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<SEC-DOCUMENT>0000912057-00-054117.txt : 20001220
<SEC-HEADER>0000912057-00-054117.hdr.sgml : 20001220
ACCESSION NUMBER:		0000912057-00-054117
CONFORMED SUBMISSION TYPE:	SB-2
PUBLIC DOCUMENT COUNT:		5
FILED AS OF DATE:		20001219

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			AETHLON MEDICAL INC
		CENTRAL INDEX KEY:			0000882291
		STANDARD INDUSTRIAL CLASSIFICATION:	LABORATORY ANALYTICAL INSTRUMENTS [3826]
		IRS NUMBER:				133632859
		STATE OF INCORPORATION:			NV
		FISCAL YEAR END:			0331

	FILING VALUES:
		FORM TYPE:		SB-2
		SEC ACT:		
		SEC FILE NUMBER:	333-52212
		FILM NUMBER:		792019

	BUSINESS ADDRESS:	
		STREET 1:		7825 FAY AVENUE SUITE 200
		CITY:			LAJOLLA
		STATE:			CA
		ZIP:			92037
		BUSINESS PHONE:		2129120930

	MAIL ADDRESS:	
		STREET 1:		7825 FAY AVENUE SUITE 200
		CITY:			LAJOLLA
		STATE:			CA
		ZIP:			92037

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	BISHOP EQUITIES INC
		DATE OF NAME CHANGE:	19930602
</SEC-HEADER>
<DOCUMENT>
<TYPE>SB-2
<SEQUENCE>1
<FILENAME>a2033546zsb-2.txt
<DESCRIPTION>SB-2
<TEXT>

<PAGE>

  As filed with the Securities and Exchange Commission on December 18, 2000
                                Registration No.
                   An Exhibit List can be found on page II-2.

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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

                                    FORM SB-2
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                              AETHLON MEDICAL, INC.
              (Exact name of registrant as specified in its charter)

              NEVADA                                    13-3632859
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)

     7825 FAY AVENUE, SUITE 200
        LA JOLLA, CALIFORNIA                               92037
(Address of Principal Executive Office)                 (Zip Code)


                 FRANKLYN S. BARRY, JR., CHIEF EXECUTIVE OFFICER
                              AETHLON MEDICAL, INC.
             7825 FAY AVENUE, SUITE 200, LA JOLLA, CALIFORNIA, 92037
                    (Name and address of agent for service)

                                 (858) 456-5777
         (Telephone number, including area code, of agent for service)

                                    Copy to:

                              Bruce H. Haglund, Esq.
                            Gibson, Haglund & Paulsen
                2 Park Plaza, Suite 450, Irvine, California 92614

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

Approximate date of proposed sale to the public:

As soon as practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box:  [X]

<PAGE>

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

                         CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================================
                                                      Proposed       Proposed         Maximum
Title of                                               Amount         Maximum        aggregate        Amount of
securities to be                                        to be     offering price      offering      registration
registered                                           registered      per share(1)     price(3)         fee (3)
- -----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>          <C>               <C>             <C>
SHARES OF COMMON STOCK, $.001 PAR VALUE(2)(3)        1,600,000         $3.38        $ 5,408,000      $ 1,427.71
SHARES OF COMMON STOCK, $.001 PAR VALUE(4)           1,600,000         $3.38        $ 5,408,000      $ 1,427.71


TOTAL                                                3,200,000                      $10,816,000      $ 2,855.42
=======================================================================================================================
</TABLE>
(1)  Estimated solely for purposes of calculating the registration fee in
     accordance with Rule 457(c) under the Securities Act of 1933, as amended
     (the "Act"), based on the average of the closing bid and asked prices for
     the Registrant's Common Stock (the "Common Stock") as reported on the
     Nasdaq OTC Bulletin Board on December 15, 2000 and, with respect to shares
     of common stock of the Company issuable upon exercise of outstanding
     warrants, the higher of (i) such average sales price or (ii) the exercise
     price of such warrants.

(2)  Issuable as Put Shares.

(3)  Pursuant to Rules 416 and 457 under the Act, additional shares as may be
     issuable pursuant to the anti-dilution provisions of the warrants are also
     being registered.

(4)  Issuable upon exercise of Warrants with an exercise price of $3.85 issued
     to the Finders.
- -----------------------------

      The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.


<PAGE>

                             PRELIMINARY PROSPECTUS
                     Subject To Completion, Dated   , 2001

    The information in this prospectus is not complete and may be changed.

                              AETHLON MEDICAL, INC.
                           7825 Fay Avenue, Suite 200
                            LaJolla, California 92037
                                 (858) 456-5777

                                   [1] Shares
                                  Common Stock


THE OFFERING

The resale of up to [3,200,000] shares of Common Stock on the Nasdaq
Over-the-Counter Bulletin Board at the prevailing market price or in
negotiated transactions.

        - Up to 1,600,000 shares are issuable as Put Shares to certain selling
shareholders identified in this Prospectus (the "Selling Shareholders");

        - Up to 1,600,000 shares are issuable upon the exercise of Purchase
Warrants issuable to certain finders identified in this Prospectus (the
"Finders").

         We will receive no proceeds from the sale of the shares by the Selling
Shareholders or the Finders. However, we may receive proceeds from the sale of
Put Notes to the Selling Shareholders and, if the Purchase Warrants are
exercised, we will receive proceeds from the sale of shares issuable upon the
exercise of the Purchase Warrants by the Selling Shareholders or the Finders.

                               TRADING SYMBOL:
               AEMD (Nasdaq Over-the-Counter Bulletin Board)

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

              THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK.
                    See "Risk Factors" beginning on page 2.

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

         THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND STATE SECURITIES
REGULATORS HAVE NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND
IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED.

<PAGE>

         THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THIS PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS
FILED BY AETHLON MEDICAL, INC., WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE SELLING SHAREHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT BECOMES EFFECTIVE.

                               PROSPECTUS SUMMARY

         THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED IN
THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL THE INFORMATION YOU SHOULD
CONSIDER BEFORE INVESTING IN THE SECURITIES. BEFORE MAKING AN INVESTMENT
DECISION, YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION, THE FINANCIAL STATEMENTS AND THE NOTES TO THE
FINANCIAL STATEMENTS. SOME OF THE STATEMENTS MADE IN THIS PROSPECTUS DISCUSS
FUTURE EVENTS AND DEVELOPMENTS, INCLUDING OUR FUTURE BUSINESS STRATEGY AND
OUR ABILITY TO GENERATE REVENUE, INCOME AND CASH FLOW. THESE FORWARD-LOOKING
STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN THESE FORWARD-LOOKING
STATEMENTS.

Our Company

     Aethlon Medical, Inc. ("AEMD") is a developer and marketer of
extracorporeal medical device technologies. We have applied our proprietary
platform technology known as the Hemopurifier(TM) to develop an extracorporeal
therapeutic treatment for HIV-AIDS. Pre-clinical trials have documented the
rapid removal of up to 70% of the HIV virus during one 60-minute application. We
intend to build our business in three ways:

     -   Commercialize the Hemopurifier line of extracorporeal  blood filtration
         devices upon completion of clinical trials with priority on the
         device for the removal of viruses from the blood;

     -   Develop and exploit new applications of the Hemopurifier platform
         technology, such as the virus-removal therapy; and

     -   Continue the strategy of acquiring related medical device technologies
         that can be developed and commercialized on an international basis.

     We are the parent company of Hemex, Inc. and Aethlon Laboratories, Inc.,
our wholly-owned subsidiaries. We also intend to acquire additional
businesses and technologies that complement our products under development.

The Offering

Common Stock Offered for Resale             [3,200,000] shares


                                      1

<PAGE>

Use of Proceeds                             We will not receive proceeds from
                                            the resale of the Common Stock
                                            described in this Prospectus.
                                            However, we will receive proceeds
                                            from the initial placement of Put
                                            Notes and Warrants with the Selling
                                            Shareholders.

Nasdaq OTC Bulletin Board Symbol            AEMD


                                  RISK FACTORS

          An investment in shares of our common stock is very risky. You should
carefully consider the following factors as well as the other information
contained and incorporated by reference in this prospectus before deciding to
invest.

         LIMITED OPERATING HISTORY; LACK OF OPERATING REVENUE; EARLY STAGE OF
DEVELOPMENT. AEMD was originally founded in April 1991 as Bishop Equities, Inc.
for the purpose of providing a public vehicle for acquisition of a private
company. Our acquisition of Aethlon, Inc. and Hemex, Inc. in March 1999 was the
first of a series of acquisitions that formed the entity operating known as
Aethlon Medical, Inc. today. We have a limited operating history on which to
base an evaluation of our business and prospects. From our formation through
September 30, 2000, we have received and earned revenues, including grant
income, aggregating approximately $1,600,000. Our prospects must be considered
in light of the risks and uncertainties encountered by companies in the early
stages of development. Potential investors should be aware of the problems,
delays, expenses and difficulties usually encountered by an enterprise in the
Company's stage of development, many of which may be beyond our control. These
include unanticipated problems relating to product development, testing, initial
and continuing regulatory compliance, manufacturing costs, production and
assembly, the competitive and regulatory environment in which we plan to
operate, marketing problems and additional costs and expenses that may exceed
current estimates.

         HISTORY OF LOSSES AND ANTICIPATED FUTURE LOSSES. Since the formation of
our business, we have incurred substantial net losses. As of September 30, 2000,
our accumulated deficit was approximately $6,087,000. As we continue to
implement our growth strategy, we intend to spend significant amounts on
research and development, sales and marketing, and general and administrative
activities. We expect to incur these costs in advance of anticipated revenues,
which may further increase our operating losses in some periods. As a result of
our expansion, we may continue to incur significant operating losses and
negative cash flows from operations for the next few years. It is possible that
we may never achieve favorable operating results or profitability.

         SIGNIFICANT ADDITIONAL FINANCING NEEDS. We require substantial working
capital to fund our business. Since our inception, we have experienced negative
cash flow from operations, and we expect to experience significant negative cash
flow from operations for the near future. In November 2000, we entered into a
Subscription Agreement and raised $375,000 from the sale of a Convertible Note.
Under the terms of the Subscription Agreement, we were granted the right to
borrow additional funds under the terms of Put Notes. The Put Notes allow us to
raise up to an additional $4,625,000 in convertible debt during the two years
following the date of this Prospectus. Depending on the amount and timing of
additional capital, if any, raised through the issuance of Put Notes, we may
need to raise additional capital through other

                                      2

<PAGE>

sources within the next few months. We currently anticipate that a private
placement of our common stock for up to $10 million will be undertaken early
in 2001. The net proceeds of this stock offering are expected to be
sufficient to meet anticipated needs for working capital and capital
expenditures for the next three years. If we raise additional funds through
the issuance of equity, our existing shareholders will be diluted in terms of
their percentage ownership of the Company. If we are unable to raise
additional funds when necessary, we may have to reduce planned capital
expenditures, scale back our development of new products, sales or other
operations, enter into financing arrangements on terms that we would not
otherwise accept, sell some or all of the Company's assets, or we may have to
cease operations.

         SUBSTANTIAL LIABILITIES; LIMITATIONS ON THE USE OF PROCEEDS FROM THE
SALE OF THE NOTES AND THE PUT NOTES. As disclosed in our 10-QSB filing at
September 30, 2000, our total liabilities were in excess of $2,800,000. These
liabilities include notes payable, trade debt (including debt owed to related
parties), accrued liabilities, and deferred compensation. However, we may not
use the proceeds from the sale of the Notes and the Put Notes to repay notes
payable or non-trade obligations.

         THE COMPANY MAY NOT RECEIVE REGULATORY APPROVAL FOR FUTURE PRODUCTS AND
THEREFORE MAY NOT BE ABLE TO SELL THOSE PRODUCTS FOR CLINICAL PURPOSES IN THE
UNITED STATES OR ABROAD. We plan to develop multiple products utilizing
extracorporeal treatment with broad applications in the future. In order to be
able to market all of these products, we will be required to obtain approval of
the Federal Drug Administration ("FDA") and of similar foreign authorities
through approval procedures similar to, and in addition to, those already
completed by us for the DFO Hemopurifier. Our failure to obtain necessary
approvals to market future products in one or more significant markets could
cause material harm to our business, financial condition, and results of
operation.

         DIFFICULTY IN FORECASTING REVENUES AND EXPENSES. Due to our limited
operating history, we cannot predict our future revenues or results of
operations accurately. We base our current and future expense levels on our
current and anticipated fixed expenses, our operating plans, and our estimates
of future revenues. Operating results are difficult to forecast because they
depend in large part on product completion and FDA approval processes. As a
result, we may be unable to adjust our spending in a timely manner to compensate
for any unexpected revenue shortfall. This inability could materially harm our
business and ability to operate.

         THE COMPANY'S BUSINESS IS, AND IN THE FUTURE MAY BECOME, SUBJECT TO
ADDITIONAL REGULATIONS AND IF UNABLE TO COMPLY WITH THEM MAY BE MATERIALLY
HARMED. We are subject to various other federal, state, and international laws.
The target industries for our extracorporeal products are strictly regulated by
the FDA, and participants in these markets must comply with all regulations and
standards set forth by the FDA. We are unable to predict the extent of future
government regulations or industry standards. New regulations may result in
increased costs and inhibit our ability to market our products. As a result, our
business, financial condition, and results of operation could be materially
harmed.

         INTENSE COMPETITION. The market for medical devices is intensely
competitive. Many of our potential competitors have longer operating histories,
greater name recognition, more employees, and significantly greater financial,
technical, marketing, public relations, and distribution resources than we have.
This intense competitive environment may require us to make changes in our
products, pricing, licensing, services or marketing to maintain and extend our
current brand and technology franchise. Price concessions or the emergence of
other pricing or distribution strategies of competitors may diminish our

                                      3

<PAGE>

revenues, adversely impact our margins or lead to a reduction in our market
share, any of which may harm our business.

         TECHNOLOGICAL OBSOLESCENCE. Our products may be made unmarketable by
new scientific or technological developments where new treatment modalities are
introduced that are more efficacious or more economical that our planned
extracorporeal therapies.

         FAILURE TO MANAGE GROWTH. We have considerably expanded our operations
since the acquisition of Hemex, Inc. and Aethlon, Inc. in March 1999. Continued
expansion of our business may place increasing strains on our ability to manage
our growth, including our ability to monitor operations, bill customers, control
costs and maintain effective quality controls. If our financing efforts are
successful, we plan to significantly expand our research and development
activities, expand our sales and marketing, hire additional employees, and
expand our internal information, accounting and billing systems. To successfully
manage our growth, we must identify, attract, motivate, train, and retain highly
skilled managerial, financial, engineering, business development, sales and
marketing, and other personnel. Competition for this type of personnel is
intense. If we fail to manage our growth effectively, we could materially harm
our business.

         LIMITED MARKETING CAPABILITIES; UNCERTAINTY OF MARKET ACCEPTANCE.
Because of the sophisticated nature and early stage of development of our
products, we will be required to educate potential customers and successfully
demonstrate that the merits of our products justify the costs associated with
such products. In certain cases, however, we will likely encounter resistance
from customers reluctant to make the modifications necessary to incorporate our
products into their processes. In some instances, we will be required to rely on
distributors or other strategic partners to market our products. The success of
any such relationship will depend in part on the other party's own competitive,
marketing, and strategic considerations, including the relative advantages of
alternative products being developed and/or marketed by any such party. There
can be no assurance that we will be able to market our products properly and
generate meaningful product sales.

         LOSS OF KEY PERSONNEL. Given the early stage of our development, we
depend on the performance and efforts of our senior management team and other
key employees. If we lost the service of any members of our senior management or
other key employees, that loss could materially harm our business.

         MISAPPROPRIATION OF INTELLECTUAL PROPERTY. Our success depends on our
internally developed technologies and other intellectual property. We regard
our technology as proprietary and we attempt to protect it with patents,
copyrights, trade secret laws, and confidentiality and nondisclosure agreements.
Despite these precautions, it may be possible for a third party to obtain and
use our services or technology without authorization. Third parties also may
develop similar technology independently. We have applied for a number of United
States and foreign patents and have already been issued five U.S. and
international patents. Some or all of these patents may not sufficiently protect
our technology. If any patents are not issued or if they fail to provide
protection for its technology, it may make it easier for our competitors to
offer technology equivalent or superior to ours. Moreover, we have applied for
registration of a number of key trademarks and service marks, and we intend to
introduce new trademarks and service marks. We may not be successful in
obtaining registration for one or more of these trademarks.

         We may need to resort to litigation in the future to enforce or to
protect our intellectual property rights, including our patent and trademark
rights. In addition, our technologies and trademarks may be

                                      4

<PAGE>

claimed to conflict with or infringe upon the patent, trademark or other
proprietary rights of third parties. If this occurred, we would have to
defend against challenges to our patents, which could result in substantial
costs and the diversion of resources. We also may have to obtain a license to
use those proprietary rights or possibly cease using those rights altogether.
Any of these events could materially harm our business.

         THE COMPANY MAY BE SUBJECT TO RISKS ASSOCIATED WITH ITS PRODUCTS
INCLUDING PRODUCT LIABILITY OR PATENT AND TRADEMARK INFRINGEMENT CLAIMS. Our
current and future products may contain defects which could subject us to
product liability claims. Although we will maintain limited product liability
insurance, if any successful products liability claim is not covered by or
exceeds our insurance, our business, results of operations, and financial
condition would be harmed. Additionally, third parties may assert claims against
us alleging infringement, misappropriation or other violations of patent,
trademark or other proprietary rights, whether or not such claims have merit.
Such claims can be time consuming and expensive to defend and could require the
Company to cease using and selling the allegedly infringing products and to
incur significant litigation costs and related expenses.

         THE COMPANY'S COMMON STOCK HAS LIMITED LIQUIDITY. At the present time,
the Common Stock of the Company is not listed on The Nasdaq Stock Market, Inc.
or on any national exchange. Although dealer prices for our Common Stock are
listed on the Nasdaq OTC Bulletin Board, trading has been limited since such
quotations first appeared in March 1993. We intend to apply to have our Common
Stock approved for listing on the Nasdaq SmallCap Market or the American Stock
Exchange in 2001. We cannot assure investors that we will be able to secure
either of such listings, or, if received, that we will meet the requirements for
continued listing on the Nasdaq SmallCap Market or the American Stock Exchange.
Under Nasdaq rules, in order to maintain a listing on the Nasdaq SmallCap
Market, a company must have, among other things, either $4,000,000 in net
tangible assets, a market capitalization of $50,000,000 or more, or $750,000 net
income in its last fiscal year or two of its last three fiscal years. In
addition, the listed security must have a minimum bid price of $3.00 per share.
Further, NASDAQ has the right to withdraw or terminate a listing on the Nasdaq
SmallCap Market at any time and for any reason at its discretion. If the Company
were unable to obtain or to maintain listing on the Nasdaq SmallCap Market
quotations, any "bid" and "asked" prices of the Common Stock would be quoted in
the "pink sheets" published by the National Quotation Bureau, Inc. or on the
Nasdaq OTC Electronic Bulletin Board where shares of its Common Stock have been
quoted prior to the date of this Prospectus. In such event, an investor could
find it more difficult to dispose of or to obtain accurate quotations of prices
for the shares of Aethlon Medical Common Stock than would be the case if the
shares of the Company's Common Stock were quoted on the NASDAQ SmallCap Market
or on the American Stock Exchange. Irrespective of whether or not shares of the
Company's Common Stock are included in the Nasdaq system or on the American
Stock Exchange, no assurance can be made to investors that the public market for
shares of its Common Stock will become more active or liquid in the future. In
that regard, prospective purchasers of the Common Stock should consider that
this Offering is being made without underwriting arrangements typically found in
an initial public offering of securities. Such arrangements generally provide
for the issuer of the securities to sell the securities to an underwriter which,
in turn, sells the securities to its customers and other members of the public
at a fixed offering price, with the result that the underwriter has a continuing
interest in the market for such securities following the Offering.

         SMALL "FLOAT" AND POSSIBLE VOLATILITY OF STOCK PRICE. Broad
fluctuations in the stock markets can, obviously, adversely affect the market
price of our Common Stock. In addition, failure to meet or exceed analysts'
expectations of financial performance may result in immediate and significant
price and volume fluctuations in the trading of our Common Stock. Without a
significantly larger number of shares

                                      5

<PAGE>

available for trading by the public, or public "float," our Common Stock will
be less liquid than stocks with broader public ownership, and as a result,
trading prices of our Common Stock may significantly fluctuate and certain
institutional investors may be unwilling to invest in such a thinly traded
security

         LACK OF DIVIDENDS ON COMMON STOCK. We have never paid any cash
dividends on our Common Stock, and we do not anticipate paying dividends in the
near future.

         THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UPON CONVERSION OF
CONVERTIBLE AND PUT NOTES MAY CAUSE SIGNIFICANT DILUTION OF EXISTING
SHAREHOLDERS' INTERESTS AND EXERT DOWNWARD PRESSURE ON THE PRICE OF OUR COMMON
STOCK. Significant dilution of existing shareholders' interests may occur if we
issue additional shares of common stock underlying outstanding or subsequently
issued Notes, Put Notes, and Warrants. As of November 30, 2000, we had $375,000
principal amount of Convertible Notes outstanding. We may issue additional Put
Notes. The number of shares of Common Stock issuable upon conversion of the
Convertible Notes and Put Notes (the "Notes") may constitute a significant
percentage of the total outstanding shares of our Common Stock, as such
conversion is based on a formula pegged to the market price of the Common Stock.

         The formula provides, specifically, that the number of shares of Common
Stock issuable upon the conversion of the Notes shall be the lower of (i) 90% of
the closing price for the Common Stock on the principal market or exchange where
the Common Stock is listed or traded for the last trading day immediately prior
to but not including the issue date of the Notes; or (ii) 75% of the average of
the three lowest closing bid prices for the Common Stock on the principal market
or exchange where the Common Stock is listed or traded, for the 10 trading days
prior to but not including the date of conversion. Therefore, there is a
possibility that the Notes may convert to Common Stock at a rate that may be
below the prevailing market price of the Common Stock at the time of conversion.

         The exact number of shares of common stock into which the Notes may
ultimately be convertible will vary over time as the result of ongoing changes
in the trading price of our Common stock. Decreases in the trading price of our
common stock would result in increases in the number of shares of Common Stock
issuable upon conversion of the Notes. The following consequences could result:

                  - If the market price of our Common Stock declines, thereby
proportionately increasing the number of shares of Common Stock issuable upon
conversion of the Notes, an increasing downward pressure on the market price
of the Common Stock might result (sometimes referred to as a downward
"spiral" effect).

                  - The dilution caused by conversion of Notes and sale of
the underlying shares could also cause downward pressure on the market price
of the Common Stock.

                  - Once downward pressure is placed on the market price of
the Company's stock, the pressure could encourage short sales by holders of
Notes and others, thus placing further downward pressure in the price of the
Common Stock.

                  - The conversion of Notes would dilute the book value and
earnings per share of Common Stock held by our existing shareholders.

                                      6
<PAGE>

                                 USE OF PROCEEDS

          We expect to sell to the Selling Shareholders, subject to effective
registration and applicable trading volume, and other limitations, up to
$4,625,000 of Put Notes that are convertible into Common Stock. Additional
amounts may be received if the warrants to purchase Common Stock issued in
connection with the placement of the Put Notes are exercised. Net proceeds are
determined after deducting all expenses of the offering (estimated to be
$425,000).

          We intend, in the following order of priority, to use the net proceeds
from this offering (excluding proceeds from warrant exercises), if any, as
follows:

<TABLE>
<S>                                                                                             <C>
         Product Development Activities..........................................................$  720,000
              (with principal focus on HIV/AIDS device)
         FDA Clinical Trials..................................................................... 2,078,400
         Business Development Activities......................................................... 1,000,000
              (including corporate communications,
              SEC registration of common stock, and other
              corporate activities)
         Debt Service............................................................................   401,600
              (including interest on outstanding notes,
              but excluding repayment of principal in the
              maximum amount of $35,000)
                                                                                                 ----------
         Total Proceeds..........................................................................$4,200,000
</TABLE>

                         PRICE RANGE OF COMMON STOCK

LIMITED PUBLIC MARKET FOR SHARES OF COMMON STOCK

         The Company's Common Stock is traded on the Nasdaq Over-the-Counter
Bulletin Board ("OTCBB"). The Company's trading symbol is "AEMD." The Company's
Common Stock has had a limited trading history, and trading has been limited and
sporadic.

         The following table sets forth for the period indicated the high and
low bid quotations for the Common Stock as reported by the OTCBB. The prices
represent quotations between dealers, without adjustment for retail markup, mark
down or commission, and do not necessarily represent actual transactions.

<TABLE>
<CAPTION>
                                           HIGH BID            LOW BID
               2000
<S>                                     <C>                 <C>
            4th Quarter                 $4.6875             $2.875
            3rd Quarter                 $6.50               $1.50
            2nd Quarter                 $7.00               $2.25
            1st Quarter                 $8.00               $4.00
</TABLE>

                                      7

<PAGE>

<TABLE>
<CAPTION>
                                  1999
<S>                                                    <C>                 <C>
                               4th Quarter             $8.75               $7.03
                               3rd Quarter             $8.75               $7.00
                               2nd Quarter             $8.50               $7.75
                               1st Quarter             $8.50               $8.00
</TABLE>

         There are approximately 100 record holders of the Company's Common
Stock.

                                 DIVIDEND POLICY

          We have never declared or paid cash dividends on our common stock. We
currently anticipate that we will retain all future earnings for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.

                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                              OR PLAN OF OPERATION

          THE FOLLOWING PLAN OF OPERATION SHOULD BE READ IN CONJUNCTION WITH
THE FINANCIAL STATEMENTS AND THE RELATED NOTES. THIS DISCUSSION CONTAINS
FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS
AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS,"
"BUSINESS" AND ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS."

PLAN OF OPERATION

         The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
report.

         The Company is in the initial stages of its operations and has not yet
engaged in significant commercial activities. During the fiscal year 2001, the
Company plans to continue its research and development activities relating to
the Hemopurifier, and commence clinical trials for the device to remove iron
from the blood. See "Business."

         The implementation of our business plan is dependent upon our ability
to raise equity capital. During the fiscal year ended March 31, 2000, we
financed our research and development activities through the private placement
of approximately $1,000,000 principal amount of 12-month notes bearing interest
at 12% per annum. We entered into an agreement in November 2000 providing for
the issuance of $375,000 in Convertible Notes and allowing us to borrow up to
$4,625,000 in Put Notes that are issuable during the two-year period following
the date of this Prospectus. The Company has entered into an agreement with an
investment banking firm under which the firm will use its best efforts to sell
$10 million of the Company's Common Stock in a private placement anticipated to
commence in the first calendar quarter of 2001. The Company believes that the
successful completion of the stock offering will satisfy the Company's
anticipated capital requirements related to the development of its business for
three years; however, additional financing may be required in the case of
further acquisitions or to successfully develop other technologies. At the
present time, the Company has no plans to purchase significant amounts of

                                      8

<PAGE>

equipment or hire significant numbers of additional employees prior to the
successful completion of the private placement of its Common Stock.

BUSINESS

OVERVIEW

         On March 10, 1999, the Company executed an Agreement and Plan of
Reorganization for the Acquisition of All of the Outstanding Stock (the "Aethlon
Agreement") of Aethlon, Inc., a California corporation ("Aethlon"). Pursuant to
the Aethlon Agreement, Aethlon became a wholly-owned subsidiary of the Company.

         Also on March 10, 1999, the Company executed an Agreement and Plan of
Reorganization for the Acquisition of All of the Outstanding Stock (the "Hemex
Agreement") of Hemex, Inc., a Delaware corporation ("Hemex"). Pursuant to the
Hemex Agreement, Hemex became a wholly-owned subsidiary of the Company.

         In connection with these acquisitions, the Company issued 2,083,500
shares of the Company's Common Stock to the former shareholders of Aethlon and
Hemex.

         Effective January 1, 2000, the Company entered into an agreement under
which an invention and related patent rights for a method of removing HIV and
other viruses from the blood using the Hemex Hemopurifier were assigned to the
Company. In addition to certain royalty payments to be made on future sales of
the patented product, the consideration for the acquired rights included the
issuance of 25,000 shares of the Company's common stock to the inventors.

         On January 10, 2000, the Company acquired from Richard H. Tullis,
PhD, all the outstanding common stock of Syngen Research, Inc. in exchange
for 65,000 shares of the Company's common stock.  Syngen Research, Inc. (dba
Aethlon Laboratories, Inc.) became a wholly-owned subsidiary of the Company
and will engage in the development of the virus-removing device under the
direction of Dr. Tullis.

         On April 6, 2000, the Company acquired all the outstanding common
stock of Cell Activation, Inc. (Cell) in exchange for 99,152 shares of common
stock of the Company. In addition, all the outstanding stock opitions of Cell
were exchanged for options to purchase 50,848 shares of common stock of the
Company at $.3933 per share. Following the transaction Cell became a
wholly-owned subsidiary of the Company and will operate as part of Aethlon
Laboratories Inc.

         In developing this business, AEMD will act as a parent company to
wholly-owned subsidiaries such as Hemex, Inc. and Aethlon Laboratories, Inc. It
also intends to pursue the acquisition of additional businesses and technologies
that complement those under development.

HEMEX

         Hemex, Inc. was the first acquisition completed by Aethlon Medical,
Inc. It operates as a wholly owned subsidiary of AEMD, with its own staff,
facilities, and subsidiary business plan. AEMD will provide general management
to Hemex, as well as financial and legal services, and will be responsible for
funding the operations of Hemex.

         The first product developed by Hemex is the DFO Hemopurifier-TM-
device for the removal of iron and aluminum. This device has been proven safe
in hemodialysis patients in an FDA-approved Feasibility Trial, and will be
the subject of an application to the FDA for a Humanitarian Device Exemption
in early 2001 leading to potential commercialization in fiscal year 2002.

                                      9

<PAGE>

         Devices for removing lead and cisplatin, a chemotherapeutic agent, are
in final laboratory research, with few questions remaining before their clinical
trials can begin. Based on results from animal testing, Hemex researchers are
confident that each device will prove clinically safe and effective. The
lead-removing device is used to treat lead intoxication in adults, children, and
industrial workers, and the cisplatin-removing device is applied after cisplatin
has passed through the target tumor, sparing the normal cells of the cancer
patient from its toxic side-effects.

         In addition to these metal-removing applications, Hemex acquired,
effective January 1, 2000, the rights to a novel process (patent pending) for
removing targeted viruses from the blood using the Hemopurifier platform and
DNA/antibody technology. This device will be developed at Aethlon
Laboratories. See below for a more detailed discussion of this product.

         Other areas of current research interest are the removal of various
antigens, addictive narcotics, and other heavy metals in both civilian and
military environments.

         THE HEMOPURIFIER-TM- DEVICE. The Hemopurifier device is a novel
hollow-fiber cartridge containing an immobilized antidote for removing toxic
material from the blood. The device is used in extracorporeal circulation
systems that are similar to those used in hemodialysis or any one of the simpler
apheresis systems used today.

         The Hemopurifier device is a long cylindrical cartridge containing a
bundle of approximately 10,000 hollow fibers and an antidote or attractor
compound. The antidote, which is present in a proprietary form within the
fibers, has a strong and specific affinity to remove a targeted toxin from the
blood. When the patient's blood flows through the lumen of each of the fibers,
molecules of a certain size can travel through the pores of the fiber membrane
and come in contact with the attractor compound. The toxic material is captured
by the compound, and other small molecules return through the same pores to the
lumen. The cartridge itself is a dialyzer encasement with minor modifications:

         The clinical advantages offered by the Hemopurifier device over present
treatments are:

- -    Toxic material can be selectively removed WITHOUT SIDE EFFECTS, since no
     substance enters the body. Toxicity of the antidote is eliminated, because
     it is immobilized in the device rather than injected into the patient.

- -    Antidotes of GREATER STRENGTH AND EFFECTIVENESS, which were previously used
     sparingly because of their toxicity, can be used in this device without
     regard for the side effects which would occur if the same substance were in
     the bloodstream.

- -    The device is HIGHLY EFFICIENT. The structure of the Hemopurifier device
     provides a large surface area for immobilization of a relatively large
     quantity of antidote, allowing exposure to a large volume of blood in a
     short period of time.

- -    The device is SAFE:

     -   In a closed system, the amount of blood retained by the Hemopurifier
         device is small. No replacement fluid is needed, and no blood
         transfusions are required. As a result, the risks of

                                      10

<PAGE>

         volume expansion, blood pressure changes, infections and blood
         incompatibility (inherent in blood transfusions) are eliminated.

     -   Only the targeted toxic materials are removed. All other blood
         components remain in the circulation.

- -    The device uses well-established extracorporeal applications, especially
     hemodialysis, as well as apheresis or other types of transfusion
     procedures. These methods are widely used and available in hospitals and
     clinics.

         AEMD believes that the Hemopurifier device represents a true
breakthrough in the potential treatment of certain conditions ranging from acute
poisoning to chronic and life-threatening illnesses. It is novel because the
immobilized antidote in the Hemopurifier device binds the toxic material, thus
extracting it safely from the body. Harmful agents in the blood can be removed
efficiently and without side effects, reducing treatment times. The results of
these advantages are improved patient management and cost reduction for health
care providers.

         Hemex' first series of products has been developed for the
extracorporeal removal of the following harmful metals from the blood: iron,
lead, and cisplatin. The combined potential markets for these initial products
is approximately $900 million per year in the United States, and $2.6 billion
worldwide. These projections have been developed from an analysis of the
targeted patient population for each metal intoxication, as reported in medical
journals and government publications.

IRON. The first product to be introduced by Hemex will be the DFO Hemopurifier.
With the chelator desferrioxamine (DFO) immobilized in the Hemopurifier, the
therapist can remove excess iron from the blood in a completely safe and
efficient manner. Among the target markets for this device are:

         -    HEREDITARY HEMACHROMATOSIS. This inherited life-threatening
              disorder is one of the most under-diagnosed, yet common,
              conditions in North America. 1.2 million Americans suffer from
              this genetic condition which causes iron overload, which can lead
              to organ damage and a number of serious medical manifestations.

              Current treatment of choice is periodic phlebotomy, usually
              weekly, with greater frequency for urgently symptomatic patients.
              Phlebotomy removes whole blood, including excess iron. The
              Hemopurifier treatment can be used in those cases where
              phlebotomy is not possible.

         -    ACQUIRED IRON OVERLOAD. Iron overload is an unavoidable
              complication of life-sustaining chronic blood transfusions.
              Patients with Cooley's Anemia, Sickle Cell Disease, and other such
              conditions can acquire iron overload leading to organ damage and
              other difficulties. Also, in the process of 15,000 to 20,000 organ
              transplants per year, iron overload is a major concern to
              transplant surgeons.

              Current treatment of this patient population involves the
              administration of various chelators, including DFO, directly into
              the body. The toxic side-effects and inefficient rate of iron
              removal are in contrast to the completely safe and effective
              Hemopurifier treatment.

                                      11

<PAGE>

CISPLATIN. Cisplatin, and other closely-related platinum derivatives, are among
the most effective chemotherapeutic agents for the treatment of certain types of
cancer. Direct infusion of cisplatin is typically followed by severe nausea and
vomiting. Cisplatin may deposit in the sensory nerves, resulting in
incapacitating levels of pain that can last for years after treatment has been
discontinued. The prescribed dosage of cisplatin, therefore, is often limited by
its toxicity.

The Hemopurifier device for the removal of cisplatin can be applied to the vein
draining the tumor, or to any major vein in systemic treatment, either during or
immediately after cisplatin administration. With no other known means of
removing cisplatin from the body (painkillers and medications can only mitigate
the side effects), this procedure is especially promising and unique. Animal
tests have demonstrated the effectiveness of this approach.

With the Hemopurifier device, the oncologist can administer substantially higher
doses of cisplatin, thereby increasing its effectiveness as a chemotherapeutic
agent. The patient will receive more effective treatment while enjoying a better
quality of life during and after treatment. Hemex estimates that there are
annually over 265,700 new cancer patients who could be treated with cisplatin.

LEAD. The market for the removal of lead from the blood has three principal
segments, all of which are substantial in numbers as well as in need for
improved treatment modalities.

     -        YOUNG CHILDREN. Among children aged 1 to 5 years, it is estimated
              that 890,000 have some level of lead toxicity. Direct chelation
              therapy is used very cautiously in children, depending on the
              individual level of lead burden. When used, the most frequently
              prescribed chelation agent, EDTA, is given by infusion over
              consecutive days. This process is repeated 2 or 3 times, with long
              rests between treatments. The child passes the lead/chelator
              complex, but is at risk for side-effects serious enough to require
              that the treatments be given in a hospital setting.

     The Hemopurifier treatment is safe, with no toxic substance entering the
     child's body to create nasty side-effects. It is also more effective, as
     demonstrated by extensive animal studies conducted by Hemex. In addition,
     the Hemopurifier treatment causes lead residing in the tissue and bone to
     migrate to the blood, where it can be removed by this extracorporeal
     process. This phenomenon is the subject of a provisional patent applied for
     in May 1999, and a full patent filed in April 2000.

     -        PREGNANT WOMEN. The Public Health Service estimates that there are
              23,000 pregnant women in the U.S. with high blood lead levels,
              clearly creating a danger to their fetuses. Sadly, these

                                      12

<PAGE>

              mothers cannot be treated by current chelation therapies because
              of the toxicity of EDTA and other chelators to the fetus.

     Because of the safety of the Hemopurifier, this extracorporeal method can
     be used by pregnant women to reduce their blood lead levels with no risk to
     mother or the fetus.

     -        INDUSTRIAL WORKERS. It is estimated by OSHA that nearly 600,000
              workers are directly exposed to lead in the workplace, and that
              one third have elevated blood levels. Since chelation therapy is
              rarely used in the workplace because of its side-effects, workers
              are normally sent home or reassigned until their blood lead levels
              return to acceptable levels. In addition to the "down time"
              involved, the prospect of long-term illness and cognitive damage
              makes lead overload an expensive issue for certain employers.

Lead poisoning is also receiving attention form the legal community, and is
considered by some the next major target for class action suits. This further
increases the need to find an effective and safe therapy for lead overload.

Beyond these initial applications of the Hemex platform technology, additional
medical products will be developed for a variety of applications. In addition to
the virus-removing device discussed in below, future research will address
treatment of overdose of cardioactive and psychoactive drugs, improving patient
management in conditions with circulating harmful antibodies or antigen-antibody
complexes (e.g. in various types of cancer, diabetes, hemophilia); and treating
genetic enzyme deficiency diseases. The Department of Energy has shown an
interest in Hemex technology for various battlefield and civilian detoxification
applications in the U.S. and abroad.

PATENTS.  The following patents have been issued to Dr. Ambrus and her
collaborators, with U.S. patents subsequently assigned to Hemex.  Foreign
patent assignments are in process:

- -        Removing Metal Ions From the Blood

         USA:              No. 4,612,122               Issued September 16, 1986
         Europe:           No. 0,073,888               Issued April 23, 1986
         Japan:            No: 110,047/82              Issued June 7, 1994

- -        Blood Purification

         USA:              No. 4,714,556               Issued December 22, 1987
         USA:              No. 4,787,974               Issued November 29, 1988

- -        Immobilization of  a Chelator on Silica

         USA:              No. 6,071,412               Issued June 6, 2000

Additional patents claiming a method for removing heavy metal from bone (Patent
filed April 27, 2000), and a method for removing toxins from blood (Provisional
Application filed June 26, 2000), are at the US PTO.

                                      13

<PAGE>

MARKETING. The fundamental AEMD marketing goal is to make the Hemopurifier(TM)
device the preferred treatment in the U.S. for each of the conditions for which
the device is designed, and to then expand use of the device into international
markets. Because the Hemopurifier will be sold into many different medical
markets, a single detailed marketing plan is not possible.

There are over 25,000 installed hemodialysis stations in hospital and
free-standing dialysis clinics in the United States. With a trend to peritonal
dialysis, performed in the home rather than in a clinic, the utilization of
these dialysis stations is likely to diminish. The operators of dialysis clinics
should welcome additional opportunities to use their assets, including the
on-site staffs, for new medical applications.

The Hemopurifier devices for the removal of iron overload and for the removal of
lead are ideally suited to use in a hemodialysis setting. They use a modified
dialysis cartridge which is compatible with existing equipment, and require
repeat patient visits. And, unlike cartridges used in dialysis, the devices are
for a single use, increasing revenue potential per visit. The Company believes
that this model is compelling from both patient management and economic
viewpoints.

Hemex will use multi-faceted sales and marketing strategies for penetrating
the U.S. market.  Sales and promotional efforts will be directed to three
target audiences:  the distributor, the prescribing physician or medical
facility, and the patient.

    -    Distributors. Hemex will employ area marketing managers, who will act
         as missionary salesmen in working with distributors' sales forces. In
         areas of lower population density, Hemex will use independent,
         commissioned sales representatives who work with a small number of
         closely aligned products.

    -    Physicians and Medical Facilities. Area marketing managers will visit
         physicians and hospital/medical practice administrators, often with
         distributor salesmen who have strong pre-established relationships with
         these buyers. In addition, physicians will learn of the Hemopurifier
         device at medical society meetings, and through medical journals.
         Members of the Scientific Advisory Board will continue to write medical
         papers for publication in specific medical journals, and give
         presentations and posters in the appropriate medical meetings.
         Marketing management will attend medical meetings to set up booths and
         distribute literature.

    -    Patients. As consumers take a greater interest in their own health in
         today's environment, it will be important to build awareness of the
         potential of the Hemopurifier among each patient population. Hemex will
         work with professional public relations advisors to promote the
         Hemopurifier in newspapers and general interest magazines, as well as
         in targeted patient-oriented publications. Talk shows and medical
         programming on radio and television are hungry for truly newsworthy
         health-related developments like the Hemopurifier. Of particular
         interest to the general public may be the Hemopurifier device for lead,
         as it applies to children and to industrial lead poisoning.

Hemex will form strategic alliances with a small number of significant
distributors of those medical products which are sold to Hemex target buyers.
The criteria for strategic partners are: (1) they offer a knowledgeable sales
force with strong relations with the dialysis clinics and other medical
facilities Hemex seeks to penetrate, and (2) they have the financial and
physical capacity to manage inventory and order processing well.

                                      14

<PAGE>

For the DFO Hemopurifier device, potential partners include suppliers to the
dialysis industry and large hospital supply companies. With potential to add
exciting new, higher priced products with good profit margins, Hemex products
will be attractive to these major firms. The use of aggressive area marketing
managers will ensure that Hemex receives more than its fair "share of mind" of
distributor sales people.

AETHLON LABORATORIES.  Aethlon Laboratories, Inc. will, like Hemex, operate
as a wholly-owned subsidiary of Aethlon Medical, Inc., with its own staff,
facilities, and subsidiary business plan.  AEMD will provide general
management, as well as financial and legal services, and will be responsible
for funding the operations of Aethlon Laboratories.

The mission of Aethlon Laboratories is to identify and develop new applications
of the Company's Hemopurifier(TM) technology, as well as related diagnostic and
therapeutic technologies which enhance the value of the core business. Working
in collaboration with Hemex, this subsidiary will develop early-stage devices
acquired through acquisition or identified in its own internal research. In
doing so, Aethlon Laboratories will continue to fill the product "pipeline" as
more mature products are commercialized.

Aethlon Laboratories will focus in the next three years on the development of
the technologies acquired by AEMD in the last quarter of FY 2000. As additional
technologies are acquired by the parent company, research and development
priorities will be reevaluated and adjusted as necessary.

       -      VIRUS THERAPY. Effective January 1, 2000, AEMD acquired the rights
              to a novel process (patent pending) for the removal of targeted
              viruses from the blood using the Hemopurifier extracorporeal
              treatment method. While early research emphasis will be on HIV and
              Hepatitis C viruses, because of the large underlying markets, this
              therapeutic approach can be effective in dealing with any virus
              whose DNA can be identified and replicated.

              This invention combines DNA and antibody technology with
              extracorporeal treatment. DNA strands and antiviral antibodies are
              immobilized in the Hemopurifier cartridge so that as blood passes
              through the device, any virus not encapsulated in white blood
              cells is attracted to, and can bond with, the immobilized DNA and
              antibody combination.

              This treatment is designed to enhance the effectiveness of other
              therapies, like protease inhibitors in HIV treatment, by reducing
              the body burden of virus in a rapid and safe fashion. By capturing
              circulating viruses that would otherwise invade cells, this
              therapy will inhibit the growth of the virus and allow drug
              therapies to work more rapidly and effectively.

              The development of this device will be assigned the highest
              priority at Aethlon Laboratories, with an aggressive development
              program leading to an initial Feasibility Trial in FY 2002.

       -      CELL ACTIVATION THERAPY. On April 6, 2000, AEMD acquired Cell
              Activation, Inc., a young biotechnology company working in the
              field of inappropriate cell activation. Inappropriate cell
              activation is the pathological overreaction of the body's immune
              system, in various circumstances, causing the white blood cells to
              exacerbate, rather than ameliorate, the underlying medical issue.
              Cell Activation scientists have demonstrated that inappropriate
              cell activation is likely to be a major cause of life-threatening
              conditions frequently encountered by patients in the emergency
              room or in the intensive care unit.

                                      15
<PAGE>

       -      Aethlon Laboratories will focus on the development of
              extracorporeal therapies for inappropriate cell activation in
              trauma care, high-risk surgery, and cardiovascular care.
              Immobilization techniques for the removal of those complement
              factors which cause this pathological reaction, thought to be
              certain enzymes, will be similar to those used by Hemex to remove
              metal intoxicants from the blood.

       -      CELL ACTIVATION DIAGNOSTICS. Detection of the presence of a
              potentially troublesome complement factor is a precondition for
              the application of extracorporeal therapy. Therefore, Aethlon
              Laboratories will continue to develop the diagnostic products well
              underway at Cell Activation at the time of the acquisition. These
              include the Plazmazyme(TM) plasma assay kit (patent pending),
              which detects the presence of a certain enzyme that is a likely
              cause of complications in patients who receive blood and blood
              products in organ transplants and other procedures. Tests for
              additional complement factors will be developed to enhance the
              potential for widespread use of the Company's proprietary therapy
              for inappropriate cell activation.

              Although the diagnostic business is not a strategic priority for
              the Company, closely related products like the Plasmazyme kit can
              be important sources of early revenue and improved market
              acceptance of higher margin therapeutic products.

       -      OTHER PROJECTS. Syngen Research also has applied for a patent on a
              method of enzyme detection of DNA hybridization probes and has
              other work underway in the field of protein amplification. These
              opportunities will receive a lower priority than those set forth
              above, but each represents a potential product opportunity for the
              AEMD pipeline, or for a license to another company.

Syngen Research was acquired by AEMD on January 10, 2000, and Syngen began
doing business as "Aethlon Laboratories."  Syngen will be merged into the
former Aethlon, Inc. subsidiary, and the surviving corporation's name will be
changed to Aethlon Laboratories. Cell Activation, Inc. was acquired on April
6, 2000. Cell Activation will also be merged into Aethlon Laboratories.
Aethlon Laboratories is a California corporation.

Syngen Research was founded in 1995 by Dr. Tullis as an operating company, with
revenues from consulting contracts and sub-contract development in a well
equipped laboratory with a staff oriented to DNA replication and amplification.
Prior to the January 2000 merger, laboratory work was performed there for Cell
Activation, as well as for several other biotechnology companies. Dr. Tullis
received 65,000 shares

                                      16

<PAGE>

of AEMD common stock in exchange for 100% of the stock of Syngen Research,
and was appointed to the Board of Directors of AEMD, and was elected its Vice
President for Business Development.

Cell Activation was formed in December 1997 by a group of distinguished
scientists and businessmen who were all employed in senior positions in their
respective organizations, but wished to exploit the emerging inappropriate cell
activation technology in which they had a common interest. Although Cell
Activation had no salaried employees, it made good progress in developing its
diagnostic products, particularly the Plazmazyme Assay Kit, in its two plus
years of operation. The six owners of Cell Activation received a total of 99,152
shares of AEMD common stock, and options to purchase 50,848 shares of AEMD
common stock, in exchange for 100% of the shares of Cell Activation.

Aethlon Laboratories intends to become a research and development company with
specialized resources for the development of extracorporeal treatments of
blood-borne pathogens. As products under development approach readiness for
human clinical trials, Aethlon Laboratories will work closely with Hemex in
planning and executing these trials. Manufacturing, as well as distribution and
sales, will be arranged through strategic partners and contractors, also in
close collaboration with Hemex.

As products from Hemex and Aethlon Laboratories mature, management will continue
to review the most cost-efficient location - Aethlon Laboratories, Hemex, or
AEMD - for various activities which can be shared among subsidiaries.

EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

         The names, ages and positions of the Company's directors and executive
officers as of the date of this Prospectus are listed below:

<TABLE>
<CAPTION>
NAMES                               TITLE OR POSITION                                 AGE
- -----                               -----------------                                 ---
<S>                                 <C>                                               <C>
James A. Joyce                      Chairman, Secretary, and Director                 39

Franklyn S. Barry, Jr.              President/Chief Executive Officer                 61
                                    and Director

John M. Murray                      Vice President-Finance and Chief                  67
                                    Financial Officer

Richard H. Tullis, Ph. D.           Vice President-Business Development               55
                                    and Director

Clara M. Ambrus,                    Chief Scientific Officer                          75
MD, Ph. D.                          and Director

Edward G. Broenniman                Director                                          64

Robert J. Lambrix                   Director                                          61

John P. Penhune, Ph. D.             Director                                          64
</TABLE>

                                      17

<PAGE>

         Resumes of Management follow:

         JAMES A. JOYCE

     As the Chairman of Aethlon Medical, Mr. Joyce has led the efforts that
have resulted in the recent acquisitions of Hemex, Inc., Syngen Research,
Inc., Cell Activation, Inc., and Bishop Equities, Inc. Mr. Joyce founded
Aethlon, Inc., the predecessor to Aethlon Medical in May 1998. He has been
the Chairman of the Board and Secretary of the Company since March 1999. In
February 1993, Mr. Joyce was the founder and Chief Executive Officer of James
Joyce & Associates; an organization that provided management consulting and
investment banking advisory services to CEO's and CFO's of publicly traded
companies. Selected transactions include the structure and placement of over
$20 million in private equity on behalf of a publicly traded computer
distribution company, and management and advisory services which led to the
successful Initial Public Offering of a non-related biomedical company.
Previously, Mr. Joyce was Chief Executive Officer of Mission Labs, Inc., and
a principal in charge of U.S. operations for London Zurich Securities, Inc.
Mr. Joyce graduated from the University of Maryland in 1984.

         FRANKLYN S. BARRY, JR.

         Mr. Barry has over 30 years of experience in managing and building
companies. He has been the President and Chief Executive Officer of Hemex since
April 1997, and became a director of the Company on March 10, 1999. Included
among his prior experiences are tenures as President of Fisher-Price and as
co-founder and CEO of Software Distribution Services, which today operates as
Ingram Micro-D, an international distributor of personal computer products. Mr.
Barry serves on the Board of Directors of Technology, Inc., Barrister Global
Services Network, Inc. (AMEX) and Merchants Mutual Insurance Company, a property
and casualty insurance underwriter.

         JOHN M. MURRAY, C.P.A.

         Mr. Murray joined the Company in September 1999.  From 1988 until
his retirement in 1998 Mr. Murray was Vice President-Finance and Treasurer of
American Precision Industries Inc., a multi-national manufacturer of
industrial motion control and heat transfer products listed on The New York
Stock Exchange.

         RICHARD H. TULLIS, Ph.D.

         Dr. Tullis has extensive biotechnology management and research
experience.  In 1996 he founded Syngen Research to pursue research in the
fluorescent detection of DNA hybridization reactions.  Syngen was acquired by
the Company in January 2000, and he was elected a director of the Company at
that time.  During the past five years, Dr. Tullis also served as Chief
Executive Officer of DNA Sciences, Inc. and Genetic Vectors, Inc.

         CLARA M. AMBRUS, M.D., Ph.D.

         Dr. Ambrus invented the Hemopurifier cartridge and is the founder of
Hemex, Inc. which was acquired by the Company in March 1999. She was elected
a director of the Company on July 14, 1999.  She is a Research Professor at
the State University of New York at Buffalo in both the School of Medicine
and the School of Pharmacology.

                                      18

<PAGE>

         EDWARD G. BROENNIMAN

         Mr. Broenniman became a director of the Company on March 10, 1999. Mr.
Broenniman has 30 years of management and executive experience with high-tech,
privately-held growth firms where he has served as a CEO, COO, or corporate
advisor, using his expertise to focus management on increasing profitability and
stockholder value. He is the Managing Director of The Piedmont Group, LLC, a
venture advisory firm. Mr. Broenniman recently served on the Board of Directors
of publicly-traded QuesTech (acquired by CACI International), and currently
serves on the Boards of four privately-held firms, the Dingham Center for
Entrepreneurship's Board of Advisors at the University of Maryland, and the
Board of the Association for Corporate Growth.

         ROBERT J. LAMBRIX

         Mr. Lambrix became a director of the Company on February 1, 2000.
Since April 2000, Mr. Lambrix has been the Chief Executive Officer of U.S.
Medical, Inc., a distributor of new and used medical equipment.   From
January 1997 to March 2000 he was a management  consultant, and in 1996 he
was Chief Financial Officer of Senior Campus Living.  From March 1994 to May
1995, Mr. Lambrix was a principal with Kotter Associates.  He is the former
Senior Vice President and Chief Financial Officer of Baxter International,
Inc., a global leader in the development, manufacture, and distribution of
medical devices and hospital supplies.

         JOHN P. PENHUNE, Ph.D.

         Dr. Penhune was a founder, President, and Chairman of the Board of Cell
Activation, Inc. prior to its acquisition by the Company in April 2000, and he
was elected a director of the Company at that time. In addition, he is Senior
Vice President of Research at Science Applications International Corporation
(SAIC), a Fortune 500 company with annual sales exceeding $5 billion.

         Each of the directors is serving for a term that extends to the next
Annual Meeting of Shareholders of the Company.   The Company's Board of
Directors presently has an Audit Committee and a Compensation Committee on
each of which Messrs. Broenniman, Lambrix, and Penhune serve.  Mr. Lambrix is
Chairman of the Audit Committee, and Mr. Broenniman is Chairman of the
Compensation Committee.

         Mr. Broenniman is the son-in-law of Dr. Ambrus.


                                   MANAGEMENT

EXECUTIVE COMPENSATION

         During the fiscal year ended March 31, 2000, Mr. Joyce and Mr. Barry
each earned a salary of $120,000 of which $90,000 has been paid and $30,000 is
unpaid and deferred. No other officer of the Company received compensation in
excess of $100,000 for the fiscal year.

         In April 1999, the Company entered into two-year employment agreements
with Mr. Joyce and Mr. Barry. Each agreement provides for base compensation of
$120,000 per year. The agreements also provide that the employees are eligible
to receive the Company's standard benefits package and

                                      19

<PAGE>

participation in an incentive compensation program to be developed and
approved by the Board of Directors.

         No compensation was paid to the directors of the Company during the
fiscal year ended March 31, 2000. At a meeting held on May 31, 2000, the Board
of Directors approved a fee arrangement for non-employee directors, effective
with the May 31, 2000 meeting. An annual retainer will consist of a stock option
for 2,000 shares of Company stock with an exercise price equal to 75% of the
average closing price of the stock for the 30 days prior to issuance. A cash fee
of $1,000 for each day or partial day spent attending board and committee
meetings will be paid. The cash fee for telephonic attendance will be $500. In
addition, for each board and committee attended in person or by phone, the
director will receive an option to acquire 100 shares of Company stock with an
exercise price equal to 75% of the average closing price of the stock for the 30
days prior to the meeting date. All out-of-pocket expenses incurred to attend
meetings are reimbursed by the Company.

EMPLOYMENT AGREEMENTS

         In addition to the employment agreements with Mr. Joyce and Mr. Barry
referred to in "Executive Compensation" above, the Company has employment
agreements with Dr. Ambrus and Dr. Tullis. The employment agreement with Dr.
Ambrus provides for annual compensation of $80,000 and is terminable by the
Company on March 31, 2002 on written notice 60 days prior to the end of the
term. If the Company does not serve notice of termination 60 days prior to the
end of the term the agreement continues for successive one-year terms. The
employment agreement with Dr. Tullis provides for annual compensation of $80,000
and is terminable by the Company on January 9, 2002 on written notice 60 days
prior to the end of the term. If the Company does not serve notice of
termination 60 days prior to the end of the term the agreement continues for
successive one-year terms.

PRINCIPAL SHAREHOLDERS

         The following table sets forth the beneficial ownership of the
Company's officers, directors, and persons who own more than five percent of the
Company's common stock as of November 30 , 2000:

<TABLE>
<CAPTION>
- ------------------------------- ---------------------------- ---------------------------------------------------------
           Name and                   Positions Held                   Number and Percentage (2) of Shares
         Address (1)                                                            Beneficially Owned
- ------------------------------- ---------------------------- ---------------------------------------------------------
<S>                             <C>                          <C>                          <C>
James A. Joyce                  Chairman, Secretary, and                 675,400                      24.4%
                                Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Franklyn S. Barry, Jr.          President, Chief Executive               418,593 (3)                  13.2% (3)
                                Officer, and Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Edward G. Broenniman            Director                                 258,374 (4)                9.3%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

                                     20

<PAGE>

<TABLE>
<S>                             <C>                          <C>                          <C>
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Clara Ambrus                    Chief Scientific Officer                 450,279                      16.3%
                                and Director
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Richard H. Tullis               Director                                  65,000                       2.4%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John P. Penhune                 Director                                  40,646 (5)                   1.5%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
John M. Murray                  Chief Financial Officer                       -0-                      0%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Robert J. Lambrix               Director                                   2,500 (6)                   0.1%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
Deborah Salerno (7)             Shareholder                              247,600                       8.9%

- ------------------------------- ---------------------------- ---------------------------- ----------------------------
All directors and executive                                            2,158,382 (8)                  59.9% (8)
officers of Company as a
group (8 persons)
- ------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

(1)    The shareholders' address, unless otherwise indicated, is at the
       Company's principal executive offices at 7825 Fay Avenue, Suite 200,
       LaJolla, California  92037.
(2)    Assumes 2,771,652 shares outstanding plus the number of options presently
       exercisable by each named person.
(3)    Includes 412,500 shares issuable upon the exercise of
       presently-exercisable incentive stock options at an exercise price of
       $3.00 per share. The percentage ownership for Mr. Barry is based on
       3,184,152 shares outstanding, assuming the exercise of the 412,500
       options.
(4)    Includes 201,989 shares owned of record by Linda Broenniman,
       Mr. Broenniman's wife. Also includes 2,500 shares issuable upon the
       exercise of presently exercisable non-qualified stock options at exercise
       prices ranging from $3.75 to $5.80 per share.
(5)    Includes 2,500 shares issuable upon the exercise of presently exercisable
       non-qualified stock options at exercise prices ranging from $3.75 to
       $5.80 per share.
(6)    Represents 2,500 shares issuable upon the exercise of presently
       exercisable non-qualified stock options at exercise prices ranging from
       $3.75 to $5.80 per share.
(7)    Ms. Salerno's address is 355 South End Avenue, New York, NY 10280.
(8)    Includes 420,000 shares issuable upon the exercise of
       presently-exercisable stock options held by the officers and directors.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         None.


DESCRIPTION OF SECURITIES

         The following description of the capital stock of the Company and
certain provisions of the Company's Articles of Incorporation and Bylaws is a
summary and is qualified in its entirety by the provisions of the Articles of
Incorporation and Bylaws, which have been filed as exhibits to the Company's
Registration Statement of which this Prospectus is a part.

         The authorized capital stock of the Company currently consists of
25,000,000 shares of Common Stock, $.001 par value and no shares of Preferred
Stock.

COMMON STOCK

         The Common Stock holders have equal ratable rights to dividends from
funds legally available therefor, when, as and if declared by the Board of
Directors and are entitled to share ratably in all of the assets of the Company
available for distribution to the holders of shares of Common Stock upon the

                                     21

<PAGE>

liquidation, dissolution or winding up of the affairs of the Company. Except as
described herein, no pre-emptive, subscription, or conversion rights pertain to
the Common Stock and no redemption or sinking fund provisions exist for the
benefit thereof. All outstanding shares of Common Stock offered hereby will be
duly authorized, validly issued, fully paid and nonassessable.

         As a consequence of their ownership of Common Stock, the current
stockholders of the Company will continue to control a majority of the voting
power of the Company and, accordingly, will be able to elect all of the
Company's directors.

REDEEMABLE WARRANTS

         At any time commencing on the date of issuance until the fifth
anniversary date of the Prospectus for that offering, each Warrant will be
exercisable to purchase one share of Common Stock. A copy of the Warrant
Agreement has been filed as an exhibit to the Registration Statement for this
offering.

REDEMPTION

         The Warrants may be exercised upon surrender of the certificate or
certificates therefor on or prior to the expiration or the redemption date at
the offices of the Company's warrant agent (the "Warrant Agent") with the
subscription form on the reverse side of the certificate or certificates
completed and executed as indicated, accompanied by payment (in the form of a
certified or cashier's check payable to the order of the Company) of the full
exercise price for the number of Warrants being exercised.

         The Warrants contain provisions that protect the holders thereof
against dilution by adjustment of the exercise price per share and the number of
shares issuable upon exercise thereof upon the occurrence of certain events at
less than market value, stock dividends, stock splits, mergers, sale of
substantially all of the Company's assets, and for other extraordinary events;
provided, however, that no such adjustment shall be made upon, among other
things, (i) the issuance or exercise of options or other securities under the
Company's Stock Option Plan or other employee benefit plans or (ii) the sale or
exercise of outstanding options or warrants or the shares underlying Warrants.

         The Company is not required to issue fractional shares of Common Stock
and in lieu thereof will make a cash payment based upon the current market value
of such fractional shares. The holder of the Warrants will not possess any
rights as a stockholder of the Company unless and until he or she exercises the
Warrants.

REGISTRATION RIGHTS

         The Company has granted certain demand and piggyback registration
rights to the Selling Shareholders, which rights have been satisfied in
connection with the filing of the registration statement covering this
Prospectus.

TRANSFER AGENT AND WARRANT AGENT

         Computershare Investor Services, Lakewood, Colorado, will serve as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.

                                     22
<PAGE>

CERTAIN STATUTORY AND CHARTER PROVISIONS UNDER THE NEVADA GENERAL CORPORATION
LAW

     Section 203 of the Nevada General Corporation Law provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of a
publicly-held Nevada corporation subject to the statute (an "Interested
Stockholder") may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
upon consummation of the Business Combination, the Interested Stockholder owns
85% or more of the outstanding voting stock of the corporation (excluding shares
owned by directors who are also officers of the corporation or shares held by
employee stock option plans that do not provide employees with the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer), or (iii) the Business Combination is
approved by the corporation's board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock of the corporation
not owned by the Interested Stockholder.

     Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholder or
transactions in which the Interested Stockholder receives certain other
benefits.

     These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company. The Company's stockholders, by adopting an
amendment to the Certificate of Incorporation or Bylaws of the Company, may
elect not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the Bylaws of the Company currently
excludes the Company from the restrictions imposed by Section 203.

     The Nevada General Corporation Law permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the Corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director with certain exceptions. The
exceptions include a breach of the director's duty of loyalty, acts or omissions
not in good faith or which involve intentional misconduct or knowing violation
of law, and improper personal benefit. The Company's Certificate of
Incorporation exonerates its directors from monetary liability to the fullest
extent permitted by this statutory provision.

                         SHARES ELIGIBLE FOR FUTURE SALE

         Future sales of substantial amounts of common stock in the public
market could adversely affect market prices prevailing from time to time. Under
the terms of this offering, the [1] shares of common stock to be issued, or
underlying the warrants to be issued, may be resold without restrictions or
further registration under the Securities Act of 1933, except that any shares
purchased by our "affiliates," as that

                                     23

<PAGE>

term is defined under the Securities Act, may generally only be sold in
compliance with the limitations of Rule 144 under the Securities Act.

OUTSTANDING RESTRICTED STOCK

         2,559,201 outstanding shares of common stock are restricted
securities within the meaning of Rule 144 and may not be sold in the absence
of registration under the Securities Act unless an exemption from
registration is available, including the exemption from registration offered
by Rule 144. In general, under Rule 144, as currently in effect, a person who
has beneficially owned restricted shares for at least one year, including a
person who may be deemed to be our affiliate, may sell within any three-month
period a number of shares of common stock that does not exceed a specified
maximum number of shares. This maximum is equal to the greater of 1% of the
then outstanding shares of our common stock or the average weekly trading
volume in the common stock during the four calendar weeks immediately
preceding the sale. Sales under Rule 144 are also subject to restrictions
relating to manner of sale, notice and availability of current public
information about us. In addition, under Rule 144(k) of the Securities Act, a
person who is not our affiliate, has not been an affiliate of ours within
three months prior to the sale and has beneficially owned shares for at least
two years would be entitled to sell such shares immediately without regard to
volume limitations, manner of sale provisions, notice or other requirements
of Rule 144.

WARRANTS

         The resale of shares of common stock to be issued upon the exercise of
the warrants issued or issuable to finder under the Investment Agreement are
being registered by this offering statement.


                              PLAN OF DISTRIBUTION

         The Selling Shareholders are free to offer and sell their common shares
at such times, in such manner and at such prices as they may determine. The
types of transactions in which the common shares are sold may include
transactions in the over-the-counter market (including block transactions),
negotiated transactions, the settlement of short sales of common shares, or a
combination of such methods of sale. The sales will be at market prices
prevailing at the time of sale or at negotiated prices. Such transactions may or
may not involve brokers or dealers. The Selling Shareholders have advised us
that they have not entered into any agreements, understandings or arrangements
with any underwriters or broker-dealers regarding the sale of its securities.
The Selling Shareholders do not have an underwriter or coordinating broker
acting in connection with the proposed sale of the common shares.

         The Selling Shareholders may effect such transactions by selling common
stock directly to purchasers or to or through broker-dealers, which may act as
agents or principals. Such broker-dealers may receive compensation in the form
of discounts, concessions, or commission from the Selling Shareholders. They may
also receive compensation from the purchasers of common shares for whom such
broker-dealers may act as agents or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions).

         Each Selling Shareholder is, and any broker-dealer that acts in
connection with the sale of common shares may be deemed to be, an "underwriter"
within the meaning of Section 2(11) of the

                                     24

<PAGE>

Securities Act. Any commissions received by such broker-dealers and any
profit on the resale of the common shares sold by them while acting as
principals might be deemed to be underwriting discounts or commissions.

         Because the Selling Shareholders are "underwriters" within the meaning
of Section 2(11) of the Securities Act, they will be subject to prospectus
delivery requirements.

         We have informed the Selling Shareholders that the anti-manipulation
rules of the SEC, including Regulation M promulgated under the Securities and
Exchange Act, may apply to their sales in the market and have provided each
Selling Shareholder with a copy of such rules and regulations.

         The Selling Shareholders also may resell all or a portion of the common
shares in open market transactions in reliance upon Rule 144 under the
Securities and Exchange Act, provided it meets the criteria and conforms to the
requirements of such Rule.

                              SELLING SHAREHOLDERS

         The Selling Shareholders are offering hereby a total of up to
3,200,000 shares of our Common Stock. The following table sets forth certain
information with respect to the Selling Shareholders as of November 30, 2000.
The Selling Shareholders are not currently affiliates of the Company, and
have not had a material relationship with the Company during the past three
years, other than as a holder of securities of the Company and the
negotiation of the Subscription Agreement.

<TABLE>
<CAPTION>
                                Beneficial                                                Amount and Percentage
Name and Address                Ownership of                Maximum Number of Shares      of Common Stock
of Beneficial                   Common Stock                of Common Stock Offered       Beneficially Owned
Owner                           as of November 30, 2000(1)  for Sale in this Offering(1)  After the Offering(2)
- ----------------                -------------------------   ---------------------------   ---------------------
<S>                             <C>                         <C>                           <C>            <C>
Esquire Trade & Finance, Inc.          1,600,000                    1,600,000                  0         0
Libra Finance, S.A.(3)                 1,600,000                    1,600,000                  0         0
</TABLE>

(1)   This number includes (solely for purposes of this prospectus) up to an
      aggregate of 3,200,000 shares of our common stock that we may issue to
      the Selling Shareholders pursuant to the terms of the Subscription
      Agreement including Common Stock underlying the Put Notes and
      Warrants, which shares would not be deemed beneficially owned within
      the meaning of Sections 13(d) and 13(g) of the Exchange Act before
      their acquisition by the Selling Shareholders. It is expected that the
      Selling Shareholders will not beneficially own more than 9.9% of our
      outstanding common stock at any time.

(2)   Assumes that the Selling Shareholders will sell all of the shares of
      common stock offered hereby. We cannot assure you that the Selling
      Shareholders will sell

                                     25

<PAGE>

      all or any of the shares offered hereunder or in the prior offering.

(3)   This number includes 119,048 shares of common stock issuable upon exercise
      of outstanding Warrants that are currently exercisable, which represents
      4.1% of our issued and outstanding as of November 30, 2000, assuming the
      full exercise of the Warrants.

SUBSCRIPTION AGREEMENT

          Overview. On November 1, 2000, we entered into a Subscription
Agreement (the "Subscription Agreement") with the Esquire Trade & Finance,
Inc. ("ETF"), one of the Selling Shareholders pursuant to which we issued a
Convertible Note bearing interest at 8% in the principle amount of $375,000
(the "Note"). The conversion formula provides that the number of shares of
Common Stock issuable upon the conversion of the Note shall be the lower of
(i) 90% of the closing price for the Common Stock on the principal market or
exchange where the Common Stock is listed or traded for the last trading day
immediately prior to but not including the issue date of the Notes (the
"Maximum Base Price"); or (ii) 75% of the average of the three lowest closing
bid prices for the Common Stock on the principal market or exchange where the
Common Stock is listed or traded (the "Principal Market"), for the 10 trading
days prior to but not including the date of conversion.  We also agreed to
issue up to $4,625,000 in additional Convertible Notes (the "Put Notes") on
the same terms as the Note, except that the conversion shall be the lower of
(i) the Maximum Base Price; or (ii) 82.5% of the average of the three lowest
closing bid prices of the Common Stock on the Principal Market for the 10
trading days prior to but not including the conversion date, and we have the
right to require ETF to subscribe for the Put Notes under certain
circumstances (the "Put Right").

          Put Rights. In order to invoke the Put Right, we must have an
effective registration statement on file with the SEC registering the resale
of the common shares which may be issued as a consequence of the invocation
of that Put Right. Additionally, we must provide the Selling Shareholders
with a "Put Notice," which must set forth the "Put Amount" which we intend to
sell to the Selling Shareholders. The Put Amount sold to the Selling
Shareholders in a Put may not exceed a limit based on the price of the Common
Stock and the average daily reported trading volume during the 30 calendar
days preceding the delivery of the Put Notice. The Put Amount specified in a
Put Notice may not be less than $100,000.

     Limitations and Conditions Precedent to our Put Rights. The Selling
Shareholders' obligation to acquire and pay for any common shares with respect
to any particular put is subject to certain conditions precedent, including:

     -   This Registration Statement must be effective;
     -   Trading of our Common Stock must not have been suspended, and our
         Common Stock must continue to be listed on its principal market;
     -   Until our shareholders vote to approve the [2], no more than 3,200,000
         shares of Common  Stock may be issued; and
     -   The average trading volume for our Common Stock over the previous 30
         trading days must equal or exceed 20,000 shares per trading day.

                                     26

<PAGE>

         Short Sales. The Selling Shareholders and their affiliates are
prohibited from engaging in short sales of our common stock at a per share price
of less than $10.00 per share unless they have received a put notice and the
amount of shares involved in a short sale does not exceed the number of shares
specified in the put notice.


                                  LEGAL MATTERS

         The validity of the shares of common stock being offered hereby will be
passed upon for the Company by Gibson, Haglund & Paulsen, Irvine, California.


                                     EXPERTS

         The financial statements of Aethlon Medical, Inc. ("AEMD") at March
31, 2000, and for each of the two years in the period ended March 31, 2000,
appearing in this Prospectus and Registration Statement have been audited by
Freed, Maxick, Sachs & Murphy, PC, independent auditors, as set forth in their
report thereon (which contains an explanatory paragraph describing conditions
that raise substantial doubt about the Company's ability to continue as a
going concern as described in Note 2 to the financial statements) appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.

                              AVAILABLE INFORMATION

         We have filed a registration statement on Form SB-2 under the
Securities Act of 1933, as amended, relating to the shares of common stock being
offered by this prospectus, and reference is made to such registration
statement. This prospectus constitutes the prospectus of AEMD filed as part of
the registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the SEC.

         We are subject to the informational requirements of the Securities
Exchange Act of 1934 and pursuant to those requirements, we file reports, proxy
statements and other information with the Securities and Exchange Commission
relating to our business, financial statements and other matters. Reports, proxy
and information statements filed under Sections 14(a) and 14(c) of the
Securities Exchange Act of 1934 and other information filed with the SEC,
including copies of the registration statement, can be inspected and copied
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
The public may obtain information on the operation of the Public Reference Room
by calling 1-800-SEC-0330. The SEC also maintains an Internet site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the SEC at http://www.sec.gov.

         We intend to furnish our shareholders with annual reports containing
audited financial statements.

                                     27
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES

                        INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
                                                                                Page
                                                                               number
<S>                                                                         <C>
FISCAL YEARS ENDED MARCH 31, 2000 AND MARCH 31, 1999:

Independent Auditor's Report                                                     F-1

Consolidated financial statements:
Statements of Operations                                                         F-2
Balance Sheets                                                                   F-3
Statements of Cash Flows                                                         F-4
Statements of Stockholders' Deficiency                                           F-5

Notes to consolidated financial statements                                  F-6 to F-11


SIX MONTHS ENDED SEPTEMBER 30, 2000:

Consolidated financial statements:
Statements of Operations                                                        F-12
Balance Sheets                                                                  F-13
Statements of Cash Flows                                                        F-14
Statements of Stockholders' Deficiency                                          F-15

Notes to consolidated financial statements                                  F-16 to F-17
</TABLE>


<PAGE>

                                                                  EXHIBIT 23.2


                        INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Aethlon Medical, Inc. and Subsidiaries
Buffalo, New York

    We have audited the accompanying consolidated balance sheets of Aethlon
Medical, Inc. (formerly Bishop Equities, Inc.) and Subsidiaries (A
Development Stage Enterprise) as of March 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' deficiency, and cash
flows for the years then ended and for the period from January 31, 1984
(inception) to March 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aethlon
Medical, Inc. and Subsidiaries (A Development Stage Enterprise) as of March
31, 2000 and 1999, and the results of its operations and its cash flows for
the years then ended and from January 31, 1984 (inception) to March 31, 2000
in conformity with generally accepted accounting principles.

     The accompanying consolidated fianancial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the financial statements, the Company has suffered recurring losses
from operations and its total liabilities exceed its assets. This raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.



Buffalo, New York
June 21, 2000


                                       F-1
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES
                       (A DEVELOPMENT STAGE ENTERPRISE)

                    CONSOLIDATED STATEMENTS OF OPERATIONS
                           YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
                                                                                          Cumulative
                                                                                            during
                                                                                         development
                                                                                        stage through
                                                         2000             1999          March 31, 2000
<S>                                                <C>                <C>               <C>
REVENUE
 Grant income                                                   $ -               $ -        $ 1,424,012
 Subcontract income                                               -                 -             73,746
 Sale of research and development                                 -                 -             35,810
 Other income                                                20,559                 -             37,784
 Interest income                                                  -                 -             17,415
                                                   ------------------------------------------------------

     Total revenue                                           20,559                 -          1,588,767

EXPENSES
 Personnel costs                                            457,629           221,779          3,305,125
 Interest and debt expense                                  425,085            13,823            515,846
 Professional fees                                          254,258            45,887            571,238
 Rent and office expense                                     76,027            38,144            491,714
 Insurance                                                   33,175            (2,347)            90,486
 Travel and meetings                                         26,738             5,325            144,155
 Depreciation                                                11,098            16,287            134,918
 Amortization-patents                                         8,172             8,171             42,899
 Amortization-goodwill                                       12,695                 -             12,695
 Laboratory supplies                                          2,650               180            102,383
 Miscellaneous                                                6,627             3,131            104,930
 Equipment and maintenance                                      623             1,674            165,322
 Research and development consultation                            -                 -            240,463
 Subcontract expense                                              -                 -            195,964
 Contractual costs                                                -                 -            192,112
 Dues and subscriptions                                           -                 -             13,596
                                                   ------------------------------------------------------

     Total expenses                                       1,314,777           352,054          6,323,846
                                                   ------------------------------------------------------

Loss before income tax provision                         (1,294,218)         (352,054)        (4,735,079)

Income tax provision                                          5,164               625             11,337
                                                   ------------------------------------------------------

NET LOSS                                               $ (1,299,382)       $ (352,679)      $ (4,746,416)
                                                   ======================================================

PER SHARE:
  Net loss                                                  $ (0.50)          $ (0.23)           $ (3.30)
                                                   ======================================================

  Weighted average number of
  common shares outstanding                               2,612,292         1,506,833          1,439,595
                                                   ======================================================
</TABLE>

                            See accompanying notes.


                                       F-2
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES
                      (A DEVELOPMENT STAGE ENTERPRISE)

                         CONSOLIDATED BALANCE SHEETS
                                 MARCH 31,
<TABLE>
<CAPTION>
                                                                           2000            1999
<S>                                                                  <C>                 <C>
                               ASSETS
CURRENT ASSETS
  Cash                                                                       $ 217,017       $ 3,052
  Accounts receivable                                                           61,495             -
  Prepaid expenses                                                              36,940             -
  Employee advances                                                             15,800             -
                                                                     --------------------------------

     Total current assets                                                      331,252         3,052

FURNITURE AND EQUIPMENT, NET                                                    41,535        33,608

OTHER ASSETS
  Patents and trademarks, net                                                  177,065        45,413
  Deferred debt expense, net                                                   273,738             -
  Goodwill, net                                                                495,088             -
  Other                                                                          1,330             -
                                                                     --------------------------------

     Total other assets                                                        947,221        45,413
                                                                     --------------------------------

     Total assets                                                           $1,320,008      $ 82,073
                                                                     ================================

              LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
  Accounts payable:
    Trade                                                                    $ 740,562      $252,178
    Related parties                                                            259,324       229,806
  Notes payable, net of discount                                               501,708             -
  Accrued liabilities                                                          201,631        63,577
  Deferred compensation                                                        329,835       310,008
                                                                     --------------------------------

     Total current liabilities                                               2,033,060       855,569

STOCKHOLDERS' DEFICIENCY:
 Common stock - $.001 par value
   25,000,000 shares authorized, 2,672,500
   (2,595,000 - 1999) shares issued and outstanding                              2,673         2,595
 Additional paid in capital                                                  3,290,865     2,670,943
 Additional paid in capital - warrants                                         739,826             -
 Deficit accumulated during development stage                               (4,746,416)   (3,447,034)
                                                                     --------------------------------

     Total stockholders' deficiency                                           (713,052)     (773,496)
                                                                     --------------------------------

     Total liabilities and stockholders' deficiency                         $1,320,008      $ 82,073
                                                                     ================================
</TABLE>

                            See accompanying notes.


                                       F-3


<PAGE>

               AETHLON MEDICAL, INC. AND SUBSIDIARIES
                  (A DEVELOPMENT STAGE ENTERPRISE)

               CONSOLIDATED STATEMENTS OF CASH FLOWS
                       YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
                                                                                                    Cumulative
                                                                                                      during
                                                                                                   development
                                                                                                  stage through
                                                                    2000             1999         March 31, 2000
<S>                                                           <C>                 <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                         $ (1,299,382)      $ (352,679)      $ (4,746,416)
 Adjustments to reconcile net loss to net cash
  used by operating activities:
   Depreciation                                                         11,098           16,287            134,918
   Amortization                                                        292,024            8,171            326,751
   Services paid by issuance of warrants                                 5,000                               5,000
   Deferred compensation forgiven                                            -           37,600            217,223
   (Increase) decrease in assets:
     Accounts receivable and advances                                  (14,629)                            (14,629)
     Prepaid expenses                                                  (36,940)                            (36,940)
     Other assets                                                       (1,329)                             (1,329)
   Increase (decrease) in liabilities:
     Accounts payable                                                  207,350           12,838            597,984
     Accrued liabilities                                               138,054           77,074            268,869
     Deferred compensation                                              19,827           77,959            329,834
                                                              -----------------------------------------------------

        Net cash used by operating activities                         (678,927)        (122,750)        (2,918,735)

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                                    (13,476)               -           (170,904)
 Purchase of patents                                                   (39,824)               -           (120,564)
 Cash of acquired company                                                8,442                -              8,442
                                                              -----------------------------------------------------

        Net cash used by investing activities                          (44,858)               -           (283,026)

CASH FLOWS FROM FINANCING ACTIVITIES
 Increase in notes payable                                           1,052,500                -          1,052,500
 Loan acquisition costs                                               (114,750)               -           (114,750)
 Loans from stockholders                                                                                   370,384
 Advances from affiliate                                                     -          122,100            122,100
 Proceeds from issuance of common stock                                      -            2,470          1,988,544
                                                              -----------------------------------------------------

        Net cash provided by financing activities                      937,750          124,570          3,418,778

NET INCREASE IN CASH                                                   213,965            1,820            217,017
Cash - beginning of year                                                 3,052            1,232                  -
                                                              -----------------------------------------------------

Cash - end of year                                                $    217,017       $    3,052       $    217,017

SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION
    Cash paid during the period for:
      Interest                                                    $     18,727       $        -       $     42,307
      Income taxes                                                $      1,350       $      325       $      7,162

SUPPLEMENTAL DISCLOSURES OF NONCASH
 INVESTING AND FINANCING ACTIVITIES
    Loans converted to common stock of Hemex                      $          -       $  435,094       $    435,094

    Net assets of entities acquired in exchange
      for the issuance of common stock                            $    520,000       $  119,014       $    639,014

    Patent acquired for 12,500 shares of
      common stock                                                $    100,000       $        -       $    100,000
    Debt placement fees paid by issuance
      of warrants                                                 $    246,119       $        -       $    246,119
    Allocation of note proceeds to note
      discount                                                    $    734,826       $        -       $    734,826


</TABLE>

                            See accompanying notes.


                                       F-4
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES
                      (A DEVELOPMENT STAGE ENTERPRISE)

              CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
<TABLE>
<CAPTION>
                                                COMMON STOCK                             PAID IN
                                       ----------------------------       PAID IN        CAPITAL-     ACCUMULATED
                                             SHARES        AMOUNT         CAPITAL        WARRANTS       DEFICIT            TOTAL
<S>                                    <C>              <C>            <C>              <C>           <C>              <C>
BALANCE AT MARCH 31, 1998                  1,274,000       $ 1,274     $ 1,987,270      $       -     $ (3,094,355)    $(1,105,811)

 Conversion of loans payable -
 stockholders into Hemex common
 stock                                        76,000            76         435,018              -                -         435,094

 Issuance of common stock for
 acquisition of Aethlon Medical              511,500           511          (2,437)             -                -          (1,926)

 Issuance of common stock for
 acquisition of Aethlon                      733,500           734         102,869              -               -          103,603

 Forgiven employee/stockholder
 deferred compensation                             -             -         217,223              -                -         217,223

 Net loss - 1999                                   -             -               -              -         (352,679)       (352,679)
                                       --------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1999                  2,595,000         2,595       2,739,943              -       (3,447,034)       (704,496)
 as previously reported

 Prior period adjustment
 (Note 3)                                          -             -         (69,000)             -                -         (69,000)
                                       --------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 1999
 as adjusted                               2,959,000         2,595       2,670,943              -       (3,447,034)       (773,496)

 Issuance of common stock for
 acquisition of Aethlon Labs                  65,000            65         519,935              -                -         520,000

 Issuance of common stock for
 acquisition of patent rights                 12,500            13          99,987              -                -         100,000

 Warrants to acquire common stock
 issued with promissory notes                      -             -               -        734,826                -         734,826

 Warrants to acquire common stock
 issued in exchange for services                   -             -               -          5,000                -           5,000

 Net loss - 2000                                   -             -               -              -       (1,299,382)     (1,299,382)
                                       --------------------------------------------------------------------------------------------

BALANCE AT MARCH 31, 2000                  2,672,500       $ 2,673     $ 3,290,865      $ 739,826     $ (4,746,416)     $ (713,052)
                                       ============================================================================================
</TABLE>
                            See accompanying notes.


                                       F-5


<PAGE>

                   AETHLON MEDICAL, INC. AND SUBSIDIARIES
                      (A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of Aethlon Medical, Inc. (formerly Bishop Equities,
Inc.) (Aethlon Medical) and its wholly owned subsidiaries, Hemex, Inc.
(Hemex), Syngen Research, Inc. (doing business as Aethlon Laboratories, Inc.)
(Aethlon Labs), and Aethlon, Inc.  (collectively the Company).  All
significant intercompany balances and transactions have been eliminated.

         NATURE OF BUSINESS - Aethlon Medical, which was formerly a
non-operating public shell, is the parent company of Aethlon Inc., Aethlon
Labs, and Hemex. Hemex, incorporated on January 31, 1984 and acquired by
Aethlon Medical on March 10, 1999, is a start-up research and development
company involved in developing the Hemopurifier-TM- which is a medical device
for removing substances from the blood. Aethlon, Inc. was incorporated on
June 24, 1998 to acquire proprietary medical device technologies with the
potential to be developed and commercialized on an international basis.
Aethlon Labs was incorporated on October 14, 1999 and acquired by Aethlon
Medical on January 10, 2000.

         To date the Company is in the initial stage of its operations and
has not yet engaged in significant commercial activities. Marketing of the
Hemopurifier is subject to FDA approval.

         ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities, and receipts and expenditures during the reporting period.
Actual results could differ from estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of the
current assets and liabilities reported in the balance sheets approximate
fair value due to their short-term maturity.

         SEGMENT REPORTING - The Company is currently organized, managed and
internally reported as one segment. The segment operates entirely within the
United States.

         NET LOSS PER COMMON SHARE - In accordance with SFAS 128, dual
presentation of basic and diluted earnings per share is required on the face
of the statement of operations. Net loss per share is based upon the weighted
average number of common shares outstanding during the periods presented.
Outstanding stock options and warrants have not been considered common stock
equivalents because their assumed exercise would be anti-dilutive.

         EQUIPMENT AND DEPRECIATION - Equipment is recorded at cost.
Depreciation has been determined using the straight-line method over the
estimated useful lives of the assets. Depreciation expense for the


                                       F-6
<PAGE>

years ended March 31, 2000 and 1999 was $11,098 and $16,287, respectively.
Accumulated depreciation as of March 31, 2000 and 1999 amounted to $132,771
and $123,820, respectively.

         INTANGIBLE ASSETS - Intangible assets consist of patents, goodwill,
and deferred debt expense.  The Company periodically reviews the
recoverability of the carrying value of its intangible assets.  In
determining whether there is an impairment, the Company compares the sum of
the expected future cash flows (undiscounted and without interest charges) to
the carrying amount of the asset.  In addition, the Company will consider
other significant events or changes in the economic and competitive
environments that may indicate that the remaining estimated useful lives of
its intangibles may warrant revision. At March 31, 2000, the Company believed
that no impairment of intangibles existed.

         PATENTS AND AMORTIZATION - Three patents were acquired during the
year ended December 31, 1994 from a stockholder in exchange for a note
payable in the amount of $80,140. These patents are being amortized on the
straight-line method over their remaining lives which expire between the
years 2003 through 2005. Amortization for each of the years ended March 31,
2000 and 1999 was $8,171. Accumulated amortization as of March 31, 2000 and
1999 amounted to $42,899 and $34,727, respectively. During the year ended
March 31, 2000, the Company capitalized costs relative to seven patent
applications and three trademarks totaling $139,824. The Company will
amortize these costs over the lives of the patents and trademarks beginning
with date of issuance.

         GOODWILL - Goodwill relates to the acquisition of Syngen Research,
Inc. on January 10, 2000. Goodwill is being amortized over ten years, and
amortization in the year ended March 31, 2000 amounted to $12,695.

         DEFERRED DEBT EXPENSE - The cash fees paid and warrants granted to
private placement firms in connection with promissory notes sold are being
amortized on a straight-line basis over the one-year term of the related
notes. Amortization expense for the year ended March 31, 2000 was $87,124 and
accumulated amortization as of March 31, 2000 was $87,124.

         RESEARCH, DEVELOPMENTAL AND ORGANIZATIONAL COSTS - Research,
developmental and organizational costs are expensed as incurred.

         INCOME TAXES - Income taxes are computed in accordance with
Financial Accounting Standards Board Statement No. 109, Accounting for Income
Taxes. Deferred taxes are provided on temporary differences arising from
assets and liabilities whose bases are different for financial reporting and
income tax purposes. Differences in basis for which deferred taxes are
provided relate primarily to costs associated with research and development.

NOTE 2. - FINANCIAL CONDITION

         On March 10, 1999, Aethlon Medical acquired the outstanding stock of
two privately held Development Stage Enterprises, Hemex and Aethlon, Inc., in
order to pursue its commitment to become a significant developer and
manufacturer of medical device technologies (see Note 3). Hemex has developed
a proprietary and patented technology for the extracorporeal removal of toxic
materials from the blood, and has completed its first clinical trial of one
application of this technology. Aethlon, Inc. was formed as a medical device
acquisition company, whose mission will now be carried forward by Aethlon
Medical.

         During fiscal year 2000, the Company consummated the acquisition of
an invention and related patents and also acquired all of the common stock of
Syngen Research, Inc. (see Note 3). These acquisitions were accomplished
through the issuance of shares of the common stock of the Company.


                                       F-7
<PAGE>

         Management intends to seek other acquisitions in related medical
device technologies while in the near term concentrating on the
commercialization of the Hemex Hemopurifier-TM- product line.

         The implementation of the Company's business plan is dependent upon
its ability to raise equity capital. During the fiscal year ended March 31,
2000, the Company financed its research and development activities through
the private placement of $1,052,500 principal amount of 12-month notes
bearing interest at 12% per annum. In March 2000, the Company entered into an
agreement with an investment banking firm under which the firm will use its
best efforts to complete the private placement of the Company's common stock
in the amount of $10 million. Management believes that the financing provided
by this stock offering, should it be completed, will be sufficient to meet
the Company's cash needs, including the commercialization of the
Hemopurifier-TM- products, for at least three years. Additional financing may
be required in the case of further acquisitions.

         Management has several strategies for the conservation of capital
while it is a Development Stage Enterprise. Management will invest
principally in research and product development, and to a lesser extent in
marketing, planning and development. Strategic partnerships and
subcontracting relationships are planned for direct sales, distribution and
manufacturing activities related to the Hemex product line. Careful
management of general and administrative expenses, including the use of
part-time experts in specific functions, will minimize "burn rate" during the
pre-revenue phase.

         The Company has sustained substantial operating losses in recent
years, and expects to do so for the next two fiscal years. Also, its current
liabilities exceed its current assets by $1,701,808 at March 31, 2000.
Management believes that the actions described above will provide the basis
for the Company to make the transition from a Development Stage Enterprise to
commercial operations. However, there is no assurance that the Company's
present plans will be successful.

NOTE 3. - CAPITAL TRANSACTION

         In February 1999,  Aethlon  Medical (a  non-operating  public shell)
entered into a merger  agreement with Hemex and Aethlon,  Inc.  whereby
Aethlon Medical issued  1,350,000 and 733,500 shares of its common stock to
Hemex and  Aethlon,  Inc.,  respectively,  in exchange for 100% of their
outstanding  shares.  Hemex and  Aethlon,  Inc. survived as the operating
entities and wholly-owned subsidiaries of Aethlon Medical.

         During the fiscal year ended March 31, 2000, the Company corrected
the accounting for the acquisition of Aethlon, Inc. to reflect an additional
liability in the amount of $69,000 which should have been recorded at the
date of acquisition. This correction has been treated as a prior period
adjustment, which results in a corresponding adjustment to paid in capital as
of March 31, 1999.

         As a result of the merger, the Hemex shareholders became the
majority owners of the Company and have effective operating control.
Accordingly, the transaction was accounted for as a reverse acquisition
whereby Hemex was deemed to be the accounting acquirer of Aethlon Medical and
Aethlon,


                                       F-8
<PAGE>

Inc. through the issuance of stock for their net monetary assets, followed by
a recapitalization. The assets and liabilities of Aethlon Medical and
Aethlon, Inc. have been recorded at their historical cost, which approximated
their fair market value. The results of operations include those of Aethlon
Medical and Aethlon, Inc. since the date of acquisition. Hemex has changed
its fiscal year end from December 31 to that of Aethlon Medical, with
Aethlon, Inc. also adopting the same fiscal year.

         On January 10, 2000, the Company  acquired from Richard H. Tullis,
PhD all the  outstanding  common stock of Syngen  Research,  Inc. in exchange
for 65,000 share of the  Company's  common  stock.  Syngen  Research,  Inc.
(d/b/a Aethlon  Laboratories,  Inc.) became a wholly-owned  subsidiary of the
Company and will engage  primarily in the development of the virus removing
device under the direction of Dr. Tullis. The acquisition was accounted for
using the purchase method of accounting, and the results of operations of
Aethlon Labs have been included in the accompanying consolidated financial
statements from the date of acquisition.

         The following is a proforma summary of the results of operations had
Aethlon Medical, Aethlon, Inc. and Hemex been combined as of April 1, 1998
and had Aethlon Labs been acquired as of April 1, 1998:

<TABLE>
<CAPTION>
                                              YEAR ENDED
                                              MARCH 31,
                                    2000                         1999
            <S>                  <C>                        <C>
            Net loss             $(1,311,975)               $ (497,728)
                                  ===========                ==========
            Net loss per share   $      (.49)               $     (.20)
</TABLE>

NOTE 4. - LEASES

         The Company rents laboratory space in San Diego, California and
Amherst, New York and office space in La Jolla, California and Williamsville,
New York on a month-to-month basis. Total rent expense for the years ended
March 31, 2000 and 1999 was $55,183 and $32,429, respectively.

NOTE 5. - DEFERRED COMPENSATION

         The Company has accrued but unpaid compensation obligations
(deferred compensation) with two of its present officers/stockholders and two
stockholders who are former officers. The Company has entered into an
agreement with the individuals, the terms of which require the Company to
compensate the individuals the amount owed as soon as the Company has funds
available. To facilitate the capital transaction described in Note 3, the
employees have agreed to accept a discounted amount as full payment of the
deferred compensation. As a result, the deferred compensation liability
presented in the accompanying financial statements has been discounted by 40
percent, reflecting the amount of funds management estimates will be
available from a proposed private placement (see Note 2) to satisfy the
payment of the deferred compensation. The amounts discounted and forgiven by
the employee/stockholders in the amount of $217,223 was recorded as an
increase in additional paid in capital at March 31, 1999.

NOTE 6. - NOTES PAYABLE

         During the year ended March 31, 2000, the Company entered into
arrangements for the issuance of up to $1,350,000 of private placement debt
in units of $25,000. The notes bear interest at 12% per annum and mature one
year from the date of issuance. Each unit contains a warrant to purchase
12,500 shares of the Company's common stock at a price of $5 per share for a
five-year term. The warrants may be called by the Company upon meeting
certain per share market price goals. At March 31, 2000, notes aggregating
$1,017,500 had been issued under this program, and there were noteholder
warrants outstanding for 508,750 shares of stock.

                                       F-9
<PAGE>

         The Company has allocated the proceeds from the private placement
debt to the warrants and notes on a pro-rata basis based upon the estimated
fair value of each financial instrument separately. Accordingly, $734,826 of
the note proceeds was allocated to the noteholder warrants. This amount is
reflected as a note discount, which is netted against the note payable
balance in the accompanying balance sheet and is also included as additional
paid in capital - warrants. The note discount is being amortized as
additional interest expense over the one-year term of the notes. Amortization
in the year ended March 31, 2000 totaled $184,034, and the remaining
unamortized note discount at March 31, 2000 was $550,792.

         The Company incurred cash fees of $114,750 and agreed to grant
warrants for 50,875 shares of common stock, valued at $246,113, in connection
with this private placement of debt which are being amortized over the
one-year term of the notes. These warrants will have the same terms as the
warrants granted to noteholders. Pending issuance of the warrants, the value
of these warrants is reflected in accounts payable at March 31, 2000.
Amortization for the placement fees during the year ended March 31, 2000
amounted to $87,124. In addition, the Company has agreed to pay additional
placement fees equal to 10% of the proceeds from the exercise of warrants by
noteholders at such time as noteholder warrants are exercised.

         In connection with the issuance of certain 10% demand notes, in the
amount of $64,500, issued and repaid during the current fiscal year, the
Company has agreed to issue 14,250 shares of the Company's common stock as
additional compensation to the lender. Pending issuance of these shares, the
Company's obligation for this additional compensation, in the amount of
$114,125, is included in accounts payable.

         Outstanding notes payable at March 31, 2000 were as follows:

<TABLE>
       <S>                                                <C>         <C>
       Private placement notes, net of discount           $466,708
          Stockholder notes - 12%                           35,000
          Related party note                                25,000
                          Total                                       $526,708
</TABLE>

NOTE 7. - INCOME TAXES

         The Company has elected under Internal Revenue Code, Section 174, to
capitalize for income tax purposes all research and development expenditures
incurred in conjunction with its product development process. Net costs
associated with the research and development process amount to approximately
$4,430,000 at March 31, 2000. When the Company realizes benefits from such
expenditures, the costs will be amortized over a period of 60 months. The
related deferred tax asset at March 31, 2000 was approximately $1,019,000,
and at March 31, 1999 it was approximately $742,000.

         A valuation allowance has been provided for 100 percent of the
deferred tax asset as realization of the asset is contingent upon Food and
Drug Administration approval of the Hemopurifier-TM- and the Company generating
sufficient taxable income to offset the research and development amortization
expenses.

NOTE 8. - RELATED PARTY TRANSACTIONS

         In addition to the stockholder loans payable, the officers of the
Company and other related entities have paid expenses on behalf of the
Company. The officers have also advanced the Company funds to

                                       F-10
<PAGE>

cover short-term working capital shortages. These non interest-bearing
amounts have been included as accounts payable - related parties in the
accompanying financial statements.

NOTE 9 - OPTIONS AND WARRANTS

         In addition to the warrants for 508,750 shares of common stock
exercisable at $5 per share issued to noteholders (see Note 6), the Company
has issued warrants for 3,750 shares exercisable at $6 per share and has
agreed to issue warrants for 15,000 shares exercisable at $3 per share to
certain parties in exchange for services rendered. The value for these
warrants is based on the estimated fair value of the services rendered in the
amount of $35,000.

         In connection with the merger agreement among Aethlon Medical,
Aethlon, Inc., and Hemex, a commitment was made to grant an option to the
Company's Chief Executive Officer for 412,500 shares of common stock at $3
per share, the fair market value on the date of that commitment. This grant
was formalized in a Stock Option Agreement dated April 1, 1999 which permits
the option to be exercised between September 10, 2000 and September 11, 2005.

         The Company applies APB Opinion No. 25 in accounting for stock
options. Accordingly, no compensation expense has been charged to earnings
for the option referred to above since such option has an exercise price
equal to 100% of market value on the date of grant. Had the Company adopted
the provisions of FASB Statement No. 123, compensation expense for this
option would have increased the Company's net loss for the fiscal year ended
March 31, 2000 from $1,299,382 to $1,602,677, and the loss per share for this
period would have increased from $.50 to $.61.

         The fair value of the option was estimated using the Black-Scholes
option pricing model using a risk-free interest rate of 5.51%, an expected
term of 7.1 years, and an annual standard deviation (volatility) of 15%. The
resultant fair value of this option is $1.06 per share.

NOTE 10 - SUBSEQUENT EVENT

         On April 10, 2000, the Company acquired all the outstanding common
stock of Cell Activation, Inc. ("Cell") in exchange for 99,152 shares of
common stock of the Company. In addition, all the outstanding stock options
of Cell were exchanged for options to purchase 50,148 shares of common stock
of the Company at $.3933 per share. Following the transaction, Cell became a
wholly-owned subsidiary of the Company and will operate as part of Aethlon
Labs. The acquisition will be accounted for as a purchase.

NOTE 11 - FOURTH QUARTER ADJUSTMENTS

         During the year ended March 31, 2000, the Company recognized an
adjustment in the fourth quarter relating to the issuance of detachable
warrants in connection with a private placement debt offering which took
place throughout the year. The value allocated to these warrants was
subsequently determined and recorded as a note discount and additional paid
in capital (See Note 6). The portion of the $734,826 discount that relates to
the second and third quarters amounts of $86,165 and $260,021, respectively.
The amortization of the discount which would have been recorded as debt
expense in these quarters amounts to $14,000 and $54,000, respectively.

         Also related to this offering, the Company granted warrants to
purchase 50,875 shares of the Company's common stock as debt placement fees.
The value allocated to these warrants was subsequently determined and
recorded (See Note 6). The portion of the $246,113 in deferred debt cost that
relates to the second and third quarters amounts to $25,113 and $76,981,
respectively. The amortization of the deferred debt costs which would have
been recorded as debt expense in the periods amounts to approximately $4,000
and $16,000, respectively.

NOTE 12 - CONTINGENCIES

         Effective January 1, 2000, the Company entered into an agreement
under which an invention and related patent rights for a method of removing
HIV and other viruses from the blood using the Hemex Hemopurifier were
assigned to the Company. In addition to certain royalty payments to be made
on future sales of the patented product, the consideration for the acquired
rights included the issuance of 12,500 shares of the Company's common stock
to the inventors on March 23, 2000. Upon the issuance of the first US letters
patent relating to the invention, the Company is obligated to issue an
additional 12,500 shares of common stock to the inventors. If the market
price of the Company's common stock on the date the patent is issued is below
$8 per share, then the number of shares to be issued will be that number
which equates to $100,000. The total cost incurred by the Company as of March
31, 2000 in connection with this patent is $118,144. The Company will
amortize the cost of this patent over a period ending with its expiration
date, starting on the date the patent is issued.

                                       F-11
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES
                       (A DEVELOPMENT STAGE ENTERPRISE)

                    CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                                            Cumulative During
                                                                                                            Development Stage
                                            Three months ended                   Six months ended                  through
                                      September 30,     September 30,     September 30,     September 30,       September 30,
                                          2000              1999              2000              1999                 2000
<S>                                 <C>                 <C>               <C>               <C>             <C>
REVENUE
 Grant income                              $        -        $        -      $          -        $        -           $  1,430,799
 Subcontract income                                 -                 -                 -                 -                 73,746
 Sale of research and development                   -                 -                 -                 -                 35,810
 Other income                                   1,158                 -            22,479                 -                 53,476
 Interest income                                    -                 -                 -                 -                 17,415
                                    -----------------------------------------------------------------------------------------------

     Total revenue                              1,158                 -            22,479                 -              1,611,246

EXPENSES
 Interest and debt expense                    352,949            25,190           667,147            25,805              1,182,993
 Personnel costs                              184,654           116,606           345,706           204,693              3,650,831
 Professional fees                             46,801            75,060           100,240           140,789                671,478
 Amortization-goodwill                         43,721                 -            84,907                 -                 97,602
 Rent and office expense                       32,206            18,758            61,328            34,158                553,042
 Insurance                                     16,751             6,271            33,463             6,271                123,949
 Travel and meetings                            7,133             5,631            19,878             9,471                164,033
 Laboratory supplies                            7,249                 -            13,731                 -                116,114
 Miscellaneous                                 13,288             3,502            17,402             3,520                122,332
 Depreciation                                   3,788             2,439             7,833             4,764                142,751
 Amortization-patents                           2,043             3,502             4,086             5,545                 46,985
 Equipment and maintenance                      3,513                 -             5,480                 -                170,802
 R & D consultation                                 -                 -                                   -                240,463
 Subcontract expense                                -                 -                                   -                195,964
 Contractual costs                                  -                 -                                   -                192,112
 Dues and subscriptions                             -                 -                                   -                 13,596
                                    -----------------------------------------------------------------------------------------------

     Total expenses                           714,096           256,959         1,361,201           435,016              7,685,047

LOSS BEFORE INCOME TAXES                     (712,938)         (256,959)       (1,338,722)         (435,016)            (6,073,801)

PROVISION FOR INCOME TAXES                        806                91             1,465               147                 12,802
                                    -----------------------------------------------------------------------------------------------

NET LOSS                                   $ (713,744)       $ (257,050)     $ (1,340,187)       $ (435,163)          $ (6,086,603)
                                    ===============================================================================================

PER SHARE:
  Net loss                                 $    (0.26)       $    (0.10)     $      (0.48)       $    (0.17)          $      (4.31)

  Weighted average number of
  common shares outstanding                 2,771,652         2,595,000         2,771,652         2,595,000              1,413,197
</TABLE>

                            See accompanying notes.


                                       F-12


<PAGE>

          AETHLON MEDICAL, INC. AND SUBSIDIARIES
              (A DEVELOPMENT STAGE COMPANY)

               CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                 September 30,
                                                                      2000         March 31,
                                                                   (unaudited)       2000
                          ASSETS
<S>                                                              <C>            <C>
CURRENT ASSETS
  Cash                                                           $     1,677    $   217,017
  Accounts receivable                                                 47,312         61,495
  Prepaid expenses                                                    24,764         36,940
  Employee advances                                                   12,300         15,800
                                                                 ---------------------------

     Total current assets                                             86,053        331,252

PROPERTY AND EQUIPMENT, NET                                           34,683         41,535

OTHER ASSETS
  Patents and trademarks, net                                        401,759        177,065
  Deferred debt expense, net                                         166,567        273,738
  Goodwill, net                                                    1,600,544        495,088
  Other                                                                1,330          1,330
                                                                 ---------------------------
     Total other assets                                            2,170,200        947,221
                                                                 ---------------------------
     Total assets                                                $ 2,290,936    $ 1,320,008
                                                                 ===========================

         LIABILITIES AND STOCKHOLDERS' DEFICIENCY

CURRENT LIABILITIES
  Accounts payable:
    Trade                                                        $   903,240    $   740,562
    Related parties                                                  236,964        234,324
  Notes payable, net of discount                                   1,043,453        526,708
  Accrued liabilities                                                287,906        201,631
  Deferred compensation                                              329,835        329,835
                                                                 ---------------------------

     Total current liabilities                                     2,801,398      2,033,060

STOCKHOLDERS' DEFICIENCY
 Common stock - $.001 par value
   25,000,000 shares authorized; 2,771,652 and
   2,672,500 shares issued and outstanding                             2,772          2,673
 Additional paid in capital - common stock                         4,092,132      3,290,865
 Additional paid in capital - warrants and options                 1,481,237        739,826
 Deficit accumulated during development stage                     (6,086,603)    (4,746,416)
                                                                 ---------------------------

     Total stockholders' deficiency                                 (510,462)      (713,052)
                                                                 ---------------------------

     Total liabilities and stockholders' deficiency              $ 2,290,936    $ 1,320,008
                                                                 ===========================
</TABLE>

                          See accompanying notes.

                                     F-13

<PAGE>

            AETHLON MEDICAL, INC. AND SUBSIDIARIES
               (A DEVELOPMENT STAGE ENTERPRISE)

             CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                     Cumulative During
                                                                Six months         Six months        Development Stage
                                                                  ended               ended               through
                                                              September 30,       September 30,        September 30,
                                                                   2000               1999                  2000
<S>                                                           <C>                 <C>                <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net loss                                                     $(1,340,187)        $  (435,163)           $(6,086,603)
 Adjustments to reconcile net loss to net cash
  used by operating activities:
   Depreciation                                                     7,833               4,764                142,751
   Amortization-patents & goodwill                                 88,993               5,545                144,586
   Amortization-debt expense & note discount                      591,261                   -                862,419
   Services paid by issuance of warrants                            8,373                   -                 13,373
   Deferred compensation forgiven                                       -                   -                217,223
  (Increase) decrease in assets:
      Accounts receivable and advances                             17,683                   -                  3,054
      Prepaid expenses                                             18,566                   -                (18,374)
      Other assets                                                      -                   -                 (1,329)
  Increase (decrease) in liabilities:
      Accounts payable                                             23,912             101,021                621,896
      Accrued liabilities                                          86,275             139,789                355,144
      Deferred compensation                                             -              15,827                329,834
                                                             --------------------------------------------------------

        Net cash used by operating activities                    (497,291)           (168,217)            (3,416,026)

CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                                (3,085)             (4,204)              (173,989)
 Sale of equipment                                                  4,000                   -                  4,000
 Purchase of patents                                                    -                   -               (120,564)
 Cash of acquired company                                           2,286                   -                 10,728
                                                             --------------------------------------------------------

        Net cash used by investing activities                      (3,201)             (4,204)              (279,825)

CASH FLOWS FROM FINANCING ACTIVITIES
 Increase in notes payable                                        312,500             212,500              1,365,000
 Deferred debt costs                                              (33,750)            (13,750)              (148,500)
 Loans from stockholders                                                -                   -                370,384
 Advances from affiliate                                                -                   -                122,100
 Proceeds from issuance of common stock                                 -                   -              1,988,544
                                                             --------------------------------------------------------

        Net cash provided by financing activities                 278,750             198,750              3,697,528

NET INCREASE IN CASH                                             (215,750)             26,329                  1,677
CASH, BEGINNING                                                   217,017               3,052                      -
                                                             --------------------------------------------------------

CASH, END                                                     $     1,677         $    29,381            $     1,677

SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION
    Cash paid during the period for:
      Interest                                                $    58,319         $         -            $   100,626
      Income taxes                                            $       559                   -                  7,721

SUPPLEMENTAL DISCLOSURES OF NONCASH
 INVESTING AND FINANCING ACTIVITIES
    Loans converted to common stock of Hemex                  $         -         $         -            $   435,094
    Net assets of entities acquired in exchange
      for the issuance of common stock and options            $ 1,200,000         $         -            $ 1,839,014
    Patent acquired for 12,500 shares of common stock         $         -         $         -            $   100,000
    Patent costs included in liabilities                      $    87,739         $         -            $    87,739
    Debt placement fees paid by issuance of warrants          $    52,369         $         -            $   298,482
    Allocation of note proceeds to note discount                  193,726         $         -            $   928,552
</TABLE>

See accompanying notes.

                                     F-14
<PAGE>

                    AETHLON MEDICAL, INC. AND SUBSIDIARIES
                       (A DEVELOPMENT STAGE ENTERPRISE)

             CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY

<TABLE>
<CAPTION>
                                                                                       PAID IN
                                                                                       CAPITAL-
                                                 COMMON STOCK           PAID IN        WARRANTS      ACCUMULATED
                                             SHARES       AMOUNT        CAPITAL       and OPTIONS      DEFICIT          TOTAL
<S>                                        <C>            <C>         <C>             <C>           <C>              <C>
BALANCE AT MARCH 31, 2000                  2,672,500      $ 2,673     $ 3,290,865     $  739,826    $ (4,746,416)    $   (713,052)

  Issuance of common stock and options
  for acquisition of Cell Activation          99,152           99         801,267        398,634                        1,200,000

  Warrants to acquire common stock
  issued with promissory notes                                                           193,726                          193,726

  Warrants issued as compensation for
  sale of prommissory notes                                                              134,888                          134,888

  Options granted to directors for fees                                                   14,163                           14,163

  Net loss for the six months
  ended September 30, 2000                                                                            (1,340,187)    $ (1,340,187)
                                          -----------------------------------------------------------------------------------------

BALANCE AT SEPTEMBER 30, 2000              2,771,652      $ 2,772     $ 4,092,132    $ 1,481,237    $ (6,086,603)    $   (510,462)
                                          =========================================================================================
</TABLE>

                            See accompanying notes.

                                     F-15

<PAGE>

      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000

NOTE 1.  BASIS OF PRESENTATION

           The accompanying unaudited consolidated financial statements of
Aethlon Medical, Inc. (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and six month periods ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year
ending March 31, 2001. For further information, refer to the Company's Annual
Report on Form 10-KSB for the year ended March 31, 2000, which includes
audited financial statements and footnotes as of and for the years ended
March 31, 2000 and 1999.

           The consolidated financial statements include the accounts of
Aethlon Medical, Inc. and its wholly owned subsidiaries, Hemex, Inc.,
Aethlon, Inc., Syngen Research, Inc., and Cell Activation, Inc. Syngen
Research and Cell Activation are doing business as Aethlon Laboratories, Inc.
All significant intercompany balances and transactions have been eliminated.

NOTE 2.  CAPITAL TRANSACTION

            On April 10, 2000, the Company acquired all the outstanding
common stock of Cell Activation, Inc. ("Cell") in exchange for 99,152 shares
of common stock of the Company. In addition, all the outstanding stock
options of Cell were exchanged for options to purchase 50,848 shares of
common stock of the Company for $.3933 per share. The options expire in 2007.
The acquisition has been accounted for using the purchase method of
accounting whereby the results of operations of Cell since the date of
acquisition have been included in the accompanying Statement of Operations.
The excess of the purchase price over the tangible assets acquired has been
allocated $167,281 to patents and trademarks and $1,139,674 to goodwill.
Patents will be amortized over their life from date of issuance, and goodwill
will be amortized over ten years. Had the Cell acquisition taken place on
April 1, 1999, the impact on the Company's results of operations for the
three and six months ended September 30, 1999 would have been immaterial.

NOTE 3.  NOTES PAYABLE

         During the quarters ended September 30, 2000 and June 30, 2000, the
Company issued additional one-year promissory notes in the principal amount
of $200,000 and $112,500, respectively. Detachable warrants to purchase
156,250 shares of the Company's common stock were issued in connection with
these notes. Of the note proceeds, $117,173 was allocated to the warrants and
recorded as note discount. The note discount is being amortized as additional
interest expense over the one-year term of the related notes. At September
30, 2000, outstanding notes in the aggregate principal amount of $125,000
have reached their one-year maturity, and interest on such notes for periods
after maturity is accruing at the annual rate of 15%.

NOTE 4.  SUBSEQUENT EVENTS

        In October 2000, the Company entered into an agreement with a financial
institution for the issuance of 8% convertible notes. The initial offering is
for $750,000, of which $375,000 was issued in November 2000 and the remaining
$375,000 is expected to be issued before the end of December. The successful
completion of this initial offering will enable the Company to continue its
operations into the fourth fiscal quarter.

         On November 6, 2000, the Company approved the issuance of options for
200,000 shares of its common stock to the Company's general counsel. The options
are exercisable at $3.25 per share and expire on December 31, 2005.

                                     F-16
<PAGE>

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

NONE

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

         Information regarding directors and executive officers of the Company
will appear in the Proxy Statement of the Annual Meeting of Stockholders and is
incorporated herein by this reference. The Proxy Statement will be filed with
the SEC within 120 days following March 31, 2001.

ITEM 10. EXECUTIVE COMPENSATION

         Information regarding executive compensation will appear in the Proxy
Statement for the Annual Meeting of Stockholders and is incorporated herein by
this reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information regarding security ownership of certain beneficial owners
and management will appear in the Proxy Statement for the Annual Meeting of
Stockholders and is incorporated herein by this reference.

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

         You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with information
different from the information contained in this prospectus. This document
may only be used where it is legal to sell the securities. The information in
this document may only be accurate on the date of this document.

                                     F-17

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                       Page
<S>                                                                                   <C>
Prospectus Summary...............................................................     1
Risk Factors.....................................................................     2
Use of Proceeds..................................................................     7
Price Range of Common Stock......................................................     7
Dividend Policy..................................................................     8
Management's Discussion and Analysis or Plan of Operation........................     8
Business.........................................................................     9
Management.......................................................................     19
Description of Securities........................................................     21
Shares Eligible For Future Sale..................................................     23
Plan of Distribution.............................................................     24
Selling Shareholders.............................................................     25
Legal Matters....................................................................     27
Experts..........................................................................     27
Available Information............................................................     27
Index to Financial Statements....................................................
</TABLE>

                                3,200,000 SHARES
                                 OF COMMON STOCK


                              AETHLON MEDICAL, INC.



                                   PROSPECTUS



                                     , 2001








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

<PAGE>

                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS


ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

         The Registrant estimates that expenses in connection with the
distribution described in this Registration Statement will be as shown below.
All expenses incurred with respect to the distribution, except for fees of
counsel, if any, retained individually by the Selling Shareholders and any
discounts or commissions payable with respect to sales of the shares, will be
paid by AEMD. See "Plan of Distribution."

<TABLE>
                  <S>                                          <C>
                  SEC registration fee                         $ 2,855.42
                  Printing expenses                              5,000.00
                  Accounting fees and expenses                   2,500.00
                  Legal fees and expenses                       20,000.00

                  Total                                        $30,355.42
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

         Reference is made to the General Corporation Law of the State of
Nevada. As permitted by Nevada law, the Company's Articles of Incorporation
contain an article limiting the personal liability of directors. The Articles of
Incorporation provides that a director of the Company shall not be personally
liable for any damages from any breach of fiduciary duty as a director, except
for liability based on a judgment or other final adjudication adverse to him
establishing that his acts or omissions were committed in bad faith or were the
result of active or deliberate dishonesty and were material to the cause of
action so adjudicated, or that he personally gained a financial profit or other
advantage to which he was not legally entitled. The Company's Articles of
Incorporation and Bylaws also provide for indemnification of all officers and
directors of the Company to the fullest extent permitted by law.

         The Company has entered into Indemnification Agreements
("Indemnification Agreements") with each of Clara M. Ambrus, Franklyn S.
Barry, Jr., Edward G. Broenniman, James A. Joyce, Robert J. Lambrix, John M.
Murray, John P. Penhune, and Richard H. Tullis (collectively, the
"Indemnitees"). The Indemnification Agreements permit the Company to
indemnify the Indemnitees for liabilities and expenses arising from certain
actions taken by the Indemnitees for or on behalf of the Company and require
indemnification in certain circumstances.

ITEM 16. EXHIBITS.

         The following exhibits are filed or incorporated by reference as part
of this Registration Statement.

<TABLE>
<CAPTION>

 Exhibit No.      Description
<S>               <C>
     3.1          Certificate of Amendment of Articles of Incorporation dated March 28, 2000 (6)

     3.2          Bylaws of the Company (1)

     5.1          Opinion of Counsel to the Company with respect to the legality of the shares*

    10.1          Employment Agreement between the Company and Franklyn S. Barry, Jr. dated April 1, 1999 (2)

    10.2          Employment Agreement between the Company and James A. Joyce dated April 1, 1999 (2)

    10.3          Agreement and Plan of Reorganization Between the Company and Aethlon, Inc. dated March 10, 1999 (3)

    10.4          Agreement and Plan of Reorganization Between the Company and Hemex, Inc. dated March 10, 1999 (3)

    10.5          Agreement and Plan of Reorganization Between the Company and Syngen Research, Inc. (4)

    10.6          Agreement and Plan of Reorganization Between the Company and Cell Activation, Inc. (5)

    10.7          Subscription Agreement, dated November 1, 2000, between the Company and certain Subscribers

    10.8          Convertible Note dated November 1, 2000 issued in connection with the Subscription Agreement

    10.9          Common Stock Purchase Warrant dated November 1, 2000 issued in connection with the Subscription Agreement

    23.1          Consent of Counsel (included in the Opinion of Counsel filed as Exhibit 5.1)

    23.2          Independent Auditors' Consent - Freed, Maxick, Sachs & Murphy, P.C.
</TABLE>
- ------------------------------------------
(1)    Filed with Company's Registration Statement on Form SB-2 and incorporated
       by reference.
(2)    Filed with Company's Annual Report on Form 10 KSB for the year ended
       March 31, 1999.
(3)    Filed with Company's Current Report on Form 8-K dated March 10, 1999.
(4)    Filed with Company's Current Report on Form 8-K dated January 10, 2000.
(5)    Filed with Company's Current Report on Form 8-K dated March 31, 2000.
(6)    Filed with Company's Current Report on Form 10 KSB for the year ended
       March 31, 2000.

*To be filed by Amendment.

                                     II-1

<PAGE>

ITEM 17.  UNDERTAKINGS.

(a)    The undersigned registrant hereby undertakes:

     (1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

         (i)      To include any prospectus required by section 10(a)(3) of
                  the Securities Act of 1933;

         (ii)     To reflect in the prospectus any facts or events arising
                  after the effective date of the registration statement (or
                  the most recent post-effective amendment thereof) which,
                  individually or in the aggregate, represent a fundamental
                  change in the information set forth in the registration
                  statement. Notwithstanding the foregoing, any increase or
                  decrease in volume of securities offered (if the total
                  dollar value of securities offered would not exceed that
                  which was registered) and any deviation from the low or
                  high end of the estimated maximum offering range may be
                  reflected in the form of prospectus filed with the
                  Commission pursuant to Rule 424(b) if, in the aggregate,
                  the changes in volume and price represent no more than a
                  20% change in the maximum aggregate offering price set
                  forth in the "Calculation of Registration Fee" table in the
                  effective registration statement;

         (iii)    To include any material information with respect to the plan
                  of distribution not previously disclosed in the registration
                  statement or any material change to such information in the
                  registration statement;

provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement;

     (2)   That, for the purpose of determining any liability under the
           Securities Act of 1933, each such post-effective amendment shall be
           deemed to be a new registration statement relating to the securities
           offered therein, and the offering of such securities at that time
           shall be deemed to be the initial bona fide offering thereof; and

     (3)   To remove from registration by means of a post-effective amendment
           any of the securities being registered which remain unsold at the
           termination of the offering; and

                                     II-2

<PAGE>

(b) For purposes of determining any liability under the Securities Act of 1933,
each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

(c) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

                                     II-3

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Buffalo, State of New York, on December 18,
2000.

                  AETHLON MEDICAL, INC.


                       By:   /S/ FRANKLYN S. BARRY, JR.
                             -----------------------------------------------
                             Franklyn S. Barry, Jr., Chief Executive Officer

                       By:   /S/ JOHN M. MURRAY
                             -----------------------------------------------
                             John M. Murray, Chief Financial Officer




         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

<TABLE>
<CAPTION>

         SIGNATURE                                   TITLE                                   DATE
<S>                                           <C>                                         <C>
/S/ JAMES A. JOYCE                            Chairman of the Board
- ---------------------------
James A. Joyce


/S/ CLARA M. AMBRUS                                  Director
- ---------------------------
Clara M. Ambrus


/S/ FRANKLYN S. BARRY, JR.                           Director
- ---------------------------
Franklyn S. Barry, Jr.


/S/ EDWARD G. BROENNIMAN                             Director
- ---------------------------
Edward G. Broenniman


/S/ ROBERT J. LAMBRIX                                Director
- ---------------------------
Robert J. Lambrix


/S/ JOHN P. PENHUNE                                  Director
- ---------------------------
John P. Penhune


/S/ RICHARD H. TULLIS                                Director
- ---------------------------
Richard H. Tullis
</TABLE>

                                     II-4

<PAGE>

                                 EXHIBITS INDEX

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>

EXHIBIT
NUMBER       NAME OF EXHIBIT                        NUMBERED PAGE                   SEQUENTIALLY
<S>          <C>                                    <C>                             <C>
  3.1        Certificate of Amendment of Articles of Incorporation dated March 28, 2000 (6)

  3.2        Bylaws of the Company (1)

  5.1        Opinion of Counsel to the Company with respect to the legality of the shares*

 10.1        Employment Agreement between the Company and Franklyn S. Barry, Jr. dated April 1, 1999 (2)

 10.2        Employment Agreement between the Company and James A. Joyce dated April 1, 1999 (2)

 10.3        Agreement and Plan of Reorganization Between the Company and Aethlon, Inc. dated March 10, 1999 (3)

 10.4        Agreement and Plan of Reorganization Between the Company and Hemex, Inc. dated March 10, 1999 (3)

 10.5        Agreement and Plan of Reorganization Between the Company and Syngen Research, Inc. (4)

 10.6        Agreement and Plan of Reorganization Between the Company and Cell Activation, Inc. (5)

 10.7        Subscription Agreement, dated November 1, 2000, between the Company and certain Subscribers

 10.8        Convertible Note dated November 1, 2000 issued in connection with the Subscription Agreement

 10.9        Common Stock Purchase Warrant dated November 1, 2000 issued in connection with the Subscription Agreement

 23.1        Consent of Counsel (included in the Opinion of Counsel filed as Exhibit 5.1)

 23.2        Independent Auditors' Consent - Freed, Maxick, Sachs & Murphy, P.C.
</TABLE>
- ------------------------------------------
(1)    Filed with Company's Registration Statement on Form SB-2 and incorporated
       by reference.
(2)    Filed with Company's Annual Report on Form 10 KSB for the year ended
       March 31, 1999.
(3)    Filed with Company's Current Report on Form 8-K dated March 10, 1999.
(4)    Filed with Company's Current Report on Form 8-K dated January 10, 2000.
(5)    Filed with Company's Current Report on Form 8-K dated March 31, 2000.
(6)    Filed with Company's Current Report on Form 10 KSB for the year ended
       March 31, 2000.

*To be filed by Amendment.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.7
<SEQUENCE>2
<FILENAME>a2033546zex-10_7.txt
<DESCRIPTION>EXHIBIT 10.7
<TEXT>

<PAGE>

                                                                 EXHIBIT 10.7


                             SUBSCRIPTION AGREEMENT


Dear Subscriber:

         You (the "Subscriber") hereby agree to purchase, and Aethlon Medical,
Inc., a Nevada corporation (the "Company") hereby agrees to issue and to sell to
the Subscriber, 8% Convertible Notes (the "Notes") convertible in accordance
with the terms thereof into shares of the Company's $.001 par value common stock
(the "Company Shares") for the aggregate consideration as set forth on the
signature page hereof ("Purchase Price"). The form of Convertible Note is
annexed hereto as Exhibit A. (The Company Shares included in the Securities (as
hereinafter defined) are sometimes referred to herein as the "Shares" or "Common
Stock"). (The Notes, the Company Shares, Common Stock Purchase Warrants
("Warrants") issuable to the recipients identified on Schedule B hereto, the
Common Stock issuable upon exercise of the Warrants, and the Put Securities (as
herein defined) are collectively referred to herein as, the "Securities"). Upon
acceptance of this Agreement by the Subscriber, the Company shall issue and
deliver to the Subscriber the Note against payment, by federal funds (U.S.) wire
transfer of the Purchase Price.

                  The following terms and conditions shall apply to this
subscription.

                  1. SUBSCRIBER'S REPRESENTATIONS AND WARRANTIES. The Subscriber
hereby represents and warrants to and agrees with the Company that:

                           (a) INFORMATION ON COMPANY. The Subscriber has been
furnished with the Company's Form 10-KSB for the year ended March 31, 2000 as
filed with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed forms 10-QSB (hereinafter referred to as the
"Reports"). In addition, the Subscriber has received from the Company such other
information concerning its operations, financial condition and other matters as
the Subscriber has requested, and considered all factors the Subscriber deems
material in deciding on the advisability of investing in the Securities (such
information in writing is collectively, the "Other Written Information").

                           (b) INFORMATION ON SUBSCRIBER. The Subscriber is an
"accredited investor", as such term is defined in Regulation D promulgated by
the Commission under the Securities Act of 1933, as amended (the "1933 Act"), is
experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in private placements in the past and, with its representatives, has
such knowledge and experience in financial, tax and other business matters as to
enable the Subscriber to utilize the information made available by the Company
to evaluate the merits and risks of and to make an informed investment decision
with respect to the proposed purchase, which represents a speculative
investment. The Subscriber has the authority and is duly and legally qualified
to purchase and own the Securities. The Subscriber is able to bear the risk of
such investment for an indefinite period and to afford a complete loss thereof.
The information set forth on the signature page hereto regarding the Subscriber
is accurate.

                           (c) PURCHASE OF NOTE. On the Closing Date, the
Subscriber will purchase the Note for its own account and not with a view to any
distribution thereof.

                           (d) COMPLIANCE WITH SECURITIES ACT. The Subscriber
understands and agrees that the Securities have not been registered under the
1933 Act, by reason of their issuance in a transaction that does not require
registration under the 1933 Act (based in part on the accuracy of the
representations and

<PAGE>

warranties of Subscriber contained herein), and that such Securities must be
held unless a subsequent disposition is registered under the 1933 Act or is
exempt from such registration.

                           (e) COMPANY SHARES LEGEND. The Company Shares, and
the shares of Common Stock issuable upon the exercise of the Warrants, shall
bear the following legend:

                  "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
                  SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
                  HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
                  STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
                  REASONABLY SATISFACTORY TO AETHLON MEDICAL, INC. THAT SUCH
                  REGISTRATION IS NOT REQUIRED."

                           (f) WARRANTS LEGEND. The Warrants shall bear the
following legend:

                  "THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
                  THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
                  OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES
                  ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
                  OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
                  EFFECTIVE REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID
                  ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
                  AETHLON MEDICAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

                           (g) NOTE LEGEND. The Note shall bear the following
legend:

                  "THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
                  THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
                  1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE
                  UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
                  SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
                  REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
                  OPINION OF COUNSEL REASONABLY SATISFACTORY TO AETHLON MEDICAL,
                  INC. THAT SUCH REGISTRATION IS NOT REQUIRED."

                           (h) COMMUNICATION OF OFFER. The offer to sell the
Securities was directly communicated to the Subscriber. At no time was the
Subscriber presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting otherwise
than in connection and concurrently with such communicated offer.

                           (i) CORRECTNESS OF REPRESENTATIONS. The Subscriber
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Subscriber otherwise


                                       2
<PAGE>

notifies the Company prior to the Closing Date (as hereinafter defined), shall
be true and correct as of the Closing Date. The foregoing representations and
warranties shall survive the Closing Date.

                  2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to and agrees with the Subscriber that:

                           (a) DUE INCORPORATION. The Company and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdictions of their incorporation
and have the requisite corporate power to own their properties and to carry on
their business as now being conducted. The Company and each of its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in each jurisdiction where the nature of the business conducted or
property owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or prospects or condition (financial
or otherwise) of the Company.

                           (b) OUTSTANDING STOCK. All issued and outstanding
shares of capital stock of the Company and each of its subsidiaries has been
duly authorized and validly issued and are fully paid and non-assessable.

                           (c) AUTHORITY; ENFORCEABILITY. This Agreement has
been duly authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder and all other agreements entered into by the
Company relating hereto.

                           (d) ADDITIONAL ISSUANCES. There are no outstanding
agreements or preemptive or similar rights affecting the Company's common stock
or equity and no outstanding rights, warrants or options to acquire, or
instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other Written
Information.

                           (e) CONSENTS. No consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD, NASDAQ or the
Company's Shareholders is required for execution of this Agreement, and all
other agreements entered into by the Company relating thereto, including,
without limitation issuance and sale of the Securities, and the performance of
the Company's obligations hereunder.

                           (f) NO VIOLATION OR CONFLICT. Assuming the
representations and warranties of the Subscriber in Paragraph 1 are true and
correct and the Subscriber complies with its obligations under this Agreement,
neither the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into by the
Company relating thereto by the Company will:

                                    (i) violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
or the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company or any
of its affiliates, (B) to the Company's knowledge, any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the Company or any
of its affiliates of any court, governmental agency or body, or arbitrator
having jurisdiction over the Company or any of its affiliates or over the
properties or assets of the Company or any of its affiliates, (C) the terms of
any bond, debenture, note or any other evidence of indebtedness, or any


                                       3
<PAGE>

agreement, stock option or other similar plan, indenture, lease, mortgage, deed
of trust or other instrument to which the Company or any of its affiliates is a
party, by which the Company or any of its affiliates is bound, or to which any
of the properties of the Company or any of its affiliates is subject, or (D) the
terms of any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company, or any of its affiliates is a party; or

                                    (ii) result in the creation or imposition of
any lien, charge or encumbrance upon the Securities or any of the assets of the
Company, or any of its affiliates.

                           (g) THE SECURITIES. The Securities upon issuance:

                                    (i) are, or will be, free and clear of any
security interests, liens, claims or other encumbrances, subject to restrictions
upon transfer under the 1933 Act and State laws;

                                    (ii) have been, or will be, duly and validly
authorized and on the date of issuance and on the Closing Date, as hereinafter
defined, and the date the Note is converted, and the Warrants are exercised, the
Securities will be duly and validly issued, fully paid and nonassessable (and if
registered pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted, provided that the
Subscriber complies with the Prospectus delivery requirements);

                                    (iii) will not have been issued or sold in
violation of any preemptive or other similar rights of the holders of any
securities of the Company; and

                                    (iv) will not subject the holders thereof to
personal liability by reason of being such holders.

                           (h) LITIGATION. There is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or investigation
before any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates that would affect the execution by
the Company or the performance by the Company of its obligations under this
Agreement, and all other agreements entered into by the Company relating hereto.

                           (i) REPORTING COMPANY. The Company is a publicly-held
company whose common stock is registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"). The Company's
common stock is trading on the NASD OTC Bulletin Board ("Bulletin Board").
Pursuant to the provisions of the 1934 Act, the Company has timely filed all
reports and other materials required to be filed thereunder with the Securities
and Exchange Commission during the preceding twelve months.

                           (j) NO MARKET MANIPULATION. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Securities or affect the price at which the Securities may
be issued.

                           (k) INFORMATION CONCERNING COMPANY. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements included in the Reports, and except as modified in the
Other Written Information, there has been no material adverse change in the
Company's business, financial condition or affairs not disclosed in the Reports.
The Reports and Other Written Information do not contain any untrue statement of
a material


                                       4
<PAGE>

fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading. The Subscriber acknowledges that
the Company announced a modification of its developmental priorities in a press
release dated October 2, 2000, and that a copy of this press release is included
in Other Written Information.

                           (l) DILUTION. The number of Shares issuable upon
conversion of the Note may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the trading
price of the Common Stock declines prior to conversion of the Note. The
Company's executive officers and directors have studied and fully understand the
nature of the Securities being sold hereby and recognize that they have a
potential dilutive effect. The board of directors of the Company has concluded,
in its good faith business judgment, that such issuance is in the best interests
of the Company. The Company specifically acknowledges that its obligation to
issue the Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described in this
Subscription Agreement or the Note, regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.

                           (m) STOP TRANSFER. The Securities are restricted
securities as of the date of this Agreement. The Company will not issue any stop
transfer order or other order impeding the sale and delivery of the Securities,
except as may be required by federal securities laws.

                           (n) DEFAULTS. Neither the Company nor any of its
subsidiaries is in violation of its Articles of Incorporation or ByLaws. Neither
the Company nor any of its subsidiaries is (i) in default under or in violation
of any other material agreement or instrument to which it is a party or by which
it or any of its properties are bound or affected, which default or violation
would have a material adverse effect on the Company, (ii) in default with
respect to any order of any court, arbitrator or governmental body or subject to
or party to any order of any court or governmental authority arising out of any
action, suit or proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or (iii) to
its knowledge in violation of any statute, rule or regulation of any
governmental authority which violation would have a material adverse effect on
the Company.

                           (o) NO INTEGRATED OFFERING. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the offering of
the Securities pursuant to this Agreement to be integrated with prior offerings
by the Company for purposes of the 1933 Act or any applicable stockholder
approval provisions, including, without limitation, under the rules and
regulations of the Bulletin Board, as applicable, nor will the Company or any of
its affiliates or subsidiaries take any action or steps that would cause the
offering of the Securities to be integrated with other offerings.

                           (p) NO GENERAL SOLICITATION. Neither the Company, nor
any of its affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general advertising
(within the meaning of Regulation D under the Act) in connection with the offer
or sale of the Securities.

                           (q) LISTING. The Company's Common Stock is listed for
trading on the Bulletin Board and satisfies all requirements for the
continuation of such listing. The Company has not received any notice that its
common stock will be delisted from the Bulletin Board or that the Common Stock
does not meet all requirements for the continuation of such listing.

                           (r) NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written


                                       5
<PAGE>

Information, other than those incurred in the ordinary course of the Company's
businesses since June 30, 2000 and which, individually or in the aggregate,
would not reasonably be expected to have a material adverse effect on the
Company's financial condition.

                           (s) NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. Since
June 30, 2000, no event or circumstance has occurred or exists with respect to
the Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the Reports.

                           (t) CORRECTNESS OF REPRESENTATIONS. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof in all material respects, will be true and correct
as of the Closing Date, and, unless the Company otherwise notifies the
Subscriber prior to the Closing Date, shall be true and correct in all material
respects as of the Closing Date. The foregoing representations and warranties
shall survive the Closing Date.

                  3. REGULATION D OFFERING. This Offering is being made pursuant
to the exemption from the registration provisions of the Securities Act of 1933,
as amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion acceptable to Subscriber from
the Company's legal counsel opining on the availability of the Regulation D
exemption as it relates to the offer and issuance of the Securities. A form of
the legal opinion is annexed hereto as Exhibit C. The Company will provide, at
the Company's expense, such other legal opinions in the future as are reasonably
necessary for the conversion of the Note and exercise of the Warrants.

                  4. REISSUANCE OF SECURITIES. The Company agrees to reissue
certificates representing the Securities without the legends set forth in
Sections 1(e) and 1(f) above at such time as (a) the holder thereof is permitted
to and disposes of such Securities pursuant to Rule 144(d) and/or Rule 144(k)
under the 1933 Act in the opinion of counsel reasonably satisfactory to the
Company, or (b) upon resale subject to an effective registration statement after
the Securities are registered under the 1933 Act. The Company agrees to
cooperate with the Subscriber in connection with all resales pursuant to Rule
144(d) and Rule 144(k) and provide legal opinions necessary to allow such
resales provided the Company and its counsel receive all reasonably requested
representations from the Subscriber and selling broker, if any. If the Company
fails to remove any legend as required by this Section 4 (a "Legend Removal
Failure"), then beginning on the tenth (10th) day following such failure, the
Company continues to fail to remove such legend, the Company shall pay to each
Subscriber or assignee holding shares subject to a Legend Removal Failure an
amount equal to one percent (1%) of the Purchase Price of the shares subject to
a Legend Removal Failure per day that such failure continues. If during any
twelve (12) month period, the Company fails to remove any legend as required by
this Section 4 for an aggregate of thirty (30) days, each Subscriber or assignee
holding Securities subject to a Legend Removal Failure may, at its option,
require the Company to purchase all or any portion of the Securities subject to
a Legend Removal Failure held by such Subscriber or assignee at a price per
share equal to 120% of the applicable Purchase Price.

                  5. REDEMPTION. The Company may not redeem the Securities
without the consent of the holder of the Securities except as otherwise
described herein.

                  6. FEES/WARRANTS.

                           (a) The Company shall pay to counsel to the
Subscriber its fees, up to a maximum of $22,500 for services rendered to
Subscribers in connection with this Agreement and the other Subscription
Agreements for aggregate subscription amounts of up to $375,000 (the "Initial
Offering"), and


                                       6
<PAGE>

acting as escrow agent for the Initial Offering. The Company will pay to the
Finders identified on Schedule B hereto a cash fee in the amount of: ten percent
(10%) of the initial $375,000 of Purchase Price and aggregate Put Purchase Price
(defined in Section 11.1(a) hereto), and set forth on the signature page hereto
("Finder's Fee"); and 4% of gross cash proceeds thereafter. The Finder's Fee
must be paid each Closing Date and Put Closing Date with respect to the Notes
issued on such date. The Finder's Fee and legal fees will be payable out of
funds held pursuant to a Funds Escrow Agreement to be entered into by the
Company, Subscriber and an Escrow Agent.

                           (b) The Company will also issue and deliver to the
Warrant Recipients identified on Schedule B hereto, Warrants in the amounts
designated on Schedule B hereto in connection with the Initial Offering and
exercise of the Put. A form of Warrant is annexed hereto as Exhibit D. The per
share "Purchase Price" of Common Stock as defined in the Warrant shall be equal
to one hundred and ten percent (110%) of the closing price of the Common Stock
for the trading day preceding but not including the Closing Date or Put Closing
Date, as the case may be, as reported on the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock, the "Principal Market"), or
such other principal market or exchange where the Common Stock is listed or
traded. The aggregate number of Common Shares purchasable upon exercise of the
Warrants is equal to the number of Common Shares that would be issued on a
Closing Date or Put Closing Date if the Notes or Put Notes issued on such
closing dates were converted on such closing date at the Conversion Price set
forth in Section 2.1(b)(i) of the Note. Failure to timely deliver the Warrants
or Finder's Fee shall be deemed an Event of Default as defined in Article III of
the Note and Put Note.

                           (c) The Finder's Fee and legal fees will be paid to
the Finders and attorneys only when, as, and if a corresponding subscription
amount is released from escrow to the Company and out of the escrow proceeds.
All the representations, covenants, warranties, undertakings, and
indemnification, other rights including but not limited to registration rights,
and rights in Section 9 hereof, made or granted to or for the benefit of the
Subscriber are hereby also made and granted to the Warrant Recipients in respect
of the Warrants and Company Shares issuable upon exercise of the Warrants.

                           (d) The holders of the Warrants are granted all the
rights, undertakings, remedies, liquidated damages and indemnification granted
to the Subscriber in connection with the Note, including but not limited to, the
rights and procedures set forth in Section 9 hereof and the registration rights
described in Section 10 hereof.

                  7. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the Subscriber as follows:

                           (a) The Company will advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending any offering of any securities of
the Company, or of the suspension of the qualification of the Common Stock of
the Company for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.

                           (b) The Company shall promptly secure the listing of
the Company Shares, and Common Stock issuable upon the exercise of the Warrants
upon each national securities exchange, or automated quotation system, if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain such listing so long as any other shares of Common
Stock shall be so listed. The Company will maintain the listing of its Common
Stock on a Principal Market, and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of the


                                       7
<PAGE>

National Association of Securities Dealers ("NASD") and such exchanges, as
applicable. The Company will provide the Subscriber copies of all notices it
receives notifying the Company of the threatened and actual delisting of the
Common Stock from any Principal Market.

                           (c) The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.

                           (d) Until at least two (2) years after the
effectiveness of the Registration Statement on Form SB-2 or such other
Registration Statement described in Section 10.1(iv) hereof, the Company will
(i) cause its Common Stock to continue to be registered under Sections 12(b) or
12(g) of the Exchange Act, (ii) comply in all respects with its reporting and
filing obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares registered
pursuant to Section 12(g) of the Exchange Act, and (iv) comply with all
requirements related to any registration statement filed pursuant to this
Agreement. The Company will not take any action or file any document (whether or
not permitted by the Act or the Exchange Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Acts until the later of (y) two (2) years
after the effective date of the Registration Statement on Form SB-2 or such
other Registration Statement described in Section 10.1(iv) hereof, or (z) the
sale by the Subscribers and Warrant Recipients of all the Company Shares,
Securities and Put Securities issuable by the Company pursuant to this
Agreement. Until at least two (2) years after the Warrants have been exercised,
the Company will use its commercial best efforts to continue the listing of the
Common Stock on the Bulletin Board and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the NASD and NASDAQ.

                           (e) The Company undertakes to use the proceeds of the
Subscriber's funds for the purposes set forth on Schedule 7(e) hereto. Except as
set forth on Schedule 7(e) hereto, Note Purchase Price and Put Note Purchase
Price may not and will not be used to pay debt or non-trade obligations
outstanding on the Closing Date or Put Closing Date.

                           (f) The Company undertakes to acquire within three
months of the Closing Date a standard officers and directors errors and
omissions liability insurance policy covering the transactions contemplated in
this Agreement.

                           (g) The Company undertakes to reserve pro rata on
behalf of each holder of a Note, Put Note or Warrant, from its authorized but
unissued Common Stock, at all times that Notes, Put Notes or Warrants remain
outstanding, a number of Common Shares equal to not less than 200% of the amount
of Common Shares necessary to allow each such holder to be able to convert all
such outstanding Notes and Put Notes, at the then applicable Conversion Price
and one Common Share for each Common Share issuable upon exercise of the
Warrants.

                  8. COVENANTS OF THE COMPANY AND SUBSCRIBER REGARDING
IDEMNIFICATION.

                           (a) The Company agrees to indemnify, hold harmless,
reimburse and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any claim,
cost, expense, liability, obligation, loss or damage (including reasonable legal
fees) of any nature, incurred by or imposed upon Subscriber or any such person
which results, arises out of or is based upon (i) any misrepresentation by
Company or breach of any warranty by Company in this Agreement or in any


                                       8
<PAGE>

Exhibits or Schedules attached hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by the Company of any
covenant or undertaking to be performed by the Company hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.

                           (b) Subscriber agrees to indemnify, hold harmless,
reimburse and defend the Company and each of the Company's officers and
directors at all times against any claim, cost, expense, liability, obligation,
loss or damage (including reasonable legal fees) of any nature, incurred by or
imposed upon the Company or any such person which results, arises out of or is
based upon (i) any misrepresentation by Subscriber in this Agreement or in any
Exhibits or Schedules attached hereto; or (ii) after any applicable notice
and/or cure periods, any breach or default in performance by Subscriber of any
covenant or undertaking to be performed by Subscriber hereunder, or any other
agreement entered into by the Company and Subscribers relating hereto.

                           (c) The procedures set forth in Section 10.6 shall
apply to the indemnifications set forth in Sections 8(a) and 8(b) above.

                  9.1. CONVERSION OF NOTE.

                           (a) Upon the conversion of the Note or part thereof,
the Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber (or its
nominee) or such other persons as designated by Subscriber and in such
denominations to be specified at conversion representing the number of shares of
common stock issuable upon such conversion. The Company warrants that no
instructions other than these instructions have been or will be given to the
transfer agent of the Company's Common Stock and that the Shares will be
unlegended, free-trading, and freely transferable, and will not contain a legend
restricting the resale or transferability of the Company Shares provided the
Shares are being sold pursuant to an effective registration statement covering
the Shares to be sold or are otherwise exempt from registration when sold.

                           (b) Subscriber will give notice of its decision to
exercise its right to convert the Note or part thereof by telecopying an
executed and completed Notice of Conversion (as defined in the Note) to the
Company. The Subscriber will not be required to surrender the Note until the
Note has been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the provisions hereof
shall be deemed a Conversion Date. The Company will or cause the transfer agent
to transmit the Company's Common Stock certificates representing the Shares
issuable upon conversion of the Note (and a Note representing the balance of the
Note not so converted, if requested by Subscriber) to the Subscriber via express
courier for receipt by such Subscriber within five (5) business days after
receipt by the Company of the Notice of Conversion (the "Delivery Date"). To the
extent that a Subscriber elects not to surrender a Note for reissuance upon
partial payment or conversion, the Subscriber hereby indemnifies the Company
against any and all loss or damage attributable to a third-party claim in an
amount in excess of the actual amount then due under the Note.

                           (c) The Company understands that a delay in the
delivery of the Shares in the form required pursuant to Section 9 hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the Delivery
Date or Mandatory Redemption Payment Date (as hereinafter defined) could result
in economic loss to the Subscriber. As compensation to the Subscriber for such
loss, the Company agrees to pay late payments to the Subscriber for late
issuance of Shares in the form required pursuant to Section 9 hereof upon
Conversion of the Note or late payment of the Mandatory Redemption Amount, in
the amount of $100 per business day after the Delivery Date or Mandatory
Redemption Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any


                                       9
<PAGE>

payments incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to the
Subscriber, in the event that the Company fails for any reason to effect
delivery of the Shares by the Delivery Date or make payment by the Mandatory
Redemption Payment Date, the Subscriber will be entitled to revoke all or part
of the relevant Notice of Conversion or rescind all or part of the notice of
Mandatory Redemption by delivery of a notice to such effect to the Company
whereupon the Company and the Subscriber shall each be restored to their
respective positions immediately prior to the delivery of such notice, except
that late payment charges described above shall be payable through the date
notice of revocation or rescission is given to the Company.

                           (d) Nothing contained herein or in any document
referred to herein or delivered in connection herewith shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest or dividends required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Company to the Subscriber and thus refunded
to the Company.

                  9.2. MANDATORY REDEMPTION. In the event the Company is
prohibited from issuing Shares or fails to timely deliver Shares on a Delivery
Date or during the pendency of an Approval Default for any reason other than
pursuant to the limitations set forth in Section 9.3 hereof, then at the
Subscriber's election, the Company must pay to the Subscriber five (5) business
days after request by the Subscriber or on the Delivery Date (if requested by
the Subscriber) a sum of money determined by multiplying the principal amount of
the Note designated by the Subscriber by 130%, together with accrued but unpaid
interest thereon ("Mandatory Redemption Payment"). The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Company
Shares otherwise deliverable or within five (5) business days after request,
whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the
Mandatory Redemption Payment, the corresponding Note principal and interest will
be deemed paid and no longer outstanding.

                  9.3. MAXIMUM CONVERSION. The Subscriber shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on a Conversion Date, and (ii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this proviso is being made on a Conversion Date, which would result in
beneficial ownership by the Subscriber and its affiliates of more than 9.99% of
the outstanding shares of Common Stock of the Company on such Conversion Date.
For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99%. The Subscriber may void the conversion limitation
described in this Section 9.3 upon 75 days prior notice to the Company. The
Subscriber may allocate which of the equity of the Company deemed beneficially
owned by the Subscriber shall be included in the 9.99% amount described above
and which shall be allocated to the excess above 9.99%.

                  9.4. INJUNCTION - POSTING OF BOND. The Company may not refuse
conversion of a Note based on any claim that such Subscriber or any one
associated or affiliated with such Subscriber has been engaged in any violation
of law, or for any other reason, unless, an injunction from a court, on notice,
restraining and or enjoining conversion of all or part of said Note shall have
been sought and obtained and the Company posts a surety bond for the benefit of
such Subscriber in the amount of 130% of the amount of the Note, which is
subject to the injunction, which bond shall remain in effect until the
completion of


                                       10
<PAGE>

arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Subscriber to the extent it obtains judgment.

                  9.5. BUY-IN. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if after the
Delivery Date the Subscriber purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by such
Subscriber of the Common Stock which the Subscriber anticipated receiving upon
such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In.

                  9.6. OPTIONAL REDEMPTION. The Company will have the option of
redeeming any outstanding Notes and outstanding Put Notes ("Optional
Redemption") by paying to the Subscriber a sum of money equal to the principal
amount of the Note or Put Note together with accrued but unpaid interest thereon
("Redemption Amount") outstanding on the day notice of redemption ("Notice of
Redemption) is given to a Subscriber ("Redemption Date"). A Notice of Redemption
may not be given in connection with any portion of Note or Put Note for which
notice of conversion has been given by the Subscriber at any time before receipt
of a Notice of Redemption. The Subscriber may elect within seven (7) business
days after receipt of a Notice of Redemption to give the Company Notice of
Conversion in connection with some or all of the Note and Put Note principal and
interest which was the subject of the Notice of Redemption provided the
Conversion Price elected by the Subscriber is the Maximum Base Price set forth
in Section 2.1(b)(i) of the Note or Put Note. A Notice of Redemption must be
accompanied by a certificate signed by the chief executive officer or chief
financial officer of the Company stating that the Company has on deposit and
segregated ready funds equal to the Redemption Amount. The Redemption Amount
must be paid in good funds to the Subscriber no later than the fifth (5th)
business day after the Redemption Date. In the event the Company fails to pay
the Redemption Amount by such date, then the Redemption Notice will be null and
void and the Company will thereafter have no further right to effect an Optional
Redemption. Such failure will also be deemed an Event of Default under the Note
and Put Note. Any Notice of Redemption must be given to all holders of Notes and
Put Notes issued in connection with the Initial Offering, in proportion to their
holdings of Note and Put Note principal on a Redemption Date. A Notice of
Redemption may be given by the Company, provided (i) no Event of Default, as
described in the Note shall have occurred or be continuing; (ii) the Company
Shares issuable upon conversion of the full outstanding Note and Put Note
principal are included in a registration statement effective as of the
Redemption Date; and (iii) the Maximum Base Price is less than the Conversion
Price calculated on the Redemption Date pursuant to Section 2.1(b)(i) of the
Note or Put Note. Put Note proceeds may not be used to effect an Optional
Redemption.

                  10.1. REGISTRATION RIGHTS. The Company hereby grants the
following registration rights to holders of the Securities.

                                    (i) On one occasion, for a period commencing
121 days after the Closing Date, but not later than four years after the Closing
Date ("Request Date"), the Company, upon a written request therefor from any
record holder or holders of more than 50% of the aggregate of the Company's
Shares issued


                                       11
<PAGE>

and issuable upon Conversion of the Note and the Put Notes which are actually
issued (the Common Stock issued or issuable upon conversion or exercise of the
Securities, Put Securities and securities issued or issuable by virtue of
ownership of the Securities, and Put Securities, being, the "Registrable
Securities"), shall prepare and file with the SEC a registration statement under
the Act covering the Registrable Securities which are the subject of such
request, unless such Registrable Securities are the subject of an effective
registration statement. In addition, upon the receipt of such request, the
Company shall promptly give written notice to all other record holders of the
Registrable Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which it has
received written requests within 10 days after the Company gives such written
notice. Such other requesting record holders shall be deemed to have exercised
their demand registration right under this Section 10.1(i). As a condition
precedent to the inclusion of Registrable Securities, the holder thereof shall
provide the Company with such information as the Company reasonably requests.
The obligation of the Company under this Section 10.1(i) shall be limited to one
registration statement.

                                    (ii) If the Company at any time proposes to
register any of its securities under the Act for sale to the public, whether for
its own account or for the account of other security holders or both, except
with respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Registrable Securities for sale to the public,
provided the Registrable Securities are not otherwise registered for resale by
the Subscriber or Holder pursuant to an effective registration statement, each
such time it will give at least 30 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the written
request of the holder, received by the Company within 30 days after the giving
of any such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities to
be covered by the registration statement proposed to be filed by the Company,
all to the extent required to permit the sale or other disposition of the
Registrable Securities so registered by the holder of such Registrable
Securities (the "Seller"). In the event that any registration pursuant to this
Section 10.1(ii) shall be, in whole or in part, an underwritten public offering
of common stock of the Company, the number of shares of Registrable Securities
to be included in such an underwriting may be reduced by the managing
underwriter if and to the extent that the Company and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by the Company therein; provided,
however, that the Company shall notify the Seller in writing of any such
reduction. Notwithstanding the forgoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration statement
referred to in this Section 10.1(ii) without thereby incurring any liability to
the Seller.

                                    (iii) If, at the time any written request
for registration is received by the Company pursuant to Section 10.1(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the proposed offer
and sale for cash of any of its securities for the Company's own account, such
written request shall be deemed to have been given pursuant to Section 10.1(ii)
rather than Section 10.1(i), and the rights of the holders of Registrable
Securities covered by such written request shall be governed by Section
10.1(ii).

                                    (iv) The Company shall file with the
Commission within 45 days of the Closing Date (the "Filing Date"), and use its
reasonable commercial efforts to cause to be declared effective a Form SB-2
registration statement (or such other form that it is eligible to use) within 90
days of the Closing Date in order to register the Registrable Securities for
resale and distribution under the Act. The registration statement described in
this paragraph must be declared effective by the Commission within 90 days of
the Closing Date (as defined herein) ("Effective Date"). The Company will
register not less than a number of shares of Common Stock in the aforedescribed
registration statement that is equal to 200% of the Company Shares issuable at
the Conversion Price that would be in effect on the Closing Date or the date of
filing of such registration statement (employing the Conversion Price which
would result in the greater number of Shares),


                                       12
<PAGE>

assuming the conversion of 100% of the Notes and the Put Notes which are
issuable, and one share of common stock for each common share issuable upon
exercise of the Initial Warrants and Put Warrants which are issuable in
connection with the Put, employing the Conversion Price that would result in the
greater number of Shares. The Registrable Securities shall be reserved and set
aside exclusively for the benefit of the Subscriber and Warrant Recipients, as
the case may be, and not issued, employed or reserved for anyone other than the
Subscriber and Warrant Recipients. Such registration statement will be promptly
amended or additional registration statements will be promptly filed by the
Company as necessary to register additional Company Shares to allow the public
resale of all Common Stock included in and issuable by virtue of the Registrable
Securities. No securities of the Company other than the Registrable Securities
will be included in the registration statement described in this Section
10.1(iv).

                  10.2. REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions hereof to effect the registration of any shares of
Registrable Securities under the Act, the Company will, as expeditiously as
possible:

                           (a) prepare and file with the Commission a
registration statement with respect to such securities and use its best efforts
to cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein provided),
and promptly provide to the holders of Registrable Securities copies of all
filings and Commission letters of comment;

                           (b) prepare and file with the Commission such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) six months after the latest
exercise period of the Warrants; (ii) twelve months after the Maturity Date of
the Note or Put Note; or (iii) two years after the Closing Date, or Put Closing
Date and comply with the provisions of the Act with respect to the disposition
of all of the Registrable Securities covered by such registration statement in
accordance with the Seller's intended method of disposition set forth in such
registration statement for such period;

                           (c) furnish to the Seller, and to each underwriter if
any, such number of copies of the registration statement and the prospectus
included therein (including each preliminary prospectus) as such persons
reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;

                           (d) use its best efforts to register or qualify the
Seller's Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller and in the
case of an underwritten public offering, the managing underwriter shall
reasonably request, provided, however, that the Company shall not for any such
purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;

                           (e) list the Registrable Securities covered by such
registration statement with any securities exchange on which the Common Stock of
the Company is then listed;

                           (f) immediately notify the Seller and each
underwriter under such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the prospectus
contained in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing;


                                       13
<PAGE>

                           (g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all publicly
available, non-confidential information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.

                  10.3. PROVISION OF DOCUMENTS.

                           (a) At the request of the Seller, provided a demand
for registration has been made pursuant to Section 10.1(i) or a request for
registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10.

                           (b) In connection with each registration hereunder,
the Seller will furnish to the Company in writing such information and
representation letters with respect to itself and the proposed distribution by
it as reasonably shall be necessary in order to assure compliance with federal
and applicable state securities laws. In connection with each registration
pursuant to Section 10.1(i) or 10.1(ii) covering an underwritten public
offering, the Company and the Seller agree to enter into a written agreement
with the managing underwriter in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.

                  10.4. NON-REGISTRATION EVENTS. The Company and the Subscriber
agree that the Seller will suffer damages if any registration statement required
under Section 10.1(i) or 10.1(ii) above is not filed within 60 days after
written request by the Holder and not declared effective by the Commission
within 120 days after such request [or the Filing Date and Effective Date,
respectively, in reference to the Registration Statement on Form SB-2 or such
other form described in Section 10.1(iv)], and maintained in the manner and
within the time periods contemplated by Section 10 hereof, and it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, if
(i) the Registration Statement described in Sections 10.1(i) or 10.1(ii) is not
filed within 60 days of such written request, or is not declared effective by
the Commission on or prior to the date that is 120 days after such request, or
(ii) the registration statement on Form SB-2 or such other form described in
Section 10.1(iv) is not filed on or before the Filing Date or not declared
effective on or before the sooner of the Effective Date, or within five days of
receipt by the Company of a communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay in cash as Liquidated Damages to each holder of any
Registrable Securities an amount equal to two (2%) percent per month for the
first sixty (60) days or part thereof and three (3%) percent per month for each
thirty days or part thereof, thereafter during the pendency of such
Non-Registration Event, of (i) the principal of the Notes issued in connection
with the Initial Offering, whether or not converted; (ii) the principal amount
of Put Notes actually issued, whether or not converted, then owned of record by
such holder or issuable as of or subsequent to the occurrence of such
Non-Registration Event. Payments to be made pursuant to this Section 10.4 shall
be due and payable immediately upon demand in immediately available funds. In
the event a Mandatory Redemption Payment is demanded from the Company by the
Holder pursuant to Section 9.2 of this Subscription Agreement, then the
Liquidated Damages described in this Section 10.4 shall no longer accrue on the
portion of the Purchase Price underlying the Mandatory


                                       14
<PAGE>

Redemption Payment, from and after the date the Holder receives the Mandatory
Redemption Payment. It shall be deemed a Non-Registration Event to the extent
that all the Common Stock underlying the Registrable Securities is not included
in an effective registration statement as of and after the Effective Date at the
Conversion Prices in effect from and after the Effective Date.

                  10.5. EXPENSES. All expenses incurred by the Company in
complying with Section 10, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
reasonable counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.

                  10.6. INDEMNIFICATION AND CONTRIBUTION.

                           (a) In the event of a registration of any Registrable
Securities under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of the
Seller, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such Seller or underwriter within the meaning
of the 1933 Act, against any losses, claims, damages or liabilities, joint or
several, to which the Seller, or such underwriter or controlling person may
become subject under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
was registered under the Act pursuant to Section 10, any preliminary prospectus
or final prospectus contained therein, or any amendment or supplement thereof,
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Seller failed to send or deliver a copy of the
final prospectus delivered by the Company to the Seller with or prior to the
delivery of written confirmation of the sale by the Seller to the person
asserting the claim from which such damages arise, (ii) the final prospectus
would have corrected such untrue statement or alleged untrue statement or such
omission or alleged omission, or (iii) to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity
with information furnished by any such Seller, or any such controlling person in
writing specifically for use in such registration statement or prospectus.

                           (b) In the event of a registration of any of the
Registrable Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who controls
the Company within the meaning of the Act, each officer of the Company who signs
the registration statement, each director of the Company, each underwriter and
each person who controls any underwriter within the meaning of the Act, against
all losses, claims, damages or liabilities, joint or several, to which the
Company or such officer, director, underwriter or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the


                                       15
<PAGE>

registration statement under which such Registrable Securities were registered
under the Act pursuant to Section 10, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action, provided, however, that the
Seller will be liable hereunder in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in reliance upon and in conformity with information pertaining to such
Seller, as such, furnished in writing to the Company by such Seller specifically
for use in such registration statement or prospectus, and provided, further,
however, that the liability of the Seller hereunder shall be limited to the
gross proceeds received by the Seller from the sale of Registrable Securities
covered by such registration statement.

                           (c) Promptly after receipt by an indemnified party
hereunder of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but the
omission so to notify the indemnifying party shall not relieve it from any
liability which it may have to such indemnified party other than under this
Section 10.6(c) and shall only relieve it from any liability which it may have
to such indemnified party under this Section 10.6(c), except and only if and to
the extent the indemnifying party is prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 10.6(c)
for any legal expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of investigation
and of liaison with counsel so selected, provided, however, that, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be reasonable defenses available to it which are different from
or additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the interests
of the indemnifying party, the indemnified parties shall have the right to
select one separate counsel and to assume such legal defenses and otherwise to
participate in the defense of such action, with the reasonable expenses and fees
of such separate counsel and other expenses related to such participation to be
reimbursed by the indemnifying party as incurred.

                           (d) In order to provide for just and equitable
contribution in the event of joint liability under the Act in any case in which
either (i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.6 provides for indemnification in
such case, or (ii) contribution under the Act may be required on the part of the
Seller or controlling person of the Seller in circumstances for which
indemnification is provided under this Section 10.6; then, and in each such
case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible only for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, provided,
however, that, in any such case, (y) the Seller will not be required to
contribute any amount in excess of the public offering price of all such
securities offered by it pursuant to such registration statement; and (z) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 10(f) of the Act) will be entitled to contribution from any


                                       16
<PAGE>

person or entity who was not guilty of such fraudulent misrepresentation.

                  11.1. OBLIGATION TO PURCHASE.

                           (a) The Subscriber agrees to purchase from the
Company convertible notes ("Put Notes") in up to the principal amount set forth
on the signature page hereto for up to the aggregate amount of Put Note
principal ("Put Purchase Price") designated on the signature page hereto (the
"Put"). Collectively the Put Notes, Warrants issuable in connection with the
Put, and Common Stock issuable upon conversion of the Put Notes and exercise of
the Warrants are referred to as the "Put Securities".) The Warrants issuable in
connection with the Put Notes are referred to herein as Warrants or Put
Warrants. Except as described in Section 11.1(c) hereof, each Put Note will be
identical to the Note except that the Maturity Date will be two years from each
Put Closing Date (as hereinafter defined). The Holders of the Put Securities are
granted all the rights, undertakings, remedies, liquidated damages and
indemnification granted to the Subscriber in connection with the Note, including
but not limited to, the rights and procedures set forth in Section 9 hereof and
the registration rights described in Section 10 hereof.

                           (b) The agreement to purchase the Put Notes is
contingent on the following any, some or all of which may be waived by the
Subscriber:

                                    (i) As of a Put Date and Put Closing Date
(as hereinafter defined), the Common Shares issuable upon conversion of a Put
Note and exercise of Put Warrants must be included in an effective registration
statement described in Section 10 hereof.

                                    (ii) As of a Put Date and Put Closing Date,
the Company will be a reporting company with the class of Shares registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934.

                                    (iii) No material adverse change in the
Company's business or business prospects shall have occurred after the date of
the most recent financial statements included in the Reports. Material adverse
change is defined as any effect on the business, operations, properties,
prospects, or financial condition of the Company that is material and adverse to
the Company and its subsidiaries and affiliates, taken as a whole, and/or any
condition, circumstance, or situation that would prohibit or otherwise interfere
with the ability of the Company to enter into and perform any of its obligations
under this Agreement, or any other agreement entered into or to be entered into
in connection herewith, in any material respect. There shall not have been a
material negative restatement of the Company's financial statements included in
the Reports.

                                    (iv) An Event of Default as described in
Article III of the Note shall not have occurred.

                                    (v) The execution and delivery to the
Subscriber of a certificate signed by its chief executive officer representing
the truth and accuracy of all the Company's representations and warranties
contained in this Subscription Agreement as of the Put Date, and Put Closing
Date and confirming the undertakings contained herein, and representing the
satisfaction of all contingencies and conditions required for the exercise of
the Put.

                                    (vi) The Company's listing on, and
compliance with the listing requirements of the Principal Market.


                                       17
<PAGE>

                                    (vii) The Company's not having received
notice from the Bulletin Board, or any Principal Market that the Company is not
in compliance with the requirements for continued listing.

                                    (viii) The execution by the Company and
delivery to the Subscriber of all required documents in relation to the Put set
forth in Section 11.2 below and such other documents which may be reasonably
requested by the Subscriber.

                                    (ix) No issuance of an SEC stop trade order.

                                    (x) The Company shall have no knowledge that
any of the foregoing conditions shall not be true and accurate as of a date
fifteen days after a Put Closing Date.

                           (c) Subject to the adjustments set forth in the Note,
the Conversion Price of the Put Note shall be the lesser of (i) the Maximum Base
Price (as defined in the Note) of the Note issued in connection with the Initial
Offering, or (ii) 82.5% of the average of the three lowest closing bid prices of
the Common Stock on the Principal Market for the ten (10) trading days prior to
the Conversion Date, as defined in the Note.

                  11.2. EXERCISE OF PUT.

                           (a) The Company's right to exercise the Put commences
thirty days after the actual effective date of the registration statement
described in Section 10.1(iv) hereof and expires two (2) years after the
Effective Date ("Put Exercise Period").

                           (b) The Put may be exercised by the Company by giving
the Subscriber written notice of exercise ("Put Notice") not more often than one
time each calendar month during the Put Exercise Period in relation to up to the
maximum principal amount of Put Note that the Subscriber has agreed to purchase
subject to the limits described in this Agreement. The date a Put Notice is
given is a Put Date. Each Put Notice must be accompanied by (i) the officer's
certificate described in Section 11.1(b)(v) above; (ii) a legal opinion relating
to the Put Securities in form reasonably acceptable to Subscriber substantially
similar to the opinion annexed hereto as Exhibit C; (iii) proof of effectiveness
of the registration statement described in Section 10 above, together with five
copies of the prospectus portion thereof; and (iv) such other documents and
certificates reasonably requested by the Subscriber.

                           (c) Unless otherwise agreed to by the Subscribers,
Put Notices must be given to all Subscribers in proportion to the amounts agreed
to be purchased by all Subscribers undertaking to purchase Put Notes in the
Initial Offering.

                           (d) Payment by the Subscriber in relation to a Put
Notice relating to a Put must be made within ten (10) business days after
receipt of a Put Notice and the items set forth in Section 11.2(b) above.
Payment will be made against delivery to the Subscriber or an escrow agent to be
agreed upon by the Company and Subscriber, of the Put Securities, and delivery
to the Finders of the Finder's Fee and Warrants relating to the Put being
exercised which the Company may elect to be paid out of funds deposited with the
escrow agent.

                           (e) The Company may exercise the Put subject to the
following limitations:


                                       18
<PAGE>

                                    (i) The Company may not give the Subscriber
a Put Notice in connection with that amount of Put Note which could be converted
as of the Put Date into a number of shares of Common Stock which would be in
excess of the sum of (y) the number of shares of Common Stock beneficially owned
by the Subscriber and its affiliates on such Put Date, and (z) the number of
shares of Common Stock issuable upon the conversion of the Put Note with respect
to which the determination of this proviso is being made on a Put Date, which
would result in beneficial ownership by the Subscriber and its affiliates of
more than 9.99% of the outstanding shares of Common Stock of the Company on such
Put Date. For the purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Subscriber shall not be limited to aggregate
conversions of only 9.99%. The Subscriber may revoke the restriction described
in this paragraph upon 75 days prior notice to the Company. The Subscriber shall
have the right to determine which of the equity of the Company deemed
beneficially owned by the Subscriber shall be included in the 9.99% described
above and which shall be allocated to the excess above 9.99%.

                                    (ii) The aggregate amount of all Put Notices
to all Subscribers of the Initial Offering may not exceed $4,625,000. The
aggregate maximum principal amount of Put Notes for which Put Notices may be
given during any calendar month to all Subscribers in the Initial Offering may
not exceed ten (10%) of the daily weighted average price of the Common Stock on
the Principal Market as reported by Bloomberg Financial using the AQR function
for the thirty calendar days prior to but not including the Put Date, multiplied
by the reported daily trading volume of the Common Stock for each such day
("Trading Volume Limitation").

                                    (iii) Anything to the contrary herein
notwithstanding, the Company may not exercise the Put for aggregate Put amounts
from Investors to the Initial Offering in excess of $375,000 nor less than
$100,000 during any calendar month.

                           (f) In the event the Company does not exercise the
Put during any calendar month during the Put Exercise Period for the entire
permitted Put amount, then the Subscriber may exercise the Put in relation only
to such Subscriber, by giving notice to the Company of such exercise during the
first seven (7) business days of each following month.

                  11.3. PUT FINDERS FEES. The Finders identified on Schedule B
hereto shall receive on each Put Closing Date aggregate Finder's Fees as
described in Section 6 hereof in connection with the closing of each Put as set
forth on Schedule B hereto. Put Finder's Fees shall be payable only in
connection with the Put Purchase Price actually paid by a Subscriber. The Put
Finder's Fees and reasonable legal fees for counsel to the Subscriber shall be
paid at each Put Closing. The legal fee to be paid by the Company to one counsel
for the Subscribers to the Initial Offering shall be not less than $2,500 nor
more than $4,000 per Put Closing with an aggregate legal fee not to exceed
$10,000.

                  11.4. WARRANTS.

                           (a) The Company shall issue Warrants to the Warrant
Recipients in the amounts designated on Schedule B hereto and as described in
Section 6 of this Agreement. The Warrants will be in the form of Exhibit D
hereto. The Warrants will be exercisable immediately upon issuance and for five
years thereafter.


                                       19
<PAGE>

                           (b) Failure to timely pay Finder's Fees, legal fees
or deliver any Warrants issuable in connection with the Initial Offering and Put
shall be deemed an Event of Default under the Note and a material breach of the
Company's obligations hereunder, for which no notice to cure is required.

                  11.5 ASSIGNMENT OF PUT. Anything to the contrary herein
notwithstanding, the Subscriber may assign to another party, reasonably
acceptable to the Company, either before or after exercise of the Put by the
Company, the Subscriber's obligations and right to pay all or some of the Put
Purchase Price and receive the corresponding Put Securities. Such assignment
must be in writing. The assignment will be effective only if the assignee
consents in writing to be bound by all of the Subscriber's obligations to the
Company in connection with such assignment. Upon an effective assignment, the
assignee will succeed to all of the Subscriber's rights under this Subscription
Agreement, and all other agreements relating to the assigned portion of the Put.

                  11.6 ADJUSTMENTS. The Conversion Price and amount of Shares
issuable upon conversion of the Notes and Put Notes shall be adjusted consistent
with customary anti-dilution adjustments.

                  12.      (a) RIGHT OF FIRST REFUSAL. Until the latest of (i)
180 days after the actual effective date of the Registration Statement described
in Section 10.1(iv) hereof, (ii) one year after the Closing Date, or (iii) 180
days after the most recent Put Closing Date (the "Exclusion Period"), the
Subscriber shall be given not less than ten (10) business days prior written
notice of any proposed sale by the Company of its common stock or other
securities or debt obligations except as disclosed in the Reports or Other
Written Information (these exceptions hereinafter referred to as the "Excepted
Issuances"). The Subscriber shall have the right during the ten (10) business
days following the notice to agree to purchase an amount of Company Shares in
the same proportion as being purchased in the Initial Offering of those
securities proposed to be issued and sold, in accordance with the terms and
conditions set forth in the notice of sale. In the event such terms and
conditions are modified during the notice period, the Subscriber shall be given
prompt notice of such modification and shall have the right during the original
notice period or for a period of ten (10) business days following the notice of
modification, whichever is longer, to exercise such right. In the event the
right of first refusal described in this Section is exercised by the Subscriber
and the Company thereby receives net proceeds from such exercise, then
commissions and fees will be paid by the Company to the Finders in the same
amounts as would be payable in connection with the offering described in the
notice of sale. Payment for the securities may be made by the Subscriber by
tender to the Company of all or part of the Note or Put Note and application
towards the purchase price of the securities of any sums due or owing from the
Company to the Subscriber.

                           (b) OFFERING RESTRICTIONS. Except with respect to the
Excepted Issuances, the Company will not issue any equity, convertible debt or
other securities prior to the expiration of the Exclusion Period at a price
below the lowest Conversion Price in effect on the date of issuance and/or
conversion without the consent of the Subscriber. Until four months after the
Closing Date, the Company may issue to an investor acceptable to the Subscriber
herein, up to the same amount of Convertible Notes and Put Notes as issuable
pursuant to this Agreement on the same terms and conditions as set forth herein.
Any deviation from the terms and conditions described herein must be approved by
the Subscriber.

                  13. MISCELLANEOUS.

                           (a) NOTICES. All notices or other communications
given or made hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied


                                       20
<PAGE>

(provided that a copy is delivered by first class mail) to the party to receive
the same at its address set forth below or to such other address as either party
shall hereafter give to the other by notice duly made under this Section: (i) if
to the Company, to Aethlon Medical, Inc., 7825 Fay Avenue, Suite 200, La Jolla,
CA 92037, telecopier number: (858) 456-4690, with a copy by telecopier only to:
Gibson, Haglund & Paulsen, Jamboree Center, 2 Park Plaza, Suite 450, Irvine, CA
92614, Attn: Bruce H. Haglund, Esq., telecopier number: (949) 752-1144, and (ii)
if to the Subscriber, to the name, address and telecopy number set forth on the
signature page hereto, with a copy by telecopier only to Grushko & Mittman,
P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176, telecopier number:
(212) 697-3575. Any notice that may be given pursuant to this Agreement, or any
document delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the United
States of America by Orthodox Jewry of Rosh Hashanah, Yom Kippur, the first two
days of the Feast of Tabernacles, Shemini Atzeret, Simchat Torah, the first two
and final two days of Passover and Pentecost, with such notice to be deemed
given and effective, at the election of the Subscriber on a holiday date that
precedes such notice. Any notice received by the Subscriber on any of the
aforedescribed holidays may be deemed by the Subscriber to be received and
effective as if such notice had been received on the first business day after
the holiday.

                           (b) CLOSING. The consummation of the transactions
contemplated herein shall take place at the offices of Grushko & Mittman, P.C.,
551 Fifth Avenue, Suite 1601, New York, New York 10176, upon the satisfaction of
all conditions to Closing set forth in this Agreement. The closing date shall be
the date that subscriber funds representing the net amount due the Company from
the Purchase Price are transmitted by wire transfer to the Company (the "Closing
Date"). The closing date for the Put shall be the date on which Subscriber funds
representing the net amount due the Company from the Put Purchase Price is
transmitted to or on behalf of the Company ("Put Closing Date").

                           (c) ENTIRE AGREEMENT; ASSIGNMENT. This Agreement
represents the entire agreement between the parties hereto with respect to the
subject matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by that party
without prior notice to and the written consent of the other party.

                           (d) EXECUTION. This Agreement may be executed by
facsimile transmission, and in counterparts, each of which will be deemed an
original.

                           (e) LAW GOVERNING THIS AGREEMENT. This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action brought
by either party against the other concerning the transactions contemplated by
this Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individuals executing this Agreement and other agreements on behalf of the
Company agree to submit to the jurisdiction of such courts and waive trial by
jury. The prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs. In the event that any provision of this
Agreement or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.

                           (f) SPECIFIC ENFORCEMENT, CONSENT TO JURISDICTION.
The Company and Subscriber acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent or cure


                                       21
<PAGE>

breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof or thereof, this being in addition to any other
remedy to which any of them may be entitled by law or equity. Subject to Section
13(e) hereof, each of the Company and Subscriber hereby waives, and agrees not
to assert in any such suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. Nothing in this Section shall affect or limit
any right to serve process in any other manner permitted by law.

                           (g) CONFIDENTIALITY. The Company agrees that it will
not disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent required
by law.

                           (h) AUTOMATIC TERMINATION. This Agreement shall
automatically terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day following the
date this Agreement is accepted by the Subscriber.




                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                       22
<PAGE>

         Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.

                                             AETHLON MEDICAL, INC.
                                             A Nevada Corporation



                                             By:
                                                --------------------------------
                                                     James A. Joyce
                                                     Chairman of the Board

                                             Dated: November _____, 2000



Purchase Price: $375,000.00
                -----------


PUT

Put Note Purchase Price: $4,625,000.00
                         -------------



ACCEPTED: Dated as of November ____, 2000



ESQUIRE TRADE & FINANCE, INC. - Subscriber
Trident Chamber
P.O. Box 146
Road Town, Tortola, B.V.I.
Fax: 011-41-41-760-1031



By:
   ------------------------------


                                       23
<PAGE>

                      SCHEDULE B TO SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
- ---------------------------------------------------- ----------------------------------------- ------------------------------
FINDERS                                              INITIAL OFFERING - CASH FINDER'S FEES     PUT CASH FINDER'S FEES
- ---------------------------------------------------- ----------------------------------------- ------------------------------
<S>                                                  <C>                                       <C>
LIBRA FINANCE, S.A.                                  $37,500                                   100%
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- ---------------------------------------------------- ----------------------------------------- ------------------------------
TOTAL                                                $37,500 (100%)                            UP TO $185,000 (100%)
- ---------------------------------------------------- ----------------------------------------- ------------------------------
</TABLE>


               PROPORTIONATE SHARE OF AGGREGATE WARRANTS ISSUABLE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------- --------------------------------------------------------
WARRANT RECIPIENTS                                                   PROPORTIONATE SHARE
- -------------------------------------------------------------------- --------------------------------------------------------
<S>                                                                  <C>
LIBRA FINANCE, S.A.                                                  100%
P.O. Box 4603
Zurich, Switzerland
Fax: 011-411-201-6262
- -------------------------------------------------------------------- --------------------------------------------------------
TOTAL                                                                (100%)
- -------------------------------------------------------------------- --------------------------------------------------------
</TABLE>


                                       24
<PAGE>

                   SCHEDULE 7(e) - PERMITTED USES OF PROCEEDS


         1.       Product Development Activities, with principal focus on
HIV/AIDS device.

         2.       FDA Clinical Trials, with focus on devices for iron and lead
removal.

         3.       Business Development Activities, including corporate
communications, SEC registration of common stock, and other corporate
activities.

         4.       Debt Service, including interest on outstanding notes, but
excluding repayment of principal in the maximum amount of $35,000.

                                       25

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.8
<SEQUENCE>3
<FILENAME>a2033546zex-10_8.txt
<DESCRIPTION>EXHIBIT 10.8
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.8

THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO AETHLON MEDICAL, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.


                                CONVERTIBLE NOTE

                  FOR VALUE RECEIVED, AETHLON MEDICAL, INC., a Nevada
corporation (hereinafter called "Borrower"), hereby promises to pay to ESQUIRE
TRADE & FINANCE, INC., Trident Chamber, P.O. Box 146, Road Town, Tortola,
B.V.I., Fax No.: 011-41-41-760-1031 (the "Holder") or order, without demand, the
sum of Three Hundred and Seventy-Five Thousand Dollars ($375,000), with simple
interest accruing at the annual rate of 8%, on November 1, 2002 (the "Maturity
Date").

                  The following terms shall apply to this Note:

                                    ARTICLE I

                           DEFAULT RELATED PROVISIONS

                  1.1 PAYMENT GRACE PERIOD. The Borrower shall have a ten (10)
day grace period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of 20% per annum shall apply to the amounts
owed hereunder.

                  1.2 CONVERSION PRIVILEGES. The Conversion Privileges set forth
in Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full.

                  1.3 INTEREST RATE. Subject to the Holder's right to convert,
interest payable on this Note shall accrue at the annual rate of eight percent
(8%) and be payable quarterly commencing January 1, 2001, and on the Maturity
Date, accelerated or otherwise, when the principal and remaining accrued but
unpaid interest shall be due and payable, or sooner as described below.

                                   ARTICLE II

                                CONVERSION RIGHTS

                  The Holder shall have the right to convert the principal
amount and interest due under this Note into Shares of the Borrower's Common
Stock as set forth below.

                  2.1.     CONVERSION INTO THE BORROWER'S COMMON STOCK.

                  (a) The Holder shall have the right from and after the
issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and/or at the
Holder's election, the interest accrued on the Note, (the date of giving of such
notice of conversion

                                       1
<PAGE>

being a "Conversion Date") into fully paid and nonassessable shares of common
stock of Borrower as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such stock shall hereafter be
changed or reclassified (the "Common Stock") at the conversion price as defined
in Section 2.1(b) hereof (the "Conversion Price"), determined as provided
herein. Upon delivery to the Company of a Notice of Conversion as described in
Section 9 of the subscription agreement entered into between the Company and
Holder relating to this Note (the "Subscription Agreement") of the Holder's
written request for conversion, Borrower shall issue and deliver to the Holder
within five business days from the Conversion Date that number of shares of
Common Stock for the portion of the Note converted in accordance with the
foregoing. At the election of the Holder, the Company will deliver accrued but
unpaid interest on the Note through the Conversion Date directly to the Holder
on or before the Delivery Date (as defined in the Subscription Agreement). The
number of shares of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing that portion of the principal (and interest, at
the election of the Holder) of the Note to be converted, by the Conversion
Price.

                  (b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be the lower of (i) ninety (90%) of
the closing price for the Common Stock on the NASD OTC Bulletin Board, NASDAQ
SmallCap Market, NASDAQ National Market System, American Stock Exchange, or New
York Stock Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock, the "Principal Market"), or if
not then trading on a Principal Market, such other principal market or exchange
where the Common Stock is listed or traded for the last trading day immediately
prior to but not including the issue date of this Note ("Maximum Base Price");
or (ii) seventy-five percent (75%) percent of the average of the three lowest
closing bid prices for the Common Stock on the Principal Market, or on any
securities exchange or other securities market on which the Common Stock is then
being listed or traded, for the ten (10) trading days prior to but not including
the Conversion Date.

                  (c) The Maximum Base Price described in Section 2.1(b)(i)
above and number and kind of shares or other securities to be issued upon
conversion determined pursuant to Section 2.1(a) and 2.1(b), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:

                      A. Merger, Sale of Assets, etc. If the Borrower at any
time shall consolidate with or merge into or sell or convey all or substantially
all its assets to any other corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall thereafter be deemed to
evidence the right to purchase such number and kind of shares or other
securities and property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.

                      B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note, as to
the unpaid principal portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase such number and kind of
securities as would have been issuable as the result of such change with respect
to the Common Stock immediately prior to such reclassification or other change.


                                       2
<PAGE>

                      C. Stock Splits, Combinations and Dividends. If the shares
of Common Stock are subdivided or combined into a greater or smaller number of
shares of Common Stock, or if a dividend is paid on the Common Stock in shares
of Common Stock, the Conversion Price shall be proportionately reduced in case
of subdivision of shares or stock dividend or proportionately increased in the
case of combination of shares, in each such case by the ratio which the total
number of shares of Common Stock outstanding immediately after such event bears
to the total number of shares of Common Stock outstanding immediately prior to
such event.

                      D. Share Issuance. Subject to the provisions of this
Section, if the Borrower at any time shall issue any shares of Common Stock
prior to the conversion of the entire principal amount of the Note (otherwise
than as: (i) provided in Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this
subparagraph D; (ii) pursuant to options, warrants, or other obligations to
issue shares, outstanding on the date hereof as described in the Reports and
Other Written Information, as such terms are defined in the Subscription
Agreement (which agreement is incorporated herein by this reference); or (iii)
Excepted Issuances, as defined in Section 12(a) of the Subscription Agreement;
[(i), (ii) and (iii) above, are hereinafter referred to as the "Existing Option
Obligations"] for a consideration less than the Conversion Price that would be
in effect at the time of such issue, then, and thereafter successively upon each
such issue, the Conversion Price shall be reduced as follows: (i) the number of
shares of Common Stock outstanding immediately prior to such issue shall be
multiplied by the Conversion Price in effect at the time of such issue and the
product shall be added to the aggregate consideration, if any, received by the
Borrower upon such issue of additional shares of Common Stock; and (ii) the sum
so obtained shall be divided by the number of shares of Common Stock outstanding
immediately after such issue. The resulting quotient shall be the adjusted
conversion price. Except for the Existing Option Obligations and options that
may be issued under any employee incentive stock option and/or any qualified
stock option plan adopted by the Company, for purposes of this adjustment, the
issuance of any security of the Borrower carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of shares of Common Stock upon exercise of such conversion or
purchase rights.

                  (d) During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion
of this Note. Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers, agents,
and transfer agents who are charged with the duty of executing and issuing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the conversion of this Note.

                  2.2 METHOD OF CONVERSION. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall be issued by the
Borrower to the Holder for the principal balance of this Note and interest which
shall not have been converted or paid.

                                   ARTICLE III

                                EVENT OF DEFAULT

                  The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other


                                       3
<PAGE>

amounts payable hereunder immediately due and payable, all without demand,
presentment or notice, or grace period, all of which hereby are expressly
waived, except as set forth below:

                  3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails
to pay any installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date.

                  3.2 BREACH OF COVENANT. The Borrower breaches any material
covenant or other term or condition of this Note in any material respect and
such breach, if subject to cure, continues for a period of seven (7) days after
written notice to the Borrower from the Holder.

                  3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement entered into by the Holder and Borrower in connection with this Note,
or in any agreement, statement or certificate given in writing pursuant hereto
or in connection therewith shall be false or misleading in any material respect.

                  3.4 RECEIVER OR TRUSTEE. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

                  3.5 JUDGMENTS. Any money judgment, writ or similar final
process shall be entered or filed against Borrower or any of its property or
other assets for more than $100,000, and shall remain unvacated, unbonded or
unstayed for a period of forty-five (45) days.

                  3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within 45 days of
initiation.

                  3.7 DELISTING. Delisting of the Common Stock from the
Principal Market or such other principal exchange on which the Common Stock is
listed for trading; Borrower's failure to comply with the conditions for
listing; or notification that the Borrower is not in compliance with the
conditions for such continued listing.

                  3.8 CONCESSION. A concession by the Borrower, after applicable
notice and cure periods, under any one or more obligations in an aggregate
monetary amount in excess of $100,000.

                  3.9 STOP TRADE. An SEC stop trade order or trading suspension
on any Principal Market.

                  3.10 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE.
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Section 9 of the Subscription Agreement,
or if required a replacement Note.

                  3.11 REGISTRATION DEFAULT. The occurrence of a
Non-Registration Event as described in Section 10.4 of the Subscription
Agreement.


                                       4
<PAGE>

                                   ARTICLE IV

                                  MISCELLANEOUS

                  4.1 FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on
the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

                  4.2 NOTICES. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by fax
transmission (with copy sent by regular, certified or registered mail or by
overnight courier). For the purposes hereof, the address and fax number of the
Holder is as set forth on the first page hereof. The address and fax number of
the Borrower shall be Aethlon Medical, Inc., 7825 Fay Avenue, Suite 200, La
Jolla, CA 92037, telecopier number: (858) 456-4690. Both Holder and Borrower may
change the address and fax number for service by service of notice to the other
as herein provided. Notice of Conversion shall be deemed given when made to the
Company pursuant to the Subscription Agreement.

                  4.3 AMENDMENT PROVISION. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.

                  4.4 ASSIGNABILITY. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the Holder.

                  4.5 COST OF COLLECTION. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.

                  4.6 GOVERNING LAW. This Note shall be governed by and
construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts of New
York or in the federal courts located in the state of New York. Both parties and
the individual signing this Agreement on behalf of the Borrower agree to submit
to the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.

                  4.7 MAXIMUM PAYMENTS. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.

                  4.8 PREPAYMENT. This Note may not be paid prior to the
Maturity Date without the consent of the Holder.


                                       5
<PAGE>

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its Chairman of the Board on this _____ day of November, 2000.

                                         AETHLON MEDICAL, INC.


                                         By:
                                            ----------------------------------
                                                  James A. Joyce


WITNESS:



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


                                       6
<PAGE>

                              NOTICE OF CONVERSION

(To be executed by the Registered Holder in order to convert the Note)


         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by AETHLON MEDICAL, INC.
on November ____, 2000 into Shares of Common Stock of AETHLON MEDICAL, INC. (the
"Company") according to the conditions set forth in such Note, as of the date
written below.



Date of Conversion:
                   ------------------------------------------------------------


Conversion Price:
                 --------------------------------------------------------------


Shares To Be Delivered:
                       --------------------------------------------------------


Signature:
          ---------------------------------------------------------------------


Print Name:
           --------------------------------------------------------------------


Address:
        -----------------------------------------------------------------------

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

                                       7

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.9
<SEQUENCE>4
<FILENAME>a2033546zex-10_9.txt
<DESCRIPTION>EXHIBIT 10.9
<TEXT>

<PAGE>

                                                                    EXHIBIT 10.9

THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO AETHLON MEDICAL, INC. THAT SUCH REGISTRATION
IS NOT REQUIRED.

                           Right to Purchase  119,048  Shares of Common Stock of
                           Aethlon  Medical,  Inc.  (subject  to  adjustment  as
                           provided herein)

                          COMMON STOCK PURCHASE WARRANT

No. 1                                            Issue  Date:  November  1, 2000

         AETHLON MEDICAL, INC., a corporation organized under the laws of the
State of Nevada (the "Company"), hereby certifies that, for value received,
LIBRA FINANCE, S.A., or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company from and after the Issue Date of this
Warrant and at any time or from time to time before 5:00 p.m., New York time,
through five (5) years after such date (the "Expiration Date"), up to 119,048
fully paid and nonassessable shares of Common Stock (as hereinafter defined),
$.001 par value per share, of the Company, at a purchase price of $3.575 per
share (such purchase price per share as adjusted from time to time as herein
provided is referred to herein as the "Purchase Price"). The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.

         As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:

         (a) The term "Company" shall include Aethlon Medical, Inc. and any
corporation which shall succeed or assume the obligations of Aethlon Medical,
Inc. hereunder.

         (b) The term "Common Stock" includes (a) the Company's Common Stock,
$.001 par value per share, as authorized on the date of the Subscription
Agreement referred to in Section 9 hereof, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after
such date, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (c) any other securities into which or for
which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.

         (c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.


                                       1
<PAGE>

         1.       EXERCISE OF WARRANT.

                  1.1. NUMBER OF SHARES ISSUABLE UPON EXERCISE. From and after
the date hereof through and including the Expiration Date, the holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this Warrant in
part in accordance with subsection 1.3, shares of Common Stock of the Company,
subject to adjustment pursuant to Section 4.

                  1.2. FULL EXERCISE. This Warrant may be exercised in full by
the holder hereof by surrender of this Warrant, with the form of subscription
attached as Exhibit A hereto (the "Subscription Form") duly executed by such
holder, to the Company at its principal office or at the office of its Warrant
agent (as provided hereinafter), accompanied by payment, in cash or by certified
or official bank check payable to the order of the Company, in the amount
obtained by multiplying the number of shares of Common Stock for which this
Warrant is then exercisable by the Purchase Price (as hereinafter defined) then
in effect.

                  1.3. PARTIAL EXERCISE. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the manner and
at the place provided in subsection 1.2 except that the amount payable by the
holder on such partial exercise shall be the amount obtained by multiplying (a)
the number of shares of Common Stock designated by the holder in the
Subscription Form by (b) the Purchase Price then in effect. On any such partial
exercise, the Company, at its expense, will forthwith issue and deliver to or
upon the order of the holder hereof a new Warrant of like tenor, in the name of
the holder hereof or as such holder (upon payment by such holder of any
applicable transfer taxes) may request, the number of shares of Common Stock for
which such Warrant may still be exercised.

                  1.4. FAIR MARKET VALUE. Fair Market Value of a share of Common
Stock as of a particular date (the "Determination Date") shall mean the Fair
Market Value of a share of the Company's Common Stock. Fair Market Value of a
share of Common Stock as of a Determination Date shall mean:

                           (a) If the Company's Common Stock is traded on an
exchange or is quoted on the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") National Market System or the NASDAQ SmallCap
Market, then the closing or last sale price, respectively, reported for the last
business day immediately preceding the Determination Date.

                           (b) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System or the NASDAQ SmallCap Market
but is traded in the over-the-counter market, then the mean of the closing bid
and asked prices reported for the last business day immediately preceding the
Determination Date.

                           (c) Except as provided in clause (d) below, if the
Company's Common Stock is not publicly traded, then as the Holder and the
Company agree or in the absence of agreement by arbitration in accordance with
the rules then standing of the American Arbitration Association, before a single
arbitrator to be chosen from a panel of persons qualified by education and
training to pass on the matter to be decided.

                           (d) If the Determination Date is the date of a
liquidation, dissolution or winding up, or any event deemed to be a liquidation,
dissolution or winding up pursuant to the Company's charter, then all amounts to
be payable per share to holders of the Common Stock pursuant to the charter in
the event of such liquidation, dissolution or winding up, plus all other amounts
to be payable per share in respect of the Common Stock in liquidation under the
charter, assuming for the purposes of this clause (d) that all of the shares of
Common Stock then issuable upon exercise of all of the Warrants are outstanding
at the Determination Date.


                                       2
<PAGE>

                  1.5. COMPANY ACKNOWLEDGMENT. The Company will, at the time of
the exercise of the Warrant, upon the request of the holder hereof acknowledge
in writing its continuing obligation to afford to such holder any rights to
which such holder shall continue to be entitled after such exercise in
accordance with the provisions of this Warrant. If the holder shall fail to make
any such request, such failure shall not affect the continuing obligation of the
Company to afford to such holder any such rights.

                  1.6. TRUSTEE FOR WARRANT HOLDERS. In the event that a bank or
trust company shall have been appointed as trustee for the holders of the
Warrants pursuant to Subsection 3.2, such bank or trust company shall have all
the powers and duties of a warrant agent (as hereinafter described) and shall
accept, in its own name for the account of the Company or such successor person
as may be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
Section 1.

                  2.1 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the holder hereof as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 7 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct in compliance with
applicable Securities Laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such holder would otherwise be
entitled, cash equal to such fraction multiplied by the then Fair Market Value
of one full share, together with any other stock or other securities and
property (including cash, where applicable) to which such holder is entitled
upon such exercise pursuant to Section 1 or otherwise.

                  2.2. CASHLESS EXERCISE.

                           (a) Payment may be made either in (a) cash or by
certified or official bank check or checks payable to the order of the Company
equal to the applicable aggregate Purchase Price, (ii) by delivery of Warrants,
Common Stock and/or Common Stock receivable upon exercise of the Warrants in
accordance with Section (b) below, or (iii) by a combination of any of the
foregoing methods, for the number of Common Shares specified in such form (as
such exercise number shall be adjusted to reflect any adjustment in the total
number of shares of Common Stock issuable to the holder per the terms of this
Warrant) and the holder shall thereupon be entitled to receive the number of
duly authorized, validly issued, fully-paid and non-assessable shares of Common
Stock (or Other Securities) determined as provided herein.

                           (b) Notwithstanding any provisions herein to the
contrary, if the Fair Market Value of one share of Common Stock is greater than
the Purchase Price (at the date of calculation as set forth below), in lieu of
exercising this Warrant for cash the holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof being
cancelled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Subscription Form in which event the Company
shall issue to the holder a number of shares of Common Stock computed using the
following formula:

            X=Y (A-B)
                 ---
                  A

   Where X= the number of shares of Common Stock to be issued to the holder


                                       3
<PAGE>

         Y=       the number of shares of Common Stock purchasable under the
                  Warrant or, if only a portion of the Warrant is being
                  exercised, the portion of the Warrant being exercised (at the
                  date of such calculation)

         A=       the Fair Market  Value of one share of the  Company's  Common
                  Stock (at the date of such calculation)

         B=       Purchase Price (as adjusted to the date of such calculation)

         3.       ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.

                  3.1. REORGANIZATION, CONSOLIDATION, MERGER, ETC. In case at
any time or from time to time, the Company shall (a) effect a reorganization,
(b) consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition to the consummation of such a transaction, proper and
adequate provision shall be made by the Company whereby the holder of this
Warrant, on the exercise hereof as provided in Section 1 at any time after the
consummation of such reorganization, consolidation or merger or the effective
date of such dissolution, as the case may be, shall receive, in lieu of the
Common Stock (or Other Securities) issuable on such exercise prior to such
consummation or such effective date, the stock and other securities and property
(including cash) to which such holder would have been entitled upon such
consummation or in connection with such dissolution, as the case may be, if such
holder had so exercised this Warrant, immediately prior thereto, all subject to
further adjustment thereafter as provided in Section 4.

                  3.2. DISSOLUTION. In the event of any dissolution of the
Company following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense deliver or
cause to be delivered the stock and other securities and property (including
cash, where applicable) receivable by the holders of the Warrants after the
effective date of such dissolution pursuant to this Section 3 to a bank or trust
company having its principal office in New York, NY, as trustee for the holder
or holders of the Warrants.

                  3.3. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any transfer)
referred to in this Section 3, this Warrant shall continue in full force and
effect and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 4. In the
event this Warrant does not continue in full force and effect after the
consummation of the transaction described in this Section 3, then only in such
event will the Company's securities and property (including cash, where
applicable) receivable by the holders of the Warrants be delivered to the
Trustee as contemplated by Section 3.2.

                  3.4. SHARE ISSUANCE. Except for the Excepted Issuances as
described in Section 12(a) of the Subscription Agreement, if the Company at any
time shall issue any shares of Common Stock prior to the complete exercise of
this Warrant for a consideration less than the Purchase Price that would be in
effect at the time of such issue, then, and thereafter successively upon each
such issue, the Purchase Price shall be reduced as follows: (i) the number of
shares of Common Stock outstanding immediately prior to such issue shall be
multiplied by the Purchase Price in effect at the time of such issue and the
product shall be added to


                                       4
<PAGE>

the aggregate consideration, if any, received by the Company upon such issue of
additional shares of Common Stock; and (ii) the sum so obtained shall be divided
by the number of shares of Common Stock outstanding immediately after such
issue. The resulting quotient shall be the adjusted Purchase Price. For purposes
of this adjustment, the issuance of any security of the Company carrying the
right to convert such security into shares of Common Stock or of any warrant,
right or option to purchase Common Stock shall result in an adjustment to the
Purchase Price upon the issuance of shares of Common Stock upon exercise of such
conversion or purchase rights.

         4.       EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that
the Company shall (a) issue additional shares of the Common Stock as a dividend
or other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall, simultaneously with the happening of such
event, be adjusted by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described herein in this Section 4.
The number of shares of Common Stock that the holder of this Warrant shall
thereafter, on the exercise hereof as provided in Section 1, be entitled to
receive shall be increased to a number determined by multiplying the number of
shares of Common Stock that would otherwise (but for the provisions of this
Section 4) be issuable on such exercise by a fraction of which (a) the numerator
is the Purchase Price that would otherwise (but for the provisions of this
Section 4) be in effect, and (b) the denominator is the Purchase Price in effect
on the date of such exercise.

         5.       CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment
or readjustment in the shares of Common Stock (or Other Securities) issuable on
the exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the holder of the Warrant and any
Warrant agent of the Company (appointed pursuant to Section 11 hereof).

         6.       RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT;
FINANCIAL STATEMENTS. The Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
holders of the Company's Common Stock.

         7.       ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable Securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
Transferor Endorsement Form") and together with evidence reasonably satisfactory
to the Company demonstrating compliance with applicable Securities Laws, the
Company at its expense but with payment by the Transferor of any applicable
transfer taxes) will issue and deliver to or on the order of the Transferor
thereof a new Warrant or Warrants of like


                                       5
<PAGE>

tenor, in the name of the Transferor and/or the transferee(s) specified in such
Transferor Endorsement Form (each a "Transferee"), calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant so surrendered by the Transferor.

         8.       REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.

         9.       REGISTRATION RIGHTS. The Holder of this Warrant has been
granted certain registration rights by the Company. These registration rights
are set forth in a Subscription Agreement entered into by the Company and
Subscribers of the Company's 8% Convertible Notes at or prior to the issue date
of this Warrant. The terms of the Subscription Agreement are incorporated herein
by this reference. Upon the occurrence of a Non-Registration Event as described
in the Subscription Agreement, in the event the Company is unable to issue
Common Stock upon exercise of this Warrant that has been registered in the
Registration Statement described in Section 10.1(iv) of the Subscription
Agreement, within the time periods described in the Subscription Agreement,
which Registration Statement must be effective for the periods set forth in the
Subscription Agreement, then upon written demand made by the Holder, the Company
will pay to the Holder of this Warrant, in lieu of delivering Common Stock, a
sum equal to the closing price of the Company's Common Stock on the Principal
Market (as defined in the Subscription Agreement) or such other principal
trading market for the Company's Common Stock on the trading date immediately
preceding the date notice is given by the Holder, less the Purchase Price, for
each share of Common Stock designated in such notice from the Holder.

         10.      MAXIMUM EXERCISE. The Holder shall not be entitled to exercise
this Warrant on an exercise date, in connection with that number of shares of
Common Stock which would be in excess of the sum of (i) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates on an exercise
date, and (ii) the number of shares of Common Stock issuable upon the exercise
of this Warrant with respect to which the determination of this proviso is being
made on an exercise date, which would result in beneficial ownership by the
Holder and its affiliates of more than 9.99% of the outstanding shares of Common
Stock of the Company on such date. For the purposes of the proviso to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13d-3 thereunder. Subject to the foregoing, the Holder
shall not be limited to aggregate exercises which would result in the issuance
of more than 9.99%. The restriction described in this paragraph may be revoked
upon 75 days prior notice from the Holder to the Company. The Holder may
allocate which of the equity of the Company deemed beneficially owned by the
Subscriber shall be included in the 9.99% amount described above and which shall
be allocated to the excess above 9.99%.

         11.      WARRANT AGENT. The Company may, by written notice to the each
holder of the Warrant, appoint an agent for the purpose of issuing Common Stock
(or Other Securities) on the exercise of this Warrant pursuant to Section 1,
exchanging this Warrant pursuant to Section 7, and replacing this Warrant
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.

         12.      TRANSFER ON THE COMPANY'S BOOKS. Until this Warrant is
transferred on the books of the Company, the Company may treat the registered
holder hereof as the absolute owner hereof for all purposes, notwithstanding any
notice to the contrary.


                                       6
<PAGE>

         13.      NOTICES, ETC. All notices and other communications from the
Company to the holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.

         14.      MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought. This Warrant shall be construed and enforced in
accordance with and governed by the laws of New York. Any dispute relating to
this Warrant shall be adjudicated in New York State. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.



                      [THIS SPACE INTENTIONALLY LEFT BLANK]


                                       7
<PAGE>

         IN WITNESS WHEREOF, the Company has executed this Warrant under seal as
of the date first written above.

                                      AETHLON MEDICAL, INC.



                                      By:
                                         --------------------------------------
                                               James A. Joyce
                                               Chairman of the Board




Witness:


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


                                       8
<PAGE>

                                                                       EXHIBIT A

                              FORM OF SUBSCRIPTION
                   (To be signed only on exercise of Warrant)


TO: Aethlon Medical, Inc.

The undersigned, pursuant to the provisions set forth in the attached Warrant
(No.____), hereby irrevocably elects to purchase (check applicable box):

___      ________ shares of the Common Stock covered by such Warrant; or

___ the maximum number of shares of Common Stock covered by such Warrant
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of (check applicable box or boxes):

___      $__________ in lawful money of the United States; and/or

___ the cancellation of such portion of the attached Warrant as is exercisable
for a total of _______ shares of Common Stock (using a Fair Market Value of
$_______ per share for purposes of this calculation); and/or

___ the cancellation of such number of shares of Common Stock as is necessary,
in accordance with the formula set forth in Section 2, to exercise this Warrant
with respect to the maximum number of shares of Common Stock purchaseable
pursuant to the cashless exercise procedure set forth in Section 2.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to ____________________ whose address is ________________
_______________________________________________________________________________.

The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable upon exercise of the within Warrant shall
be made pursuant to registration of the Common Stock under the Securities Act of
1933, as amended (the "Securities Act") or pursuant to an exemption from
registration under the Securities Act.

Dated:
      -------------------         --------------------------------------------
                                  (Signature  must  conform  to name of holder
                                  as specified on the face of the Warrant)


                                  ---------------------------------------------
                                  (Address)


                                       9
<PAGE>

                                                                       Exhibit B


                         FORM OF TRANSFEROR ENDORSEMENT
                   (To be signed only on transfer of Warrant)


                  For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of Aethlon Medical, Inc. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
Aethlon Medical, Inc. with full power of substitution in the premises.
<TABLE>
<CAPTION>
======================================== ===================================== =====================================
              TRANSFEREES                 PERCENTAGE                                         NUMBER
                                          TRANSFERRED                                      TRANSFERRED
- ---------------------------------------- ------------------------------------- -------------------------------------
<S>                                      <C>                                    <C>

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


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


======================================== ===================================== =====================================
</TABLE>




Dated:                  ,
       ----------------- -------    --------------------------------------------
                                    (Signature  must  conform  to name of holder
                                    as specified on the face of the warrant)

Signed in the presence of:


- --------------------------------    --------------------------------------------
         (Name)                                   (address)

                                    --------------------------------------------
ACCEPTED AND AGREED:                              (address)
[TRANSFEREE]


- ---------------------------------
         (Name)

                                       10

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>5
<FILENAME>a2033546zex-23_2.txt
<DESCRIPTION>EXHIBIT 23.2
<TEXT>

<PAGE>

                                  EXHIBIT 23.2

                          INDEPENDENT AUDITOR'S CONSENT

We consent to the inclusion in this Registration Statement on Form SB-2 of our
report dated June 2, 2000, which includes an emphasis paragraph relating to an
uncertainty as to the Company's ability to continue as a going concern, on the
consolidated financial statements of Aethlon Medical, Inc. We also consent to
the reference of our Firm under the heading "Experts" in the Prospectus.



December 19, 2000

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
