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<SEC-DOCUMENT>0001019687-04-001291.txt : 20040609
<SEC-HEADER>0001019687-04-001291.hdr.sgml : 20040609
<ACCEPTANCE-DATETIME>20040609145523
ACCESSION NUMBER:		0001019687-04-001291
CONFORMED SUBMISSION TYPE:	8-K
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20040607
ITEM INFORMATION:		Other events
ITEM INFORMATION:		Financial statements and exhibits
FILED AS OF DATE:		20040609

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:		8-K
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21846
		FILM NUMBER:		04855759

	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>8-K
<SEQUENCE>1
<FILENAME>aethlon_8k-060704.txt
<TEXT>
<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                    FORM 8-K

                                 CURRENT REPORT
     Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

         Date of Report (Date of earliest event reported): June 7, 2004


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


           Nevada                     000-21846                 13-3632859
(State or other jurisdiction   (Commission File Number)  (IRS Employer
 of incorporation)                                        Identification Number)

                           7825 Fay Avenue, Suite 200
                           La Jolla, California 92037
                    (Address of principal executive offices)

Registrant's telephone number, including area code:  (858) 456-5777

                                 NOT APPLICABLE
          (Former name or former address, if changed since last report)

<PAGE>

FORWARD LOOKING STATEMENTS

         This Form 8-K and other reports filed by Registrant from time to time
with the Securities and Exchange Commission (collectively the "Filings") contain
or may contain forward looking statements and information that are based upon
beliefs of, and information currently available to, Registrant's management as
well as estimates and assumptions made by Registrant's management. When used in
the Filings the words "anticipate, "believe", "estimate", "expect", "future",
"intend", "plan" or the negative of these terms and similar expressions as they
relate to Registrant or Registrant's management identify forward looking
statements. Such statements reflect the current view of Registrant with respect
to future events and are subject to risks, uncertainties, assumptions and other
factors relating to Registrant's industry, Registrant's operations and results
of operations and any businesses that may be acquired by Registrant. Should one
or more of these risks or uncertainties materialize, or should the underlying
assumptions prove incorrect, actual results may differ significantly from those
anticipated, believed, estimated, expected, intended or planned.

         Although Registrant believes that the expectations reflected in the
forward looking statements are reasonable, Registrant cannot guarantee future
results, levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, Registrant
does not intend to update any of the forward-looking statements to conform these
statements to actual results.

ITEM  5.          Other Events and Regulation FD Disclosure.

         Aethlon Medical, Inc. (the "Company") has completed a $673,000 private
placement of common stock with accredited investors, including Fusion Capital
Fund II, LLC, a Chicago based institutional investor. Aethlon entered into a
common stock purchase agreement with Fusion Capital, whereby Fusion Capital has
committed to buy an additional $6.0 million of Aethlon's common stock. The funds
from both of these transactions will be utilized to accelerate the development
and commercialization of Aethlon's treatment countermeasures against Biological
Weapons, HIV/AIDS, and Hepatitis-C.

         Under terms of the $6.0 million transaction with Fusion Capital, Fusion
has agreed to purchase from the Company up to $6.0 million of Aethlon's common
stock over a 30-month period. Specifically, after the Securities & Exchange
Commission has declared effective a registration statement, each month Aethlon
has the right to sell to Fusion Capital $200,000 of its common stock at a
purchase price based upon the market price of Aethlon's common stock on the date
of each sale without any fixed discount to the market price. At Aethlon's sole
option, Fusion Capital can be required to purchase lesser or greater amounts of
common stock each month up to $6.0 million in the aggregate. The Company has the
right to control the timing and the amount of stock sold to Fusion Capital.
Aethlon also has the right to terminate the agreement at any time without any
additional cost. Fusion Capital has agreed not to engage in any direct or
indirect short selling or hedging of the common stock in any manner whatsoever.

         This announcement is not an offer to sell securities of Aethlon
Medical, Inc. and any opportunity to participate in the private placement was
available to a very limited group of accredited investors.


<PAGE>

ITEM 7.           Financial Statements and Exhibits

         (a)      Financial Statements of Businesses Acquired. Not applicable.

         (b)      Pro Forma Financial Information Not applicable.

         (c)      Exhibits

                  Exh. No. Description
                  -------- -----------

                  4.1      Common Stock Purchase Agreement by and between
                           Aethlon Medical, Inc. and Fusion Capital Fund II, LLC
                           dated May 20, 2004

                  4.2      Registration Rights Agreement by and between Aethlon
                           Medical, Inc. and Fusion Capital Fund II, LLC dated
                           May 20, 2004

                  4.3      Form of Securities Purchase Agreement

                  4.4      Form of Registration Rights Agreement

                  4.5      Form of Warrant

                  99.1     Press Release dated June 9, 2004

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.

Date:  June 8, 2004                                 AETHLON MEDICAL, INC.

                                                    By: /s/ James A. Joyce
                                                        -------------------
                                                    James A. Joyce
                                                    Chief Executive Officer

<PAGE>

                         EXHIBITS FILED WITH THIS REPORT

Exh. No.    Description
- --------    -----------

4.1         Common Stock Purchase Agreement by and between Aethlon Medical, Inc.
            and Fusion Capital Fund II, LLC dated May 20, 2004

4.2         Registration Rights Agreement by and between Aethlon Medical, Inc.
            and Fusion Capital Fund II, LLC dated May 20, 2004

4.3         Form of Securities Purchase Agreement

4.4         Form of Registration Rights Agreement

4.5         Form of Warrant

99.1        Press Release dated June 9, 2004

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.1
<SEQUENCE>2
<FILENAME>aethlon_8kex4-1.txt
<TEXT>
<PAGE>
EXHIBIT 4.1

                         COMMON STOCK PURCHASE AGREEMENT

         COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of May 20,
2004, by and between AETHLON MEDICAL, INC., a Nevada corporation (the
"Company"), and FUSION CAPITAL FUND II, LLC, an Illinois limited liability
company (the "Buyer"). Capitalized terms used herein and not otherwise defined
herein are defined in Section 10 hereof.

                                    WHEREAS:

         Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Six Million Two Hundred Fifty Thousand Dollars ($6,250,000) of
the Company's common stock, par value $0.001 per share (the "Common Stock"). The
shares of Common Stock to be purchased hereunder are referred to herein as the
"Purchase Shares."

         NOW THEREFORE, the Company and the Buyer hereby agree as follows:

         1.       PURCHASE OF COMMON STOCK.

         Subject to the terms and conditions set forth in Sections 6, 7 and 9
below, the Company hereby agrees to sell to the Buyer, and the Buyer hereby
agrees to purchase from the Company, shares of Common Stock as follows:

         (a) COMMENCEMENT OF PURCHASES OF COMMON STOCK. The purchase and sale of
Common Stock hereunder shall commence (the "Commencement") within five (5)
Trading Days following the date of satisfaction (or waiver) of the conditions to
the Commencement set forth in Sections 6 and 7 below (or such later date as is
mutually agreed to by the Company and Buyer) (the date of such Commencement, the
"Commencement Date"), provided, however, that on the date hereof, the Buyer
agrees to purchase and the Company agrees to sell 568,181 Purchase Shares
("Initial Purchase Shares")at a purchase price per share equal to $0.44
("Initial Purchase Price") and warrants (the "Warrants") in the form of EXHIBIT
F hereto to purchase 568,181 shares of Common Stock ("Warrant Shares") at an
exercise price of $0.76 per share. Upon receipt of the Initial Purchase Shares
in certificated form and the Warrants, in accordance with Section 4(f) hereof,
the Buyer shall pay to the Company $250,000 as full payment for the purchase of
the Initial Purchase Shares and the Warrants.

         (b) BUYER'S PURCHASE RIGHTS AND OBLIGATIONS. Subject to the Company's
right to suspend purchases under Section 1(d)(ii) hereof, the Buyer shall
purchase shares of Common Stock on each Trading Day during each Monthly Period
equal to the Daily Purchase Amount (as defined in Section 1(c)(i)) at the
Purchase Price. Within one (1) Trading Day of receipt of Purchase Shares, the
Buyer shall pay to the Company an amount equal to the Purchase Amount with
respect to such Purchase Shares as full payment for the purchase of the Purchase
Shares so received. The Company shall not issue any fraction of a share of
Common Stock upon any purchase. All shares of Common Stock (including fractions
thereof) issuable upon a purchase under this Agreement shall be aggregated for
purposes of determining whether the purchase would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share. All payments made under this Agreement shall be
made in lawful money of the United States of America by check or wire transfer

<PAGE>

of immediately available funds to such account as the Company may from time to
time designate by written notice in accordance with the provisions of this
Agreement. Whenever any amount expressed to be due by the terms of this
Agreement is due on any day that is not a Trading Day, the same shall instead be
due on the next succeeding day which is a Trading Day.

         (c) THE DAILY PURCHASE AMOUNT; COMPANY'S RIGHT TO DECREASE OR INCREASE
THE DAILY PURCHASE AMOUNT.

                  (i) THE DAILY PURCHASE AMOUNT. As used herein the term
         "Original Daily Purchase Amount" shall mean Ten Thousand Dollars
         ($10,000) per Trading Day. As used herein, the term "Daily Purchase
         Amount" shall mean initially Ten Thousand Dollars ($10,000) per Trading
         Day, which amount may be increased or decreased from time to time
         pursuant to this Section 1(c).

                  (ii) COMPANY'S RIGHT TO DECREASE THE DAILY PURCHASE AMOUNT.
         The Company shall always have the right at any time to decrease the
         amount of the Daily Purchase Amount by delivering written notice (a
         "Daily Purchase Amount Decrease Notice") to the Buyer which notice
         shall specify the new Daily Purchase Amount. The decrease in the Daily
         Purchase Amount shall become effective one Trading Day after receipt by
         the Buyer of the Daily Purchase Amount Decrease Notice. Any purchases
         by the Buyer which have a Purchase Date on or prior to the first (1st)
         Trading Day after receipt by the Buyer of a Daily Purchase Amount
         Decrease Notice must be honored by the Company as otherwise provided
         herein. The decrease in the Daily Purchase Amount shall remain in
         effect until the Company delivers to the Buyer a Daily Purchase Amount
         Increase Notice (as defined below).

                   (iii) COMPANY'S RIGHT TO INCREASE THE DAILY PURCHASE AMOUNT.
         The Company shall have the right (but not the obligation) to increase
         the amount of the Daily Purchase Amount in accordance with the terms
         and conditions set forth in this Section 1(c)(iii) by delivering
         written notice to the Buyer stating the new amount of the Daily
         Purchase Amount (a "Daily Purchase Amount Increase Notice"). A Daily
         Purchase Amount Increase Notice shall be effective five (5) Trading
         Days after receipt by the Buyer. The Company shall always have the
         right at any time to increase the amount of the Daily Purchase Amount
         up to the Original Daily Purchase Amount. With respect to increases in
         the Daily Purchase Amount above the Original Daily Purchase Amount, as
         the market price for the Common Stock increases the Company shall have
         the right from time to time to increase the Daily Purchase Amount as
         follows. For every $0.25 increase in Threshold Price above $0.75
         (subject to equitable adjustment for any reorganization,
         recapitalization, non-cash dividend, stock split or other similar
         transaction), the Company shall have the right to increase the Daily
         Purchase Amount by up to an additional $2,500 in excess of the Original
         Daily Purchase Amount. "Threshold Price" for purposes hereof means the
         lowest Sale Price of the Common Stock during the five (5) consecutive
         Trading Days immediately prior to the submission to the Buyer of a
         Daily Purchase Amount Increase Notice (subject to equitable adjustment
         for any reorganization, recapitalization, non-cash dividend, stock
         split or other similar transaction). For example, if the Threshold
         Price is $1.00, the Company shall have the right to increase the Daily
         Purchase Amount to up to $12,500 in the aggregate. If the Threshold
         Price is $1.50, the Company shall have the right to increase the Daily
         Purchase Amount to up to $17,500 in the aggregate. Any increase in the
         amount of the Daily Purchase Amount shall continue in effect until the
         delivery to the Buyer of a Daily Purchase Amount Decrease Notice.
         However, if at any time during any Trading Day the Sale Price of the
         Common Stock is below the applicable Threshold Price, such increase in
         the Daily Purchase Amount shall be void and the Buyer's obligations to
         buy Purchase Shares hereunder in excess of the applicable maximum Daily

                                      -2-
<PAGE>

         Purchase Amount shall be terminated. Thereafter, the Company shall
         again have the right to increase the amount of the Daily Purchase
         Amount as set forth herein by delivery of a new Daily Purchase Amount
         Increase Notice only if the Sale Price of the Common Stock is above the
         applicable Threshold Price on each of five (5) consecutive Trading Days
         immediately prior to such new Daily Purchase Amount Increase Notice.

         (d) LIMITATIONS ON PURCHASES.

                  (i) LIMITATION ON BENEFICIAL OWNERSHIP. The Company shall not
         effect any sale under this Agreement and the Buyer shall not have the
         right to purchase shares of Common Stock under this Agreement to the
         extent that after giving effect to such purchase the Buyer together
         with its affiliates would beneficially own in excess of 9.9% of the
         outstanding shares of the Common Stock following such purchase. For
         purposes hereof, the number of shares of Common Stock beneficially
         owned by the Buyer and its affiliates or acquired by the Buyer and its
         affiliates, as the case may be, shall include the number of shares of
         Common Stock issuable in connection with a purchase under this
         Agreement with respect to which the determination is being made, but
         shall exclude the number of shares of Common Stock which would be
         issuable upon (1) a purchase of the remaining Available Amount which
         has not been submitted for purchase, and (2) exercise or conversion of
         the unexercised or unconverted portion of any other securities of the
         Company (including, without limitation, any warrants) subject to a
         limitation on conversion or exercise analogous to the limitation
         contained herein beneficially owned by the Buyer and its affiliates. If
         the 9.9% limitation is ever reached this shall not affect or limit the
         Buyer's obligation to purchase the Daily Purchase Amount as otherwise
         provided in this Agreement. Specifically, even though the Buyer may not
         receive additional shares of Common Stock in the event that the 9.9%
         limitation is ever reached, the Buyer is still obligated to pay to the
         Company the Daily Purchase Amount on each Trading Day as otherwise
         obligated under this Agreement, e.g. no Event of Default (as defined in
         Section 9 hereof) has occurred, nor any event which, after notice
         and/or lapse of time, would become an Event of Default. Under such
         circumstances, the Buyer would have the right to acquire additional
         shares of Common Stock in the future only at such time as its ownership
         subsequently become less than the 9.9% limitation. For purposes of this
         Section, in determining the number of outstanding shares of Common
         Stock the Buyer may rely on the number of outstanding shares of Common
         Stock as reflected in (1) the Company's most recent Form 10-Q or Form
         10-K, as the case may be, (2) a more recent public announcement by the
         Company or (3) any other written communication by the Company or its
         Transfer Agent setting forth the number of shares of Common Stock
         outstanding. Upon the reasonable written or oral request of the Buyer,
         the Company shall promptly confirm orally and in writing to the Buyer
         the number of shares of Common Stock then outstanding. In any case, the
         number of outstanding shares of Common Stock shall be determined after
         giving effect to any purchases under this Agreement by the Buyer since
         the date as of which such number of outstanding shares of Common Stock
         was reported. Except as otherwise set forth herein, for purposes of
         this Section 1(d)(i), beneficial ownership shall be determined in
         accordance with Section 13(d) of the Securities Exchange Act of 1934,
         as amended.

                  (ii) COMPANY'S RIGHT TO SUSPEND PURCHASES. The Company may, at
         any time, give written notice (a "Purchase Suspension Notice") to the
         Buyer suspending purchases of Purchase Shares by the Buyer under this
         Agreement. The Purchase Suspension Notice shall be effective only for
         purchases that have a Purchase Date later than one (1) Trading Day
         after receipt of the Purchase Suspension Notice by the Buyer. Any
         purchase by the Buyer that has a Purchase Date on or prior to the first
         (1st) Trading Day after receipt by the Buyer of a Purchase Suspension
         Notice from the Company must be honored by the Company as otherwise
         provided herein. Such purchase suspension shall continue in effect

                                      -3-
<PAGE>

         until a revocation in writing by the Company, at its sole discretion.
         So long as a Purchase Suspension Notice is in effect, the Buyer shall
         not be obligated to purchase any Purchase Shares from the Company under
         Section 1 of this Agreement.

                  (iii) PURCHASE PRICE FLOOR. The Company shall not affect any
         sales under this Agreement and the Buyer shall not have the right nor
         the obligation to purchase any Purchase Shares under this Agreement on
         any Trading Day where the Purchase Price for any purchases of Purchase
         Shares would be less than the Floor Price.

         (e) RECORDS OF PURCHASES. The Buyer and the Company shall each maintain
records showing the remaining Available Amount at any give time and the dates
and Purchase Amounts for each purchase or shall use such other method,
reasonably satisfactory to the Buyer and the Company.

         (f) TAXES. The Company shall pay any and all transfer, stamp or similar
taxes that may be payable with respect to the issuance and delivery of any
shares of Common Stock to the Buyer made under this Agreement.


         2.       BUYER'S REPRESENTATIONS AND WARRANTIES.

         The Buyer represents and warrants to the Company that as of the date
hereof and as of the Commencement Date:

         (a) INVESTMENT PURPOSE. The Buyer is entering into this Agreement and
acquiring the Commitment Shares, (as defined in Section 4(f) hereof) (this
Agreement and the Commitment Shares are collectively referred to herein as the
"Securities"), for its own account for investment only and not with a view
towards, or for resale in connection with, the public sale or distribution
thereof; provided however, by making the representations herein, the Buyer does
not agree to hold any of the Securities for any minimum or other specific term.

         (b) ACCREDITED INVESTOR STATUS. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a)(3) of Regulation D.

         (c) RELIANCE ON EXEMPTIONS. The Buyer understands that the Securities
are being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying in part upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.

         (d) INFORMATION. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations

                                      -4-
<PAGE>

conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.

         (e) NO GOVERNMENTAL REVIEW. The Buyer understands that no United States
federal or state agency or any other government or governmental agency has
passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.

         (f) TRANSFER OR RESALE. The Buyer understands that except as provided
in the Registration Rights Agreement (as defined in Section 4(a) hereof): (i)
the Securities have not been and are not being registered under the 1933 Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (A) subsequently registered thereunder or (B) an exemption
exists permitting such Securities to be sold, assigned or transferred without
such registration; (ii) any sale of the Securities made in reliance on Rule 144
may be made only in accordance with the terms of Rule 144 and further, if Rule
144 is not applicable, any resale of the Securities under circumstances in which
the seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register the Securities under the 1933 Act or any state securities
laws or to comply with the terms and conditions of any exemption thereunder.

         (g) VALIDITY; ENFORCEMENT. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Buyer and is a valid and
binding agreement of the Buyer enforceable against the Buyer in accordance with
its terms, subject as to enforceability to general principles of equity and to
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and
other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.

         (h) RESIDENCY. The Buyer is a resident of the State of Illinois.

         (i) NO PRIOR SHORT SELLING. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.


         3.       REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

         The Company represents and warrants to the Buyer that as of the date
hereof and as of the Commencement Date:

         (a) ORGANIZATION AND QUALIFICATION. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of

                                      -5-
<PAGE>

property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing could not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on
Schedule 3(a).

         (b) AUTHORIZATION; ENFORCEMENT; VALIDITY. (i) The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement and each of
the other agreements entered into by the parties on the Commencement Date and
attached hereto as exhibits to this Agreement (collectively, the "Transaction
Documents"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation, the issuance of the Commitment Shares and
the reservation for issuance and the issuance of the Purchase Shares issuable
under this Agreement, have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its shareholders, (iii) this Agreement has been, and
each other Transaction Document shall be on the Commencement Date, duly executed
and delivered by the Company and (iv) this Agreement constitutes, and each other
Transaction Document upon its execution on behalf of the Company, shall
constitute, the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies. The
Board of Directors of the Company has approved the resolutions (the "Signing
Resolutions") substantially in the form as set forth as EXHIBIT C-1 attached
hereto to authorize this Agreement and the transactions contemplated hereby. The
Signing Resolutions are valid, in full forth and effect and have not been
modified or supplemented in any respect other than by the resolutions set forth
in EXHIBIT C-2 attached hereto regarding the registration statement referred to
in Section 4 hereof. The Company has delivered to the Buyer a true and correct
copy of a unanimous written consent adopting the Signing Resolutions executed by
all of the members of the Board of Directors of the Company. No other approvals
or consents of the Company's Board of Directors and/or shareholders is necessary
under applicable laws and the Company's Certificate of Incorporation and/or
Bylaws to authorize the execution and delivery of this Agreement or any of the
transactions contemplated hereby, including, but not limited to, the issuance of
the Commitment Shares and the issuance of the Purchase Shares.

         (c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of 25,000,000 shares of Common Stock, of which as of the
date hereof, 10,666,472 shares are issued and outstanding, no shares are held as
treasury shares, 1,000,000 shares are reserved for issuance pursuant to the
Company's stock option plans of which only approximately 926,475 shares remain
available for future grants and 4,382,764 shares are issuable and reserved for
issuance pursuant to securities (other than stock options issued pursuant to the
Company's stock option plans) exercisable or exchangeable for, or convertible
into, shares of Common Stock. All of such outstanding shares have been, or upon
issuance will be, validly issued and are fully paid and nonassessable. Except as
disclosed in Schedule 3(c), (i) no shares of the Company's capital stock are
subject to preemptive rights or any other similar rights or any liens or
encumbrances suffered or permitted by the Company, (ii) there are no outstanding
debt securities, (iii) there are no outstanding options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries, or contracts, commitments, understandings or

                                      -6-
<PAGE>

arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
Subsidiaries, (iv) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement),
(v) there are no outstanding securities or instruments of the Company or any of
its Subsidiaries which contain any redemption or similar provisions, and there
are no contracts, commitments, understandings or arrangements by which the
Company or any of its Subsidiaries is or may become bound to redeem a security
of the Company or any of its Subsidiaries, (vi) there are no securities or
instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement and
(vii) the Company does not have any stock appreciation rights or "phantom stock"
plans or agreements or any similar plan or agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "Certificate
of Incorporation"), and the Company's By-laws, as amended and as in effect on
the date hereof (the "By-laws"), and summaries of the terms of all securities
convertible into or exercisable for Common Stock, if any, and copies of any
documents containing the material rights of the holders thereof in respect
thereto.

         (d) ISSUANCE OF SECURITIES. The Commitment Shares, Initial Purchase
Shares and Warrants have been duly authorized and, upon issuance in accordance
with the terms hereof, the Commitment Shares and Initial Purchase Shares shall
be (i) validly issued, fully paid and non-assessable and (ii) free from all
taxes, liens and charges with respect to the issue thereof. 139,535 shares of
Common Stock (subject to equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction)
have been duly authorized and reserved for issuance as Additional Commitment
Shares in accordance with Section 4(f) this Agreement. 10,000,000 shares of
Common Stock have been duly authorized and reserved for issuance upon purchase
under this Agreement. 568,181 shares of Common Stock (subject to equitable
adjustment for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) have been duly authorized and reserved for
issuance as Warrant Shares. Upon issuance and payment therefor in accordance
with the terms and conditions of this Agreement, the Purchase Shares shall be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.

         (e) NO CONFLICTS. Except as disclosed in Schedule 3(e), the execution,
delivery and performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the reservation for issuance and issuance of the
Purchase Shares) will not (i) result in a violation of the Certificate of
Incorporation, any Certificate of Designations, Preferences and Rights of any
outstanding series of preferred stock of the Company or the By-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party, or result in a violation of any law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations and the
rules and regulations of the Principal Market applicable to the Company or any
of its Subsidiaries) or by which any property or asset of the Company or any of
its Subsidiaries is bound or affected, except in the case of conflicts, defaults
and violations under clause (ii), which could not reasonably be expected to
result in a Material Adverse Effect. Except as disclosed in Schedule 3(e),
neither the Company nor its Subsidiaries is in violation of any term of or in
default under its Certificate of Incorporation, any Certificate of Designation,
Preferences and Rights of any outstanding series of preferred stock of the

                                      -7-
<PAGE>

Company or By-laws or their organizational charter or by-laws, respectively.
Except as disclosed in Schedule 3(e), neither the Company nor any of its
Subsidiaries is in violation of any term of or is in default under any material
contract, agreement, mortgage, indebtedness, indenture, instrument, judgment,
decree or order or any statute, rule or regulation applicable to the Company or
its Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which could not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act or applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence shall
be obtained or effected on or prior to the Commencement Date. Except as listed
in Schedule 3(e), since July 31, 2002, the Company has not received nor
delivered any notices or correspondence from or to the Principal Market. The
Principal Market has not commenced any delisting proceedings against the
Company.

         (f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
Schedule 3(f), since April 1, 2003, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date
hereof and all exhibits included therein and financial statements and schedules
thereto and documents incorporated by reference therein being hereinafter
referred to as the "SEC Documents"). As of their respective dates (except as
they have been correctly amended), the SEC Documents complied in all material
respects with the requirements of the 1934 Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents, and none of the
SEC Documents, at the time they were filed with the SEC (except as they may have
been properly amended), contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. As of their respective dates (except as they
have been properly amended), the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as listed in
Schedule 3(f), the Company has received no notices or correspondence from the
SEC since July 31, 2003. The SEC has not commenced any enforcement proceedings
against the Company or any of its subsidiaries.

         (g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g),
since July 1, 2003, there has been no material adverse change in the business,
properties, operations, financial condition or results of operations of the
Company or its Subsidiaries. The Company has not taken any steps, and does not
currently expect to take any steps, to seek protection pursuant to any
Bankruptcy Law nor does the Company or any of its Subsidiaries have any

                                      -8-
<PAGE>

knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings. The Company is financially solvent and is
generally able to pay its debts as they become due.

         (h) ABSENCE OF LITIGATION. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
which could reasonably be expected to have a Material Adverse Effect. A
description of each action, suit, proceeding, inquiry or investigation before or
by any court, public board, government agency, self-regulatory organization or
body which, as of the date of this Agreement, is pending or threatened in
writing against or affecting the Company, the Common Stock or any of the
Company's Subsidiaries or any of the Company's or the Company's Subsidiaries'
officers or directors in their capacities as such, is set forth in Schedule
3(h).

         (i) ACKNOWLEDGMENT REGARDING BUYER'S STATUS. The Company acknowledges
and agrees that the Buyer is acting solely in the capacity of arm's length
purchaser with respect to the Transaction Documents and the transactions
contemplated hereby and thereby. The Company further acknowledges that the Buyer
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to the Transaction Documents and the transactions
contemplated hereby and thereby and any advice given by the Buyer or any of its
representatives or agents in connection with the Transaction Documents and the
transactions contemplated hereby and thereby is merely incidental to the Buyer's
purchase of the Securities. The Company further represents to the Buyer that the
Company's decision to enter into the Transaction Documents has been based solely
on the independent evaluation by the Company and its representatives and
advisors.

         (j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor 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 1933 Act) in connection with the offer or sale of the
Securities.

          (k) DILUTIVE EFFECT. The Company understands and acknowledges that the
number of Purchase Shares purchasable under this Agreement is not fixed and will
vary depending on the Purchase Price at which such shares are purchased. The
Company further acknowledges that its obligation to issue Purchase Shares under
this Agreement in accordance with the terms and conditions hereof is absolute
and unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company.

         (l) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(l), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical

                                      -9-
<PAGE>

trade secrets or technical information by others and, except as set forth on
Schedule 3(l), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.

         (m) ENVIRONMENTAL LAWS. The Company and its Subsidiaries (i) are in
compliance with any and all applicable foreign, federal, state and local laws
and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where, in each of the
three foregoing clauses, the failure to so comply could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.

         (n) TITLE. The Company and its Subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the Company
and its Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(n) or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company and any of its
Subsidiaries. Any real property and facilities held under lease by the Company
and any of its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and buildings by the
Company and its Subsidiaries.

         (o) INSURANCE. Except as described in Schedule 3(o), the Company and
each of its Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as management
of the Company believes to be prudent and customary and material in the
businesses in which the Company and its Subsidiaries are engaged. Neither the
Company nor any such Subsidiary has been refused any insurance coverage sought
or applied for and neither the Company nor any such Subsidiary has any reason to
believe that it will not be able to renew its existing insurance coverage as and
when such coverage expires or to obtain similar coverage from similar insurers
as may be necessary to continue its business at a cost that would not materially
and adversely affect the condition, financial or otherwise, or the earnings,
business or operations of the Company and its Subsidiaries, taken as a whole.

         (p) REGULATORY PERMITS. The Company and its Subsidiaries possess all
material certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such Subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.

         (q) TAX STATUS. Except as described in Schedule 3(q), the Company and
each of its Subsidiaries has made or filed all federal and state income and all
other material tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.

                                      -10-
<PAGE>

There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.

         (r) TRANSACTIONS WITH AFFILIATES. Except as set forth on Schedule 3(r)
and other than the grant or exercise of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has an interest or is an
officer, director, trustee or partner.

         (s) APPLICATION OF TAKEOVER PROTECTIONS. The Company and its board of
directors have taken or will take prior to the Commencement Date all necessary
action, if any, in order to render inapplicable any control share acquisition,
business combination, poison pill (including any distribution under a rights
agreement) or other similar anti-takeover provision under the Certificate of
Incorporation or the laws of the state of its incorporation which is or could
become applicable to the Buyer as a result of the transactions contemplated by
this Agreement, including, without limitation, the Company's issuance of the
Securities and the Buyer's ownership of the Securities.

         (t) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any of its Subsidiaries has, in the course of its
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended; or made any unlawful bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.


         4.       COVENANTS.

         (a) FILING OF REGISTRATION STATEMENT. The Company shall within twenty
(20) Trading Days from the date hereof file a new registration statement
covering the sale of the Commitment Shares, Signing Shares, Warrant Shares and
at least 8,000,000 Purchase Shares in accordance with the terms of the
Registration Rights Agreement between the Company and the Buyer, dated as of the
date hereof ("Registration Rights Agreement."). The Buyer acknowledges that the
Company intends to include additional shares of Common Stock on the registration
statement in an amount not to exceed the number of shares set forth on Schedule
3(c)(4) and3(c)(5) hereto.

         (b) BLUE SKY. The Company shall take such action, if any, as is
reasonably necessary in order to obtain an exemption for or to qualify (i) the
initial sale of the Commitment Shares, Warrant Shares, Signing Shares and any
Purchase Shares to the Buyer under this Agreement and (ii) any subsequent resale
of the Commitment Shares and any Purchase Shares by the Buyer, in each case,
under applicable securities or "Blue Sky" laws of the states of the United
States in such states as is reasonably requested by the Buyer from time to time,
and shall provide evidence of any such action so taken to the Buyer.

                                      -11-
<PAGE>

         (c) NO VARIABLE PRICED FINANCING. Other than pursuant to this
Agreement, the Company agrees that beginning on the date of this Agreement and
ending on the date of termination of this Agreement (as provided in Section
11(k) hereof), neither the Company nor any of its Subsidiaries shall, without
the prior written consent of the Buyer, contract for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) which, in any case (i) are
convertible into or exchangeable for an indeterminate number of shares of common
stock, (ii) are convertible into or exchangeable for Common Stock at a price
which varies with the market price of the Common Stock, (iii) directly or
indirectly provide for any "re-set" or adjustment of the purchase price,
conversion rate or exercise price after the issuance of the security, or (iv)
contain any "make-whole" provision based upon, directly or indirectly, the
market price of the Common Stock after the issuance of the security, in each
case, other than reasonable and customary anti-dilution adjustments for issuance
of shares of Common Stock at a price which is below the market price of the
Common Stock. From the date hereof until after the registration statement
referred to in Section 4(a) hereof is declared effective by the staff of the SEC
(the "RESTRICTED PERIOD"), the Company shall not issue shares of Common Stock or
any securities convertible into shares of Common Stock ("Common Stock
Equivalents") at a price lower than the Initial Purchase Price (such price, the
"Reset Price"). Notwithstanding anything to the contrary herein, this Section
4(c) shall not apply to the following: (a) the granting of Common Stock or
Common Stock equivalents to employees, officers, directors or key consultants of
the Company pursuant to any stock plan, or (b) the exercise of any security
issued by the Company in connection with the offer and sale of this Company's
securities pursuant to this Agreement, or (c) the exercise of or conversion of
any convertible securities, options or warrants issued and outstanding on the
date hereof, provided such securities have not been amended since the date
hereof, or (d) acquisitions, strategic investments or call and/or put options
issued in connection with the sale of securities of a Subsidiary, the primary
purpose of which is not to raise capital of the Company, or (f) any issuance of
the Company's securities to any lender of the Company or its Subsidiaries in
connection with a settlement of, or waiver of a default under, debt (provided
such debt is not, and never has been, a Common Stock Equivalent) or (g) issuance
of the Company's securities to non-affiliates for non-cash transactions or
similar issuances. During the Restrictive Period, if the Company issues shares
of Common Stock or Common Stock Equivalents at a price lower than the Per Share
Purchase Price, the Company shall issue to Buyer the number of additional
Initial Purchase Shares (the "Additional Initial Purchase Shares") necessary to
bring the effective price per share equal to the Reset Price. The Reset Price
shall be the price per share for the Additional Initial Purchase Shares. The
number of Additional Initial Purchase Shares to be issued shall be calculated by
the following formula:

         ADDITIONAL INITIAL PURCHASE SHARES = (INITIAL PURCHASE SHARES * INITIAL
         PURCHASE PRICE/RESET PRICE) - INITIAL PURCHASE SHARES
         Shares as used in this formula does not include the Warrant Shares

         (d) LISTING. The Company shall promptly secure the listing of all of
the Purchase Shares, Warrant Shares, Signing Shares and Commitment Shares upon
each national securities exchange and automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all such securities from time to time issuable
under the terms of the Transaction Documents. The Company shall maintain the
Common Stock's authorization for quotation on the Principal Market. Neither the
Company nor any of its Subsidiaries shall take any action that would be
reasonably expected to result in the delisting or suspension of the Common Stock
on the Principal Market. The Company shall promptly, and in no event later than
the following Trading Day, provide to the Buyer copies of any notices it
receives from the Principal Market regarding the continued eligibility of the

                                      -12-
<PAGE>

Common Stock for listing on such automated quotation system or securities
exchange. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section.

         (e) LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Rule 3b-3 of the 1934 Act) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.

         (f) ISSUANCE OF INITIAL PURCHASE SHARES, WARRANTS AND COMMITMENT
SHARES; LIMITATION ON SALES OF COMMITMENT SHARES. Immediately upon the execution
of this Agreement, the Company shall issue to the Buyer the Initial Purchase
Shares and the Warrants. Immediately upon the execution of this Agreement, the
Company shall issue to the Buyer 418,604 shares of Common Stock (the "Initial
Commitment Shares"). In connection with each purchase of Purchase Shares
hereunder, the Company agrees to issue to the Buyer a number of shares of Common
Stock (the "Additional Commitment Shares" and together with the Initial
Commitment Shares, the "Commitment Shares") equal to the product of (x) 139,535
and (y) the Purchase Amount Fraction. The "Purchase Amount Fraction" shall mean
a fraction, the numerator of which is the Purchase Amount purchased by the Buyer
with respect to such purchase of Purchase Shares and the denominator of which is
Six Million Dollars ($6,000,000). The Additional Commitment Shares shall be
equitably adjusted for any reorganization, recapitalization, non-cash dividend,
stock split or other similar transaction. The Initial Commitment Shares and
Initial Purchase Shares shall be issued in certificated form and (subject to
Section 5 hereof) shall bear the following restrictive legend:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
         STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
         AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
         LAWS, OR AN OPINION OF BUYER'S COUNSEL, IN A CUSTOMARY FORM, THAT
         REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
         SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."

           The Buyer agrees that the Buyer shall not transfer or sell the
Commitment Shares until the earlier of 600 Trading Days (30 Monthly Periods)
from the date hereof or the date on which this Agreement has been terminated,
provided, however, that such restrictions shall not apply: (i) in connection
with any transfers to or among affiliates (as defined in the 1934 Act), (ii) in
connection with any pledge in connection with a bona fide loan or margin
account, (iii) in the event that the Commencement does not occur on or before
September 30, 2004, due to the failure of the Company to satisfy the conditions
set forth in Section 7 or (iv) if an Event of Default has occurred, or any event
which, after notice and/or lapse of time, would become an Event of Default,
including any failure by the Company to timely issue Purchase Shares under this
Agreement. Notwithstanding the forgoing, the Buyer may transfer Commitment
Shares to a third party in order to settle a sale made by the Buyer where the
Buyer reasonably expects the Company to deliver Purchase Shares to the Buyer
under this Agreement so long as the Buyer maintains ownership of the same
overall number of shares of Common Stock by "replacing" the Commitment Shares so

                                      -13-
<PAGE>

transferred with Purchase Shares when the Purchase Shares are actually issued by
the Company to the Buyer.

         (g) DUE DILIGENCE. The Buyer shall have the right, from time to time as
the Buyer may reasonably deem appropriate, to perform reasonable due diligence
on the Company during normal business hours. The Company and its officers and
employees shall provide information and reasonably cooperate with the Buyer in
connection with any reasonable request by the Buyer related to the Buyer's due
diligence of the Company, including, but not limited to, any such request made
by the Buyer in connection with (i) the filing of the registration statement
described in Section 4(a) hereof and (ii) the Commencement. Each party hereto
agrees not to disclose any Confidential Information of the other party to any
third party and shall not use the Confidential Information for any purpose other
than in connection with, or in furtherance of, the transactions contemplated
hereby. Each party hereto acknowledges that the Confidential Information shall
remain the property of the disclosing party and agrees that it shall take all
reasonable measures to protect the secrecy of any Confidential Information
disclosed by the other party.


         5.       TRANSFER AGENT INSTRUCTIONS.

         Immediately upon the execution of this Agreement, the Company shall
deliver to the Transfer Agent a letter in the form as set forth as EXHIBIT E
attached hereto with respect to the issuance of the Initial Commitment Shares,
Initial Purchase Shares and Singing Shares. On the Commencement Date, the
Company shall cause any restrictive legend on the Initial Commitment Shares and
the shares of Common Stock issuable to the Buyer upon signing that certain Term
Sheet between the Buyer and the Company and dated as of May 14, 2004 (the
"Signing Shares") and Initial Purchase Shares to be removed and all of the
Purchase Shares and Additional Commitment Shares, to be issued under this
Agreement shall be issued without any restrictive legend. The Company shall
issue irrevocable instructions to the Transfer Agent, and any subsequent
transfer agent, to issue Purchase Shares in the name of the Buyer for the
Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company
warrants to the Buyer that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, will be given by the Company
to the Transfer Agent with respect to the Purchase Shares and that the
Commitment Shares Signing Shares and Warrant Shares and the Purchase Shares
shall otherwise be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement and the Registration Rights
Agreement subject to the provisions of Section 4(f) in the case of the
Commitment Shares.


         6.       CONDITIONS TO THE COMPANY'S OBLIGATION TO COMMENCE SALES OF
                  SHARES OF COMMON STOCK.

         The obligation of the Company hereunder to commence sales of the
Purchase Shares is subject to the satisfaction of each of the following
conditions on or before the Commencement Date (the date that sales begin) and
once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred; provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion by providing the
Buyer with prior written notice thereof:

         (a) The Buyer shall have executed each of the Transaction Documents and
delivered the same to the Company.

                                      -14-
<PAGE>

         (b) Subject to the Company's compliance with Section 4(a), a
registration statement covering the sale of all of the Commitment Shares,
Signing Shares, Warrant Shares and at least 8,000,000 Purchase Shares shall have
been declared effective under the 1933 Act by the SEC and no stop order with
respect to the Registration Statement shall be pending or threatened by the SEC.

         (c) The representations and warranties of the Buyer shall be true and
correct in all material respects as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Buyer at or prior to the Commencement Date.


         7.       CONDITIONS TO THE BUYER'S OBLIGATION TO COMMENCE PURCHASES OF
                  SHARES OF COMMON STOCK.

         The obligation of the Buyer to commence purchases of Purchase Shares
under this Agreement is subject to the satisfaction of each of the following
conditions on or before the Commencement Date (the date that sales begin) and
once such conditions have been initially satisfied, there shall not be any
ongoing obligation to satisfy such conditions after the Commencement has
occurred; provided that these conditions are for the Buyer's sole benefit and
may be waived by the Buyer at any time in its sole discretion by providing the
Company with prior written notice thereof:

         (a) The Company shall have executed each of the Transaction Documents
and delivered the same to the Buyer.

         (b) The Company shall have issued to the Buyer the Initial Commitment
Shares, Initial Purchase Shares, Warrants and shall have removed the restrictive
transfer legend from the certificate representing the Initial Commitment Shares,
Initial Purchase Shares and Signing Shares.

         (c) The Common Stock shall be authorized for quotation on the Principal
Market, trading in the Common Stock shall not have been within the last 365 days
suspended by the SEC or the Principal Market and the Purchase Shares and the
Commitment Shares shall be approved for listing upon the Principal Market.

         (d) The Buyer shall have received the opinions of the Company's legal
counsel dated as of the Commencement Date substantially in the form of EXHIBIT A
attached hereto.

         (e) The representations and warranties of the Company shall be true and
correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in Section
3 above, in which case, such representations and warranties shall be true and
correct without further qualification) as of the date when made and as of the
Commencement Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Commencement Date. The Buyer shall have
received a certificate, executed by the CEO, President or CFO of the Company,
dated as of the Commencement Date, to the foregoing effect in the form attached
hereto as EXHIBIT B.

                                      -15-
<PAGE>

         (f) The Board of Directors of the Company shall have adopted
resolutions in the form attached hereto as EXHIBIT C which shall be in full
force and effect without any amendment or supplement thereto as of the
Commencement Date.

         (g) As of the Commencement Date, the Company shall have reserved out of
its authorized and unissued Common Stock, (A) solely for the purpose of
effecting purchases of Purchase Shares hereunder, at least 8,000,000 shares of
Common Stock, (B) as Additional Commitment Shares in accordance with Section
4(f) hereof, 139,535 shares of Common Stock and (C) 568,181 as Warrant Shares.

         (h) The Irrevocable Transfer Agent Instructions, in form acceptable to
the Buyer shall have been delivered to and acknowledged in writing by the
Company and the Company's Transfer Agent.

         (i) The Company shall have delivered to the Buyer a certificate
evidencing the incorporation and good standing of the Company in the State of
Nevada issued by the Secretary of State of the State of Nevada as of a date
within ten (10) Trading Days of the Commencement Date.

         (j) The Company shall have delivered to the Buyer a certified copy of
the Certificate of Incorporation as certified by the Secretary of State of the
State of Nevada within ten (10) Trading Days of the Commencement Date.

         (k) The Company shall have delivered to the Buyer a secretary's
certificate executed by the Secretary of the Company, dated as of the
Commencement Date, in the form attached hereto as EXHIBIT D.

         (l) A registration statement covering the sale of all of the Commitment
Shares, Warrant Shares Signing Shares and at least 8,000,000 Purchase Shares
shall have been declared effective under the 1933 Act by the SEC and no stop
order with respect to the registration statement shall be pending or threatened
by the SEC. The Company shall have prepared and delivered to the Buyer a final
form of prospectus to be used by the Buyer in connection with any sales of any
Commitment Shares, Warrant Shares, Signing Shares or any Purchase Shares. The
Company shall have made all filings under all applicable federal and state
securities laws necessary to consummate the issuance of the Commitment Shares,
Warrant Shares, Signing Shares and the Purchase Shares pursuant to this
Agreement in compliance with such laws.

         (m) No Event of Default has occurred, or any event which, after notice
and/or lapse of time, would become an Event of Default has occurred.

         (n) On or prior to the Commencement Date, the Company shall take all
necessary action, if any, and such actions as reasonably requested by the Buyer,
in order to render inapplicable any control share acquisition, business
combination, shareholder rights plan or poison pill (including any distribution
under a rights agreement) or other similar anti-takeover provision under the
Certificate of Incorporation or the laws of the state of its incorporation which
is or could become applicable to the Buyer as a result of the transactions
contemplated by this Agreement, including, without limitation, the Company's
issuance of the Securities and the Buyer's ownership of the Securities.

         (o) The Company shall have provided the Buyer with the information
requested by the Buyer in connection with its due diligence requests made prior
to, or in connection with, the Commencement, in accordance with the terms of
Section 4(g) hereof.

                                      -16-
<PAGE>

         8.       INDEMNIFICATION.

         In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and all of
its affiliates, shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, other than with respect to Indemnified
Liabilities which directly and primarily result from the gross negligence or
willful misconduct of the Indemnitee. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.


         9.       EVENTS OF DEFAULT.

         An "Event of Default" shall be deemed to have occurred at any time as
any of the following events occurs:

         (a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of ten (10)
consecutive Trading Days or for more than an aggregate of thirty (30) Trading
Days in any 365-day period;

         (b) the suspension from trading or failure of the Common Stock to be
listed on the Principal Market for a period of three (3) consecutive Trading
Days;

         (c) the delisting of the Company's Common Stock from the Principal
Market, provided, however, that the Common Stock is not immediately thereafter
trading on the New York Stock Exchange, the Nasdaq National Market, the Nasdaq
SmallCap Market, or the American Stock Exchange;

         (d) the failure for any reason by the Transfer Agent to issue Purchase
Shares to the Buyer within five (5) Trading Days after the applicable Purchase
Date which the Buyer is entitled to receive;

                                      -17-
<PAGE>

         (e) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least ten (10) Trading Days;

         (f) any payment default under any contract whatsoever or any
acceleration prior to maturity of any mortgage, indenture, contract or
instrument under which there may be issued or by which there may be secured or
evidenced any indebtedness for money borrowed by the Company or for money
borrowed the repayment of which is guaranteed by the Company, whether such
indebtedness or guarantee now exists or shall be created hereafter, which, with
respect to any such payment default or acceleration prior to maturity, is in
excess of $1,000,000;

         (g) if any Person commences a proceeding against the Company pursuant
to or within the meaning of any Bankruptcy Law;

         (h) if the Company pursuant to or within the meaning of any Bankruptcy
Law; (A) commences a voluntary case, (B) consents to the entry of an order for
relief against it in an involuntary case, (C) consents to the appointment of a
Custodian of it or for all or substantially all of its property, (D) makes a
general assignment for the benefit of its creditors, (E) becomes insolvent, or
(F) is generally unable to pay its debts as the same become due; or

         (i) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that (A) is for relief against the Company in an involuntary
case, (B) appoints a Custodian of the Company or for all or substantially all of
its property, or (C) orders the liquidation of the Company or any Subsidiary.

In addition to any other rights and remedies under applicable law and this
Agreement, including the Buyer termination rights under Section 11(k) hereof, so
long as an Event of Default has occurred and is continuing, or if any event
which, after notice and/or lapse of time, would become an Event of Default, has
occurred and is continuing, or so long as the Purchase Price is below the
Purchase Price Floor, the Buyer shall not be obligated to purchase any shares of
Common Stock under this Agreement. If pursuant to or within the meaning of any
Bankruptcy Law, the Company commences a voluntary case or any Person commences a
proceeding against the Company, a Custodian is appointed for the Company or for
all or substantially all of its property, or the Company makes a general
assignment for the benefit of its creditors, (any of which would be an Event of
Default as described in Sections 9(g), 9(h) and 9(i) hereof) this Agreement
shall automatically terminate without any liability or payment to the Company
without further action or notice by any Person. No such termination of this
Agreement under Section 11(k)(i) shall affect the Company's or the Buyer's
obligations under this Agreement with respect to pending purchases and the
Company and the Buyer shall complete their respective obligations with respect
to any pending purchases under this Agreement.


         10.      CERTAIN DEFINED TERMS.

         For purposes of this Agreement, the following terms shall have the
following meanings:

         (a) "1933 Act" means the Securities Act of 1933, as amended.

                                      -18-
<PAGE>

         (b) "Available Amount" means initially Six Million Two Hundred Fifty
Thousand Dollars ($6,250,000) in the aggregate which amount shall be reduced by
the Purchase Amount each time the Buyer purchases shares of Common Stock
pursuant to Section 1 hereof.

         (c) "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal
or state law for the relief of debtors.

         (d) "Closing Sale Price" means, for any security as of any date, the
last closing trade price for such security on the Principal Market as reported
by Bloomberg, or, if the Principal Market is not the principal securities
exchange or trading market for such security, the last closing trade price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg.

         (e) "Confidential Information" means any information disclosed by
either party to the other party, either directly or indirectly, in writing,
orally or by inspection of tangible objects (including, without limitation,
documents, prototypes, samples, plant and equipment), which is designated as
"Confidential," "Proprietary" or some similar designation. Information
communicated orally shall be considered Confidential Information if such
information is confirmed in writing as being Confidential Information within ten
(10) business days after the initial disclosure. Confidential Information may
also include information disclosed to a disclosing party by third parties.
Confidential Information shall not, however, include any information which (i)
was publicly known and made generally available in the public domain prior to
the time of disclosure by the disclosing party; (ii) becomes publicly known and
made generally available after disclosure by the disclosing party to the
receiving party through no action or inaction of the receiving party; (iii) is
already in the possession of the receiving party at the time of disclosure by
the disclosing party as shown by the receiving party's files and records
immediately prior to the time of disclosure; (iv) is obtained by the receiving
party from a third party without a breach of such third party's obligations of
confidentiality; (v) is independently developed by the receiving party without
use of or reference to the disclosing party's Confidential Information, as shown
by documents and other competent evidence in the receiving party's possession;
or (vi) is required by law to be disclosed by the receiving party, provided that
the receiving party gives the disclosing party prompt written notice of such
requirement prior to such disclosure and assistance in obtaining an order
protecting the information from public disclosure.

         (f) "Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

         (g) "Floor Price" means initially $0.75, which amount may be increased
or decreased from time to time as provided below, except that in no case shall
the Floor Price be less than $0.25. The Company may at any time give written
notice (a "Floor Price Change Notice") to the Buyer increasing or decreasing the
Floor Price. The Floor Price Change Notice shall be effective only for purchases
that have a Purchase Date later than one (1) Trading Day after receipt of the
Floor Price Change Notice by the Buyer. Any purchase by the Buyer that has a
Purchase Date on or prior to the first Trading Day after receipt of a Floor
Price Change Notice from the Company must be honored by the Company as otherwise
provided herein. The Floor Price shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction.

         (h) "Maturity Date" means the date that is 600 Trading Days (30 Monthly
Periods) from the Commencement Date.

                                      -19-
<PAGE>

         (i) "Monthly Period" means each successive 20 Trading Day period
commencing with the Commencement Date.

         (j) "Person" means an individual or entity including any limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.

         (k) "Principal Market" means the Nasdaq OTC Bulletin Board; provided
however, that in the event the Company's Common Stock is ever listed or traded
on the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange or the American Stock Exchange, than the "Principal Market" shall mean
such other market or exchange on which the Company's Common Stock is then listed
or traded.

         (l) "Purchase Amount" means the portion of the Available Amount to be
purchased by the Buyer pursuant to Section 1 hereof.

         (m) "Purchase Date" means the actual date that the Buyer is to buy
Purchase Shares pursuant to Section 1 hereof.

         (n) "Purchase Price" means, as of any date of determination the lower
of the (A) the lowest Sale Price of the Common Stock on such date of
determination and (B) the arithmetic average of the three (3) lowest Closing
Sale Prices for the Common Stock during the twelve (12) consecutive Trading Days
ending on the Trading Day immediately preceding such date of determination (to
be appropriately adjusted for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction).

         (o) "Sale Price" means, for any security as of any date, any trade
price for such security on the Principal Market as reported by Bloomberg, or, if
the Principal Market is not the principal securities exchange or trading market
for such security, the trade price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg.

         (p) "SEC" means the United States Securities and Exchange Commission.

         (q) "Transfer Agent" means the transfer agent of the Company as set
forth in Section 11(f) hereof or such other person who is then serving as the
transfer agent for the Company in respect of the Common Stock.

         (r) "Trading Day" means any day on which the Principal Market is open
for customary trading.


         11.      MISCELLANEOUS.

         (a) GOVERNING LAW; JURISDICTION; JURY TRIAL. The corporate laws of the
State of Nevada shall govern all issues concerning the relative rights of the
Company and its shareholders. All other questions concerning the construction,
validity, enforcement and interpretation of this Agreement and the other
Transaction Documents shall be governed by the internal laws of the State of
Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of Chicago, for

                                      -20-
<PAGE>

the adjudication of any dispute hereunder or under the other Transaction
Documents or in connection herewith or therewith, or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

         (b) COUNTERPARTS. This Agreement may be executed in two or more
identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.

         (c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

         (d) SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.

         (e) ENTIRE AGREEMENT; AMENDMENTS. With the exception of the Mutual
Nondisclosure Agreement between the parties dated as of December 7, 2001, this
Agreement supersedes all other prior oral or written agreements between the
Buyer, the Company, their affiliates and persons acting on their behalf with
respect to the matters discussed herein, and this Agreement, the other
Transaction Documents and the instruments referenced herein contain the entire
understanding of the parties with respect to the matters covered herein and
therein and, except as specifically set forth herein or therein, neither the
Company nor the Buyer makes any representation, warranty, covenant or
undertaking with respect to such matters. No provision of this Agreement may be
amended other than by an instrument in writing signed by the Company and the
Buyer, and no provision hereof may be waived other than by an instrument in
writing signed by the party against whom enforcement is sought.

         (f) NOTICES. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one Trading Day after deposit with
a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

                                      -21-
<PAGE>

         If to the Company:
                  Aethlon Medical, Inc.
                  7825 Fay Avenue, Suite 200
                  La Jolla, CA 92037
                  Telephone:        858-456-5777
                  Facsimile:        858-456-4690
                  Attention:        James Joyce

         With a copy to:
                  Richardson & Patel, LLP
                  10900 Wilshire Blvd., Suite 500
                  Los Angeles, CA 90404
                  Telephone:        (310) 208-1182
                  Facsimile:        (310) 208-1154
                  Attention:        Nimish Patel, Esq

         If to the Buyer:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G. Martin

         If to the Transfer Agent:
                  Computershare Trust Company
                  350 Indiana Street, #800
                  Golden, CO 80401
                  Telephone:        (303) 262-0600
                  Facsimile:        (303) 262-0700
                  Attention:

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, and recipient facsimile number or (C) provided by a nationally recognized
overnight delivery service, shall be rebuttable evidence of personal service,
receipt by facsimile or receipt from a nationally recognized overnight delivery
service in accordance with clause (i), (ii) or (iii) above, respectively.

         (g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and assigns.
The Company shall not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Buyer, including by merger or
consolidation. The Buyer may not assign its rights or obligations under this
Agreement.

         (h) NO THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.

                                      -22-
<PAGE>

         (i) PUBLICITY. The Buyer shall have the right to approve before
issuance any press releases or any other public disclosure (including any
filings with the SEC) with respect to the transactions contemplated hereby;
provided, however, that the Company shall be entitled, without the prior
approval of the Buyer, to make any press release or other public disclosure
(including any filings with the SEC) with respect to such transactions as is
required by applicable law and regulations (although the Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).

         (j) FURTHER ASSURANCES. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

         (k) TERMINATION. This Agreement may be terminated only as follows:

                  (i) By the Buyer any time an Event of Default exists without
         any liability or payment to the Company. However, if pursuant to or
         within the meaning of any Bankruptcy Law, the Company commences a
         voluntary case or any Person commences a proceeding against the
         Company, a Custodian is appointed for the Company or for all or
         substantially all of its property, or the Company makes a general
         assignment for the benefit of its creditors, (any of which would be an
         Event of Default as described in Sections 9(g), 9(h) and 9(i) hereof)
         this Agreement shall automatically terminate without any liability or
         payment to the Company without further action or notice by any Person.
         No such termination of this Agreement under this Section 11(k)(i) shall
         affect the Company's or the Buyer's obligations under this Agreement
         with respect to pending purchases and the Company and the Buyer shall
         complete their respective obligations with respect to any pending
         purchases under this Agreement.

                  (ii) Intentionally Omitted.

                  (iii) In the event that the Commencement shall not have
         occurred on or before September 30, 2004, due to the failure to satisfy
         the conditions set forth in Sections 6 and 7 above with respect to the
         Commencement (and the nonbreaching party's failure to waive such
         unsatisfied condition(s)), the nonbreaching party shall have the option
         to terminate this Agreement at the close of business on such date or
         thereafter without liability of any party to any other party.

                  (iv) If by the Maturity Date (including any extension thereof
         by the Company pursuant to Section 10(g) hereof), for any reason or for
         no reason the full Available Amount under this Agreement has not been
         purchased as provided for in Section 1 of this Agreement, by the Buyer
         without any liability or payment to the Company.

                  (v) At any time after the Commencement Date, the Company shall
         have the option to terminate this Agreement for any reason or for no
         reason by delivering notice (a "Company Termination Notice") to the
         Buyer electing to terminate this Agreement without any liability or
         payment to the Buyer. The Company Termination Notice shall not be
         effective until one (1) Trading Day after it has been received by the
         Buyer.

                                      -23-
<PAGE>

                  (vi) This Agreement shall automatically terminate on the date
         that the Company sells and the Buyer purchases the full Available
         Amount as provided herein, without any action or notice on the part of
         any party.

Except as set forth in Sections 11(k)(i) (in respect of an Event of Default
under Sections 9(g), 9(h) and 9(i)) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2 and 3 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 11, shall survive the Commencement and any
termination of this Agreement. No termination of this Agreement shall affect the
Company's or the Buyer's obligations under this Agreement with respect to
pending purchases and the Company and the Buyer shall complete their respective
obligations with respect to any pending purchases under this Agreement.

         (l) NO FINANCIAL ADVISOR, PLACEMENT AGENT, BROKER OR FINDER. The
Company represents and warrants to the Buyer that it has not engaged any
financial advisor, placement agent, broker or finder in connection with the
transactions contemplated hereby. The Buyer represents and warrants to the
Company that it has not engaged any financial advisor, placement agent, broker
or finder in connection with the transactions contemplated hereby. The Company
shall be responsible for the payment of any fees or commissions, if any, of any
financial advisor, placement agent, broker or finder relating to or arising out
of the transactions contemplated hereby. The Company shall pay, and hold the
Buyer harmless against, any liability, loss or expense (including, without
limitation, attorneys' fees and out of pocket expenses) arising in connection
with any such claim.

         (m) NO STRICT CONSTRUCTION. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

         (n) REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The
Buyer's remedies provided in this Agreement shall be cumulative and in addition
to all other remedies available to the Buyer under this Agreement, at law or in
equity (including a decree of specific performance and/or other injunctive
relief), no remedy of the Buyer contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Buyer's right to pursue actual damages for any failure by the
Company to comply with the terms of this Agreement. The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Buyer and that the remedy at law for any such breach may be inadequate. The
Company therefore agrees that, in the event of any such breach or threatened
breach, the Buyer shall be entitled, in addition to all other available
remedies, to an injunction restraining any breach, without the necessity of
showing economic loss and without any bond or other security being required.

         (o) CHANGES TO THE TERMS OF THIS AGREEMENT. This Agreement and any
provision hereof may only be amended by an instrument in writing signed by the
Company and the Buyer. The term "Agreement" 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.

         (p) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in
the hands of an attorney for enforcement or is enforced by the Buyer through any
legal proceeding; or (ii) an attorney is retained to represent the Buyer in any
bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii) an

                                      -24-
<PAGE>

attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.

         (q) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay 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.



                                    * * * * *

                                      -25-
<PAGE>

         IN WITNESS WHEREOF, the Buyer and the Company have caused this Common
Stock Purchase Agreement to be duly executed as of the date first written above.


                                    THE COMPANY:
                                    ------------

                                    AETHLON MEDICAL, INC.

                                    By:_______________________________________
                                    Name:
                                    Title:


                                    BUYER:
                                    ------

                                    FUSION CAPITAL FUND II, LLC
                                    BY: FUSION CAPITAL PARTNERS, LLC
                                    BY: SGM HOLDINGS CORP.

                                    By:_______________________________________
                                    Name: Steven G. Martin
                                    Title: President

                                      -26-
<PAGE>

                                    SCHEDULES
                                    ---------

Schedule 3(a)       Subsidiaries
Schedule 3(c)       Capitalization
Schedule 3(e)       Conflicts
Schedule 3(f)       1934 Act Filings
Schedule 3(g)       Material Changes
Schedule 3(h)       Litigation
Schedule 3(l)       Intellectual Property
Schedule 3(n)       Liens
Schedule 3(o)       Insurance
Schedule 3(q)       Tax Status
Schedule 3(r)       Certain Transactions


                                    EXHIBITS
                                    --------

Exhibit A           Form of Company Counsel Opinion
Exhibit B           Form of Officer's Certificate
Exhibit C           Form of Resolutions of Board of Directors of the Company
Exhibit D           Form of Secretary's Certificate
Exhibit E           Form of Letter to Transfer Agent

<PAGE>

                              DISCLOSURE SCHEDULES
                              --------------------


                          Schedule 3(a) - Subsidiaries


                         Schedule 3(c) - Capitalization


                          Schedule 3(e) - No Conflicts


                        Schedule 3(f) - 1934 Act Filings


                   Schedule 3(g) - Absence of Certain Changes


                           Schedule 3(h) - Litigation


                  Schedule 3(l) - Intellectual Property Rights


                              Schedule 3(n) - Title


                            Schedule 3(o) - Insurance


                           Schedule 3(q) - Tax Status


                  Schedule 3(r) - Transactions with Affiliates

<PAGE>

                                    EXHIBIT A
                                    ---------

                         FORM OF COMPANY COUNSEL OPINION

         Capitalized terms used herein but not defined herein, have the meaning
set forth in the Common Stock Purchase Agreement. Based on the foregoing, and
subject to the assumptions and qualifications set forth herein, we are of the
opinion that:

                  1. The Company is a corporation existing and in good standing
under the laws of the State of Nevada. The Company is qualified to do business
as a foreign corporation and is in good standing in the States of California,
Nevada.

                  2. The Company has the corporate power to execute and deliver,
and perform its obligations under, each Transaction Document to which it is a
party. The Company has the corporate power to conduct its business as, to the
best of our knowledge, it is now conducted, and to own and use the properties
owned and used by it.

                  3. The execution, delivery and performance by the Company of
the Transaction Documents to which it is a party have been duly authorized by
all necessary corporate action on the part of the Company. The execution and
delivery of the Transaction Documents by the Company, the performance of the
obligations of the Company thereunder and the consummation by it of the
transactions contemplated therein have been duly authorized and approved by the
Company's Board of Directors and no further consent, approval or authorization
of the Company, its Board of Directors or its stockholders is required. The
Transaction Documents to which the Company is a party have been duly executed
and delivered by the Company and are the valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms except
as such enforceability may be limited by general principles of equity or
applicable bankruptcy, insolvency, liquidation or similar laws relating to, or
affecting creditor's rights and remedies.

                  4. The execution, delivery and performance by the Company of
the Transaction Documents, the consummation by the Company of the transactions
contemplated thereby including the offering, sale and issuance of the Commitment
Shares, and the Purchase Shares in accordance with the terms and conditions of
the Common Stock Purchase Agreement, and fulfillment and compliance with terms
of the Transaction Documents, does not and shall not: (i) conflict with,
constitute a breach of or default (or an event which, with the giving of notice
or lapse of time or both, constitutes or could constitute a breach or a
default), under (a) the Certificate of Incorporation or the Bylaws of the
Company, (b), (ii) result in any violation of any statute, law, rule or
regulation applicable to the Company, or (iii) to our knowledge, violate any
order, writ, injunction or decree applicable to the Company or any of its
subsidiaries.

                  5. The issuance of the Purchase Shares, Signing Shares and
Commitment Shares pursuant to the terms and conditions of the Transaction
Documents has been duly authorized and the Initial Purchase Shares, Signing
Shares and Commitment Shares are validly issued, fully paid and non-assessable,
to our knowledge, free of all taxes, liens, charges, restrictions, rights of
first refusal and preemptive rights. ________ shares of Common Stock have been
properly reserved for issuance under the Common Stock Purchase Agreement. When
issued and paid for in accordance with the Common Stock Purchase Agreement, the
Purchase Shares shall be validly issued, fully paid and non-assessable, to our
knowledge, free of all taxes, liens, charges, restrictions, rights of first
refusal and preemptive rights. ________ shares of Common Stock have been
properly reserved for issuance as Additional Commitment Shares under the Common
Stock Purchase Agreement. When issued in accordance with the Common Stock

<PAGE>

Purchase Agreement, the Additional Commitment Shares shall be validly issued,
fully paid and non-assessable, to our knowledge, free of all taxes, liens,
charges, restrictions, rights of first refusal and preemptive rights. 139,535
shares of Common Stock have been properly reserved for issuance as Warrant
Shares under the Common Stock Purchase Agreement. When issued in accordance with
the Common Stock Purchase Agreement, the Warrant Shares shall be validly issued,
fully paid and non-assessable, to our knowledge, free of all taxes, liens,
charges, restrictions, rights of first refusal and preemptive rights. To our
knowledge, the execution and delivery of the Registration Rights Agreement do
not, and the performance by the Company of its obligations thereunder shall not,
give rise to any rights of any other person for the registration under the
Securities Act of any shares of Common Stock or other securities of the Company
which have not been waived.

                  6. As of the date hereof, the authorized capital stock of the
Company consists of _______ shares of common stock, par value $______ per share,
of which to our knowledge __________ shares are issued and outstanding. Except
as set forth on Schedule 3(c) of the Common Stock Purchase Agreement, to our
knowledge, there are no outstanding shares of capital stock or other securities
convertible into or exchangeable or exercisable for shares of the capital stock
of the Company.

                  7. Assuming the accuracy of the representations and your
compliance with the covenants made by you in the Transaction Documents, the
offering, sale and issuance of the Commitment Shares to you pursuant to the
Transaction Documents is exempt from registration under the 1933 Act and the
securities laws and regulations of the States of Nevada, California, Illinois.

                  8. Other than that which has been obtained and completed prior
to the date hereof, no authorization, approval, consent, filing or other order
of any federal or state governmental body, regulatory agency, or stock exchange
or market, or any court, or, to our knowledge, any third party is required to be
obtained by the Company to enter into and perform its obligations under the
Transaction Documents or for the Company to issue and sell the Purchase Shares
as contemplated by the Transaction Documents.

                  9. The Common Stock is registered pursuant to Section 12(g) of
the 1934 Act. To our knowledge, since June 1, 2003, the Company has been in
compliance with the reporting requirements of the 1934 Act applicable to it. To
our knowledge, since April 1, 2002, the Company has not received any written
notice from the Principal Market stating that the Company has not been in
compliance with any of the rules and regulations (including the requirements for
continued listing) of the Principal Market.

         We further advise you that to our knowledge, except as disclosed on
Schedule 3(h) in the Common Stock Purchase Agreement, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body, any governmental agency, any stock exchange or market, or self-regulatory
organization, which has been threatened in writing or which is currently pending
against the Company, any of its subsidiaries, any officers or directors of the
Company or any of its subsidiaries or any of the properties of the Company or
any of its subsidiaries.

         In addition, we have participated in the preparation of the
Registration Statement (SEC File #________) covering the sale of the Purchase
Shares, the Commitment Shares including the prospectus dated ____________,
contained therein and in conferences with officers and other representatives of
the Company (including the Company's independent auditors) during which the
contents of the Registration Statement and related matters were discussed and
reviewed and, although we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, on the basis of the information that
was developed in the course of the performance of the services referred to
above, considered in the light of our understanding of the applicable law,

<PAGE>

nothing came to our attention that caused us to believe that the Registration
Statement (other than the financial statements and schedules and the other
financial and statistical data included therein, as to which we express no
belief), as of their dates, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

<PAGE>

                                    EXHIBIT B
                                    ---------

                          FORM OF OFFICER'S CERTIFICATE

         This Officer's Certificate ("CERTIFICATE") is being delivered pursuant
to Section 7(e) of that certain Common Stock Purchase Agreement dated as of
_________, ("COMMON STOCK PURCHASE AGREEMENT"), by and between AETHLON MEDICAL,
INC., a Nevada corporation (the "COMPANY"), and FUSION CAPITAL FUND II, LLC (the
"Buyer"). Terms used herein and not otherwise defined shall have the meanings
ascribed to them in the Common Stock Purchase Agreement.

         The undersigned, ___________, ______________ of the Company, hereby
certifies as follows:

                  1. I am the _____________ of the Company and make the
         statements contained in this Certificate;

                  2. The representations and warranties of the Company are true
         and correct in all material respects (except to the extent that any of
         such representations and warranties is already qualified as to
         materiality in Section 3 of the Common Stock Purchase Agreement, in
         which case, such representations and warranties are true and correct
         without further qualification) as of the date when made and as of the
         Commencement Date as though made at that time (except for
         representations and warranties that speak as of a specific date);

                  3. The Company has performed, satisfied and complied in all
         material respects with covenants, agreements and conditions required by
         the Transaction Documents to be performed, satisfied or complied with
         by the Company at or prior to the Commencement Date.

                  4. The Company has not taken any steps, and does not currently
         expect to take any steps, to seek protection pursuant to any Bankruptcy
         Law nor does the Company or any of its Subsidiaries have any knowledge
         or reason to believe that its creditors intend to initiate involuntary
         bankruptcy or insolvency proceedings. The Company is financially
         solvent and is generally able to pay its debts as they become due.

         IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
___________.

                                                  ----------------------
                                                  Name:
                                                  Title:

         The undersigned as Secretary of ________, a ________ corporation,
hereby certifies that ___________ is the duly elected, appointed, qualified and
acting ________ of _________ and that the signature appearing above is his
genuine signature.


                                    -----------------------------------
                                    Secretary

<PAGE>

                                   EXHIBIT C-1
                                   -----------

                           FORM OF COMPANY RESOLUTIONS
                         FOR SIGNING PURCHASE AGREEMENT

                          UNANIMOUS WRITTEN CONSENT OF
                              AETHLON MEDICAL, INC.

         Pursuant to Section ______ of the _________ [Relevant Section of Nevada
Statutes], the undersigned, being all of the directors of AETHLON MEDICAL, INC.,
a Nevada corporation (the "Corporation") do hereby consent to and adopt the
following resolutions as the action of the Board of Directors for and on behalf
of the Corporation and hereby direct that this Consent be filed with the minutes
of the proceedings of the Board of Directors:

         WHEREAS, there has been presented to the Board of Directors of the
Corporation a draft of the Common Stock Purchase Agreement (the "Purchase
Agreement") by and between the Corporation and Fusion Capital Fund II, LLC
("Fusion"), providing for the purchase by Fusion of up to Six Million Two
Hundred Fifty Thousand Dollars ($6,250,000) of the Corporation's common stock,
par value $0.001 (the "Common Stock"); and

         WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has determined that it is advisable and in the
best interests of the Corporation to engage in the transactions contemplated by
the Purchase Agreement, including, but not limited to, the issuance of 418,604
shares of Common Stock to Fusion as an initial commitment fee (the "Initial
Commitment Shares") and the sale of shares of Common Stock to Fusion up to the
available amount under the Purchase Agreement (the "Purchase Shares"), including
the sale of 568,181 Purchase Shares ("initial Purchase Shares").

                              TRANSACTION DOCUMENTS
                              ---------------------

         NOW, THEREFORE, BE IT RESOLVED, that the transactions described in the
Purchase Agreement are hereby approved and
________________________________________ (the "Authorized Officers") are
severally authorized to execute and deliver the Purchase Agreement, and any
other agreements or documents contemplated thereby including, without
limitation, a registration rights agreement (the "Registration Rights
Agreement") providing for the registration of the shares of the Company's Common
Stock issuable in respect of the Purchase Agreement on behalf of the
Corporation, with such amendments, changes, additions and deletions as the
Authorized Officers may deem to be appropriate and approve on behalf of, the
Corporation, such approval to be conclusively evidenced by the signature of an
Authorized Officer thereon; and

         FURTHER RESOLVED, that the terms and provisions of the Registration
Rights Agreement by and among the Corporation and Fusion are hereby approved and
the Authorized Officers are authorized to execute and deliver the Registration
Rights Agreement (pursuant to the terms of the Purchase Agreement), with such
amendments, changes, additions and deletions as the Authorized Officer may deem
appropriate and approve on behalf of, the Corporation, such approval to be
conclusively evidenced by the signature of an Authorized Officer thereon; and

         FURTHER RESOLVED, that the terms and provisions of the Form of Transfer
Agent Instructions (the "Instructions") are hereby approved and the Authorized
Officers are authorized to execute and deliver the Instructions (pursuant to the
terms of the Purchase Agreement), with such amendments, changes, additions and
<PAGE>

deletions as the Authorized Officers may deem appropriate and approve on behalf
of, the Corporation, such approval to be conclusively evidenced by the signature
of an Authorized Officer thereon; and

                         EXECUTION OF PURCHASE AGREEMENT
                         -------------------------------

         FURTHER RESOLVED, that the Corporation be and it hereby is authorized
to execute the Purchase Agreement providing for the purchase of common stock of
the Corporation having an aggregate value of up to $6,000,000; and

                            ISSUANCE OF COMMON STOCK
                            ------------------------

         FURTHER RESOLVED, that the Corporation was authorized to issue 50,000
shares of Common Stock to Fusion pursuant to the Confidential Term Sheet between
the Company and Fusion dated as of May 14, 2004, ("Signing Shares") and that
upon issuance of the Signing Shares, the Signing Shares have been duly
authorized, validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof; and

         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
418,604 shares of Common Stock to Fusion Capital Fund II, LLC as Initial
Commitment Shares and that upon issuance of the Initial Commitment Shares
pursuant to the Purchase Agreement, the Initial Commitment Shares shall be duly
authorized, validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof; and

         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
568,181 shares of Common Stock to Fusion Capital Fund II, LLC as Initial
Purchase Shares and that upon issuance of the Initial Purchase Shares pursuant
to the Purchase Agreement, the Initial Purchase Shares shall be duly authorized,
validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof; and

         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
shares of Common Stock upon the purchase of Purchase Shares up to the available
amount under the Purchase Agreement in accordance with the terms of the Purchase
Agreement and that, upon issuance of the Purchase Shares pursuant to the
Purchase Agreement, the Purchase Shares will be duly authorized, validly issued,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof; and

         FURTHER RESOLVED, that the Corporation shall initially reserve
__________ shares of Common Stock for issuance as Purchase Shares under the
Purchase Agreement.

<PAGE>

         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
139,535 shares of Common Stock (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction) in connection with the purchase of Purchase Shares (the
"Additional Commitment Shares") in accordance with the terms of the Purchase
Agreement and that, upon issuance of the Additional Commitment Shares pursuant
to the Purchase Agreement, the Additional Commitment Shares will be duly
authorized, validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof; and

         FURTHER RESOLVED, that the Corporation shall initially reserve 139,535
shares of Common Stock (subject to equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction)
for issuance as Additional Commitment Shares under the Purchase Agreement.

         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
warrants ("Warrants") to purchase 568,181 shares of Common Stock (subject to
equitable adjustment for any reorganization, recapitalization, non-cash
dividend, stock split or other similar transaction) in connection with the
purchase of Purchase Shares (the "Warrant Shares") in accordance with the terms
of the Purchase Agreement and Warrants and that, upon issuance of the Warrant
Shares pursuant to the Purchase Agreement and Warrants, the Warrant Shares will
be duly authorized, validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof; and

         FURTHER RESOLVED, that the Corporation shall initially reserve 568,181
shares of Common Stock (subject to equitable adjustment for any reorganization,
recapitalization, non-cash dividend, stock split or other similar transaction)
for issuance as Warrant Shares under the Purchase Agreement.

                               APPROVAL OF ACTIONS
                               -------------------

         FURTHER RESOLVED, that, without limiting the foregoing, the Authorized
Officers are, and each of them hereby is, authorized and directed to proceed on
behalf of the Corporation and to take all such steps as deemed necessary or
appropriate, with the advice and assistance of counsel, to cause the Corporation
to consummate the agreements referred to herein and to perform its obligations
under such agreements; and

         FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, empowered and directed on behalf of and in the name of
the Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.

<PAGE>

         IN WITNESS WHEREOF, the Board of Directors has executed and delivered
this Consent effective as of __________, 2004.



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

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

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



being all of the directors of AETHLON MEDICAL, INC.

<PAGE>

                                   EXHIBIT C-2
                                   -----------

          FORM OF COMPANY RESOLUTIONS APPROVING REGISTRATION STATEMENT

                          UNANIMOUS WRITTEN CONSENT OF
                              AETHLON MEDICAL, INC.

         Pursuant to Section ______ of the _________ [Relevant Section of Nevada
Statutes], the undersigned, being all of the directors of AETHLON MEDICAL, INC.,
a Nevada corporation (the "Corporation") do hereby consent to and adopt the
following resolutions as the action of the Board of Directors for and on behalf
of the Corporation and hereby direct that this Consent be filed with the minutes
of the proceedings of the Board of Directors.

         WHEREAS, there has been presented to the Board of Directors of the
Corporation a Common Stock Purchase Agreement (the "Purchase Agreement") by and
among the Corporation and Fusion Capital Fund II, LLC ("Fusion"), providing for
the purchase by Fusion of up to Six Million Two Hundred Fifty Thousand Dollars
($6,250,000) of the Corporation's common stock, par value $0.001 (the "Common
Stock"); and

         WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has approved the Purchase Agreement and the
transactions contemplated thereby and the Company has executed and delivered the
Purchase Agreement to Fusion; and

         WHEREAS, in connection with the transactions contemplated pursuant to
the Purchase Agreement, the Company has agreed to file a registration statement
with the Securities and Exchange Commission (the "Commission") registering the
Commitment Shares (as defined in the Purchase Agreement) and the Purchase Shares
and Warrant Shares (as herein defined in the Purchase Agreement) and to list the
Commitment Shares, Warrant Shares and Purchase Shares on the Nasdaq
Over-the-Counter Bulletin Board, as applicable;

         WHEREAS, the management of the Corporation has prepared an initial
draft of a Registration Statement on Form ___ (the "Registration Statement") in
order to register the sale of the Purchase Shares, Signing Shares and the
Commitment Shares (collectively, the "Shares"); and

         WHEREAS, the Board of Directors has determined to approve the
Registration Statement and to authorize the appropriate officers of the
Corporation to take all such actions as they may deem appropriate to effect the
offering.

         NOW, THEREFORE, BE IT RESOLVED, that the officers and directors of the
Corporation be, and each of them hereby is, authorized and directed, with the
assistance of counsel and accountants for the Corporation, to prepare, execute
and file with the Commission the Registration Statement, which Registration
Statement shall be filed substantially in the form presented to the Board of
Directors, with such changes therein as the Chief Executive Officer of the
Corporation or any Vice President of the Corporation shall deem desirable and in
the best interest of the Corporation and its shareholders (such officer's
execution thereof including such changes shall be deemed to evidence
conclusively such determination); and

         FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed, with the assistance of counsel and
accountants for the Corporation, to prepare, execute and file with the

<PAGE>

Commission all amendments, including post-effective amendments, and supplements
to the Registration Statement, and all certificates, exhibits, schedules,
documents and other instruments relating to the Registration Statement, as such
officers shall deem necessary or appropriate (such officer's execution and
filing thereof shall be deemed to evidence conclusively such determination); and

         FURTHER RESOLVED, that the execution of the Registration Statement and
of any amendments and supplements thereto by the officers and directors of the
Corporation be, and the same hereby is, specifically authorized either
personally or by the Authorized Officers as such officer's or director's true
and lawful attorneys-in-fact and agents; and

         FURTHER RESOLVED, that the Authorized Officers are hereby designated as
"Agent for Service" of the Corporation in connection with the Registration
Statement and the filing thereof with the Commission, and the Authorized
Officers hereby are authorized to receive communications and notices from the
Commission with respect to the Registration Statement; and

         FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed to pay all fees, costs and expenses that
may be incurred by the Corporation in connection with the Registration
Statement; and

         FURTHER RESOLVED, that it is desirable and in the best interest of the
Corporation that the Shares be qualified or registered for sale in various
states; that the officers of the Corporation be, and each of them hereby is,
authorized to determine the states in which appropriate action shall be taken to
qualify or register for sale all or such part of the Shares as they may deem
advisable; that said officers be, and each of them hereby is, authorized to
perform on behalf of the Corporation any and all such acts as they may deem
necessary or advisable in order to comply with the applicable laws of any such
states, and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents, appointments of attorneys for service of process and
resolutions; and the execution by such officers of any such paper or document or
the doing by them of any act in connection with the foregoing matters shall
conclusively establish their authority therefor from the Corporation and the
approval and ratification by the Corporation of the papers and documents so
executed and the actions so taken; and

         FURTHER RESOLVED, that if, in any state where the securities to be
registered or qualified for sale to the public, or where the Corporation is to
be registered in connection with the public offering of the Shares, a prescribed
form of resolution or resolutions is required to be adopted by the Board of
Directors, each such resolution shall be deemed to have been and hereby is
adopted, and the Secretary is hereby authorized to certify the adoption of all
such resolutions as though such resolutions were now presented to and adopted by
the Board of Directors; and

         FURTHER RESOLVED, that the officers of the Corporation with the
assistance of counsel be, and each of them hereby is, authorized and directed to
take all necessary steps and do all other things necessary and appropriate to
effect the listing of the Shares on the Nasdaq Over-the-Counter Bulletin Board,
as applicable.

                               APPROVAL OF ACTIONS
                               -------------------

         FURTHER RESOLVED, that, without limiting the foregoing, the Authorized
Officers are, and each of them hereby is, authorized and directed to proceed on
behalf of the Corporation and to take all such steps as are deemed necessary or
appropriate, with the advice and assistance of counsel, to cause the Corporation

<PAGE>

to take all such action referred to herein and to perform its obligations
incident to the registration, listing and sale of the Shares; and

         FURTHER RESOLVED, that the Authorized Officers be, and each of them
hereby is, authorized, empowered and directed on behalf of and in the name of
the Corporation, to take or cause to be taken all such further actions and to
execute and deliver or cause to be executed and delivered all such further
agreements, amendments, documents, certificates, reports, schedules,
applications, notices, letters and undertakings and to incur and pay all such
fees and expenses as in their judgment shall be necessary, proper or desirable
to carry into effect the purpose and intent of any and all of the foregoing
resolutions, and that all actions heretofore taken by any officer or director of
the Corporation in connection with the transactions contemplated by the
agreements described herein are hereby approved, ratified and confirmed in all
respects.



IN WITNESS WHEREOF, the Board of Directors has executed and delivered this
Consent effective as of __________, 2004.



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

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

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


being all of the directors of AETHLON MEDICAL, INC.

<PAGE>

                                    EXHIBIT D
                                    ---------

                         FORM OF SECRETARY'S CERTIFICATE

         This Secretary's Certificate ("Certificate") is being delivered
pursuant to Section 7(k) of that certain Common Stock Purchase Agreement dated
as of __________, ("Common Stock Purchase Agreement"), by and between AETHLON
MEDICAL, INC., a Nevada corporation (the "Company") and FUSION CAPITAL FUND II,
LLC (the "Buyer"), pursuant to which the Company may sell to the Buyer up to Six
Million Two Hundred Fifty Thousand Dollars ($6,250,000) of the Company's Common
Stock, par value $0.001 per share (the "Common Stock"). Terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Common
Stock Purchase Agreement.

         The undersigned, ____________, Secretary of the Company, hereby
certifies as follows:

                  1. I am the Secretary of the Company and make the statements
         contained in this Secretary's Certificate.

                  2. Attached hereto as EXHIBIT A and EXHIBIT B are true,
         correct and complete copies of the Company's bylaws ("Bylaws") and
         Certificate of Incorporation ("Articles"), in each case, as amended
         through the date hereof, and no action has been taken by the Company,
         its directors, officers or shareholders, in contemplation of the filing
         of any further amendment relating to or affecting the Bylaws or
         Articles.

                  3. Attached hereto as EXHIBIT C are true, correct and complete
         copies of the resolutions duly adopted by the Board of Directors of the
         Company on _____________, at which a quorum was present and acting
         throughout. Such resolutions have not been amended, modified or
         rescinded and remain in full force and effect and such resolutions are
         the only resolutions adopted by the Company's Board of Directors, or
         any committee thereof, or the shareholders of the Company relating to
         or affecting (i) the entering into and performance of the Common Stock
         Purchase Agreement, or the issuance, offering and sale of the Purchase
         Shares and the Commitment Shares and (ii) and the performance of the
         Company of its obligation under the Transaction Documents as
         contemplated therein.

                  4. As of the date hereof, the authorized, issued and reserved
         capital stock of the Company is as set forth on EXHIBIT D hereto.

         IN WITNESS WHEREOF, I have hereunder signed my name on this ___ day of
____________.

                                                      -------------------------
                                                      Secretary


The undersigned as ___________ of __________, a ________ corporation, hereby
certifies that ____________ is the duly elected, appointed, qualified and acting
Secretary of _________, and that the signature appearing above is his genuine
signature.

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

<PAGE>

                                    EXHIBIT E
                                    ---------

          FORM OF LETTER TO THE TRANSFER AGENT FOR THE ISSUANCE OF THE
            COMMITMENTS SHARES AT SIGNING OF THE PURCHASE AGREEMENT




                              [COMPANY LETTERHEAD]



[DATE]

[TRANSFER AGENT]
==================
- ------------------

Re: Issuance of Common Shares to Fusion Capital Fund II, LLC

Dear ________,

On behalf of AETHLON MEDICAL, INC., (the "Company"), you are hereby instructed
to issue AS SOON AS POSSIBLE 1,036,785 shares of our common stock in the name of
FUSION CAPITAL FUND II, LLC. The share certificate should be dated May 20, 2004.
I have included a true and correct copy of a unanimous written consent executed
by all of the members of the Board of Directors of the Company adopting
resolutions approving the issuance of these shares. The shares should be issued
subject to the following restrictive legend:

         "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
         REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
         STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
         AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
         LAWS, OR AN OPINION OF BUYER'S COUNSEL, IN A CUSTOMARY FORM, THAT
         REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
         SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."

<PAGE>

The share certificate should be sent AS SOON AS POSSIBLE VIA OVERNIGHT MAIL to
the following address:

                           Fusion Capital Fund II, LLC
                           222 Merchandise Mart Plaza, Suite 9-112
                           Chicago, IL 60654
                           Attention: Steven Martin

Thank you very much for your help. Please call me at ______________ if you have
any questions or need anything further.

AETHLON MEDICAL, INC.

BY:_____________________________
         [name]
         [title]

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.2
<SEQUENCE>3
<FILENAME>aethlon_8kex4-2.txt
<TEXT>
<PAGE>
EXHIBIT 4.2

                          REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of May 20,
2004, by and between AETHLON MEDICAL, INC., a Nevada corporation, (the
"COMPANY"), and FUSION CAPITAL FUND II, LLC (together with it permitted assigns,
the "BUYER"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Common Stock Purchase
Agreement by and between the parties hereto, dated as of the date hereof (as
amended, restated, supplemented or otherwise modified from time to time, the
"PURCHASE AGREEMENT").

                                    WHEREAS:

         A. The Company has agreed, upon the terms and subject to the conditions
of the Purchase Agreement, to issue to the Buyer (i) up to Six Million Two
Hundred Fifty Thousand Dollars ($6,250,000) of the Company's common stock, par
value $0.001 per share (the "COMMON STOCK") (the "PURCHASE SHARES"), and (ii)
such number of shares of Common Stock as is required pursuant to Section 4(f) of
the Purchase Agreement (the "COMMITMENT Shares"); and

         B. To induce the Buyer to enter into the Purchase Agreement, the
Company has agreed to provide certain registration rights under the Securities
Act of 1933, as amended, and the rules and regulations thereunder, or any
similar successor statute (collectively, the "1933 ACT"), and applicable state
securities laws.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyer hereby agree as follows:

         1.       DEFINITIONS.

                  As used in this Agreement, the following terms shall have the
following meanings:

                  a. "INVESTOR" means the Buyer, any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section 9
and any transferee or assignee thereof to whom a transferee or assignee assigns
its rights under this Agreement and who agrees to become bound by the provisions
of this Agreement in accordance with Section 9.

                  b. "PERSON" means any person or entity including any
corporation, a limited liability company, an association, a partnership, an
organization, a business, an individual, a governmental or political subdivision
thereof or a governmental agency.

                  c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more registration
statements of the Company in compliance with the 1933 Act and pursuant to Rule
415 under the 1933 Act or any successor rule providing for offering securities
on a continuous basis ("RULE 415"), and the declaration or ordering of
effectiveness of such registration statement(s) by the United States Securities
and Exchange Commission (the "SEC").

<PAGE>

                  d. "REGISTRABLE SECURITIES" means the Purchase Shares which
have been, or which may from time to time be, issued or issuable upon purchases
of the Available Amount under the Purchase Agreement (without regard to any
limitation or restriction on purchases) the Signing Shares, issued or issuable
to the Investor, the Warrant Shares and the Commitment Shares issued or issuable
to the Investor and any shares of capital stock issued or issuable with respect
to the Purchase Shares, the Warrant Shares, the Commitment Shares the Signing
Shares, issued or issuable to the Investor, or the Purchase Agreement as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event or otherwise, without regard to any limitation on purchases under the
Purchase Agreement.

                  e. "REGISTRATION STATEMENT" means the registration statement
of the Company covering the sale of the Registrable Securities.

         2.       REGISTRATION.

                  a. MANDATORY REGISTRATION. The Company shall within twenty
(20) Trading Days from the date hereof file with the SEC the Registration
Statement. The Investor and its counsel shall have a reasonable opportunity to
review and comment upon such registration statement or amendment to such
registration statement and any related prospectus prior to its filing with the
SEC. Investor shall furnish all information reasonably requested by the Company
for inclusion therein. The Company shall use its best efforts to have the
Registration Statement or amendment declared effective by the SEC at the
earliest possible date. The Company shall use reasonable best efforts to keep
the Registration Statement effective pursuant to Rule 415 promulgated under the
1933 Act and available for sales of all of the Registrable Securities at all
times until the earlier of (i) the date as of which the Investor may sell all of
the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
(A) the Investor shall have sold all the Registrable Securities and no Available
Amount remains under the Purchase Agreement (the "REGISTRATION PERIOD"). The
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading. In the event that the Registration Statement is
not filed by the Filing Date or declared effective by the SEC within (i) 30 days
from the Filing Date if there is no full review of the registration statement by
the SEC or (ii) 120 days from the date hereof if there is a full review of the
registration statement by the SEC, than, in addition to any other rights and
remedies available to Buyer hereunder, under the Purchase Agreement or under
applicable law, the Company shall pay to the Investor an amount in cash, as
liquidated damages and not as a penalty, equal to 2% of the aggregate amount
paid by the Buyer for the Purchase Shares on the 1st day of each 30 day period
or portion thereof that such failure continues. If after a Registration
Statement is first declared effective by the SEC it ceases to remain
continuously effective as to all Registerable Securities for 10 consecutive
Trading Days or an aggregate of 20 Trading Days during any 12 month period,
than, in addition to any other rights and remedies available to Buyer hereunder,
under the Purchase Agreement or under applicable law, the Company shall pay to
the Buyer an amount in cash, as liquidated damages and not as a penalty, equal
to 2% of the aggregate amount paid by the Buyer for the Purchase Shares then
held by the Buyer, on the 1st day of each 30 day period or portion thereof that
such failure continues. The Company shall not file another registration
statement registering securities of the Company until a Registration Statement
registering the Purchase Shares, the Warrant Shares, the Signing Shares and the
Commitment Shares has been declared effective by the SEC, provided, however that
with respect to a registration statement on Form S-8, the Company shall not file
such registration statement on Form S-8 until the ealier of (i) the date a
Registration Statement registering the Purchase Shares, the Warrant Shares, the
Signing Shares and the Commitment Shares has been declared effective or (ii) a
period of 180 days from the date hereof.

                                      -2-
<PAGE>

                  b. RULE 424 PROSPECTUS. The Company shall, as required by
applicable securities regulations, from time to time file with the SEC, pursuant
to Rule 424 promulgated under the 1933 Act, the prospectus and prospectus
supplements, if any, to be used in connection with sales of the Registrable
Securities under the Registration Statement. The Investor and its counsel shall
have a reasonable opportunity to review and comment upon such prospectus prior
to its filing with the SEC. The Investor shall use its reasonable best efforts
to comment upon such prospectus within one (1) Trading Day from the date the
Investor receives the final version of such prospectus.

                  c. SUFFICIENT NUMBER OF SHARES REGISTERED. In the event the
number of shares available under the Registration Statement is insufficient to
cover all of the Registrable Securities, the Company shall amend the
Registration Statement or file a new registration statement (a "NEW REGISTRATION
STATEMENT"), so as to cover all of such Registrable Securities as soon as
practicable, but in any event not later than ten (10) Trading Days after the
necessity therefor arises. The Company shall use it reasonable best efforts to
cause such amendment and/or New Registration Statement to become effective as
soon as practicable following the filing thereof.

         3.       RELATED OBLIGATIONS.

         With respect to the Registration Statement and whenever any Registrable
Securities are to be registered pursuant to Section 2(b) including on any New
Registration Statement, the Company shall use its reasonable best efforts to
effect the registration of the Registrable Securities in accordance with the
intended method of disposition thereof and, pursuant thereto, the Company shall
have the following obligations:

                  a. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to any
registration statement and the prospectus used in connection with such
registration statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement or any New Registration Statement effective at all times during the
Registration Period, and, during such period, comply with the provisions of the
1933 Act with respect to the disposition of all Registrable Securities of the
Company covered by the Registration Statement or any New Registration Statement
until such time as all of such Registrable Securities shall have been disposed
of in accordance with the intended methods of disposition by the seller or
sellers thereof as set forth in such registration statement.

                  b. The Company shall permit the Investor to review and comment
upon the Registration Statement or any New Registration Statement and all
amendments and supplements thereto at least two (2) Trading Days prior to their
filing with the SEC, and not file any document in a form to which Investor
reasonably objects. The Investor shall use its reasonable best efforts to
comment upon the Registration Statement or any New Registration Statement and
any amendments or supplements thereto within two (2) Trading Days from the date
the Investor receives the final version thereof. The Company shall furnish to
the Investor, without charge any correspondence from the SEC or the staff of the
SEC to the Company or its representatives relating to the Registration Statement
or any New Registration Statement.

                  c. Upon request of the Investor, the Company shall furnish to
the Investor, (i) promptly after the same is prepared and filed with the SEC, at
least one copy of such registration statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, (ii) upon the effectiveness of any registration

                                      -3-
<PAGE>

statement, ten (10) copies of the prospectus included in such registration
statement and all amendments and supplements thereto (or such other number of
copies as the Investor may reasonably request) and (iii) such other documents,
including copies of any preliminary or final prospectus, as the Investor may
reasonably request from time to time in order to facilitate the disposition of
the Registrable Securities owned by the Investor.

                  d. The Company shall use reasonable best efforts to (i)
register and qualify the Registrable Securities covered by a registration
statement under such other securities or "blue sky" laws of such jurisdictions
in the United States as the Investor reasonably requests, (ii) prepare and file
in those jurisdictions, such amendments (including post-effective amendments)
and supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
the Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.

                  e. As promptly as practicable after becoming aware of such
event or facts, the Company shall notify the Investor in writing of the
happening of any event or existence of such facts as a result of which the
prospectus included in any 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, in
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to such registration statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to the Investor (or such other number of copies as the
Investor may reasonably request). The Company shall also promptly notify the
Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a registration statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to the Investor by facsimile on the same day of
such effectiveness and by overnight mail), (ii) of any request by the SEC for
amendments or supplements to any registration statement or related prospectus or
related information, and (iii) of the Company's reasonable determination that a
post-effective amendment to a registration statement would be appropriate.

                  f. The Company shall use its reasonable best efforts to
prevent the issuance of any stop order or other suspension of effectiveness of
any registration statement, or the suspension of the qualification of any
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify the Investor of the issuance of such
order and the resolution thereof or its receipt of actual notice of the
initiation or threat of any proceeding for such purpose.

                  g. The Company shall (i) cause all the Registrable Securities
to be listed on each securities exchange on which securities of the same class
or series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or

                                      -4-
<PAGE>

(ii) secure designation and quotation of all the Registrable Securities on the
Principal Market. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section.

                  h. The Company shall cooperate with the Investor to facilitate
the timely preparation and delivery of certificates (not bearing any restrictive
legend) representing the Registrable Securities to be offered pursuant to any
registration statement and enable such certificates to be in such denominations
or amounts as the Investor may reasonably request and registered in such names
as the Investor may request.

                  i. The Company shall at all times provide a transfer agent and
registrar with respect to its Common Stock.

                  j. If reasonably requested by the Investor, the Company shall
(i) immediately incorporate in a prospectus supplement or post-effective
amendment such information as the Investor believes should be included therein
relating to the sale and distribution of Registrable Securities, including,
without limitation, information with respect to the number of Registrable
Securities being sold, the purchase price being paid therefor and any other
terms of the offering of the Registrable Securities; (ii) make all required
filings of such prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such prospectus supplement or
post-effective amendment; and (iii) supplement or make amendments to any
registration statement.

                  k. The Company shall use its reasonable best efforts to cause
the Registrable Securities covered by the any registration statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.

                  l. Within one (1) Trading Day after any registration statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investor) confirmation that such registration statement has been declared
effective by the SEC in the form attached hereto as EXHIBIT A.

                  m. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of Registrable
Securities pursuant to any registration statement.

         4.       OBLIGATIONS OF THE INVESTOR.

                  a. The Company shall notify the Investor in writing of the
information the Company reasonably requires from the Investor in connection with
any registration statement hereunder. The Investor shall furnish to the Company
such information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of such Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request.

                  b. The Investor agrees to cooperate with the Company as
reasonably requested by the Company in connection with the preparation and
filing of any registration statement hereunder.

                  c. The Investor agrees that, upon receipt of any notice from
the Company of the happening of any event or existence of facts of the kind
described in Section 3(f) or the first sentence of 3(e), the Investor will
immediately discontinue disposition of Registrable Securities pursuant to any

                                      -5-
<PAGE>

registration statement(s) covering such Registrable Securities until the
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(f) or the first sentence of 3(e). Notwithstanding
anything to the contrary, the Company shall cause its transfer agent to promptly
deliver shares of Common Stock without any restrictive legend in accordance with
the terms of the Purchase Agreement in connection with any sale of Registrable
Securities with respect to which an Investor has entered into a contract for
sale prior to the Investor's receipt of a notice from the Company of the
happening of any event of the kind described in Section 3(f) or the first
sentence of 3(e) and for which the Investor has not yet settled.

         5.       EXPENSES OF REGISTRATION.

                  All reasonable expenses, other than sales or brokerage
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company, shall be paid by the Company.

         6.       INDEMNIFICATION.

                  a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend the Investor, each Person,
if any, who controls the Investor, the members, the directors, officers,
partners, employees, agents, representatives of the Investor and each Person, if
any, who controls the Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 ACT") (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in the Registration
Statement, any New Registration Statement or any post-effective amendment
thereto or in any filing made in connection with the qualification of the
offering under the securities or other "blue sky" laws of any jurisdiction in
which Registrable Securities are offered ("BLUE SKY FILING"), or the omission or
alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to the Registration Statement or
any New Registration Statement or (iv) any material violation by the Company of
this Agreement (the matters in the foregoing clauses (i) through (iv) being,
collectively, "VIOLATIONS"). The Company shall reimburse each Indemnified Person
promptly as such expenses are incurred and are due and payable, for any legal
fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising
out of or based upon a Violation which occurs in reliance upon and in conformity

                                      -6-
<PAGE>

with information furnished in writing to the Company by such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement, any New Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superceded
prospectus, shall not inure to the benefit of any such person from whom the
person asserting any such Claim purchased the Registrable Securities that are
the subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the superceded
prospectus was corrected in the revised prospectus, as then amended or
supplemented, if such revised prospectus was timely made available by the
Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was
promptly advised in writing not to use the incorrect prospectus prior to the use
giving rise to a violation and such Indemnified Person, notwithstanding such
advice, used it; (iii) shall not be available to the extent such Claim is based
on a failure of the Investor to deliver or to cause to be delivered the
prospectus made available by the Company, if such prospectus was timely made
available by the Company pursuant to Section 3(c) or Section 3(e); and (iv)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investor pursuant to Section 9.

                  b. In connection with the Registration Statement or any New
Registration Statement, the Investor agrees to severally and not jointly
indemnify, hold harmless and defend, to the same extent and in the same manner
as is set forth in Section 6(a), the Company, each of its directors, each of its
officers who signs the Registration Statement or any New Registration Statement,
each Person, if any, who controls the Company within the meaning of the 1933 Act
or the 1934 Act (collectively and together with an Indemnified Person, an
"INDEMNIFIED PARTY"), against any Claim or Indemnified Damages to which any of
them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
about the Investor set forth on EXHIBIT B attached hereto and furnished to the
Company by the Investor expressly for use in connection with such registration
statement; and, subject to Section 6(d), the Investor will reimburse any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
the Investor as a result of the sale of Registrable Securities pursuant to such
registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investor
pursuant to Section 9.

                  c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof

                                      -7-
<PAGE>

with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person or the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The Indemnified
Party or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.

                  d. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.

                  e. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.

         7.       CONTRIBUTION.

                  To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no seller of Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
fraudulent misrepresentation; and (ii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.

         8. REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS.

                  With a view to making available to the Investor the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investor to sell

                                      -8-
<PAGE>

securities of the Company to the public without registration ("RULE 144"), the
Company agrees, at the Company's sole expense, to:

                  a. make and keep public information available, as those terms
are understood and defined in Rule 144;

                  b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements and the filing of such reports
and other documents is required for the applicable provisions of Rule 144; and

                  c. furnish to the Investor so long as the Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting and or disclosure provisions of
Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
to permit the Investor to sell such securities pursuant to Rule 144 without
registration.

                  d. take such additional action as is requested by the Investor
to enable the Investor to sell the Registerable Securities pursuant to Rule 144,
including, without limitation, delivering all such legal opinions, consents,
certificates, resolutions and instructions to the Company's Transfer Agent as
may be requested from time to time by the Investor and otherwise fully cooperate
with Investor and Investor's broker to effect such sale of securities pursuant
to Rule 144.

                  The Company agrees that damages may be an inadequate remedy
for any breach of the terms and provisions of this Section 8 and that Investor
shall, whether or not it is pursuing any remedies at law, be entitled to
equitable relief in the form of a preliminary or permanent injunctions, without
having to post any bond or other security, upon any breach or threatened breach
of any such terms or provisions.

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.

                  The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the Investor which
shall not be unreasonably withheld, including by merger or consolidation. The
Investor may not assign its rights under this Agreement without the written
consent of the Company, other than to an affiliate of the Investor controlled by
Steven G. Martin or Joshua B. Scheinfeld.

         10.      AMENDMENT OF REGISTRATION RIGHTS.

                  Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and the Investor.

                                      -9-
<PAGE>

         11.      MISCELLANEOUS.

                  a. A Person is deemed to be a holder of Registrable Securities
whenever such Person owns or is deemed to own of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more Persons with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.

                  b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered: (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party); or (iii) one (1) Trading Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be:

         If to the Company:
                  Aethlon Medical, Inc.
                  7825 Fay Avenue, Suite 200
                  La Jolla, CA 92037
                  Telephone:        858-456-5777
                  Facsimile:        858-456-4690
                  Attention:        James Joyce

         With a copy to:
                  Richardson & Patel, LLP
                  10900 Wilshire Blvd., Suite 500
                  Los Angeles, CA 90404
                  Telephone:        310-208-1182
                  Facsimile:        310-208-1154
                  Attention:        Nimish Patel, Esq.

         If to the Investor:
                  Fusion Capital Fund II, LLC
                  222 Merchandise Mart Plaza, Suite 9-112
                  Chicago, IL 60654
                  Telephone:        312-644-6644
                  Facsimile:        312-644-6244
                  Attention:        Steven G. Martin

or at such other address and/or facsimile number and/or to the attention of such
other person as the recipient party has specified by written notice given to
each other party three (3) Trading Days prior to the effectiveness of such
change. Written confirmation of receipt (A) given by the recipient of such
notice, consent, waiver or other communication, (B) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by facsimile
or receipt from a nationally recognized overnight delivery service in accordance
with clause (i), (ii) or (iii) above, respectively.

                                      -10-
<PAGE>

                  c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  d. The corporate laws of the State of Nevada shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by the internal laws of the
State of Illinois, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of Illinois or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of Illinois. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting the City of Chicago, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is brought in an inconvenient forum or that the
venue of such suit, action or proceeding is improper. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by mailing a copy thereof to such
party at the address for such notices to it under this Agreement and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN
CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.

                  e. This Agreement, and the Purchase Agreement constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and thereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein and therein. This
Agreement and the Purchase Agreement supersede all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof and thereof.

                  f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.

                  g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

                  h. This Agreement may be executed in identical counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.

                  i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.

                                      -11-
<PAGE>

                  j. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent and no rules
of strict construction will be applied against any party.

                  k. This Agreement is intended for the benefit of the parties
hereto and their respective permitted successors and assigns, and is not for the
benefit of, nor may any provision hereof be enforced by, any other Person.


                                   * * * * * *

                                      -12-
<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.


                                    THE COMPANY:
                                    ------------

                                    AETHLON MEDICAL, INC.


                                    By:____________________________________
                                    Name:
                                    Title:


                                    BUYER:
                                    ------

                                    FUSION CAPITAL FUND II, LLC
                                    BY: FUSION CAPITAL PARTNERS, LLC
                                    BY: SGM HOLDINGS CORP.

                                    By:____________________________________
                                    Name: Steven G. Martin
                                    Title: President

                                      -13-
<PAGE>

                                    EXHIBIT A
                                    ---------

                        TO REGISTRATION RIGHTS AGREEMENT
                        --------------------------------

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Date]

[TRANSFER AGENT]
_________________
_________________

Re: [__________]

Ladies and Gentlemen:

          We are counsel to AETHLON MEDICAL, INC., a Nevada corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Common Stock Purchase Agreement, dated as of _________, 2004 (the "PURCHASE
AGREEMENT"), entered into by and between the Company and Fusion Capital Fund II,
LLC (the "BUYER") pursuant to which the Company has agreed to issue to the
Holder shares of the Company's Common Stock, par value $0.001 per share (the
"COMMON STOCK"), in an amount up to Six Million Two Hundred Fifty Thousand
Dollars ($6,250,000) (the "PURCHASE SHARES"), in accordance with the terms of
the Purchase Agreement. In addition, pursuant to the Stock Purchase Agreement,
the Company issued to the Buyer 568,181 shares of Common Stock (the "INITIAL
COMMITMENT SHARES") and in connection with each purchase of Purchase Shares, the
Company shall issue to the Buyer additional shares of Common Stock up to an
additional 139,535 shares of Common Stock ("ADDITIONAL COMMITMENT SHARES" and
together with the Initial Commitment Shares, "COMMITMENT SHARES"). In addition,
pursuant to the Stock Purchase Agreement, the Company issued to the Buyer
warrants to purchase 568,181 shares of Common Stock (the "WARRANT SHARES").
Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement, dated as of ______, 2004, with the Buyer (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company agreed, among
other things, to register the Purchase Shares, Warrant Shares, Signing Shares
(as defined in the Purchase Agreement), and the Commitment Shares under the
Securities Act of 1933, as amended (the "1933 ACT"). In connection with the
Company's obligations under the Purchase Agreement and the Registration Rights
Agreement, on _______, 200_, the Company filed a Registration Statement (File
No. 333-_________) (the "REGISTRATION STATEMENT") with the Securities and
Exchange Commission (the "SEC") relating to the sale of the Purchase Shares,
Signing Shares and the Commitment Shares.

          In connection with the foregoing, we advise you that a member of the
SEC's staff has advised us by telephone that the SEC has entered an order
declaring the Registration Statement effective under the 1933 Act at 5:00 P.M.
on __________, 200_ and we have no knowledge, after telephonic inquiry of a
member of the SEC's staff, that any stop order suspending its effectiveness has
been issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC and the Purchase Shares, Signing Shares, Warrant Shares
and the Commitment Shares are available for sale under the 1933 Act pursuant to
the Registration Statement.

<PAGE>

          The Buyer has confirmed it shall comply with all securities laws and
regulations applicable to it including applicable prospectus delivery
requirements upon sale of the Purchase Shares, Warrant Shares, Signing Shares,
and the Commitment Shares.

                                                     Very truly yours,
                                                     [Company Counsel]
                                                     By:____________________
CC:       Fusion Capital Fund II, LLC

<PAGE>

                                    EXHIBIT B
                                    ---------

                        TO REGISTRATION RIGHTS AGREEMENT
                        --------------------------------

     INFORMATION ABOUT THE INVESTOR FURNISHED TO THE COMPANY BY THE INVESTOR
         EXPRESSLY FOR USE IN CONNECTION WITH THE REGISTRATION STATEMENT


As of the date of the Purchase Agreement, Fusion Capital beneficially owned
_______ shares of common stock of the Company. Steven G. Martin and Joshua B.
Scheinfeld, the principals of Fusion Capital, are deemed to be beneficial owners
of all of the shares of common stock owned by Fusion Capital. Messrs. Martin and
Scheinfeld have shared voting and investment power over the shares being offered
under the prospectus filed with the SEC in connection with the transactions
contemplated under the Purchase Agreement.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.3
<SEQUENCE>4
<FILENAME>aethlon_8kex4-3.txt
<TEXT>
<PAGE>
EXHIBIT 4.3

                          SECURITIES PURCHASE AGREEMENT

         This Securities Purchase Agreement (this "AGREEMENT") is dated as of
May __, 2004, among Aethlon Medical, Inc., a Nevada corporation (the "COMPANY"),
and the purchasers identified on the signature pages hereto (each a "PURCHASER"
and collectively the "PURCHASERS"); and

         WHEREAS, subject to the terms and conditions set forth in this
Agreement and pursuant to Section 4(2) of the Securities Act (as defined below),
and Rule 506 promulgated thereunder, the Company desires to issue and sell to
the Purchasers, and each Purchaser, severally and not jointly, desires to
purchase from the Company in the aggregate, up to $1,200,000 of the Common Stock
and certain Warrants on the Closing Date.

         NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in
this Agreement, and for other good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the Company and each Purchaser agree
as follows:

                                   ARTICLE I.
                                   DEFINITIONS

         1.1 DEFINITIONS. In addition to the terms defined elsewhere in this
Agreement, for all purposes of this Agreement, the following terms have the
meanings indicated in this Section 1.1:

                  "ACTION" shall have the meaning ascribed to such term in
         Section 3.1(j).

                  "AFFILIATE" means any Person that, directly or indirectly
         through one or more intermediaries, controls or is controlled by or is
         under common control with a Person as such terms are used in and
         construed under Rule 144. With respect to a Purchaser, any investment
         fund or managed account that is managed on a discretionary basis by the
         same investment manager as such Purchaser will be deemed to be an
         Affiliate of such Purchaser.

                  "CLOSING" means the closing of the purchase and sale of the
         Common Stock and the Warrants pursuant to Section 2.1.

                  "CLOSING DATE" means the date of the Closing, which shall be
         the date hereof.

                  "COMMISSION" means the Securities and Exchange Commission.

                  "COMMON STOCK" means the common stock of the Company, $0.001
         par value per share, and any securities into which such common stock
         may hereafter be reclassified.

                  "COMMON STOCK EQUIVALENTS" means any securities of the Company
         or the Subsidiaries which would entitle the holder thereof to acquire
         at any time Common Stock, including without limitation, any debt,
         preferred stock, rights, options, warrants or other instrument that is
         at any time convertible into or exchangeable for, or otherwise entitles
         the holder thereof to receive, Common Stock.

                                      -1-
<PAGE>

                  "COMPANY COUNSEL" means Richardson & Patel LLP, with offices
         at 10900 Wilshire Blvd., Suite 500, Los Angeles, California 90024.

                  "DISCLOSURE SCHEDULES" means the Disclosure Schedules attached
hereto.

                  "EFFECTIVE DATE" means the date that the Registration
         Statement is first declared effective by the Commission.

                  "ESCROW AGENT" shall have the meaning set forth in the Escrow
         Agreement.

                  "ESCROW AGREEMENT" shall mean the Escrow Agreement in
         substantially the form of EXHIBIT B hereto executed and delivered
         contemporaneously with this Agreement.

                  "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
         amended.

                  "FILING DATE" means, with respect to the Registration
         Statement required to be filed hereunder, the 30th calendar day
         following the date of this Agreement.

                  "INTELLECTUAL PROPERTY RIGHTS" shall have the meaning ascribed
         to such term in Section 3.1(o).

                  "LIENS" means a lien, charge, security interest, encumbrance,
         right of first refusal, preemptive right or other restriction.

                  "MATERIAL ADVERSE EFFECT" shall have the meaning ascribed to
         such term in Section 3.1(b).

                  "MATERIAL PERMITS" shall have the meaning ascribed to such
         term in Section 3.1(m).

                  "PER SHARE PURCHASE PRICE" shall be $0.44, subject to
         adjustment for reverse and forward stock splits, stock dividends, stock
         combinations and other similar transactions of the Common Stock that
         occur after the date of this Agreement.

                  "PERSON" means an individual or corporation, partnership,
         trust, incorporated or unincorporated association, joint venture,
         limited liability company, joint stock company, government (or an
         agency or subdivision thereof) or other entity of any kind.

                  "REGISTRATION STATEMENT" means a registration statement
         meeting the requirements set forth in the Registration Rights Agreement
         and covering the resale by the Purchasers of the Shares and the Warrant
         Shares.

                  "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
         Agreement, dated as of the date of this Agreement, among the Company
         and each Purchaser, in the form of EXHIBIT A hereto.

                  "REQUIRED APPROVALS" shall have the meaning ascribed to such
         term in Section 3.1(e).

                                      -2-
<PAGE>

                  "RULE 144" means Rule 144 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "SEC REPORTS" shall have the meaning ascribed to such term in
         Section 3.1(h).

                  "SECURITIES" means the Shares, the Warrants and the Warrant
         Shares.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "SHARES" means the shares of Common Stock issued or issuable
         to each Purchaser pursuant to this Agreement.

                  "SUBSCRIPTION AMOUNT" means, as to each Purchaser, the amounts
         set forth below such Purchaser's signature block on the signature page
         hereto, in United States dollars and in immediately available funds.

                  "SUBSIDIARY" shall mean the subsidiaries of the Company, if
         any, set forth on Schedule 3.1(a).

                  "TRADING DAY" means (i) a day on which the Common Stock is
         traded on a Trading Market, or (ii) if the Common Stock is not listed
         on a Trading Market, a day on which the Common Stock is quoted in the
         over-the-counter market as reported by the National Quotation Bureau
         Incorporated (or any similar organization or agency succeeding its
         functions of reporting prices); provided, that in the event that the
         Common Stock is not listed or quoted as set forth in (i) and (ii)
         hereof, then Trading Day shall mean a Business Day.

                  "TRADING MARKET" means the following markets or exchanges on
         which the Common Stock is listed or quoted for trading on the date in
         question: the OTC Bulletin Board, the American Stock Exchange, the New
         York Stock Exchange, the Nasdaq National Market or the Nasdaq SmallCap
         Market.

                  "TRANSACTION DOCUMENTS" means this Agreement, the Escrow
         Agreement, the Warrants and the Registration Rights Agreement and any
         other documents or agreements executed in connection with the
         transactions contemplated hereunder.

                  "WARRANTS" means the Common Stock Purchase Warrants, in the
         form of EXHIBIT C, issuable to the Purchasers at the Closing, which
         warrants shall be exercisable immediately upon issuance for a term of 5
         years from the date of an effective registration statement covering the
         shares of common stock underlying the Warrants and have an exercise
         price of $0.76, subject to adjustment for reverse and forward stock
         splits, stock dividends, stock combinations and other similar
         transactions of the Common Stock that occur after the date of this
         Agreement.

                  "WARRANT SHARES" means the shares of Common Stock issuable
         upon exercise of the Warrants.

                                      -3-
<PAGE>

                                  ARTICLE II.
                                PURCHASE AND SALE

         2.1 CLOSING. At the Closing, each Purchaser shall purchase from the
Company, and the Company shall issue and sell to each Purchaser, (a) a number of
Shares equal to such Purchaser's Subscription Amount divided by the Per Share
Purchase Price and (b) the Warrants as determined pursuant to Section
2.2(a)(iii). Upon satisfaction of the conditions set forth in Section 2.2, the
Closing shall occur at the offices of the Escrow Agent, or such other location
as the parties shall mutually agree.

         2.2 CLOSING CONDITIONS.

                  (a) At the Closing the Company shall deliver or cause to be
         delivered to the Escrow Agent with respect to each Purchaser the
         following:

                           (i) this Agreement duly executed by the Company;

                           (ii) a certificate evidencing a number of Shares
                  equal to such Purchaser's Subscription Amount divided by the
                  Per Share Purchase Price, endorsed in the name of such
                  Purchaser;

                           (iii) a Warrant, registered in the name of such
                  Purchaser, pursuant to which such Purchaser shall have the
                  right to acquire up to the number of shares of Common Stock
                  equal to 100% of the Shares to be issued to such Purchaser at
                  the Closing;

                           (iv) the Registration Rights Agreement duly executed
                  by the Company; and

                           (v) the Escrow Agreement duly executed by the
                  Company.

                  (b) At the Closing each Purchaser shall deliver or cause to be
         delivered to the Escrow Agent the following:

                           (i) this Agreement duly executed by such Purchaser;

                           (ii) such Purchaser's Subscription Amount by wire
                  transfer to the account of the Escrow Agent;

                           (iii) the Escrow Agreement duly executed by such
                  Purchaser; and

                           (iv) the Registration Rights Agreement duly executed
                  by such Purchaser.

                  (c) All representations and warranties of the other party
         contained herein shall remain true and correct as of the Closing Date.

                                      -4-
<PAGE>

                  (d) As of the Closing Date, there shall have been no Material
         Adverse Effect with respect to the Company since the date hereof.

                  (e) From the date hereof to the Closing Date, trading in the
         Common Stock shall not have been suspended by the Commission (except
         for any suspension of trading of limited duration agreed to by the
         Company, which suspension shall be terminated prior to the Closing),
         and, at any time prior to the Closing Date, trading in securities
         generally as reported by Bloomberg Financial Markets shall not have
         been suspended or limited, or minimum prices shall not have been
         established on securities whose trades are reported by such service, or
         on any Trading Market, nor shall a banking moratorium have been
         declared either by the United States or New York State authorities nor
         shall there have occurred any material outbreak or escalation of
         hostilities or other national or international calamity of such
         magnitude in its effect on, or any material adverse change in, any
         financial market which, in each case, in the reasonable judgment of
         each Purchaser, makes it impracticable or inadvisable to purchase the
         Shares at the such Closing.

                                  ARTICLE III.
                         REPRESENTATIONS AND WARRANTIES

         3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set forth
under the corresponding section of the Disclosure Schedules delivered
concurrently herewith and/or in the SEC Reports, the Company hereby makes the
following representations and warranties as of the date hereof and as of the
Closing Date to each Purchaser:

                  (a) SUBSIDIARIES. All of the subsidiaries of the Company are
         set forth on Schedule 3.1(a). The Company owns, directly or indirectly,
         all of the capital stock or other equity interests of each Subsidiary
         free and clear of any Liens, and all the issued and outstanding shares
         of capital stock of each Subsidiary are validly issued and are fully
         paid, non-assessable and free of preemptive and similar rights. If the
         Company has no subsidiaries, then references in the Transaction
         Documents to the Subsidiaries will be disregarded.

                  (b) ORGANIZATION AND QUALIFICATION. Each of the Company and
         the Subsidiaries is an entity duly incorporated or otherwise organized,
         validly existing and in good standing under the laws of the
         jurisdiction of its incorporation or organization (as applicable), with
         the requisite power and authority to own and use its properties and
         assets and to carry on its business as currently conducted. Neither the
         Company nor any Subsidiary is in violation of any of the provisions of
         its respective certificate or articles of incorporation, bylaws or
         other organizational or charter documents. Each of the Company and the
         Subsidiaries is duly qualified to conduct business and is in good
         standing as a foreign corporation or other entity in each jurisdiction
         in which the nature of the business conducted or property owned by it
         makes such qualification necessary, except where the failure to be so
         qualified or in good standing, as the case may be, could not have or
         reasonably be expected to result in (i) a material adverse effect on
         the legality, validity or enforceability of any Transaction Document,
         (ii) a material adverse effect on the results of operations, assets,
         business or financial condition of the Company and the Subsidiaries,
         taken as a whole, or (iii) a material adverse effect on the Company's

                                      -5-
<PAGE>

         ability to perform in any material respect on a timely basis its
         obligations under any Transaction Document (any of (i), (ii) or (iii),
         a "MATERIAL ADVERSE EFFECT").

                  (c) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
         corporate power and authority to enter into and to consummate the
         transactions contemplated by each of the Transaction Documents and
         otherwise to carry out its obligations thereunder. The execution and
         delivery of each of the Transaction Documents by the Company and the
         consummation by it of the transactions contemplated thereby have been
         duly authorized by all necessary action on the part of the Company and
         no further action is required by the Company in connection therewith
         other than in connection with the Required Approvals. Each Transaction
         Document has been (or upon delivery will have been) duly executed by
         the Company and, when delivered in accordance with the terms hereof,
         will constitute the valid and binding obligation of the Company
         enforceable against the Company in accordance with its terms except (i)
         as limited by applicable bankruptcy, insolvency, reorganization,
         moratorium and other laws of general application affecting enforcement
         of creditors' rights generally and (ii) as limited by laws relating to
         the availability of specific performance, injunctive relief or other
         equitable remedies.

                  (d) NO CONFLICTS. The execution, delivery and performance of
         the Transaction Documents by the Company and the consummation by the
         Company of the transactions contemplated thereby do not and will not
         (i) conflict with or violate any provision of the Company's or any
         Subsidiary's certificate or articles of incorporation, bylaws or other
         organizational or charter documents, or (ii) conflict with, or
         constitute a default (or an event that with notice or lapse of time or
         both would become a default) under, or give to others any rights of
         termination, amendment, acceleration or cancellation (with or without
         notice, lapse of time or both) of, any agreement, credit facility, debt
         or other instrument (evidencing a Company or Subsidiary debt or
         otherwise) or other understanding to which the Company or any
         Subsidiary is a party or by which any property or asset of the Company
         or any Subsidiary is bound or affected, or (iii) subject to the
         Required Approvals, result in a violation of any law, rule, regulation,
         order, judgment, injunction, decree or other restriction of any court
         or governmental authority to which the Company or a Subsidiary is
         subject (including federal and state securities laws and regulations),
         or by which any property or asset of the Company or a Subsidiary is
         bound or affected; except in the case of each of clauses (ii) and
         (iii), such as would not have or reasonably be expected to result in a
         Material Adverse Effect.

                  (e) FILINGS, CONSENTS AND APPROVALS. The Company is not
         required to obtain any consent, waiver, authorization or order of, give
         any notice to, or make any filing or registration with, any court or
         other federal, state, local or other governmental authority or other
         Person in connection with the execution, delivery and performance by
         the Company of the Transaction Documents, other than (i) filings
         required pursuant to Section 4.4 of this Agreement, (ii) the filing
         with the Commission of the Registration Statement, (iii) the notice
         and/or application(s) to each applicable Trading Market for the listing
         of the Shares and Warrant Shares for trading thereon in the time and
         manner required thereby, and (iv) the filing of Form D with the
         Commission and such filings as are required to be made under applicable
         state securities laws.

                                      -6-
<PAGE>

                  (f) ISSUANCE OF THE SECURITIES. The Securities are duly
         authorized and, when issued and paid for in accordance with the
         Transaction Documents, will be duly and validly issued, fully paid and
         nonassessable, free and clear of all Liens. The Company has reserved
         from its duly authorized capital stock the maximum number of shares of
         Common Stock issuable pursuant to this Agreement and the Warrants.

                  (g) CAPITALIZATION. The capitalization of the Company is as
         described in the Company's most recent periodic report filed with the
         Commission. Except as disclosed in Schedule 3.1(g), the Company has not
         issued any capital stock since such filing other than pursuant to the
         exercise of employee and key consultant stock options under the
         Company's stock option plans, the issuance of shares of Common Stock to
         employees and key consultants pursuant to the Company's employee stock
         purchase plan and pursuant to the conversion or exercise of outstanding
         Common Stock Equivalents. No Person has any right of first refusal,
         preemptive right, right of participation, or any similar right to
         participate in the transactions contemplated by the Transaction
         Documents. Except as a result of the purchase and sale of the
         Securities, there are no outstanding options, warrants, script rights
         to subscribe to, calls or commitments of any character whatsoever
         relating to, or securities, rights or obligations convertible into or
         exchangeable for, or giving any Person any right to subscribe for or
         acquire, any shares of Common Stock, or contracts, commitments,
         understandings or arrangements by which the Company or any Subsidiary
         is or may become bound to issue additional shares of Common Stock, or
         securities or rights convertible or exchangeable into shares of Common
         Stock. The issue and sale of the Securities will not obligate the
         Company to issue shares of Common Stock or other securities to any
         Person (other than the Purchasers) and will not result in a right of
         any holder of Company securities to adjust the exercise, conversion,
         exchange or reset price under such securities.

                  (h) SEC REPORTS; FINANCIAL STATEMENTS. The Company has filed
         all reports required to be filed by it under the Securities Act and the
         Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for
         the two years preceding the date hereof (or such shorter period as the
         Company was required by law to file such material) (the foregoing
         materials, including the exhibits thereto, being collectively referred
         to herein as the "SEC REPORTS") on a timely basis or has received a
         valid extension of such time of filing and has filed any such SEC
         Reports prior to the expiration of any such extension. As of their
         respective dates, the SEC Reports complied in all material respects
         with the requirements of the Securities Act and the Exchange Act and
         the rules and regulations of the Commission promulgated thereunder, and
         none of the SEC Reports, when filed, contained any untrue statement of
         a material fact or omitted to state a material fact required to be
         stated therein or necessary in order to make the statements therein, in
         light of the circumstances under which they were made, not misleading.
         The financial statements of the Company included in the SEC Reports
         comply in all material respects with applicable accounting requirements
         and the rules and regulations of the Commission with respect thereto as
         in effect at the time of filing. Such financial statements have been
         prepared in accordance with generally accepted accounting principles
         applied on a consistent basis during the periods involved ("GAAP"),
         except as may be otherwise specified in such financial statements or
         the notes thereto and except that unaudited financial statements may
         not contain all footnotes required by GAAP, and fairly present in all
         material respects the financial position of the Company and its

                                      -7-
<PAGE>

         consolidated subsidiaries as of and for the dates thereof and the
         results of operations and cash flows for the periods then ended,
         subject, in the case of unaudited statements, to normal, immaterial,
         year-end audit adjustments.

                  (i) MATERIAL CHANGES. Since December 31, 2003 except as
         disclosed in the SEC Reports, (i) there has been no event, occurrence
         or development that has had or that could reasonably be expected to
         result in a Material Adverse Effect, (ii) the Company has not incurred
         any liabilities (contingent or otherwise) other than (A) trade payables
         and accrued expenses incurred in the ordinary course of business
         consistent with past practice and (B) liabilities not required to be
         reflected in the Company's financial statements pursuant to GAAP or
         required to be disclosed in filings made with the Commission, (iii) the
         Company has not altered its method of accounting, (iv) the Company has
         not declared or made any dividend or distribution of cash or other
         property to its stockholders or purchased, redeemed or made any
         agreements to purchase or redeem any shares of its capital stock and
         (v) the Company has not issued any equity securities to any officer,
         director or Affiliate, except pursuant to existing Company stock option
         plans. The Company does not have pending before the Commission any
         request for confidential treatment of information.

                  (j) LITIGATION. Except as disclosed in the SEC Reports, there
         is no action, suit, inquiry, notice of violation, proceeding or
         investigation pending or, to the knowledge of the Company, threatened
         against or affecting the Company, any Subsidiary or any of their
         respective properties before or by any court, arbitrator, governmental
         or administrative agency or regulatory authority (federal, state,
         county, local or foreign) (collectively, an "ACTION") which (i)
         adversely affects or challenges the legality, validity or
         enforceability of any of the Transaction Documents or the Securities or
         (ii) could, if there were an unfavorable decision, have or reasonably
         be expected to result in a Material Adverse Effect. Neither the Company
         nor any Subsidiary, nor any director or officer thereof, is or has been
         the subject of any Action involving a claim of violation of or
         liability under federal or state securities laws or a claim of breach
         of fiduciary duty. There has not been, and to the knowledge of the
         Company, there is not pending or contemplated, any investigation by the
         Commission involving the Company or any current or former director or
         officer of the Company. The Commission has not issued any stop order or
         other order suspending the effectiveness of any registration statement
         filed by the Company or any Subsidiary under the Exchange Act or the
         Securities Act.

                  (k) LABOR RELATIONS. No material labor dispute exists or, to
         the knowledge of the Company, is imminent with respect to any of the
         employees of the Company which could reasonably be expected to result
         in a Material Adverse Effect.

                  (l) COMPLIANCE. Except as disclosed in the SEC Reports,
         neither the Company nor any Subsidiary (i) is in default under or in
         violation of (and no event has occurred that has not been waived that,
         with notice or lapse of time or both, would result in a default by the
         Company or any Subsidiary under), nor has the Company or any Subsidiary
         received notice of a claim that it is in default under or that it is in
         violation of, any indenture, loan or credit agreement or any other
         agreement or instrument to which it is a party or by which it or any of
         its properties is bound (whether or not such default or violation has
         been waived), (ii) is in violation of any order of any court,

                                      -8-
<PAGE>

         arbitrator or governmental body, or (iii) is or has been in violation
         of any statute, rule or regulation of any governmental authority,
         including without limitation all foreign, federal, state and local laws
         applicable to its business except in each case as could not have a
         Material Adverse Effect.

                  (m) REGULATORY PERMITS. The Company and the Subsidiaries
         possess all certificates, authorizations and permits issued by the
         appropriate federal, state, local or foreign regulatory authorities
         necessary to conduct their respective businesses as described in the
         SEC Reports, except where the failure to possess such permits would not
         have or reasonably be expected to result in a Material Adverse Effect
         ("MATERIAL PERMITS"), and neither the Company nor any Subsidiary has
         received any notice of proceedings relating to the revocation or
         modification of any Material Permit.

                  (n) TITLE TO ASSETS. The Company and the Subsidiaries have
         good and marketable title in fee simple to all real property owned by
         them that is material to the business of the Company and the
         Subsidiaries and good and marketable title in all personal property
         owned by them that is material to the business of the Company and the
         Subsidiaries, in each case free and clear of all Liens, except for
         Liens as do not materially affect the value of such property and do not
         materially interfere with the use made and proposed to be made of such
         property by the Company and the Subsidiaries and Liens for the payment
         of federal, state or other taxes, the payment of which is neither
         delinquent nor subject to penalties. Any real property and facilities
         held under lease by the Company and the Subsidiaries are held by them
         under valid, subsisting and enforceable leases of which the Company and
         the Subsidiaries are in compliance.

                  (o) PATENTS AND TRADEMARKS. To the knowledge of the Company
         and each Subsidiary, and except as set forth in the SEC Reports, the
         Company and the Subsidiaries have, or have rights to use, all patents,
         patent applications, trademarks, trademark applications, service marks,
         trade names, copyrights, licenses and other similar rights that are
         necessary or material for use in connection with their respective
         businesses as described in the SEC Reports and which the failure to so
         have could have or reasonably be expected to result in a Material
         Adverse Effect (collectively, the "INTELLECTUAL PROPERTY RIGHTS").
         Neither the Company nor any Subsidiary has received a written notice
         that the Intellectual Property Rights used by the Company or any
         Subsidiary violates or infringes upon the rights of any Person. To the
         knowledge of the Company, all such Intellectual Property Rights are
         enforceable.

                  (p) TRANSACTIONS WITH AFFILIATES AND EMPLOYEES. Except as set
         forth in the SEC Reports, none of the officers or directors of the
         Company and, to the knowledge of the Company, none of the employees of
         the Company is presently a party to any transaction with the Company or
         any Subsidiary (other than for services as employees, officers and
         directors), including any contract, agreement or other arrangement
         providing for the furnishing of services to or by, providing for rental
         of real or personal property to or from, or otherwise requiring
         payments to or from any officer, director or such employee or, to the
         knowledge of the Company, any entity in which any officer, director, or
         any such employee has a substantial interest or is an officer,
         director, trustee or partner, in each case in excess of $60,000 other
         than (i) for payment of salary or consulting fees for services
         rendered, (ii) reimbursement for expenses incurred on behalf of the

                                      -9-
<PAGE>

         Company and (iii) for other employee benefits, including stock option
         agreements under any stock option plan of the Company.

                  (q) SARBANES-OXLEY; INTERNAL ACCOUNTING CONTROLS. The Company
         is in material compliance with all provisions of the Sarbanes-Oxley Act
         of 2002 which are applicable to it as of the Closing Date. The Company
         and each of its subsidiaries maintains a system of internal accounting
         controls sufficient to provide reasonable assurance that (i)
         transactions are executed in accordance with management's general or
         specific authorizations, (ii) transactions are recorded as necessary to
         permit preparation of financial statements in conformity with GAAP and
         to maintain asset accountability, (iii) access to assets is permitted
         only in accordance with management's general or specific authorization,
         and (iv) the recorded accountability for assets is compared with the
         existing assets at reasonable intervals and appropriate action is taken
         with respect to any differences. The Company has established disclosure
         controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
         15d-15(e)) for the Company and designed such disclosure controls and
         procedures to ensure that material information relating to the Company,
         including its subsidiaries, is made known to the certifying officers by
         others within those entities, particularly during the period in which
         the Company's Form 10-KSB or 10-QSB, as the case may be, is being
         prepared. The Company's certifying officers have evaluated the
         effectiveness of the Company's controls and procedures as of end of the
         filing period prior to the filing date of the Form 10-QSB for the
         quarter ended December 31, 2003 (such date, the "EVALUATION DATE"). The
         Company presented in its most recently filed Form 10-KSB or Form 10-QSB
         the conclusions of the certifying officers about the effectiveness of
         the disclosure controls and procedures based on their evaluations as of
         the Evaluation Date. Since the Evaluation Date, there have been no
         significant changes in the Company's internal controls (as such term is
         defined in Item 307(b) of Regulation S-K under the Exchange Act) or, to
         the Company's knowledge, in other factors that could significantly
         affect the Company's internal controls.

                  (r) CERTAIN FEES. Selected NASD member broker-dealers may
         receive a commission on the gross proceeds raised. The Purchasers shall
         have no obligation with respect to any fees or with respect to any
         claims made by or on behalf of other Persons for fees of a type
         contemplated in this Section that may be due in connection with the
         transactions contemplated by this Agreement.

                  (s) PRIVATE PLACEMENT. Assuming the accuracy of the Purchasers
         representations and warranties set forth in Section 3.2, no
         registration under the Securities Act is required for the offer and
         sale of the Securities by the Company to the Purchasers as contemplated
         hereby. The issuance and sale of the Securities hereunder does not
         contravene the rules and regulations of the Trading Market.

                  (t) INVESTMENT COMPANY. The Company is not, and is not an
         Affiliate of, an "investment company" within the meaning of the
         Investment Company Act of 1940, as amended.

                  (u) REGISTRATION RIGHTS. Except as set forth on the disclosure
         schedule to the Registration Rights Agreement, no Person has any right
         to cause the Company to effect the registration under the Securities
         Act of any securities of the Company.

                                      -10-
<PAGE>

                  (v) LISTING AND MAINTENANCE REQUIREMENTS. The Company has not,
         in the 12 months preceding the date hereof, received notice from any
         Trading Market on which the Common Stock is or has been listed or
         quoted to the effect that the Company is not in compliance with the
         listing or maintenance requirements of such Trading Market. The Company
         is, and has no reason to believe that it will not in the foreseeable
         future continue to be, in compliance with all such listing and
         maintenance requirements.

                  (w) DISCLOSURE. The Company confirms that, neither the Company
         nor any other Person acting on its behalf has provided any of the
         Purchasers or their agents or counsel with any information that
         constitutes or might constitute material, non-public information. The
         Company understands and confirms that the Purchasers will rely on the
         foregoing representations and covenants in effecting transactions in
         securities of the Company. All disclosure provided to the Purchasers
         regarding the Company, its business and the transactions contemplated
         hereby, including the Disclosure Schedules to this Agreement, furnished
         by or on behalf of the Company are true and correct and do not contain
         any untrue statement of a material fact or omit to state any material
         fact necessary in order to make the statements made therein, in light
         of the circumstances under which they were made, not misleading.

                  (x) 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 this offering of the Securities to be integrated with prior
         offerings by the Company for purposes of the Securities Act or any
         applicable shareholder approval provisions, including, without
         limitation, under the rules and regulations of any exchange or
         automated quotation system on which any of the securities of the
         Company are listed or designated.

                  (y) SOLVENCY. Based on the financial condition of the Company
         as of the Closing Date, (i) the Company's fair saleable value of its
         assets exceeds the amount that will be required to be paid on or in
         respect of the Company's existing debts and other liabilities
         (including known contingent liabilities) as they mature; (ii) the
         Company's assets do not constitute unreasonably small capital to carry
         on its business for the current fiscal year as now conducted and as
         proposed to be conducted including its capital needs taking into
         account the particular capital requirements of the business conducted
         by the Company, and projected capital requirements and capital
         availability thereof; and (iii) the current cash flow of the Company,
         together with the proceeds the Company would receive, were it to
         liquidate all of its assets, after taking into account all anticipated
         uses of the cash, would be sufficient to pay all amounts on or in
         respect of its debt when such amounts are required to be paid. The
         Company does not intend to incur debts beyond its ability to pay such
         debts as they mature (taking into account the timing and amounts of
         cash to be payable on or in respect of its debt).

         3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants as of the
date hereof and as of the Closing Date to the Company as follows:

                                      -11-
<PAGE>

                  (a) ORGANIZATION; AUTHORITY. Such Purchaser is an individual
         or entity duly organized, validly existing and in good standing under
         the laws of the jurisdiction of its organization with full right,
         corporate or partnership power and authority to enter into and to
         consummate the transactions contemplated by the Transaction Documents
         and otherwise to carry out its obligations thereunder. The execution,
         delivery and performance by such Purchaser of the transactions
         contemplated by this Agreement have been duly authorized by all
         necessary corporate action on the part of such Purchaser. Each
         Transaction Document to which it is party has been duly executed by
         such Purchaser, and when delivered by such Purchaser in accordance with
         the terms hereof, will constitute the valid and legally binding
         obligation of such Purchaser, enforceable against it in accordance with
         its terms except (i) as limited by general equitable principles and
         applicable bankruptcy, insolvency, reorganization, moratorium and other
         laws of general application affecting enforcement of creditors' rights
         generally, (ii) as limited by laws relating to the availability of
         specific performance, injunctive relief or other equitable remedies and
         (iii) insofar as indemnification and contribution provisions may be
         limited by applicable law.

                  (b) INVESTMENT INTENT. Such Purchaser understands that the
         Securities are "restricted securities" and have not been registered
         under the Securities Act or any applicable state securities law and is
         acquiring the Securities as principal for its own account for
         investment purposes only and not with a view to or for distributing or
         reselling such Securities or any part thereof, has no present intention
         of distributing any of such Securities and has no arrangement or
         understanding with any other persons regarding the distribution of such
         Securities (this representation and warranty not limiting such
         Purchaser's right to sell the Securities pursuant to the Registration
         Statement or otherwise in compliance with applicable federal and state
         securities laws). Such Purchaser is acquiring the Securities hereunder
         in the ordinary course of its business. Such Purchaser does not have
         any agreement or understanding, directly or indirectly, with any Person
         to distribute any of the Securities.

                  (c) PURCHASER STATUS. At the time such Purchaser was offered
         the Securities, it was, and at the date hereof it is an "accredited
         investor" as defined in Rule 501(a) under the Securities Act. Such
         Purchaser is not required to be registered as a broker-dealer under
         Section 15 of the Exchange Act.

                  (d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
         or together with its representatives, has such knowledge,
         sophistication and experience in business and financial matters so as
         to be capable of evaluating the merits and risks of the prospective
         investment in the Securities, and has so evaluated the merits and risks
         of such investment. Such Purchaser is able to bear the economic risk of
         an investment in the Securities and, at the present time, is able to
         afford a complete loss of such investment.

                  (e) GENERAL SOLICITATION. Such Purchaser is not purchasing the
         Securities as a result of any advertisement, article, notice or other
         communication regarding the Securities published in any newspaper,
         magazine or similar media or broadcast over television or radio or
         presented at any seminar or any other general solicitation or general
         advertisement.

                                      -12-
<PAGE>

                  (f) REGISTRATION REQUIRED. Such Purchaser hereby covenants
         with the Company not to make any sale of the Shares and Warrant Shares
         without complying with the provisions hereof and of the Registration
         Rights Agreement, and without effectively causing the prospectus
         delivery requirement under the Securities Act to be satisfied (unless
         such Purchaser is selling such Shares and Warrant Shares in a
         transaction not subject to the prospectus delivery requirement), and
         such Purchaser acknowledges that the certificates evidencing the Shares
         and Warrant Shares will be imprinted with a legend that prohibits their
         transfer except in accordance therewith.

                  (g) NO TAX OR LEGAL ADVICE. Such Purchaser understands that
         nothing in this Agreement, any other Transaction Document or any other
         materials presented to such Purchaser in connection with the purchase
         and sale of the Securities constitutes legal, tax or investment advice.
         Such Purchaser has consulted such legal, tax and investment advisors as
         it, in its sole discretion, has deemed necessary or appropriate in
         connection with its purchase of Securities.

                  (h) DISCLOSURE OF INFORMATION. Such Purchaser believes it has
         received all the information it considers necessary or appropriate for
         deciding whether to purchase the Shares and Warrants. Such Purchaser
         further represents that it has had an opportunity to ask questions and
         receive answers from the Company regarding the terms and conditions of
         the offering of the Shares and Warrants and the business, properties,
         prospects and financial condition of the Company. Such Purchaser has
         reviewed the Company's Annual Report on Form 10K-SB for the fiscal year
         ended March 31st, 2003 (the "10K-SB"). Each such Purchaser understands
         and accepts all of the risks in connection with such Purchaser's
         investment in the Securities. In addition, each Purchaser has reviewed
         and is aware of the information set forth in all SEC Reports filed with
         the SEC since the filing of the 10K-SB. The foregoing, however, does
         not limit or modify the representations and warranties of the Company
         in Section 3 of this Agreement or the right of the Purchasers to rely
         thereon.

                  (i) LEGAL COUNSEL. Purchaser understands that the law firm of
         Richardson and Patel, LLP and its attorneys represent the Company and
         Purchaser has had the opportunity to retain its own legal counsel in
         connection with transactions contemplated herewith.

         The Company acknowledges and agrees that each Purchaser does not make
or has not made any representations or warranties with respect to the
transactions contemplated hereby other than those specifically set forth in this
Section 3.2.

                                  ARTICLE IV.
                         OTHER AGREEMENTS OF THE PARTIES

         4.1 TRANSFER RESTRICTIONS.

                  (a) The Securities may only be disposed of in compliance with
         state and federal securities laws. In connection with any transfer of
         Securities other than pursuant to an effective registration statement,
         to the Company, to an Affiliate of a Purchaser or in connection with a
         pledge as contemplated in Section 4.1(b), the Company may require the
         transferor thereof to provide to the Company an opinion of counsel

                                      -13-
<PAGE>

         selected by the transferor, the form and substance of which opinion
         shall be reasonably satisfactory to the Company, to the effect that
         such transfer does not require registration of such transferred
         Securities under the Securities Act. As a condition of transfer, any
         such transferee shall agree in writing to be bound by the terms of this
         Agreement and shall have the rights of a Purchaser under this Agreement
         and the Registration Rights Agreement.

                  (b) The Purchasers agree to the imprinting, so long as is
         required by this Section 4.1(b), of a legend on any of the Securities
         in the following form:

                  THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES
                  AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
                  STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
                  THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
                  AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
                  TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
                  ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
                  TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF
                  THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
                  SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO
                  THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE
                  REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES MAY BE
                  PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A
                  REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL
                  INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
                  RULE 501(a) UNDER THE SECURITIES ACT.

                  The Company acknowledges and agrees that a Purchaser may from
         time to time pledge pursuant to a bona fide margin agreement with a
         registered broker-dealer or grant a security interest in some or all of
         the Securities to a financial institution that is an "accredited
         investor" as defined in Rule 501(a) under the Securities Act and, if
         required under the terms of such arrangement, such Purchaser may
         transfer pledged or secured Securities to the pledgees or secured
         parties. Such a pledge or transfer would not be subject to approval of
         the Company and no legal opinion of legal counsel of the pledgee,
         secured party or pledgor shall be required in connection therewith.
         Further, no notice shall be required of such pledge. At the appropriate
         Purchaser's expense, the Company will execute and deliver such
         reasonable documentation as a pledgee or secured party of Securities
         may reasonably request in connection with a pledge or transfer of the
         Securities, including, if the Securities are subject to registration
         pursuant to the Registration Rights Agreement, the preparation and
         filing of any required prospectus supplement under Rule 424(b)(3) under
         the Securities Act or other applicable provision of the Securities Act
         to appropriately amend the list of Selling Stockholders thereunder.

                  (c) Certificates evidencing the Shares and Warrant Shares
         shall not contain any legend (including the legend set forth in Section
         4.1(b)), (i) while a registration statement (including the Registration
         Statement) covering the resale of such security is effective under the
         Securities Act, or (ii) following any sale of such Shares or Warrant

                                      -14-
<PAGE>

         Shares pursuant to Rule 144, or (iii) if such Shares or Warrant Shares
         are eligible for sale under Rule 144(k), or (iv) if such legend is not
         required under applicable requirements of the Securities Act (including
         judicial interpretations and pronouncements issued by the Staff of the
         Commission). The Company shall cause its counsel to issue a legal
         opinion to the Company's transfer agent promptly after the Effective
         Date if required by the Company's transfer agent to effect the removal
         of the legend hereunder. If all or any portion of a Warrant is
         exercised at a time when there is an effective registration statement
         to cover the resale of the Warrant Shares, such Warrant Shares shall be
         issued free of all legends. The Company agrees that following the
         Effective Date or at such time as such legend is no longer required
         under this Section 4.1(c), it will, no later than five Trading Days
         following the delivery by a Purchaser to the Company's transfer agent
         of a certificate representing Shares or Warrant Shares, as the case may
         be, issued with a restrictive legend (such date, the "LEGEND REMOVAL
         DATE"), deliver or cause to be delivered to such Purchaser a
         certificate representing such Securities that is free from all
         restrictive and other legends. The Company may not make any notation on
         its records or give instructions to any transfer agent of the Company
         that enlarge the restrictions on transfer set forth in this Section.

                  (d) Each Purchaser, severally and not jointly with the other
         Purchasers, agrees that the removal of the restrictive legend from
         certificates representing Securities as set forth in this Section 4.1
         is predicated upon the Company's reliance that the Purchaser will sell
         any Securities pursuant to either the registration requirements of the
         Securities Act, including any applicable prospectus delivery
         requirements, or an exemption therefrom.

         4.2 FURNISHING OF INFORMATION. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to the
Exchange Act. As long as any Purchaser owns Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make publicly available in accordance with Rule 144(c) such
information as is required for the Purchasers to sell the Securities under Rule
144. The Company further covenants that it will take such further action as any
holder of Securities may reasonably request, all to the extent required from
time to time to enable such Person to sell such Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144.

         4.3 INTEGRATION. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Securities in a manner that would require the registration under the
Securities Act of the sale of the Securities to the Purchasers or that would be
integrated with the offer or sale of the Securities for purposes of the rules
and regulations of any Trading Market such that it would require shareholder
approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.

         4.4 SHAREHOLDERS RIGHTS PLAN. No claim will be made or enforced by the
Company or, to the knowledge of the Company, any other Person that any Purchaser
is an "Acquiring Person" under any shareholders rights plan or similar plan or
arrangement in effect or hereafter adopted by the Company, or that any Purchaser
could be deemed to trigger the provisions of any such plan or arrangement, by

                                      -15-
<PAGE>

virtue of receiving Securities under the Transaction Documents or under any
other agreement between the Company and the Purchasers.

         4.5 NON-PUBLIC INFORMATION. The Company covenants and agrees that
neither it nor any other Person acting on its behalf will provide any Purchaser
or its agents or counsel with any information that the Company believes
constitutes material non-public information, unless prior thereto such Purchaser
shall have executed a written agreement regarding the confidentiality and use of
such information. The Company understands and confirms that each Purchaser shall
be relying on the foregoing representations in effecting transactions in
securities of the Company.

         4.6 USE OF PROCEEDS. Except as set forth on Schedule 4.6 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes and no more than 20% of the net proceeds
for the satisfaction of any portion of the Company's debt (other than payment of
trade payables in the ordinary course of the Company's business and prior
practices), to redeem any Company equity or equity-equivalent securities or to
settle any outstanding litigation.

         4.7 INDEMNIFICATION. Each party to this Agreement ("INDEMNIFYING
PARTY") will indemnify and hold the other parties and their directors, officers,
shareholders, partners, employees and agents (each, an "INDEMNIFIED Party")
harmless from any and all losses, liabilities, obligations, claims,
contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys' fees and costs of
investigation that any such Indemnified Party may suffer or incur as a result of
or relating to any misrepresentation, breach or inaccuracy, of any of the
representations, warranties, covenants or agreements made by the Indemnifying
Party in this Agreement or in the other Transaction Documents. If any action
shall be brought against any Indemnified Party in respect of which indemnity may
be sought pursuant to this Agreement, such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall have
the right to assume the defense thereof with counsel of its own choosing. Any
Indemnified Party shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party except to the extent
that the employment thereof has been specifically authorized by the Indemnifying
Party in writing, the Indemnifying Party has failed after a reasonable period of
time to assume such defense and to employ counsel or in such action there is, in
the reasonable opinion of such separate counsel, a material conflict on any
material issue between the position of the Indemnifying Party and the position
of such Indemnified Party. The Indemnifying Party will not be liable to any
Indemnified Party under this Section 4.7 for any settlement by an Indemnified
Party effected without the Indemnifying Party's prior written consent, which
shall not be unreasonably withheld or delayed; or to the extent, but only to the
extent that a loss, claim, damage or liability is attributable to any
Indemnified Party's breach of any of the representations, warranties, covenants
or agreements made by the Purchasers in this Agreement or in the other
Transaction Documents. In no event shall the liability of any Purchaser be
greater in amount than the dollar amount of the net proceeds received by such
Purchaser upon the sale of the Shares and Warrant Shares and in no event shall
the liability of the Company be greater in amount than the dollar amount of the
net proceeds received by the Company from the Sale of the Shares and Warrant
Shares to the Purchasers.

                                      -16-
<PAGE>

         4.8 RESERVATION OF COMMON STOCK. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, a sufficient number of shares of Common Stock
for the purpose of enabling the Company to issue Shares pursuant to this
Agreement and Warrant Shares pursuant to any exercise of the Warrants.

         4.9 LISTING OF COMMON STOCK. The Company agrees, if the Company applies
to have the Common Stock traded on any Trading Market, it will include in such
application all of the Shares and Warrant Shares, and will take such other
action as is necessary to cause the Shares and Warrant Shares to be listed on
such Trading Market as promptly as possible. The Company will take all action
reasonably necessary to continue the listing and trading of its Common Stock on
a Trading Market and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Trading Market.

         4.10 SUBSEQUENT EQUITY SALES. From the date hereof until after the
Effective Date (the "RESTRICTED PERIOD"), the Company shall not issue shares of
Common Stock or Common Stock Equivalents at a price lower than the Per Share
Purchase Price (such lower price is the "Reset Price") except in connection with
any sales to Fusion Capital Fund II, LLC. During the Restricted Period, none of
such Common Stock or Common Stock Equivalents issued shall be registered
pursuant to registration statement filed in connection with this transaction.
Notwithstanding anything to the contrary herein, this Section 4.10 shall not
apply to the following: (a) the granting of Common Stock or Common Stock
equivalents to employees, officers, directors or key consultants of the Company
pursuant to any stock plan, or (b) the exercise of any security issued by the
Company in connection with the offer and sale of this Company's securities
pursuant to this Agreement, or (c) the exercise of or conversion of any
convertible securities, options or warrants issued and outstanding on the date
hereof, provided such securities have not been amended since the date hereof, or
(d) acquisitions, strategic investments or call and/or put options issued in
connection with the sale of securities of a Subsidiary, the primary purpose of
which is not to raise capital of the Company, or (f) any issuance of the
Company's securities to any lender of the Company or its Subsidiaries in
connection with a settlement of, or waiver of a default under, debt (provided
such debt is not, and never has been, a Common Stock Equivalent) or (g) issuance
of the Company's securities to non-affiliates for non-cash transactions or
similar issuances. During the Restrictive Period, only for so long as the
Purchaser shall hold the Shares, if the Company issues shares of Common Stock or
Common Stock Equivalents at a price lower than the Per Share Purchase Price, the
Company shall issue to Purchase the number of additional shares of restricted
common stock (the "Additional Shares") necessary to bring the effective price
per share equal to the Reset Price. The number of Additional Shares to be issued
shall be calculated by the following formula:

  Additional Shares = (Shares * Per Share Purchase Price/reset Price) - Shares
  ----------------------------------------------------------------------------

  Shares as used in this formula does not include the Warrant Shares.

                                      -17-
<PAGE>

                                   ARTICLE V.
                                  MISCELLANEOUS

         5.1 FEES AND EXPENSES. Except as otherwise set forth in this Agreement,
each party shall pay the fees and expenses of its advisers, counsel, accountants
and other experts, if any, and all other expenses incurred by such party
incident to the negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes and duties
levied in connection with the sale of the Securities.

         5.2 ENTIRE AGREEMENT. The Transaction Documents, together with the
exhibits and schedules thereto, contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters, which the parties
acknowledge have been merged into such documents, exhibits and schedules.

         5.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (a) the date of transmission, if
such notice or communication is delivered via facsimile or e-mail at the
facsimile number or e-mail address set forth on the signature pages attached
hereto prior to 6:30 p.m. (Los Angeles time) on a Trading Day, (b) the next
Trading Day after the date of transmission, if such notice or communication is
delivered via facsimile or e-mail at the facsimile number or e-mail address set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 6:30 p.m. (Los Angeles time) on any Trading Day, (c) the second
Trading Day following the date of mailing, if sent by U.S. nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The address for such notices and communications
shall be as set forth on the signature pages attached hereto.

         5.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each Purchaser or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.

         5.5 CONSTRUCTION. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof. The language used in this Agreement will be deemed
to be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

         5.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each Purchaser. Any Purchaser may assign
any or all of its rights under this Agreement to any Person to whom such
Purchaser assigns or transfers any Securities, provided such transferee agrees
in writing to be bound, with respect to the transferred Securities, by the
provisions hereof that apply to the "Purchasers".

                                      -18-
<PAGE>

         5.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person, except as otherwise set forth in Section 4.8.

         5.8 GOVERNING LAW. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law thereof. Each
party agrees that all legal proceedings concerning the interpretations,
enforcement and defense of the transactions contemplated by this Agreement and
any other Transaction Documents (whether brought against a party hereto or its
respective affiliates, directors, officers, shareholders, employees or agents)
shall be commenced exclusively in the state and federal courts sitting in the
City of Los Angeles. Each party hereto hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in the City of
Los Angeles, California for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereto hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by delivering a copy thereof via overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Each party hereto (including its affiliates, agents, officers, directors and
employees) hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Agreement or the transactions contemplated
hereby. If either party shall commence an action or proceeding to enforce any
provisions of a Transaction Document, then the prevailing party in such action
or proceeding shall be reimbursed by the other party for its attorneys fees and
other costs and expenses incurred with the investigation, preparation and
prosecution of such action or proceeding.

         5.9 SURVIVAL. The representations, warranties, agreements and covenants
contained herein shall survive the Closing and delivery of the Shares and
Warrant Shares.

         5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.

         5.11 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid

                                      -19-
<PAGE>

and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.

         5.12 REPLACEMENT OF SECURITIES. If any certificate or instrument
evidencing any Securities is mutilated, lost, stolen or destroyed, the Company
shall issue or cause to be issued in exchange and substitution for and upon
cancellation thereof, or in lieu of and substitution therefor, a new certificate
or instrument, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction and customary and reasonable
indemnity, if requested. The applicants for a new certificate or instrument
under such circumstances shall also pay any reasonable third-party costs
associated with the issuance of such replacement Securities.

         5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers and the Company will be entitled to specific performance under the
Transaction Documents. The parties agree that monetary damages may not be
adequate compensation for any loss incurred by reason of any breach of
obligations described in the foregoing sentence and hereby agrees to waive in
any action for specific performance of any such obligation the defense that a
remedy at law would be adequate.

         5.14 PAYMENT SET ASIDE. To the extent that the Company makes a payment
or payments to any Purchaser pursuant to any Transaction Document or a Purchaser
enforces or exercises its rights thereunder, and such payment or payments or the
proceeds of such enforcement or exercise or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside, recovered
from, disgorged by or are required to be refunded, repaid or otherwise restored
to the Company, a trustee, receiver or any other person under any law
(including, without limitation, any bankruptcy law, state or federal law, common
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.

         5.15 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document are several and not
joint with the obligations of any other Purchaser, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert or as a group with respect to such
obligations or the transactions contemplated by the Transaction Document. Each
Purchaser shall be entitled to independently protect and enforce its rights,
including without limitation, the rights arising out of this Agreement or out of
the other Transaction Documents, and it shall not be necessary for any other
Purchaser to be joined as an additional party in any proceeding for such
purpose. Each Purchaser has been represented by its own separate legal counsel
in their review and negotiation of the Transaction Documents. The Company has
elected to provide all Purchasers with the same terms and Transaction Documents
for the convenience of the Company and not because it was required or requested
to do so by the Purchasers.

                            (SIGNATURE PAGE FOLLOWS)

                                      -20-
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.

AETHLON MEDICAL, INC.                                 ADDRESS FOR NOTICE:
                                                      -------------------

                                                      7825 Fay Avenue, Suite 200
                                                      La Jolla, CA 92037

By:________________________________________________
     Name:
     Title:

With a copy to (which shall not constitute notice):



                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                     SIGNATURE PAGES FOR PURCHASERS FOLLOW]

                                      -21-
<PAGE>

         IN WITNESS WHEREOF, the undersigned have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.


                                                       ADDRESS FOR NOTICE:
                                                       ------------------


By:________________________________________________
     Name:
     Title:                                            Attn:
                                                       Fax:
                                                       e-mail:


Subscription Amount:  $
Shares:
Warrant Shares:

WITH A COPY TO:
- --------------


                                      -22-
<PAGE>

                                    EXHIBIT A
                                    ---------

                          Registration Rights Agreement


                                      -23-
<PAGE>

                                    EXHIBIT B
                                    ---------

                                Escrow Agreement


                                      -24-
<PAGE>

                                    EXHIBIT C
                                    ---------

                                 Form of Warrant


                                      -25-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.4
<SEQUENCE>5
<FILENAME>aethlon_8kex4-4.txt
<TEXT>
<PAGE>
EXHIBIT 4.4

                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement (this "AGREEMENT") is made
and entered into as of May __, 2004, by and among Aethlon Medical, Inc., a
Nevada corporation (the "COMPANY"), and the purchasers signatory hereto (each
such purchaser, a "PURCHASER" and collectively, the "PURCHASERS").

                  This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"PURCHASE AGREEMENT").

                  The Company and the Purchasers hereby agree as follows:

         1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
that are defined in the Purchase Agreement shall have the meanings given such
terms in the Purchase Agreement. As used in this Agreement, the following terms
shall have the following meanings:

                  "EFFECTIVENESS DATE" means, with respect to the initial
         Registration Statement required to be filed hereunder, the earlier of
         (a) the 90th calendar day following the date of the Purchase Agreement,
         and (b) the fifth Trading Day following the date on which the Company
         is notified by the Commission that the Registration Statement will not
         be reviewed or is no longer subject to further review and comments.

                  "EFFECTIVENESS PERIOD" shall have the meaning set forth in
         Section 2(a).

                  "FILING DATE" means, with respect to the Registration
         Statement required to be filed hereunder, the 30th calendar day
         following the date of the Purchase Agreement.

                  "HOLDER" or "HOLDERS" means the holder or holders, as the case
         may be, from time to time of Registrable Securities.

                  "INDEMNIFIED PARTY" shall have the meaning set forth in
         Section 5(c).

                  "INDEMNIFYING PARTY" shall have the meaning set forth in
         Section 5(c).

                  "LOSSES" shall have the meaning set forth in Section 5(a).

                  "PROCEEDING" means an action, claim, suit, investigation or
         proceeding (including, without limitation, an investigation or partial
         proceeding, such as a deposition), whether commenced or threatened.

                  "PROSPECTUS" means the prospectus included in the Registration
         Statement (including, without limitation, a prospectus that includes
         any information previously omitted from a prospectus filed as part of
         an effective registration statement in reliance upon Rule 430A
         promulgated under the Securities Act), as amended or supplemented by
         any prospectus supplement, with respect to the terms of the offering of
         any portion of the Registrable Securities covered by the Registration
         Statement, and all other amendments and supplements to the Prospectus,
         including post-effective amendments, and all material incorporated by
         reference or deemed to be incorporated by reference in such Prospectus.

                                      -1-
<PAGE>

                  "REGISTRABLE SECURITIES" means all of the Shares and the
         Warrant Shares, together with any shares of Common Stock issued or
         issuable upon any stock split, dividend or other distribution,
         recapitalization or similar event with respect to the foregoing.

                  "REGISTRATION STATEMENT" means the registration statements
         required to be filed hereunder, including (in each case) the
         Prospectus, amendments and supplements to the registration statement or
         Prospectus, including pre- and post-effective amendments, all exhibits
         thereto, and all material incorporated by reference or deemed to be
         incorporated by reference in the registration statement.

                  "RULE 415" means Rule 415 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "RULE 424" means Rule 424 promulgated by the Commission
         pursuant to the Securities Act, as such Rule may be amended from time
         to time, or any similar rule or regulation hereafter adopted by the
         Commission having substantially the same effect as such Rule.

                  "SECURITIES ACT" means the Securities Act of 1933, as amended.

                  "WARRANT SHARES" shall have the meaning set forth in the
         Purchase Agreement.

         2.       REGISTRATION.

                  (a) On or prior to the Filing Date, the Company shall prepare
         and file with the Commission the Registration Statement covering the
         resale of all of the Registrable Securities for an offering to be made
         on a continuous basis pursuant to Rule 415. The Registration Statement
         required hereunder shall be on Form SB-2 (except if the Company is not
         then eligible to register for resale the Registrable Securities on Form
         SB-2, in which case the Registration shall be on another appropriate
         form in accordance herewith). The Registration Statement required
         hereunder shall contain (except if otherwise directed by the Holders)
         substantially the "PLAN OF DISTRIBUTION" attached hereto as ANNEX A.
         Subject to the terms of this Agreement, the Company shall use its
         commercially reasonable efforts to cause the Registration Statement to
         be declared effective under the Securities Act as promptly as possible
         after the filing thereof, but in any event not later than the
         Effectiveness Date, and shall use its commercially reasonable efforts
         to keep the Registration Statement continuously effective under the
         Securities Act until the date when all Registrable Securities covered
         by the Registration Statement have been sold or may be sold without
         volume restrictions pursuant to Rule 144(k) as determined by the
         counsel to the Company pursuant to a written opinion letter to such
         effect, addressed and acceptable to the Company's transfer agent and
         the affected Holders (the "EFFECTIVENESS PERIOD").

                  (b) If: (i) a Registration Statement is not filed on or prior
         to the Filing Date (if the Company files a Registration Statement
         without affording the Holder the opportunity to review and comment on
         the same as required by Section 3(a), the Company shall not be deemed

                                      -2-
<PAGE>

         to have satisfied this clause (i)), or (ii) the Company fails to file
         with the Commission a request for acceleration in accordance with Rule
         461 promulgated under the Securities Act, within five Trading Days of
         the date that the Company is notified (orally or in writing, whichever
         is earlier) by the Commission that a Registration Statement will not be
         "reviewed," or not subject to further review, or (iii) prior to the
         date when such Registration Statement is first declared effective by
         the Commission, the Company fails to file a pre-effective amendment and
         otherwise respond in writing to comments made by the Commission in
         respect of such Registration Statement within 10 Trading Days after the
         receipt of comments by or notice from the Commission that such
         amendment is required in order for a Registration Statement to be
         declared effective, or (iv) a Registration Statement filed or required
         to be filed hereunder is not declared effective by the Commission on or
         before the 120th calendar day following the date of the Purchase
         Agreement, or (v) after a Registration Statement is first declared
         effective by the Commission, it ceases for any reason to remain
         continuously effective as to all Registrable Securities for which it is
         required to be effective, or the Holders are not permitted to utilize
         the Prospectus therein to resell such Registrable Securities, for in
         any such cases 10 consecutive Trading Days or in any individual case an
         aggregate of 20 Trading Days during any 12 month period (which need not
         be consecutive Trading Days)(any such failure or breach being referred
         to as an "EVENT," and for purposes of clause (i) or (iv) the date on
         which such Event occurs, or for purposes of clause (ii) the date on
         which such five Trading Day period is exceeded, or for purposes of
         clause (iii) the date which such 10 Trading Day period is exceeded, or
         for purposes of clause (v) the date on which such 10 or 20 Trading Day
         period, as applicable, is exceeded being referred to as "EVENT DATE"),
         then in addition to any other rights the Holders may have hereunder or
         under applicable law: (x) on each such Event Date the Company shall pay
         to each Holder an amount in cash, as liquidated damages and not as a
         penalty, equal to 1.0% of the aggregate purchase price paid by such
         Holder pursuant to the Purchase Agreement for any Registrable
         Securities then held by such Holder; and (y) on each monthly
         anniversary of each such Event Date (if the applicable Event shall not
         have been cured by such date) until the applicable Event is cured, the
         Company shall pay to each Holder an amount in cash, as liquidated
         damages and not as a penalty, equal to 1.5% of the aggregate purchase
         price paid by such Holder pursuant to the Purchase Agreement for any
         Registrable Securities then held by such Holder. If the Company fails
         to pay any liquidated damages pursuant to this Section in full within
         seven days after the date payable, the Company will pay interest
         thereon at a rate of 15% per annum (or such lesser maximum amount that
         is permitted to be paid by applicable law) to the Holder, accruing
         daily from the date such liquidated damages are due until such amounts,
         plus all such interest thereon, are paid in full. The liquidated
         damages pursuant to the terms hereof shall apply on a daily pro-rata
         basis for any portion of a month prior to the cure of an Event.

         3.       REGISTRATION PROCEDURES

                  In connection with the Company's registration obligations
         hereunder, the Company shall:

                                      -3-
<PAGE>

                  (a) Not less than five Trading Days prior to the filing of the
         Registration Statement or any related Prospectus or any amendment or
         supplement thereto, the Company shall, (i) furnish to the Holders
         copies of all such documents proposed to be filed (including documents
         incorporated or deemed incorporated by reference to the extent
         requested by such Person) which documents will be subject to the review
         of such Holders, and (ii) cause its officers and directors, counsel and
         independent certified public accountants to respond to such inquiries
         as shall be necessary, in the reasonable opinion of respective counsel
         to conduct a reasonable investigation within the meaning of the
         Securities Act. The Company shall not file the Registration Statement
         or any such Prospectus or any amendments or supplements thereto to
         which the Holders of a majority of the Registrable Securities shall
         reasonably object in good faith, provided that the Company is notified
         of such objection in writing no later than 5 Trading Days after the
         Holders have been so furnished copies of such documents; provided that
         if the Holders so object, the liquidated damages in Section 2(b) shall
         be tolled for an additional 10 Trading Days. A Holder shall be deemed
         to have consented to any such filing if such Holder fails to object
         within 5 Trading Days of receiving a copy of such filing.

                  (b) (i) Prepare and file with the Commission such amendments,
         including post-effective amendments, to the Registration Statement and
         the Prospectus used in connection therewith as may be necessary to keep
         the Registration Statement continuously effective as to the applicable
         Registrable Securities for the Effectiveness Period and prepare and
         file with the Commission such additional Registration Statement in
         order to register for resale under the Securities Act all of the
         Registrable Securities; (ii) cause the related Prospectus to be amended
         or supplemented by any required Prospectus supplement, and as so
         supplemented or amended to be filed pursuant to Rule 424; (iii) respond
         as promptly as reasonably possible to any comments received from the
         Commission with respect to the Registration Statement or any amendment
         thereto and, as promptly as reasonably possible, upon request, provide
         the Holders true and complete copies of all correspondence from and to
         the Commission relating to the Registration Statement; and (iv) comply
         in all material respects with the provisions of the Securities Act and
         the Exchange Act with respect to the disposition of all Registrable
         Securities covered by the Registration Statement during the applicable
         period in accordance with the intended methods of disposition by the
         Holders thereof set forth in the Registration Statement as so amended
         or in such Prospectus as so supplemented.

                  (c) Notify the Holders of Registrable Securities to be sold as
         promptly as reasonably possible and (if requested by any such Person)
         confirm such notice in writing promptly following the day (i)(A) when a
         Prospectus or any Prospectus supplement or post-effective amendment to
         the Registration Statement is proposed to be filed; (B) when the
         Commission notifies the Company whether there will be a "review" of the
         Registration Statement and whenever the Commission comments in writing
         on the Registration Statement (the Company shall upon request provide
         true and complete copies thereof and all written responses thereto to
         each of the Holders); and (C) with respect to the Registration
         Statement or any post-effective amendment, when the same has become
         effective; (ii) of any request by the Commission or any other Federal
         or state governmental authority during the period of effectiveness of
         the Registration Statement for amendments or supplements to the
         Registration Statement or Prospectus or for additional information;

                                      -4-
<PAGE>

         (iii) of the issuance by the Commission or any other federal or state
         governmental authority of any stop order suspending the effectiveness
         of the Registration Statement covering any or all of the Registrable
         Securities or the initiation of any Proceedings for that purpose; (iv)
         of the receipt by the Company of any notification with respect to the
         suspension of the qualification or exemption from qualification of any
         of the Registrable Securities for sale in any jurisdiction, or the
         initiation or threatening of any Proceeding for such purpose; and (v)
         of the occurrence of any event or passage of time that makes the
         financial statements included in the Registration Statement ineligible
         for inclusion therein or any statement made in the Registration
         Statement or Prospectus or any document incorporated or deemed to be
         incorporated therein by reference untrue in any material respect or
         that requires any revisions to the Registration Statement, Prospectus
         or other documents so that, in the case of the Registration Statement
         or the Prospectus, as the case may be, it will not contain any untrue
         statement of a material fact or omit to state any material fact
         required to be stated therein or necessary to make the statements
         therein, in light of the circumstances under which they were made, not
         misleading.

                  (d) Use commercially reasonable efforts to avoid the issuance
         of, or, if issued, obtain the withdrawal of (i) any order suspending
         the effectiveness of the Registration Statement, or (ii) any suspension
         of the qualification (or exemption from qualification) of any of the
         Registrable Securities for sale in any jurisdiction, at the earliest
         practicable moment.

                  (e) Furnish to each Holder, without charge, at least one
         conformed copy of the Registration Statement and each amendment
         thereto, including financial statements and schedules, all documents
         incorporated or deemed to be incorporated therein by reference to the
         extent requested by such Person, and all exhibits to the extent
         requested by such Person (including those previously furnished or
         incorporated by reference) promptly after the filing of such documents
         with the Commission.

                  (f) Promptly deliver to each Holder, without charge, as many
         copies of the Prospectus or Prospectuses (including each form of
         prospectus) and each amendment or supplement thereto as such Persons
         may reasonably request in connection with resales by the Holder of
         Registrable Securities. Subject to the terms of this Agreement, the
         Company hereby consents to the use of such Prospectus and each
         amendment or supplement thereto by each of the selling Holders in
         connection with the offering and sale of the Registrable Securities
         covered by such Prospectus and any amendment or supplement thereto,
         except after the giving on any notice pursuant to Section 3(c).

                  (g) Prior to any resale of Registrable Securities by a Holder,
         use its commercially reasonable efforts to register or qualify or
         cooperate with the selling Holders in connection with the registration
         or qualification (or exemption from the Registration or qualification)
         of such Registrable Securities for the resale by the Holder under the
         securities or Blue Sky laws of such jurisdictions within the United
         States as any Holder reasonably requests in writing, to keep each the
         Registration or qualification (or exemption therefrom) effective during
         the Effectiveness Period and to do any and all other acts or things
         reasonably necessary to enable the disposition in such jurisdictions of

                                      -5-
<PAGE>

         the Registrable Securities covered by the Registration Statement;
         PROVIDED, that the Company shall not be required to qualify generally
         to do business in any jurisdiction where it is not then so qualified,
         subject the Company to any material tax in any such jurisdiction where
         it is not then so subject or file a general consent to service of
         process in any such jurisdiction.

                  (h) If requested by the Holders, cooperate with the Holders to
         facilitate the timely preparation and delivery of certificates
         representing Registrable Securities to be delivered to a transferee
         pursuant to the Registration Statement, which certificates shall be
         free, to the extent permitted by the Purchase Agreement, of all
         restrictive legends, and to enable such Registrable Securities to be in
         such denominations and registered in such names as any such Holders may
         request.

                  (i) Upon the occurrence of any event contemplated by Section
         3(c)(v), as promptly as reasonably possible, prepare a supplement or
         amendment, including a post-effective amendment, to the Registration
         Statement or a supplement to the related Prospectus or any document
         incorporated or deemed to be incorporated therein by reference, and
         file any other required document so that, as thereafter delivered,
         neither the Registration Statement nor such Prospectus will contain an
         untrue statement of a material fact or omit to state a material fact
         required to be stated therein or necessary to make the statements
         therein, in light of the circumstances under which they were made, not
         misleading.

                  (j) Comply with all applicable rules and regulations of the
         Commission.

                  (k) The Company may require each Holder to furnish to the
         Company a certified statement as to the number of shares of Common
         Stock beneficially owned by such Holder and, if required by the
         Commission, the person thereof that has voting and dispositive control
         over the Shares. During any periods that the Company is unable to meet
         its obligations hereunder with respect to the registration of the
         Registrable Securities solely because any Holder fails to furnish such
         information within three Trading Days of the Company's request, any
         liquidated damages that are accruing at such time shall be tolled and
         any Event that may otherwise occur solely because of such delay shall
         be suspended, until such information is delivered to the Company.

         4. REGISTRATION EXPENSES. All fees and expenses incident to the
performance of or compliance with this Agreement by the Company shall be borne
by the Company whether or not any Registrable Securities are sold pursuant to
the Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the Trading Market on which the Common Stock is then
listed for trading, and (B) in compliance with applicable state securities or
Blue Sky laws), (ii) printing expenses (including, without limitation, expenses
of printing certificates for Registrable Securities and of printing prospectuses
if the printing of prospectuses is reasonably requested by the holders of a
majority of the Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of

                                      -6-
<PAGE>

counsel for the Company, (v) Securities Act liability insurance, if the Company
so desires such insurance, and (vi) fees and expenses of all other Persons
retained by the Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be responsible
for all of its internal expenses incurred in connection with the consummation of
the transactions contemplated by this Agreement (including, without limitation,
all salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit and the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder. In no event shall the Company be
responsible for any broker or similar commissions or, except to the extent
provided for in the Transaction Documents, any legal fees or other costs of the
Holders.

         5.       INDEMNIFICATION

                  (a) INDEMNIFICATION BY THE COMPANY. The Company shall,
         notwithstanding any termination of this Agreement, indemnify and hold
         harmless each Holder, the officers, directors, agents and employees of
         each of them, each Person who controls any such Holder (within the
         meaning of Section 15 of the Securities Act or Section 20 of the
         Exchange Act) and the officers, directors, agents and employees of each
         such controlling Person, to the fullest extent permitted by applicable
         law, from and against any and all losses, claims, damages, liabilities,
         costs (including, without limitation, reasonable attorneys' fees) and
         expenses (collectively, "LOSSES"), as incurred, arising out of or
         relating to any untrue or alleged untrue statement of a material fact
         contained in the Registration Statement, any Prospectus or any form of
         prospectus or in any amendment or supplement thereto or in any
         preliminary prospectus, or arising out of or relating to any omission
         or alleged omission of a material fact required to be stated therein or
         necessary to make the statements therein (in the case of any Prospectus
         or form of prospectus or supplement thereto, in light of the
         circumstances under which they were made) not misleading, except to the
         extent, but only to the extent, that (1) such untrue statements or
         omissions or alleged untrue statements or omissions are based upon
         information regarding such Holder furnished in writing to the Company
         by such Holder for use therein, or to the extent that such information
         relates to such Holder or such Holder's proposed method of distribution
         of Registrable Securities and was reviewed and expressly approved in
         writing by such Holder for use in the Registration Statement, such
         Prospectus or such form of Prospectus or in any amendment or supplement
         thereto (it being understood that the Holder has approved Annex A
         hereto for this purpose) or (2) in the case of an occurrence of an
         event of the type specified in Section 3(c)(ii)-(v), the use by such
         Holder of an outdated or defective Prospectus after the Company has
         notified such Holder in writing that the Prospectus is outdated or
         defective and prior to the receipt by such Holder of the Advice
         contemplated in Section 6(d). The Company shall notify the Holders
         promptly of the institution, threat or assertion of any Proceeding of
         which the Company is aware in connection with the transactions
         contemplated by this Agreement.

                  (b) INDEMNIFICATION BY HOLDERS. Each Holder shall, severally
         and not jointly, indemnify and hold harmless the Company, its
         directors, officers, agents and employees, each Person who controls the
         Company (within the meaning of Section 15 of the Securities Act and
         Section 20 of the Exchange Act), and the directors, officers, agents or
         employees of such controlling Persons, to the fullest extent permitted
         by applicable law, from and against all Losses, as incurred, to the
         extent arising out of or based upon: (x) such Holder's failure to

                                      -7-
<PAGE>

         comply with the prospectus delivery requirements of the Securities Act
         or (y) any untrue or alleged untrue statement of a material fact
         contained in any Registration Statement, any Prospectus, or any form of
         prospectus, or in any amendment or supplement thereto or in any
         preliminary prospectus, or arising out of or relating to any omission
         or alleged omission of a material fact required to be stated therein or
         necessary to make the statements therein not misleading (i) to the
         extent, but only to the extent, that such untrue statement or omission
         is contained in any information so furnished in writing by such Holder
         to the Company for inclusion in the Registration Statement or such
         Prospectus or (ii) to the extent that (1) such untrue statements or
         omissions are based upon information regarding such Holder furnished in
         writing to the Company by such Holder for use therein, or to the extent
         that such information relates to such Holder or such Holder's proposed
         method of distribution of Registrable Securities and was reviewed and
         approved in writing by such Holder for use in the Registration
         Statement (it being understood that the Holder has approved Annex A
         hereto for this purpose), such Prospectus or such form of Prospectus or
         in any amendment or supplement thereto or (2) in the case of an
         occurrence of an event of the type specified in Section 3(c)(ii)-(v),
         the use by such Holder of an outdated or defective Prospectus after the
         Company has notified such Holder in writing that the Prospectus is
         outdated or defective and prior to the receipt by such Holder of the
         Advice contemplated in Section 6(d). In no event shall the liability of
         any selling Holder hereunder be greater in amount than the dollar
         amount of the net proceeds received by such Holder upon the sale of the
         Registrable Securities giving rise to such indemnification obligation.

                  (c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. If any Proceeding
         shall be brought or asserted against any Person entitled to indemnity
         hereunder (an "INDEMNIFIED PARTY"), such Indemnified Party shall
         promptly notify the Person from whom indemnity is sought (the
         "INDEMNIFYING PARTY") in writing, and the Indemnifying Party shall have
         the right to assume the defense thereof, including the employment of
         counsel reasonably satisfactory to the Indemnified Party and the
         payment of all fees and expenses incurred in connection with defense
         thereof; provided, that the failure of any Indemnified Party to give
         such notice shall not relieve the Indemnifying Party of its obligations
         or liabilities pursuant to this Agreement, except (and only) to the
         extent that it shall be finally determined by a court of competent
         jurisdiction (which determination is not subject to appeal or further
         review) that such failure shall have prejudiced the Indemnifying Party.

                  An Indemnified Party shall have the right to employ separate
         counsel in any such Proceeding and to participate in the defense
         thereof, but the fees and expenses of such counsel shall be at the
         expense of such Indemnified Party or Parties unless: (1) the
         Indemnifying Party has agreed in writing to pay such fees and expenses;
         (2) the Indemnifying Party shall have failed promptly to assume the
         defense of such Proceeding and to employ counsel reasonably
         satisfactory to such Indemnified Party in any such Proceeding; or (3)
         the named parties to any such Proceeding (including any impleaded
         parties) include both such Indemnified Party and the Indemnifying
         Party, and such Indemnified Party shall have been advised by counsel
         that a conflict of interest is likely to exist if the same counsel were
         to represent such Indemnified Party and the Indemnifying Party (in
         which case, if such Indemnified Party notifies the Indemnifying Party
         in writing that it elects to employ separate counsel at the expense of
         the Indemnifying Party, the Indemnifying Party shall not have the right
         to assume the defense thereof and the reasonable fees and expenses of
         one separate counsel shall be at the expense of the Indemnifying

                                      -8-
<PAGE>

         Party). The Indemnifying Party shall not be liable for any settlement
         of any such Proceeding effected without its written consent, which
         consent shall not be unreasonably withheld. No Indemnifying Party
         shall, without the prior written consent of the Indemnified Party,
         effect any settlement of any pending Proceeding in respect of which any
         Indemnified Party is a party, unless such settlement includes an
         unconditional release of such Indemnified Party from all liability on
         claims that are the subject matter of such Proceeding.

                  Subject to the terms of this Agreement, all reasonable fees
         and expenses of the Indemnified Party (including reasonable fees and
         expenses to the extent incurred in connection with investigating or
         preparing to defend such Proceeding in a manner not inconsistent with
         this Section) shall be paid to the Indemnified Party, as incurred,
         within ten Trading Days of written notice thereof to the Indemnifying
         Party; PROVIDED, that the Indemnified Party shall promptly reimburse
         the Indemnifying Party for that portion of such fees and expenses
         applicable to such actions for which such Indemnified Party is not
         entitled to indemnification hereunder, determined based upon the
         relative faults of the parties.

                  (d) CONTRIBUTION. If a claim for indemnification under Section
         5(a) or 5(b) is unavailable to an Indemnified Party (by reason of
         public policy or otherwise), then each Indemnifying Party, in lieu of
         indemnifying such Indemnified Party, shall contribute to the amount
         paid or payable by such Indemnified Party as a result of such Losses,
         in such proportion as is appropriate to reflect the relative fault of
         the Indemnifying Party and Indemnified Party in connection with the
         actions, statements or omissions that resulted in such Losses as well
         as any other relevant equitable considerations. The relative fault of
         such Indemnifying Party and Indemnified Party shall be determined by
         reference to, among other things, whether any action in question,
         including any untrue or alleged untrue statement of a material fact or
         omission or alleged omission of a material fact, has been taken or made
         by, or relates to information supplied by, such Indemnifying Party or
         Indemnified Party, and the parties' relative intent, knowledge, access
         to information and opportunity to correct or prevent such action,
         statement or omission. The amount paid or payable by a party as a
         result of any Losses shall be deemed to include, subject to the
         limitations set forth in this Agreement, any reasonable attorneys' or
         other reasonable fees or expenses incurred by such party in connection
         with any Proceeding to the extent such party would have been
         indemnified for such fees or expenses if the indemnification provided
         for in this Section was available to such party in accordance with its
         terms.

                  The parties hereto agree that it would not be just and
         equitable if contribution pursuant to this Section 5(d) were determined
         by pro rata allocation or by any other method of allocation that does
         not take into account the equitable considerations referred to in the
         immediately preceding paragraph. Notwithstanding the provisions of this
         Section 5(d), no Holder shall be required to contribute, in the
         aggregate, any amount in excess of the amount by which the proceeds
         actually received by such Holder from the sale of the Registrable
         Securities subject to the Proceeding exceeds the amount of any damages
         that such Holder has otherwise been required to pay by reason of such

                                      -9-
<PAGE>

         untrue or alleged untrue statement or omission or alleged omission,
         except in the case of fraud by such Holder.

                  The indemnity and contribution agreements contained in this
         Section are in addition to any liability that the Indemnifying Parties
         may have to the Indemnified Parties.

         6.       MISCELLANEOUS

                  (a) REMEDIES. In the event of a breach by the Company or by a
         Holder, of any of their obligations under this Agreement, each Holder
         or the Company, as the case may be, in addition to being entitled to
         exercise all rights granted by law and under this Agreement, including
         recovery of damages, will be entitled to specific performance of its
         rights under this Agreement. The Company and each Holder agree that
         monetary damages would not provide adequate compensation for any losses
         incurred by reason of a breach by it of any of the provisions of this
         Agreement and hereby further agrees that, in the event of any action
         for specific performance in respect of such breach, it shall waive the
         defense that a remedy at law would be adequate.

                  (b) NO PIGGYBACK ON REGISTRATIONS. Except as set forth on
         Schedule 6(b) attached hereto, neither the Company nor any of its
         security holders (other than the Holders in such capacity pursuant
         hereto) may include securities of the Company in the Registration
         Statement other than the Registrable Securities. Except as set forth in
         the SEC Reports, no Person has any right to cause the Company to effect
         the registration under the Securities Act of any securities of the
         Company.

                  (c) COMPLIANCE. Each Holder covenants and agrees that it will
         comply with the prospectus delivery requirements of the Securities Act
         as applicable to it in connection with sales of Registrable Securities
         pursuant to the Registration Statement.

                  (d) DISCONTINUED DISPOSITION. Each Holder agrees by its
         acquisition of such Registrable Securities that, upon receipt of a
         notice from the Company of the occurrence of any event of the kind
         described in Section 3(c), such Holder will forthwith discontinue
         disposition of such Registrable Securities under the Registration
         Statement until such Holder's receipt of the copies of the supplemented
         Prospectus and/or amended Registration Statement or until it is advised
         in writing (the "ADVICE") by the Company that the use of the applicable
         Prospectus may be resumed, and, in either case, has received copies of
         any additional or supplemental filings that are incorporated or deemed
         to be incorporated by reference in such Prospectus or Registration
         Statement. The Company may provide appropriate stop orders to enforce
         the provisions of this paragraph; PROVIDED, HOWEVER, any such
         suspensions shall be subject to liquidated damages pursuant to Section
         2(b).

                  (e) PIGGY-BACK REGISTRATIONS. If at any time during the
         Effectiveness Period there is not an effective Registration Statement
         covering all of the Registrable Securities and the Company shall
         determine to prepare and file with the Commission a registration
         statement relating to an offering for its own account or the account of

                                      -10-
<PAGE>

         others under the Securities Act of any of its equity securities, other
         than on Form S-4 or Form S-8 (each as promulgated under the Securities
         Act) or their then equivalents relating to equity securities to be
         issued solely in connection with any acquisition of any entity or
         business or equity securities issuable in connection with the stock
         option or other employee benefit plans, then the Company shall send to
         each Holder a written notice of such determination and, if within
         fifteen days after the date of such notice, any such Holder shall so
         request in writing, the Company shall include in such registration
         statement all or any part of such Registrable Securities such Holder
         requests to be registered, subject to customary underwriter cutbacks
         applicable to all holders of registration rights; provided, that, the
         Company shall not be required to register any Registrable Securities
         pursuant to this Section 6(e) that are eligible for resale pursuant to
         Rule 144(k) promulgated under the Securities Act or that are the
         subject of a then effective Registration Statement

                  (f) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
         including the provisions of this sentence, may not be amended, modified
         or supplemented, and waivers or consents to departures from the
         provisions hereof may not be given, unless the same shall be in writing
         and signed by the Company and each Holder of the then outstanding
         Registrable Securities. Notwithstanding the foregoing, a waiver or
         consent to depart from the provisions hereof with respect to a matter
         that relates exclusively to the rights of certain Holders and that does
         not directly or indirectly affect the rights of other Holders may be
         given by Holders of all of the Registrable Securities to which such
         waiver or consent relates; PROVIDED, HOWEVER, that the provisions of
         this sentence may not be amended, modified, or supplemented except in
         accordance with the provisions of the immediately preceding sentence.

                  (g) NOTICES. Any and all notices or other communications or
         deliveries required or permitted to be provided hereunder shall be made
         in accordance with the provisions of the Purchase Agreement.

                  (h) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
         benefit of and be binding upon the successors and permitted assigns of
         each of the parties and shall inure to the benefit of each Holder. Each
         Holder may assign their respective rights hereunder in the manner and
         to the Persons as permitted under the Purchase Agreement.

                  (i) EXECUTION AND COUNTERPARTS. This Agreement may be executed
         in any number of counterparts, each of which when so executed shall be
         deemed to be an original and, all of which taken together shall
         constitute one and the same Agreement. In the event that any signature
         is delivered by facsimile transmission, such signature shall create a
         valid binding obligation of the party executing (or on whose behalf
         such signature is executed) the same with the same force and effect as
         if such facsimile signature were the original thereof.

                  (j) GOVERNING LAW. All questions concerning the construction,
         validity, enforcement and interpretation of this Agreement shall be
         determined with the provisions of the Purchase Agreement.

                                      -11-
<PAGE>

                  (k) CUMULATIVE REMEDIES. The remedies provided herein are
         cumulative and not exclusive of any remedies provided by law.

                  (l) SEVERABILITY. If any term, provision, covenant or
         restriction of this Agreement is held by a court of competent
         jurisdiction to be invalid, illegal, void or unenforceable, the
         remainder of the terms, provisions, covenants and restrictions set
         forth herein shall remain in full force and effect and shall in no way
         be affected, impaired or invalidated, and the parties hereto shall use
         their commercially reasonable efforts to find and employ an alternative
         means to achieve the same or substantially the same result as that
         contemplated by such term, provision, covenant or restriction. It is
         hereby stipulated and declared to be the intention of the parties that
         they would have executed the remaining terms, provisions, covenants and
         restrictions without including any of such that may be hereafter
         declared invalid, illegal, void or unenforceable.

                  (m) HEADINGS. The headings in this Agreement are for
         convenience of reference only and shall not limit or otherwise affect
         the meaning hereof.

                  (n) INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS.
         The obligations of each Purchaser hereunder are several and not joint
         with the obligations of any other Purchaser hereunder, and no Purchaser
         shall be responsible in any way for the performance of the obligations
         of any other Purchaser hereunder. Nothing contained herein or in any
         other agreement or document delivered at any closing, and no action
         taken by any Purchaser pursuant hereto or thereto, shall be deemed to
         constitute the Purchasers as a partnership, an association, a joint
         venture or any other kind of entity, or create a presumption that the
         Purchasers are in any way acting in concert with respect to such
         obligations or the transactions contemplated by this Agreement. Each
         Purchaser shall be entitled to protect and enforce its rights,
         including without limitation the rights arising out of this Agreement,
         and it shall not be necessary for any other Purchaser to be joined as
         an additional party in any proceeding for such purpose.


                            *************************

                                      -12-
<PAGE>

                  IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.

                                    AETHLON MEDICAL, INC.


                                    By: ____________________________________
                                          Name:
                                          Title:


                       [SIGNATURE PAGE OF HOLDERS FOLLOWS]

                                      -13-
<PAGE>

                       [SIGNATURE PAGE OF HOLDERS TO RRA]



                                    By: _____________________________________
                                          Name:
                                          Title:

                                      -14-
<PAGE>

                                     ANNEX A

                              PLAN OF DISTRIBUTION
                              --------------------

         The Selling Stockholders (the "SELLING STOCKHOLDERS") of the common
stock ("COMMON STOCK") of Aethlon Medical, Inc. (the "COMPANY") and any of their
pledgees, assignees and successors-in-interest may, from time to time, sell any
or all of their shares of Common Stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The Selling Stockholders may use any one
or more of the following methods when selling shares:

         o        ordinary brokerage transactions and transactions in which the
                  broker-dealer solicits purchasers;

         o        block trades in which the broker-dealer will attempt to sell
                  the shares as agent but may position and resell a portion of
                  the block as principal to facilitate the transaction;

         o        purchases by a broker-dealer as principal and resale by the
                  broker-dealer for its account;

         o        an exchange distribution in accordance with the rules of the
                  applicable exchange;

         o        privately negotiated transactions;

         o        settlement of short sales;

         o        broker-dealers may agree with the Selling Stockholders to sell
                  a specified number of such shares at a stipulated price per
                  share;

         o        a combination of any such methods of sale;

         o        through the writing or settlement of options or other hedging
                  transactions, whether through an options exchange or
                  otherwise; or

         o        any other method permitted pursuant to applicable law.

         The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), if available, rather
than under this prospectus.

         Broker-dealers engaged by the Selling Stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer
acts as agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

         In connection with the sale of our common stock or interests therein,
the Selling Stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the

                                      -15-
<PAGE>

common stock in the course of hedging the positions they assume. The Selling
Stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).

         The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act. The Selling Stockholders have
informed the Company that it does not have any agreement or understanding,
directly or indirectly, with any person to distribute the Common Stock.

         The Company is required to pay certain fees and expenses incurred by
the Company incident to the registration of the shares. The Company has agreed
to indemnify the Selling Stockholders against certain losses, claims, damages
and liabilities, including liabilities under the Securities Act.

                                      -16-
<PAGE>

                                  SCHEDULE 6(b)


1.       Shares issuable to Fusion Capital Fund II, LLC.

2.       225,000 shares of common stock and 225,000 shares of common stock
         underlying warrants issued to Richardson and Patel, LLP.


                                      -17-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.5
<SEQUENCE>6
<FILENAME>aethlon_8kex4-5.txt
<TEXT>
<PAGE>
EXHIBIT 4.5

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR
REASONABLY ACCEPTABLE TO THE COMPANY TO SUCH EFFECT, THE SUBSTANCE OF WHICH
SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR
OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS
DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT.

                          COMMON STOCK PURCHASE WARRANT


                To Purchase __________ Shares of Common Stock of

                              AETHLON MEDICAL, INC.

         THIS COMMON STOCK PURCHASE WARRANT (the "WARRANT") CERTIFIES that, for
value received, _____________ (the "HOLDER"), is entitled, upon the terms and
subject to the limitations on exercise and the conditions hereinafter set forth,
at any time on or after May __, 2004 (the "INITIAL EXERCISE DATE") and on or
prior to the close of business on the third anniversary from the date of a
registration statement covering the common stock underlying the Warrant is
declared effective (the "TERMINATION DATE") but not thereafter, to subscribe for
and purchase from Aethlon Medical, Inc., a corporation incorporated in the State
of Nevada (the "COMPANY"), up to ____________ shares (the "WARRANT SHARES") of
Common Stock, par value $0.001 per share, of the Company (the "COMMON STOCK").
The purchase price of one share of Common Stock (the "EXERCISE PRICE") under
this Warrant shall be $0.76 subject to adjustment hereunder. The Exercise Price
and the number of Warrant Shares for which the Warrant is exercisable shall be
subject to adjustment as provided herein. CAPITALIZED TERMS USED AND NOT
OTHERWISE DEFINED HEREIN SHALL HAVE THE MEANINGS SET FORTH IN THAT CERTAIN
SECURITIES PURCHASE AGREEMENT (THE "PURCHASE AGREEMENT"), DATED MAY __, 2004,
AMONG THE COMPANY AND THE PURCHASERS SIGNATORY THERETO.

                                      -1-
<PAGE>

         1. TITLE TO WARRANT. Prior to the Termination Date and subject to
compliance with applicable laws and Section 7 of this Warrant, this Warrant and
all rights hereunder are transferable, in whole or in part, at the office or
agency of the Company by the Holder in person or by duly authorized attorney,
upon surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed. The transferee shall sign an investment letter in form and
substance reasonably satisfactory to the Company.

         2. AUTHORIZATION OF SHARES. The Company covenants that all Warrant
Shares which may be issued upon the exercise of the purchase rights represented
by this Warrant will, upon exercise of the purchase rights represented by this
Warrant, be duly authorized, validly issued, fully paid and nonassessable and
free from all taxes, liens and charges in respect of the issue thereof (other
than taxes in respect of any transfer occurring contemporaneously with such
issue).

         3. EXERCISE OF WARRANT.

                  (a) Exercise of the purchase rights represented by this
Warrant may be made at any time or times on or after the Initial Exercise Date
and on or before the Termination Date by delivery to the Company of a duly
executed facsimile copy of the Notice of Exercise Form annexed hereto (or such
other office or agency of the Company as it may designate by notice in writing
to the registered Holder at the address of such Holder appearing on the books of
the Company); PROVIDED, HOWEVER, within 5 Trading Days of the date said Notice
of Exercise is delivered to the Company, the Holder shall have surrendered this
Warrant to the Company and the Company shall have received payment of the
aggregate Exercise Price of the shares thereby purchased by wire transfer or
cashier's check drawn on a United States bank. Certificates for shares purchased
hereunder shall be delivered to the Holder within the earlier of (i) 5 Trading
Days after the date on which the Notice of Exercise shall have been delivered by
facsimile copy or (ii) 3 Trading Days from the delivery to the Company of the
Notice of Exercise Form by facsimile copy, surrender of this Warrant and payment
of the aggregate Exercise Price as set forth above ("WARRANT SHARE DELIVERY
DATE"); PROVIDED, HOWEVER, in the event the Warrant is not surrendered or the
aggregate Exercise Price is not received by the Company within 5 Trading Days
after the date on which the Notice of Exercise shall be delivered by facsimile
copy, the Warrant Share Delivery Date shall be extended to the extent such 5
Trading Day period is exceeded. This Warrant shall be deemed to have been
exercised on the later of the date the Notice of Exercise is delivered to the
Company by facsimile copy and the date the Exercise Price is received by the
Company. The Warrant Shares shall be deemed to have been issued, and Holder or
any other person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
Warrant has been exercised by payment to the Company of the Exercise Price and
all taxes required to be paid by the Holder, if any, pursuant to Section 5 prior
to the issuance of such shares, have been paid. If the Company fails to deliver
to the Holder a certificate or certificates representing the Warrant Shares
pursuant to this Section 3(a) by the third Trading Day following the Warrant
Share Delivery Date, then the Holder will have the right to rescind such
exercise. In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder a certificate or certificates
representing the Warrant Shares pursuant to an exercise by the third Trading Day
after the Warrant Share Delivery Date, and if after such day the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the

                                      -2-
<PAGE>

Warrant Shares which the Holder anticipated receiving upon such exercise (a
"BUY-IN"), then the Company shall (1) pay in cash to the Holder the amount by
which (x) the Holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased exceeds (y) the amount obtained
by multiplying (A) the number of Warrant Shares that the Company was required to
deliver to the Holder in connection with the exercise at issue times (B) the
price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Warrant and equivalent number of Warrant Shares for which such exercise was
not honored or deliver to the Holder the number of shares of Common Stock that
would have been issued had the Company timely complied with its exercise and
delivery obligations hereunder. For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In, together with applicable
confirmations and other evidence reasonably requested by the Company. Nothing
herein shall limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief with respect to the Company's
failure to timely deliver certificates representing shares of Common Stock upon
exercise of the Warrant as required pursuant to the terms hereof.

                  (b) If this Warrant shall have been exercised in part, the
Company shall, at the time of delivery of the certificate or certificates
representing Warrant Shares, deliver to Holder a new Warrant evidencing the
rights of Holder to purchase the unpurchased Warrant Shares called for by this
Warrant, which new Warrant shall in all other respects be identical with this
Warrant.

                  (c) The Company shall not effect any exercise of this Warrant,
and the Holder shall not have the right to exercise any portion of this Warrant,
pursuant to Section 3(a) or otherwise, to the extent that after giving effect to
such issuance after exercise, the Holder (together with the Holder's
affiliates), as set forth on the applicable Notice of Exercise, would
beneficially own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such issuance. For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon exercise of this Warrant with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) exercise of the
remaining, nonexercised portion of this Warrant beneficially owned by the Holder
or any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section 3(c), beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this Section 3(c) applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by the
Holder) and of which a portion of this Warrant is exercisable shall be in the
sole discretion of such Holder, and the submission of a Notice of Exercise shall

                                      -3-
<PAGE>

be deemed to be such Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by such Holder) and of which
portion of this Warrant is exercisable, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of this Section 3(c),
in determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-QSB or Form 10-KSB, as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company
or the Company's Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Warrant,
by the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this Section
3(c) may be waived by the Holder upon, at the election of the Holder, not less
than 61 days' prior notice to the Company, and the provisions of this Section
3(c) shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver).

                  (d) Subject to the provisions of this Section 3, if the
Closing Price for each of any twenty consecutive Trading Days after the
Effective Date (the "MEASUREMENT PRICE") exceeds 200% of the then Exercise Price
(the "THRESHOLD PRICE"), then the Company may, within two Trading Days of such
period, call for cancellation of all or any portion of this Warrant for which a
Notice of Exercise has not yet been delivered (such right, a "CALL"). To
exercise this right, the Company must deliver to the Holder an irrevocable
notice (a "CALL NOTICE") indicating therein the portion of unexercised portion
of this Warrant to which such notice applies. If the conditions set forth below
for such Call are satisfied from the period from the date of the Call Notice
through and including the Call Date (as defined below), then any portion of this
Warrant subject to such Call Notice for which a Notice of Exercise and, within 3
Trading Days after the Call Date, payment of the aggregate Exercise Price of the
shares thereby purchased by wire transfer or cashier's check drawn on a United
States bank shall not have been received by the Company from and after the date
of the Call Notice will be cancelled at 6:30 p.m. (New York City time) on the
60th Trading Day after the date the Call Notice is received by the Holder (such
date, the "CALL DATE"). Any unexercised portion of this Warrant to which the
Call Notice does not pertain will be unaffected by such Call Notice. In
furtherance thereof, the Company covenants and agrees that it will honor all
Notices of Exercise with respect to Warrant Shares subject to a Call Notice that
are tendered from the time of delivery of the Call Notice through 6:30 p.m. (New
York City time) on the Call Date. The parties agree that any Notice of Exercise
delivered following a Call Notice shall first reduce to zero the number of
Warrant Shares subject to such Call Notice prior to reducing the remaining
Warrant Shares available for purchase under this Warrant. For example, if (x)
this Warrant then permits the Holder to acquire 100 Warrant Shares, (y) a Call
Notice pertains to 75 Warrant Shares, and (z) prior to 6:30 p.m. (New York City
time) on the Call Date the Holder tenders a Notice of Exercise in respect of 50
Warrant Shares, then (1) on the Call Date the right under this Warrant to
acquire 25 Warrant Shares will be automatically cancelled, (2) the Company, in
the time and manner required under this Warrant, will have issued and delivered
to the Holder 50 Warrant Shares in respect of the exercises following receipt of

                                      -4-
<PAGE>

the Call Notice, and (3) the Holder may, until the Termination Date, exercise
this Warrant for 25 Warrant Shares (subject to adjustment as herein provided and
subject to subsequent Call Notices). Subject again to the provisions of this
Section 3, the Company may deliver subsequent Call Notices for any portion of
this Warrant for which the Holder shall not have delivered a Notice of Exercise.
Notwithstanding anything to the contrary set forth in this Warrant, the Company
may not deliver a Call Notice or require the cancellation of this Warrant (and
any Call Notice will be void), unless, from the beginning of the 20 consecutive
Trading Days used to determine whether the Common Stock has achieved the
Threshold Price through the Call Date, (i) the Company shall have honored in
accordance with the terms of this Warrant all Notices of Exercise delivered by
6:30 p.m. (New York City time) on the Call Date, (ii) the Registration Statement
shall be effective as to all Warrant Shares and the prospectus thereunder
available for use by the Holder for the resale all such Warrant Shares and (iii)
the Common Stock shall be listed or quoted for trading on the Trading Market.
The Company's right to Call the Warrant shall be exercised ratably among the
Purchasers based on each Purchaser's initial purchase of Shares pursuant to the
Purchase Agreement.

         4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. As to any fraction of a share which Holder would otherwise be entitled
to purchase upon such exercise, the Company shall pay a cash adjustment in
respect of such final fraction in an amount equal to such fraction multiplied by
the Exercise Price.

         5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares shall be made without charge to the Holder for any issue or transfer tax
or other incidental expense in respect of the issuance of such certificate, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the Holder or in such name or names as may be
directed by the Holder; PROVIDED, HOWEVER, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder,
this Warrant when surrendered for exercise shall be accompanied by the
Assignment Form attached hereto duly executed by the Holder; and the Company may
require, as a condition thereto, the payment of a sum sufficient to reimburse it
for any transfer tax incidental thereto.

         6. CLOSING OF BOOKS. The Company will not close its stockholder books
or records in any manner which prevents the timely exercise of this Warrant,
pursuant to the terms hereof.

         7. TRANSFER, DIVISION AND COMBINATION.

                  (a) Subject to compliance with any applicable securities laws
         and the conditions set forth in Sections 1 and 7(e) hereof and to the
         provisions of Section 4.1 of the Purchase Agreement, this Warrant and
         all rights hereunder are transferable subject to Company approval, in
         whole or in part, upon surrender of this Warrant at the principal
         office of the Company, together with a written assignment of this
         Warrant substantially in the form attached hereto duly executed by the
         Holder or its agent or attorney and funds sufficient to pay any
         transfer taxes payable upon the making of such transfer. Upon such
         surrender and, if required, such payment, the Company shall execute and
         deliver a new Warrant or Warrants in the name of the assignee or
         assignees and in the denomination or denominations specified in such

                                      -5-
<PAGE>

         instrument of assignment, and shall issue to the assignor a new Warrant
         evidencing the portion of this Warrant not so assigned, and this
         Warrant shall promptly be cancelled. A Warrant, if properly assigned,
         may be exercised by a new holder for the purchase of Warrant Shares
         without having a new Warrant issued.

                  (b) This Warrant may be divided or combined with other
         Warrants upon presentation hereof at the aforesaid office of the
         Company, together with a written notice specifying the names and
         denominations in which new Warrants are to be issued, signed by the
         Holder or its agent or attorney. Subject to compliance with Section
         7(a), as to any transfer which may be involved in such division or
         combination, the Company shall execute and deliver a new Warrant or
         Warrants in exchange for the Warrant or Warrants to be divided or
         combined in accordance with such notice.

                  (c) The Company shall prepare, issue and deliver at its own
         expense (other than transfer taxes) the new Warrant or Warrants under
         this Section 7.

                  (d) The Company agrees to maintain, at its aforesaid office,
         books for the registration and the registration of transfer of the
         Warrants.

                  (e) If, at the time of the surrender of this Warrant in
         connection with any transfer of this Warrant, the transfer of this
         Warrant shall not be registered pursuant to an effective registration
         statement under the Securities Act and under applicable state
         securities or blue sky laws, the Company may require, as a condition of
         allowing such transfer (i) that the Holder or transferee of this
         Warrant, as the case may be, furnish to the Company a written opinion
         of counsel (which opinion shall be in form, substance and scope
         customary for opinions of counsel in comparable transactions and
         reasonably acceptable to the Company) to the effect that such transfer
         may be made without registration under the Securities Act and under
         applicable state securities or blue sky laws, (ii) that the holder or
         transferee execute and deliver to the Company an investment letter in
         form and substance acceptable to the Company and (iii) that the
         transferee be an "accredited investor" as defined in Rule 501(a)
         promulgated under the Securities Act.

         8. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. This Warrant does not
entitle the Holder to any voting rights or other rights as a shareholder of the
Company prior to the exercise hereof. Upon the surrender of this Warrant and the
payment of the aggregate Exercise Price, the Warrant Shares so purchased shall
be and be deemed to be issued to such Holder as the record owner of such shares
as of the close of business on the later of the date of such surrender or
payment.

         9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. The Company
covenants that upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant or any stock
certificate relating to the Warrant Shares, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it (which, in
the case of the Warrant, shall not include the posting of any bond), and upon
surrender and cancellation of such Warrant or stock certificate, if mutilated,
the Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of such Warrant or stock
certificate.

                                      -6-
<PAGE>

         10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.

         11. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES;

                  (a) STOCK SPLITS, ETC. The number and kind of securities
purchasable upon the exercise of this Warrant and the Exercise Price shall be
subject to adjustment from time to time upon the happening of any of the
following. In case the Company shall (i) pay a dividend in shares of Common
Stock or make a distribution in shares of Common Stock to holders of its
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock
into a greater number of shares, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue any shares
of its capital stock in a reclassification of the Common Stock, then the number
of Warrant Shares purchasable upon exercise of this Warrant immediately prior
thereto shall be adjusted so that the Holder shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which it
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the Holder shall thereafter be entitled to purchase the number of
Warrant Shares or other securities resulting from such adjustment at an Exercise
Price per Warrant Share or other security obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing by the number of Warrant Shares or other securities of the Company
resulting from such adjustment. An adjustment made pursuant to this paragraph
shall become effective immediately after the effective date of such event
retroactive to the record date, if any, for such event.

                  (b) WARRANT DEFAULT REDUCTION. If (i) the Company does not
file a Registration Statement on or before the Filing Date or (ii) prior to the
date when the initial Registration Statement is first declared effective by the
Commission, the Company fails to file a pre-effective amendment and otherwise
respond in writing to comments made by the Commission in respect of such
Registration Statement within 15 Trading Days after the receipt of comments by
or notice from the Commission that such amendment is required in order for a
Registration Statement to be declared effective, then, immediately and
automatically and upon

         12. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of its property, assets or business to
another corporation and, pursuant to the terms of such reorganization,
reclassification, merger, consolidation or disposition of assets, shares of
common stock of the successor or acquiring corporation, or any cash, shares of
stock or other securities or property of any nature whatsoever (including
warrants or other subscription or purchase rights) in addition to or in lieu of
common stock of the successor or acquiring corporation ("OTHER PROPERTY"), are
to be received by or distributed to the holders of Common Stock of the Company,
then the Holder shall have the right thereafter to receive, at the option of the

                                      -7-
<PAGE>

Holder, (a) upon exercise of this Warrant, the number of shares of Common Stock
of the successor or acquiring corporation or of the Company, if it is the
surviving corporation, and Other Property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a Holder of the number of shares of Common Stock for which this Warrant is
exercisable immediately prior to such event or (b) cash equal to the value of
this Warrant as determined in accordance with the Black Scholes option pricing
formula. In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Warrant to be performed and observed by the Company and all the obligations and
liabilities hereunder, subject to such modifications as may be deemed
appropriate (as determined in good faith by resolution of the Board of Directors
of the Company) in order to provide for adjustments of Warrant Shares for which
this Warrant is exercisable which shall be as nearly equivalent as practicable
to the adjustments provided for in this Section 12. For purposes of this Section
12, "common stock of the successor or acquiring corporation" shall include stock
of such corporation of any class which is not preferred as to dividends or
assets over any other class of stock of such corporation and which is not
subject to redemption and shall also include any evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable
for any such stock, either immediately or upon the arrival of a specified date
or the happening of a specified event and any warrants or other rights to
subscribe for or purchase any such stock. The foregoing provisions of this
Section 12 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

         13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at any time
during the term of this Warrant reduce the then current Exercise Price to any
amount and for any period of time deemed appropriate by the Board of Directors
of the Company.

         14. NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares or
number or kind of securities or other property purchasable upon the exercise of
this Warrant or the Exercise Price is adjusted, as herein provided, the Company
shall give notice thereof to the Holder, which notice shall state the number of
Warrant Shares (and other securities or property) purchasable upon the exercise
of this Warrant and the Exercise Price of such Warrant Shares (and other
securities or property) after such adjustment, setting forth a brief statement
of the facts requiring such adjustment and setting forth the computation by
which such adjustment was made.

         15. NOTICE OF CORPORATE ACTION. If at any time:

                  (a) the Company shall take a record of the holders of its
         Common Stock for the purpose of entitling them to receive a dividend or
         other distribution, or any right to subscribe for or purchase any
         evidences of its indebtedness, any shares of stock of any class or any
         other securities or property, or to receive any other right, or

                  (b) there shall be any capital reorganization of the Company,
         any reclassification or recapitalization of the capital stock of the
         Company or any consolidation or merger of the Company with, or any

                                      -8-
<PAGE>

         sale, transfer or other disposition of all or substantially all the
         property, assets or business of the Company to, another corporation or,

                  (c) there shall be a voluntary or involuntary dissolution,
         liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, liquidation or winding up, and (ii)
in the case of any such reorganization, reclassification, merger, consolidation,
sale, transfer, disposition, dissolution, liquidation or winding up, at least 10
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause also shall specify (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their Warrant Shares for securities or other property
deliverable upon such disposition, dissolution, liquidation or winding up. Each
such written notice shall be sufficiently given if addressed to Holder at the
last address of Holder appearing on the books of the Company and delivered in
accordance with Section 17(d).

         16. AUTHORIZED SHARES. The Company covenants that during the period the
Warrant is outstanding, it will reserve from its authorized and unissued Common
Stock a sufficient number of shares to provide for the issuance of the Warrant
Shares upon the exercise of any purchase rights under this Warrant. The Company
further covenants that its issuance of this Warrant shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Trading Market upon
which the Common Stock may be listed.

         Except and to the extent as waived or consented to by the Holder, the
Company shall not by any action, including, without limitation, amending its
certificate of incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such actions as may be
necessary or appropriate to protect the rights of Holder as set forth in this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Warrant Shares above the
amount payable therefor upon such exercise immediately prior to such increase in
par value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares upon the exercise of this Warrant, and (c) use commercially
reasonable efforts to obtain all such authorizations, exemptions or consents

                                      -9-
<PAGE>

from any public regulatory body having jurisdiction thereof as may be necessary
to enable the Company to perform its obligations under this Warrant.

                  Before taking any action which would result in an adjustment
in the number of Warrant Shares for which this Warrant is exercisable or in the
Exercise Price, the Company shall obtain all such authorizations or exemptions
thereof, or consents thereto, as may be necessary from any public regulatory
body or bodies having jurisdiction thereof.

         17. MISCELLANEOUS.

                  (a) JURISDICTION. All questions concerning the construction,
         validity, enforcement and interpretation of this Warrant shall be
         determined in accordance with the provisions of the Purchase Agreement.

                  (b) RESTRICTIONS. The Holder acknowledges that the Warrant
         Shares acquired upon the exercise of this Warrant, if not registered,
         will have restrictions upon resale imposed by state and federal
         securities laws.

                  (c) NONWAIVER AND EXPENSES. No course of dealing or any delay
         or failure to exercise any right hereunder on the part of Holder shall
         operate as a waiver of such right or otherwise prejudice Holder's
         rights, powers or remedies, notwithstanding all rights hereunder
         terminate on the Termination Date. If the Company willfully and
         knowingly fails to comply with any provision of this Warrant, which
         results in any material damages to the Holder, the Company shall pay to
         Holder such amounts as shall be sufficient to cover any costs and
         expenses including, but not limited to, reasonable attorneys' fees,
         including those of appellate proceedings, incurred by Holder in
         collecting any amounts due pursuant hereto or in otherwise enforcing
         any of its rights, powers or remedies hereunder.

                  (d) NOTICES. Any notice, request or other document required or
         permitted to be given or delivered to the Holder by the Company shall
         be delivered in accordance with the notice provisions of the Purchase
         Agreement.

                  (e) LIMITATION OF LIABILITY. No provision hereof, in the
         absence of any affirmative action by Holder to exercise this Warrant or
         purchase Warrant Shares, and no enumeration herein of the rights or
         privileges of Holder, shall give rise to any liability of Holder for
         the purchase price of any Common Stock or as a stockholder of the
         Company, whether such liability is asserted by the Company or by
         creditors of the Company.

                  (f) REMEDIES. The Holder, in addition to being entitled to
         exercise all rights granted by law, including recovery of damages, will
         be entitled to specific performance of its rights under this Warrant.
         The Company agrees that monetary damages would not be adequate
         compensation for any loss incurred by reason of a breach by it of the
         provisions of this Warrant and hereby agrees to waive the defense in
         any action for specific performance that a remedy at law would be
         adequate.

                  (g) SUCCESSORS AND ASSIGNS. Subject to applicable securities
         laws, this Warrant and the rights and obligations evidenced hereby
         shall inure to the benefit of and be binding upon the successors of the
<PAGE>

         Company and the successors and permitted assigns of Holder. The
         provisions of this Warrant are intended to be for the benefit of all
         Holders from time to time of this Warrant and shall be enforceable by
         any such Holder or holder of Warrant Shares.

                  (h) AMENDMENT. This Warrant may be modified or amended or the
         provisions hereof waived with the written consent of the Company and
         the Holder.

                  (i) SEVERABILITY. Wherever possible, each provision of this
         Warrant shall be interpreted in such manner as to be effective and
         valid under applicable law, but if any provision of this Warrant shall
         be prohibited by or invalid under applicable law, such provision shall
         be ineffective to the extent of such prohibition or invalidity, without
         invalidating the remainder of such provisions or the remaining
         provisions of this Warrant.

                  (j) HEADINGS. The headings used in this Warrant are for the
         convenience of reference only and shall not, for any purpose, be deemed
         a part of this Warrant.


                              ********************
<PAGE>

         IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its officer thereunto duly authorized.


Dated:  MAY __, 2004

                                         AETHLON MEDICAL, INC.


                                         By: _________________________________
                                               Name:
                                               Title:

                                      -10-
<PAGE>

                               NOTICE OF EXERCISE

To:      Aethlon Medical, Inc.

                  (1) The undersigned hereby elects to purchase ________ Warrant
Shares of Aethlon Medical, Inc. pursuant to the terms of the attached Warrant
(only if exercised in full), and tenders herewith payment of the exercise price
in full, together with all applicable transfer taxes, if any.

                  (2) Payment shall be in lawful money of the United States.

                  (3) Please issue a certificate or certificates representing
said Warrant Shares in the name of the undersigned or in such other name as is
specified below:

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

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

The Warrant Shares shall be delivered to the following:

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

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

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

                  (4) ACCREDITED INVESTOR. The undersigned is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act of
1933, as amended.

                                    [PURCHASER]


                                    By: ______________________________
                                    Name:
                                    Title:

                                    Dated:  ________________________


                                      -11-
<PAGE>

                                 ASSIGNMENT FORM

                    (To assign the foregoing warrant, execute
                   this form and supply required information.
                 Do not use this form to exercise the warrant.)



                  FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to


_______________________________________________ whose address is

_____________________________________________________________________________.



_____________________________________________________________________________

                                              Dated:  ______________, _______


                  Holder's Signature: _______________________________________

                  Holder's Address:   _______________________________________

                                      _______________________________________



Signature Guaranteed:  ___________________________________________


NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>7
<FILENAME>aethlon_8kex99-1.txt
<TEXT>
<PAGE>
EXHIBIT 99.1

[AETHLON MEDICAL, INC. LOGO]


FOR IMMEDIATE RELEASE:                                     Company Contact:
                                                           James A. Joyce
                                                           Chairman, CEO
                                                           619.368.2000
                                                           jj@aethlonmedical.com
                                                           ---------------------


            AETHLON MEDICAL COMPLETES $673,000 PRIVATE PLACEMENT AND
                  SECURES $6 MILLION EQUITY FUNDING COMMITMENT

San Diego, CA, June 9, 2004 - Aethlon Medical, Inc. (OTCBB:AEMD) announced today
that it has completed a $673,000 private placement of common stock with
accredited investors, including Fusion Capital Fund II, LLC, a Chicago based
institutional investor. Aethlon also announced that it has entered into a common
stock purchase agreement with Fusion Capital, whereby Fusion Capital has
committed to buy an additional $6.0 million of Aethlon's common stock. The funds
from both of these transactions will be utilized to accelerate the development
and commercialization of Aethlon's treatment countermeasures against Biological
Weapons, HIV/AIDS, and Hepatitis-C.

Under terms of the $6.0 million transaction with Fusion Capital, Fusion has
agreed to purchase from the Company up to $6.0 million of Aethlon's common stock
over a 30-month period. Specifically, after the Securities & Exchange Commission
has declared effective a registration statement, each month Aethlon has the
right to sell to Fusion Capital $200,000 of its common stock at a purchase price
based upon the market price of Aethlon's common stock on the date of each sale
without any fixed discount to the market price. At Aethlon's sole option, Fusion
Capital can be required to purchase lesser or greater amounts of common stock
each month up to $6.0 million in the aggregate. The Company has the right to
control the timing and the amount of stock sold to Fusion Capital. Aethlon also
has the right to terminate the agreement at any time without any additional
cost. Fusion Capital has agreed not to engage in any direct or indirect short
selling or hedging of the common stock in any manner whatsoever.

"The proceeds from the private placement will advance our clinical strategies
for commercializing our countermeasures against Biological Weapons, as well as
our treatments for HIV/AIDS and Hepatitis-C," commented James A. Joyce, CEO of
Aethlon. Mr. Joyce continued, "The additional $6 million funding commitment from
Fusion Capital provides us with an increased level of financial security, as
well as a flexible means to access capital resources at market prices. We are
truly grateful to have an investment partner that shares our global vision for
treating infectious disease."

A more detailed description of both transactions is set forth in Aethlon's
report on Form 8-K, to be filed today with the SEC.


<PAGE>

About Fusion Capital

Fusion Capital Fund II, LLC is a broad based investment fund, based in Chicago,
Illinois. Fusion Capital makes a wide range of investments ranging from special
situation financing to long-term strategic capital.

About Aethlon Medical

Aethlon Medical is pioneering the development of viral filtration devices that
rapidly reduce the presence of infectious disease and toxins in the body.
Aethlon has published compelling human blood studies of the HemopurifierTM to
treat HIV/AIDS and Hepatitis-C (HCV), and most recently, has announced that it
is developing pathogen filtration devices to treat infectious agents used in
biological warfare and terrorism. The Hemopurifier is a proprietary platform
technology that converges the established scientific principles of affinity
chromatography and hemodialysis as a means to augment the immune response of
clearing viruses and toxins from the blood before cell and organ infection can
occur. On March 4, 2004, Aethlon announced a cooperative agreement with the
National Center for Biodefense (NCBD) at George Mason University. Under the
agreement, Aethlon and the NCBD will collaborate to develop pathogen and toxin
filtration devices designed to protect the lives of U.S. Military personnel
exposed to infectious agents as a result of biological warfare. For additional
information, visit the company's Web site at WWW.AETHLONMEDICAL.COM.


CERTAIN OF THE STATEMENTS HEREIN MAY BE FORWARD-LOOKING AND INVOLVE RISKS AND
UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS INVOLVE ASSUMPTIONS, KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF AETHLON MEDICAL, INC TO BE MATERIALLY
DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE, OR ACHIEVEMENTS EXPRESSED OR
IMPLIED BY THE FORWARD-LOOKING STATEMENTS. SUCH POTENTIAL RISKS AND
UNCERTAINTIES INCLUDE, WITHOUT LIMITATION, THE COMPANY'S ABILITY TO RAISE
CAPITAL WHEN NEEDED, THE COMPANY'S ABILITY TO COMPLETE THE DEVELOPMENT OF ITS
PLANNED PRODUCTS, THE ABILITY OF THE COMPANY TO OBTAIN FDA AND OTHER REGULATORY
APPROVALS PERMITTING THE SALE OF ITS PRODUCTS, THE COMPANY'S ABILITY TO
MANUFACTURE ITS PRODUCTS AND PROVIDE ITS SERVICES, THE IMPACT OF GOVERNMENT
REGULATIONS, PATENT PROTECTION ON THE COMPANY'S PROPRIETARY TECHNOLOGY, PRODUCT
LIABILITY EXPOSURE, UNCERTAINTY OF MARKET ACCEPTANCE, COMPETITION, TECHNOLOGICAL
CHANGE, AND OTHER RISK FACTORS. IN SUCH INSTANCES, ACTUAL RESULTS COULD DIFFER
MATERIALLY AS A RESULT OF A VARIETY OF FACTORS, INCLUDING THE RISKS ASSOCIATED
WITH THE EFFECT OF CHANGING ECONOMIC CONDITIONS AND OTHER RISK FACTORS DETAILED
IN THE COMPANY'S SECURITIES AND EXCHANGE COMMISSION FILINGS.




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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