.13)    $      (0.13)   $      (0.22)   $          (0.83)
Basic and diluted weighted average
common shares outstanding                     10,606,268      6,899,200        9,927,407       6,760,500           6,396,515
                                             ===========     ==========      ===========      ==========          ==========
</table>

See Accompanying Notes To Financial Statements.

<PAGE>


                                        HYPERBARIC SYSTEMS
                                   (a Development Stage Company)
                                STATEMENT OF STOCKHOLDERS' DEFICIT
                                            (UNAUDITED)
<table>
<caption>

                    <c>           <c>           <c>                <c>             <c>            <c>             <c>

                                                     Loan Fees          Prepaid
                                                 Related to Option     Consulting                        Total
                              Common Stock         to Purchase      Services Paid in     Other         Accumulated   Stockholders'
                          Shares        Amount     Common Stock       Common Stock    Receivables        Deficit        Deficit
                      -----------    ----------     ----------         ---------      -----------     -----------      ----------
Balance, December 31,
2000                    8,136,200   $  3,818,00    $  (656,200)       $ (195,200)     $        --    $ (4,005,900)   $ (1,038,700)

Issuance of common
stock for cash          1,661,100       436,800             --                --               --              --         436,800

Stock options and
warrants exercised        102,000        21,700             --                --               --              --          21,700

Issuance of common
stock in satisfaction
of promissory note
issued as a result of
recission offering        416,600       178,200             --                --               --              --         178,200

Amortization of
prepaid consulting
services                       --            --             --           156,200               --              --         156,200

Issuance of common
stock for services        766,100       567,300             --                --               --              --         568,300

Issuance of common
stock for receivables     800,000       104,000             --                --         (104,000)             --              --

Issuance of common
stock in satisfaction
of accounts payable        56,800        19,700             --                --               --              --          19,700

Deemed interest
expense related
to conversion
feature of note
payable                        --        37,100             --                --               --              --          37,100

Current period
amortization of
loan fees related
to options to
purchase common
stock                          --            --         93,800                --               --              --          93,800

Net loss                       --            --             --                --               --      (1,323,400)     (1,323,400)
                      -----------    ----------     ----------         ---------       ----------     -----------      ----------
Balance, June 30,
2001                   11,946,200   $ 5,184,400    $  (562,400)       $  (39,000)     $  (104,000)   $ (5,329,300)   $   (850,300)
                      ===========    ==========     ==========         =========       ==========     ===========      ==========
</table>

See Accompanying Notes To Financial Statements.


<PAGE>


                                   HYPERBARIC SYSTEMS
                              (a Development Stage Company)
                                STATEMENTS OF CASH FLOWS
                                      (UNAUDITED)

<table>
<caption>

                                                          <c>                   <c>                     <c>

                                                                                                            February 26, 1998
                                                                        Six Months Ended                       (Inception)
                                                                            June 30,                              Through
                                                                  2001                     2000               June 30, 2001

Cash Flows From Operating Activities:
Net loss                                                $     (1,323,400)       $      (1,501,100)       $       (5,329,300)

        Adjustments to reconcile net loss to net
        cash used in operating activities:
        Stock based compensation                                 724,500                  840,800                 2,513,200
        Depreciation                                                 600                      800                     3,000
        Deemed interest expense                                   37,100                       --                    74,200
        Amortization of discount and loan fees
        on notes payable                                          93,800                   56,900                   212,400
        Changes in operating assets liabilities:
                Change in prepaid expenses and
                other assets                                       4,100                   (3,400)                   (5,000)
                Change in bank overdraft                            (500)                      --                        --
                Change in accounts payable                       (40,000)                    (300)                   71,800
                Change in accrued liabilities                     (9,000)                 (54,800)                  130,200
                Change in related party wages
                and accrued expenses                                  --                   72,100
                Change in stockholder payables                   139,300                       --                   410,500
                                                               ---------                ---------                 ---------
Net cash used by operating activities                           (373,500)                (589,000)               (1,919,000)
                                                               ---------                ---------                 ---------
Cash flows from investing activities:

Purchase of fixed assets                                              --                   (6,100)                   (9,800)
                                                               ---------                ---------                 ---------
                Net cash used in investing activities                 --                   (6,100)                   (9,800)
                                                               ---------                ---------                 ---------
Cash flows from financing activities:
        Proceeds from issuance of common stock                   458,400                  458,700                 1,743,200
        Proceeds from borrowing on notes payable                      --                   66,000                   299,100
        Principal payments on notes payable                       (7,000)                  (5,000)                  (35,500)
                                                               ---------                ---------                 ---------
                Net cash provided by financing activities        451,500                  546,700                 2,006,800
                                                               ---------                ---------                 ---------

Net increase (decrease) in cash and cash equivalents              78,000                  (48,400)                   78,000

Cash and cash equivalents, beginning of period                        --                   52,100                        --
                                                               ---------                ---------                 ---------
Cash and Cash Equivalents, end of period                    $     78,000        $           3,700        $           78,000
                                                               ---------                ---------                 ---------
Supplemental Disclosure of Cash Flow Information:
        Cash paid for income taxes                          $         --        $              --        $            1,600
        Cash paid for interest                              $         --        $              600       $              200

Schedule of non-cash financing activities:
        Principal payments on notes payable
        through the issuance of
        common stock                                        $         --        $              --        $            5,000
                                                               ---------                ---------                 ---------

        Issuance of common stock for accounts
        receivable                                          $    104,000        $              --        $          104,000
                                                               ---------                ---------                 ---------
        Issuance of common stock in
        satisfaction of accounts payable                    $     19,700        $              --        $           19,700
                                                               ---------                ---------                 ---------

        Recission of common stock
        related to Reg. D offering dated
        September 1, 1999 and February 2, 2000              $         --        $              --        $          334,000
                                                               ---------                ---------                 ---------
        Issuance of common stock in
        satisfaction of promissory note issued
        as a result of recission offering                   $    178,200        $              --        $          245,700
                                                               ---------                ---------                 ---------
        Issuance of common stock for prepaid
        consulting services                                 $         --        $              --        $          335,100
                                                               ---------                ---------                 ---------
        Loan fees related to options to
        purchase common stock                               $         --        $              --        $          750,000
                                                               ---------                ---------                 ---------
</table>

See Accompanying Notes To Financial Statements.

<PAGE>


                                HYPERBARIC SYSTEMS
                          (a Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                                   (unaudited)

1.      BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with
Securities and Exchange Commission requirements for interim financial
statements.  Therefore, they do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements.  The financial statements should be
read in conjunction with the Form 10-KSB for the year ended December 31, 2000
of HyperBaric Systems ("the Company").

The results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full year.  In the
opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations.  All such adjustments are of a
normal recurring nature.

2.      OTHER RECEIVABLE

During April 2001, the Company issued 800,000 shares of the Company's common
stock for $104,000.  As of June 30, 2001, the Company has not received these
funds and is currently taking necessary actions to collect or have the shares
returned and cancelled.

3.      GOING CONCERN

The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business.  The Company is in the
development stage, has no operating revenue and incurred a net loss of
$1,323,400 for the six months ended June 30, 2001.  The Company is in the
fourth year of research and development, with an accumulated loss during the
development stage of $5,329,300, a stockholders' deficit of $850,300 and a
working capital deficiency of  $857,100 as of June 30, 2001.  As of June 30,
2001, management is uncertain as to the completion date or if the product will
be completed at all.

Management's plan, in this regard, is to raise financing of approximately
$2,500,000 through a combination of equity and debt financing.  Management
believes this amount will be sufficient to finance the continuing research for
the next twelve months.  However, there is no assurance that the Company will
be successful in raising such financing.

These conditions give rise to substantial doubt about the Company's ability to
continue as a going concern.  These financial statements do not include
adjustments relating to the recoverability and classification of reported
asset amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.  The
Company's continuation as a going concern is dependent upon its ability to
obtain additional financing or sale of its common stock as may be required and
ultimately to attain profitability.


ITEM 2. MANAGEMENT'S PLAN OF OPERATION

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE
ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING OUR
EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY
THE WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR SIMILAR
LANGUAGE.  THESE FORWARD-LOOKING STATEMENTS INVOLVE RISKS, UNCERTAINTIES AND
OTHER FACTORS.  ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE
BASED ON INFORMATION AVAILABLE TO US ON THE DATE HEREOF AND SPEAK ONLY AS OF
THE DATE HEREOF.  THE FACTORS DISCUSSED BELOW UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-QSB ARE AMONG THOSE FACTORS THAT
IN SOME CASES HAVE AFFECTED OUR RESULTS AND COULD CAUSE THE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS.

The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto.

OVERVIEW

        We are a developmental stage company, and have a very limited
operating history and have no revenue to date. Our prospects must be
considered in light of the risks and uncertainties encountered by companies in
an early stage of development involving new technologies and overcoming
regulatory approval process requirements before any revenue is possible.

        We have experienced operating losses since our inception.  These
losses have resulted from the significant costs incurred in the development of
our technology and the establishment of our research and development facility.
Expenditures will increase in all areas in order to execute our business plan,
particularly in research and development and in gaining regulatory approval to
market our products in the U.S. and abroad.

        Our principal business objective is to develop and provide economical,
non-toxic methods of extending the shelf life and improving the quality of
blood platelets and other biological material.  We have been successful in
preserving blood platelets for ten days under refrigeration while maintaining
cell structure and morphology, which has never been done before to our
knowledge. We hope to validate our findings at an independent blood center in
California and submit them for government approval in the next quarter.

        We will continue efforts on prototype development and the generation
of pre-clinical and clinical data in the months ahead.  It is anticipated that
we will submit our first application for FDA approval and begin clinical
testing of our first product for blood platelet storage.  We plan to begin
research on kidney preservation and developing solutions that will operate
under refrigerated and sub-zero temperature conditions within the next six
months.

        We have filed a provisional patent application in June to cover recent
discoveries in our platelet preservation process.   We anticipate filing
additional patents applications relating to platelet preservation during the
next twelve months of operation which should strengthen our competitive
position in the platelet preservation marketplace. We will also seek strategic
alliances with companies that have the capability to provide technical and
clinical expertise as well as financial and marketing expertise to leverage
our current expertise in these areas.

        We also plan to relocate our current research and development facility
from Russia to a more suitable location to accommodate more equipment and
personnel, as well as to locate a central administrative facility in the U.S.


Product Development

We have engaged Quintiles, Inc., an international regulatory consulting firm,
to assist with planning and managing the regulatory approval process.  This
firm specializes in the design and implementation of regulatory strategies,
including experiment design and monitoring.  Thus far we have used it only on
a limited basis, as we have not yet started clinical trials.  We anticipate
that Quintiles participation will increase as we meet with the FDA to proceed
with clinical trials.

As an overall strategy, we intend to limit the system claims for our Plexlife
system and to progressively expand them as FDA and/or EU approval is granted
for each succeeding claim.  We also plan to market our first products in
countries that have relaxed regulatory requirements for product sales.   We
believe that this should provide a shorter time to market.

Research and Development Plan

        We have developed a research and development strategy that considers
the FDA and international approval processes and their impact on bringing a
product to market.  Based on these constraints, we have developed a research
and development plan that requires multiple developments being conducted at
the same time.

        We have developed a 3-phase marketing strategy, with estimated time
requirements for the research and development, and market introduction of
products.  The plan starts with phase one, a platelet preservation product
which stores platelets under refrigeration for 7 to 9 days using our PlexLife
solution by itself.  Subject to market requirements, the second phase is the
market introduction of the PlexLife System utilizing our hyperbaric container.
Our third phase of marketing is to find a viable alternative to the current
organ preservation methods with both solution under refrigeration and a
complete system at sub-zero temperatures.

        Governmental approval for human testing will be required for each of
these three phases of development.  Our plan is to obtain the necessary
approvals for each phase.

Platelet Preservation - Refrigeration

        The plan starts with a platelet preservation product using the
PlexLife solution by itself.  We have been able to successfully store
platelets for 10 days at refrigerated temperatures, which is considered to be
a major milestone in the cold storage of platelets.  We are now in process of
having our technology validated by an independent test facility in the U.S.
Currently the industry stores platelets at ambient temperature for a maximum
of 5 days, an FDA-imposed limit due to historic bacterial infection of the
platelets.

Platelet Preservation - Sub-Zero Storage

        This development is intended to result in longer storage times for
platelets, combining the use of solutions, sub-zero temperature and high
pressure.  It is our goal to develop a storage method that will preserve the
viability of platelets with little or no bacterial growth for a period greater
than 13 days.  This will provide the medical community with a new and
economical method for long-term platelet storage, thereby reducing the current
loss of product.  The successful implementation of refrigerated platelets at 9
days or beyond may eliminate the need for sub-zero stored platelets for most
blood center needs.

Organ Preservation

        This effort will incorporate storage of organs involving experiments
with animal organs to demonstrate our ability to harvest, store and transplant
organs. The goal is to achieve a level of physical condition and viability of
these organs that is equal to or superior to present storage methods and
storage times.  The development process includes the development of solutions,
cooling methods and possibly the use of chambers to protect organs from
freezing at sub-zero storage temperatures.


RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2001 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2000

REVENUES.  We have not had any revenue since our inception in February, 1998.

GENERAL AND ADMINISTRATIVE EXPENSES.   Our total general and administrative
expenses in the three months ended June 30, 2001 equaled $220,200, a decrease
from $746,200 for the comparable period in 2000.  This decrease was primarily
due to a decrease in stock based compensation.

RESEARCH AND DEVELOPMENT.  Our research and development expenses decreased
from $95,600 for the three months ended June 30, 2000 to $67,100 for the three
months ended June 30, 2001 as we reduce expenses to conserve cash.

SALES AND MARKETING EXPENSES.  Our sales and marketing expenses for the three
months ended June 20, 2001 equaled $12,700, a decrease from $21,300 for the
three months ended June 31, 2000. This decrease is due to our decision to
decrease our sales and marketing expenses until our products are ready for
introduction into the market.

INTEREST INCOME. As was the case in June 30, 2000, we did not have any
interest income for the three months ended June 30, 2001.

INTEREST EXPENSE.  We incurred interest expense of $68,000 for the three
months ended June 30,  2001 as compared to $57,600 in the same period in
2000.  The increase is primarily due to interest on related party notes
payable.

NET LOSS.  As a result of the foregoing factors our net loss decreased from
$921,500 for the three months ended June 2000, to $368,000 for the three
months ended June 30, 2001.


SIX MONTHS ENDED JUNE 30, 2001 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2000

GENERAL AND ADMINISTRATIVE EXPENSES.   Our total general and administrative
expenses in the six months ended June 30, 2001 equaled $1,018,300, a decrease
from $1,240,100 for the comparable period in 2000.  This decrease was
primarily due to a decrease in stock based and cash based compensation.

RESEARCH AND DEVELOPMENT.  Our research and development expenses decreased
from $161,900 for the six months ended June 30, 2000 to $141,100 for the six
months ended June 30, 2001 as we reduce expenses to conserve cash.

SALES AND MARKETING EXPENSES.  Our sales and marketing expenses for the six
months ended June 20, 2001 equaled $25,400, a decrease from $40,400 for the six
months ended June 31, 2000. This decrease is due to our decision to decrease
our sales and marketing expenses until our products are ready for introduction
into the market.

INTEREST INCOME. Our interest income for the six months period ended June 30,
2000 was $400.

INTEREST EXPENSE.  We incurred interest expense of $138,600 for the six months
ended June 30,  2001 as compared to $58,300 in the same period in  2000.  The
increase is primarily due to interest on related party notes payable.

NET LOSS.  As a result of the foregoing factors our net loss decreased from
$1,501,100 for the six months ended June 2000, to $1,323,400 for the six
months ended June 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES

        Since our inception, we have financed our operations through financing
from our founders and private investors, a public offering under Regulation D
Rule 504, and private placements under Regulation D Rule 505.

        We anticipate continued growth in our operations and a corresponding
growth in our operating expenses and capital expenditures.  We do not
anticipate any revenue from operations for the next two or three years.
Therefore, our success is dependent on funding from private placements of
equity securities.  At the present time however, we have no agreements or
other arrangements for any such private placements.

        Our operating plan for calendar year 2001 is focused on development of
our products. It is our estimate that a cash requirement of $1,200,000 is
required to support this plan comprised of $1,000,000 for operating expenses
and $200,000 for capital expenditures.  There can be no assurance that
additional financing will be available at terms favorable to us or at all.

INTELLECTUAL PROPERTY

        We consider our intellectual property to be a key cornerstone and
asset of our business.  As such, the intellectual property, which consists of
applied-for patents, trade secrets, copyrights and know-how will be both
developed and protected.  We plan to gain wide protection for our intellectual
property worldwide by patent and trademark filings in major foreign markets as
well as the careful protection of trade secrets through contract and
procedure. In addition to the previous patent filings, we recently filed a
provisional patent application in June 2001. Information regarding our patents
is contained in our most recent Annual Report on Form 10-KSB.

RISK FACTORS

        Our business, financial condition or results of operations could be
materially and adversely affected by any of the following risks:

GOING CONCERN

        We are in the third year of research and development, with an
accumulated loss during the development stage of $5,329,300.  As of June 30,
2001 we are uncertain as to the completion date of this research and
development, or if a product will ever be completed as a result of this
research and development activity.    We anticipate that the funds spent on
research and development activities will need to increase prior to completion
of a product.  Additionally, we may not be able to secure funding in the
future necessary to complete our intended research and development activities.

        These conditions give rise to substantial doubt about our ability to
continue as a going concern. Our financial statements do not include
adjustments relating to the recoverability and classification of reported
asset amounts or the amount and classification of liabilities that might be
necessary should we be unable to continue as a going concern.  Our
continuation as a going concern is dependent upon our ability to obtain
additional financing from the sale of our common stock, as may be required,
and ultimately to obtain profitability.

        The report of our independent certified public accountants, included
in our most recent Annual Report on Form 10-KSB, contains a paragraph
regarding our ability to continue as a going concern.

WE REQUIRE IMMEDIATE ADDITIONAL CAPITAL.

        We currently anticipate that based on our short-term forecast of
raising additional funds of $1.2 million, our available funds will be
sufficient to meet our anticipated needs for working capital, capital
expenditures and business operations until April 2002. To date, however, we
have raised only $700,000 through July 31, 2001. We therefore need to raise
additional capital.  There can be no assurance that additional financing will
be available on terms favorable to us or at all.  If adequate funds are not
available or are not available on acceptable terms when required, we may be
required to significantly curtail our operations or may not be able to fund
expansion, take advantage of unanticipated acquisition opportunities, develop
or enhance services or products or respond to competitive pressures. Such
inability could have a material adverse effect on our business, results of
operations and financial condition.  If additional funds are raised through
the issuance of equity or convertible debt securities, the percentage
ownership of our stockholders will be reduced, stockholders may experience
additional dilution and such securities may have rights, preferences and
privileges senior to those of our common stock.

WE ARE A DEVELOPMENT STAGE COMPANY, AND HAVE A LIMITED OPERATING HISTORY ON
WHICH TO EVALUATE OUR POTENTIAL FOR FUTURE SUCCESS.

        We are a development stage company, and have yet to produce or sell
any products or services.  We have only a limited operating history upon which
you can evaluate our business and prospects, and have yet to develop
sufficient experience regarding actual revenues to be received from our
products and services.  You must consider the risks and uncertainties
frequently encountered by early stage companies in new and rapidly evolving
markets.  If we are unsuccessful in addressing these risks and uncertainties,
our business, results of operations and financial condition will be materially
and adversely affected.

CHANGES IN THE NUMBER OF EMPLOYEES

        We presently have seventeen employees, six in the U.S. and eleven in
Russia.  Twelve of our employees are in research and development, two
employees are in marketing and sales and three are in administration.  Our
employees are currently not represented by a collective bargaining agreement,
and we believe that our relations with our employees are good. If we lose our
key personnel or are unable to attract and retain additional qualified
personnel, we may not be able to successfully manage the business and achieve
our objectives.

WE EXPECT LOSSES FOR THE FORESEEABLE FUTURE, AND OUR OPERATING RESULTS MAY
FLUCTUATE FROM QUARTER TO QUARTER.

        Since our inception in 1998, we have incurred losses from operations,
resulting primarily from costs related to research and development and
building our infrastructure.  Because of our status as a development stage
company and the need to conduct additional research and development prior to
introducing products and services to the market, we expect to incur net losses
for the foreseeable future.  If our growth is slower than we anticipate or our
operating expenses exceed our expectations, our losses will be significantly
greater.  We may never achieve profitability.  Primarily as a result of these
recurring losses, our independent certified public accountants modified their
report on our December 31, 2000 and December 31, 1999 financial statements to
include an uncertainty paragraph wherein they expressed substantial doubt
about our ability to continue as a going concern.

OUR FUTURE REVENUES ARE UNPREDICTABLE AND OUR QUARTERLY OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY.

        We have a very limited operating history, and have no revenue to date.
We cannot forecast with any degree of certainty whether any of our products or
services will ever generate revenue the amount of revenue to be generated by
any of our products or services. In addition, we cannot predict the
consistency of our quarterly operating results.  Factors which may cause our
operating results to fluctuate significantly from quarter to quarter include:

-       our ability to attract new and repeat customers;

-       our ability to keep current  with  the evolving requirements of our
target market;

-       our ability to protect our proprietary technology;

-       the ability of our  competitors to offer new or enhanced products or
services; and

-       unanticipated  delays or cost  increases  with  respect to research
and development.

        Because of these and other factors, we believe that quarter-to-quarter
comparisons of our results of operations are not good indicators of our future
performance.  If our operating results fall below the expectations of
securities analysts and investors in some future periods, then our stock price
may decline.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY.

        As a development stage company, we are entering a biological material
preservation market that is presently addressed by large companies with
extensive financial resources.  Those companies include DuPont and Baxter,
among others.  Additionally, smaller companies with which we may compete
include LifeCell Corporation for platelet preservation, Cerus for viral
inactivation of platelets and other blood products and Cryo Life for
preserving heart valves by cryo-preservation. We have limited funds with which
to develop products and services, and many of our competitors have
significantly more resources than we do.  These companies are active in
research and development of biological material preservation, and we do not
know the current status of their development efforts. Most of the above
competitors have significantly greater financial resources, technical
expertise and managerial capabilities than we currently possess.

WE MAY FAIL TO OBTAIN GOVERNMENT APPROVAL OF OUR PROCESSES

        FDA and the European Union ("EU") have regulations for the
marketability of medical solutions and equipment. We have not developed our
products to the level where these approval processes can be started.

WE MAY FAIL TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS.

        We intend to establish various strategic alliances.  We may not be
able to enter into these relationships on commercially reasonable terms or at
all.  Even if we enter into strategic alliances, our partners may not attract
significant numbers of customers.   Our inability to enter into new
distribution relationships or strategic alliances could have a material and
adverse effect on our business.

SHARES ELIGIBLE FOR FUTURE SALE BY OUR CURRENT STOCKHOLDERS MAY ADVERSELY
AFFECT OUR STOCK PRICE.

        To date, we have had a very limited trading volume in our common
stock.  As long as this condition continues, the sale of a significant number
of shares of common stock at any particular time could be difficult to achieve
at the market prices prevailing immediately before such shares are offered.
In addition, sales of substantial amounts of common stock, including shares
issued upon the exercise of outstanding options and warrants, under Securities
and Exchange Commission Rule 144 or otherwise could adversely affect the
prevailing market price of our common stock and could impair our ability to
raise capital at that time through the sale of our securities.

OUR COMMON STOCK PRICE IS LIKELY TO BE HIGHLY VOLATILE; OUR COMMON STOCK IS
"PENNY STOCK".

        The market price of our common stock is likely to be highly volatile
as the stock market in general, and the market for technology companies in
particular, has been highly volatile.  The trading prices of many technology
companies' stocks have reached historical highs within the last 52 weeks and
have reflected valuations substantially above historical levels.  During the
same period, these companies' stocks have also been highly volatile and have
recorded lows well below historical highs.

        Factors that could cause such volatility in our common stock may
include, among other things:

-  actual  or  anticipated fluctuations in our quarterly operating results; -
announcements of  technological  innovations; -  changes  in  financial
estimates  by  securities  analysts; -  conditions  or  trends  in our
industry;  and -  changes  in  the  market  valuations  of  other comparable
companies.

        In addition, our stock is currently traded on the NASD O-T-C Bulletin
Board and it is uncertain that we will be able to successfully apply for
listing on the AMEX, the NASDAQ National Market, or the Nasdaq SmallCap Market
in the foreseeable future due to the trading price for our common stock, our
working capital and revenue history.  Failure to list our shares on the AMEX,
the Nasdaq National Market, or the Nasdaq SmallCap Market, will impair the
liquidity for our common stock.

        The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any security that 1) is priced under
five dollars, 2) is not traded on a national stock exchange or on NASDAQ, 3)
may be listed in the "pink sheets" or the NASD OTC Bulletin Board, 4) is
issued by a company that has less than $5 million in net tangible assets and
has been in business less than three years, or by a company that has under $2
million in net tangible assets and has been in business for at least three
years, or by a company that has revenues of $6 million for 3 years.

        Penny stocks can be very risky: penny stocks are low-priced shares of
small companies not traded on an exchange or quoted on NASDAQ.  Prices often
are not available.  Investors in penny stocks are often unable to sell stock
back to the dealer that sold them the stock.  Thus an investor may lose
his/her investment.  Our common stock is a "penny stock" and thus is subject
to rules that impose additional sales practice requirements on broker/dealers
who sell such securities to persons other than established customers and
accredited investors, unless the common stock is listed on The Nasdaq SmallCap
Market. Consequently, the "penny stock" rules may restrict the ability of
broker/dealers to sell our securities, and may adversely affect the ability of
holders of our common stock to resell their shares in the secondary market.

SOME OF THE INFORMATION IN THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING
STATEMENTS.

        Some of the information in this Quarterly Report on Form 10-QSB
contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may", "will", "expect", "intend", "anticipate", "believe", "estimate" and
"continue" or similar words.  You should read statements that contain these
words carefully because they:

-     discuss  our  expectations  about  our  future  performance;

-     contain  projections of our future operating results or of our future
financial condition; or

-     state  other  "forward-looking"  information.

        We believe it is important to communicate our expectations to our
stockholders.  There may be events in the future, however, that we are not
able to predict accurately or over which we have no control.  The risk factors
listed in this section, as well as any cautionary language in this prospectus,
provide examples of risks, uncertainties and events that may cause our actual
results to differ materially from the expectations we describe in our forward-
looking statements.  Before you invest in our common stock, you should be
aware that the occurrence of any of the events described in these risk factors
and elsewhere in this prospectus could have a material and adverse effect on
our business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.

DILUTION OF COMMON SHAREHOLDERS.

        The sale of a substantial number of shares of our common stock in the
public market, or the prospect of such sales, could materially and adversely
affect the market price of our common stock.  We are authorized to issue up to
50,000,000 shares of common stock.  To the extent of such authorization, our
Board of Directors will have the ability, without seeking stockholder
approval, to issue additional shares of common stock in the future for such
consideration as our Board of Directors may consider sufficient.  The issuance
of additional common stock in the future will reduce the proportionate
ownership and voting power of our common stock held by existing stockholders.

        Sales in the public market of substantial amounts of our common stock,
including sales of common stock issuable upon exercise of options and
warrants, could depress prevailing market prices for our common stock.  Even
the perception that such sales could occur might impact market prices for the
common stock.  The existence of outstanding options and warrants may prove to
hinder our future equity financings. In addition, the holders of such options
and warrants might exercise them at a time when we would otherwise be able to
obtain additional equity capital on terms more favorable to us.  Such factors
could materially and adversely affect our ability to meet our capital needs.
We depend on our key personnel to operate our business, and we may not be able
to hire enough additional management and other personnel as our business
grows.

        Our performance is substantially dependent on the continued services
and on the performance of our executive officers and other key employees.  The
loss of the services of any of these executive officers or key employees could
materially and adversely affect our business.  We currently do not have any
"key person" insurance on any of our executive officers or key employees.
Additionally, we believe we will need to attract, retain and motivate talented
management and other highly skilled employees to be successful.  Competition
for employees that possess knowledge of our target market is intense.  We may
be unable to retain our key employees or attract, assimilate and retain other
highly qualified employees in the future.


PART II -- OTHER INFORMATION

<PAGE>

ITEM 1.  LEGAL PROCEEDINGS.

         Not applicable.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS.

(1)     During the six months ended June 30, 2001 we issued options to
purchase 200,000 shares of common stock under our Non-Statutory Stock Option
Plan to three (3) individuals who were not employees of the Company with
exercise prices ranging from $0.28 to $0.32 per share.  The issuances where
made in reliance on Section 4(2) of the Securities Act of 1933 as amended and
were made without general solicitation or advertising.

(2)     During the six months ended June 30, 2001, we issued approximately
3,753,200 shares of our common stock for an aggregate amount of approximately
$1,309,00.  These issuances were made in reliance on Section 4(2) of the
Securities Act of 1933 as amended and/or Regulation D promulgated under the
Securities Act of 1933 and were made without general solicitation or
advertising.  The purchasers were sophisticated investors with access to all
relevant information necessary to evaluate the investments, and who
represented to the Company that the shares were being acquired for investment.

(3)     In April 2001, we issued approximately 56,800 shares of common stock
for an aggregate amount of approximately $19,700 as a cancellation of debts
owed to certain service providers.  These issuances were made in reliance on
Section 4(2) of the Securities Act of 1933 as amended.  The service providers
were sophisticated investors with access to all relevant information necessary
to evaluate the investments, and who represented to the Company that the
shares were being acquired for investment.


<PAGE>

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.

         Not applicable.

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

         Not applicable.

ITEM 5.  OTHER INFORMATION.

         Not applicable.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)      Exhibits.

         (b)      Reports on Form 8-K

                  None

<PAGE>


SIGNATURES

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

                                    HYPERBARIC SYSTEMS

Date:  August 14 ,2001          /s/ Harry Masuda
                                    ----------------------------
                                    Harry Masuda
                                    Chief Executive Officer