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<SEC-DOCUMENT>0001019687-04-002009.txt : 20040910
<SEC-HEADER>0001019687-04-002009.hdr.sgml : 20040910
<ACCEPTANCE-DATETIME>20040910165243
ACCESSION NUMBER:		0001019687-04-002009
CONFORMED SUBMISSION TYPE:	10KSB/A
PUBLIC DOCUMENT COUNT:		12
CONFORMED PERIOD OF REPORT:	20040331
FILED AS OF DATE:		20040910
DATE AS OF CHANGE:		20040910

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:		10KSB/A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21846
		FILM NUMBER:		041026026

	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>10KSB/A
<SEQUENCE>1
<FILENAME>aethlon_10ka1-033104.txt
<TEXT>
<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-KSB/A
                           AMENDMENT NO. 1 TO FORM KSB


                                   (MARK ONE)

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

                    For the fiscal year ended March 31, 2004

                                       OR

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

                For transition period from ________ to __________

                         COMMISSION FILE NUMBER 0-21846


                              AETHLON MEDICAL, INC.
                              ---------------------
                 (Name of Small Business issuer in its charter)

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

3030 Bunker Hill Street, Suite 4000,
       San Diego, CALIFORNIA                                    92109
       ---------------------                                    -----
(Address of principal executive office)                       (Zip Code)


                    ISSUER'S TELEPHONE NUMBER (858) 459-7800

         SECURITIES REGISTERED UNDER SECTION 12(B) OF THE EXCHANGE ACT:


                                                         NAME OF EACH EXCHANGE
       TITLE OF EACH CLASS                                ON WHICH REGISTERED
       -------------------                                -------------------
             NONE                                                 NONE


         SECURITIES REGISTERED UNDER SECTION 12(G) OF THE EXCHANGE ACT:

                          COMMON STOCK--$.001 PAR VALUE
                                (TITLE OF CLASS)

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


<PAGE>

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.[ ]

Revenues of the registrant for the fiscal year ended March 31, 2004 were $0.

The aggregate market value of the Common Stock held by non-affiliates was
approximately $4,502,469 based upon the closing price of the Common Stock of
$0.50, as reported by the NASDAQ Over-the-Counter Bulletin Board ("OTCBB") on
August 30, 2004.

The number of shares of the Common Stock of the registrant outstanding as of
August 20, 2004 was 13,453,550.

           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                                 Yes [ ] No [X]


<PAGE>


                                TABLE OF CONTENTS

Forward Looking Statements
                                                                            PAGE
                                     PART I.

Item 1.    Description of Business                                           2
Item 2.    Description of Property                                          10
Item 3.    Legal Proceedings                                                10
Item 4.    Submission of Matters to a Vote of Security Holders              10

                                    PART II.

Item 5.    Market for Registrant's Common Equity and Related Stockholder
              Matters                                                       11
Item 6.    Management's Discussion and Analysis or Plan of Operations       16
Item 7.    Financial Statements                                             31
Item 8.    Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                      31

Item 8A.   Controls and Procedures                                          31

                                    PART III.

Item 9.    Directors and Executive Officers of the Registrant               32
Item 10.   Executive Compensation                                           37
Item 11.   Security Ownership of Certain Beneficial Owners and Management
              And Related Stockholder Matters                               39

Item 12.   Certain Relationships and Related Transactions                   40

Item 13.   Exhibits, Financial Statement Schedules and Reports on
              Form 8-K                                                      41
Item 14.  Principal Accountant Fees and Services                            43

Signatures                                                                  44
Certifications

                                       1

<PAGE>


FORWARD - LOOKING STATEMENTS

         All statements, other than statements of historical fact, included in
this Form 10-KSB/A are, or may be deemed to be, "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"). The safe harbor for forward looking statements provided by the
Private Securities Litigation Reform Act of 1995 does not apply to us. We note,
however, that 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. ("Aethlon
Medical", "We" or the "Company") to be materially different from any future
results, performance, or achievements expressed or implied by such
forward-looking statements contained in this Form 10-KSB/A. Such potential risks
and uncertainties include, without limitation, Food and Drug Administration
("FDA") and other regulatory approval of our products, patent protection on our
proprietary technology, product liability exposure, uncertainty of market
acceptance, competition, technological change, and other risk factors detailed
herein and in other of our filings with the Securities and Exchange Commission.
Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our Company and our
business made elsewhere in this annual report as well as other public reports
filed with the Securities and Exchange Commission. The forward-looking
statements are made as of the date of this Form 10-KSB/A, and we assume no
obligation to update the forward-looking statements or to update the reasons
actual results could differ from those projected in such forward-looking
statements.

                                     PART I

ITEM 1. BUSINESS

GENERAL

         Aethlon Medical, Inc. ("Aethlon Medical" "We" or the "Company"),
formerly Bishop Equities, Inc. ("Bishop"), was incorporated in Nevada in April
1991 to provide a public vehicle for participation in a business transaction
through a merger with or acquisition of a private company. In March 1993, we
successfully offered our common stock at $6.00 per share through an initial
public offering. In March 1999, Bishop began doing business as "Aethlon Medical,
Inc." In March 2000, the Company's Articles of Incorporation were amended to
formally change the name of the Company from "Bishop Equities, Inc." to "Aethlon
Medical, Inc."

BUSINESS DEVELOPMENT/ACQUISITIONS

         On March 10, 1999, (1) Aethlon, Inc., a California corporation
("Aethlon"), (2) Hemex, Inc., a Delaware corporation ("Hemex"), the accounting
predecessor to the Company, and (3) Bishop, a publicly traded "shell" company,
completed an Agreement and Plan of Reorganization (the "Plan") structured to
result in Bishop's acquisition of all of the outstanding common shares of
Aethlon and Hemex (the "Reorganization"). The Reorganization was intended to
qualify as a tax-free transaction under Section 368 (a)(1)(B) of the 1986
Internal Revenue Code, as amended. Under the Plan's terms, Bishop issued 733,500
and 1,350,000 shares of its common stock to the common stock shareholders of
Aethlon and Hemex, respectively, such that Bishop then owned 100% of each
company.

         Effective January 1, 2000, we entered into an agreement with Dr. Julian
Ambrus, the son of Dr. Clara Ambrus who was the original founder of Hemex, Inc.
Under this agreement, an invention and related patent rights for a method of
removing HIV and other viruses from the blood were assigned to us. This
invention further expands the established blood filtration patents already owned
by us. In addition to certain royalty payments equal to 8.75% of net sales of
the patented product, the consideration for the acquired rights included the
additional issuance of shares of our common stock to the inventors upon the
issuance of the patent. The term of the agreement expires on the expiration date
of the patents or any patent applications filed in connection with the
invention. There have been no sales of the patented product as of August 25,
2004. We initially issued 12,500 shares of restricted common stock to the
inventors upon the execution of the agreement. On March 4, 2003, the related
patent was issued and we issued 196,078 shares of restricted common stock to the
inventors.

                                       2

<PAGE>

         On January 10, 2000, we acquired all the outstanding common stock of
Syngen Research, Inc. ("Syngen") in exchange for 65,000 shares of our common
stock in order to establish research facilities in San Diego, California, as
well as employ Dr. Richard Tullis, the founder of Syngen. Dr. Tullis is a
recognized research scientist in the area of DNA synthesis and antisense. Syngen
had no significant assets, liabilities, or operations, and primarily served as
the entity through which Dr. Tullis performed research consulting services. As
such, the acquisition has been accounted for as an acquisition of assets in the
form of an employment contract with Dr. Tullis and not as a business
combination. Dr. Tullis was appointed to the Board of Directors of Aethlon
Medical and was elected its Vice President for Business Development. Effective
June 1, 2001, Dr. Tullis was appointed Chief Scientific Officer of Aethlon
Medical, replacing Dr. Clara Ambrus, who retired from the Company.

         On April 6, 2000, we completed the acquisition of Cell Activation, Inc.
("Cell"). In accordance with the purchase agreement, we issued 99,152 shares of
restricted common stock and issued 50,148 options to purchase common stock in
exchange for all of the outstanding common shares and options to purchase common
stock of Cell. After the transaction, Cell became our wholly-owned subsidiary.
The acquisition was accounted for as a purchase. At March 31, 2001, we
determined that goodwill recognized in the purchase of Cell was impaired due to
the permanent suspension of operations by Cell, and, accordingly, treated the
related goodwill as fully impaired.

BUSINESS OF ISSUER

         We are a development stage therapeutic device company focused on
expanding the applications of our Hemopurifier (TM) platform technology, which
is designed to rapidly reduce the presence of infectious viruses and other
toxins from human blood. In this regard, our core focus is the development of
therapeutic devices that treat HIV/AIDS, Hepatitis-C, and pathogens targeted as
potential biological warfare agents. In pre-clinical testing, we have published
that our HIV-Hemopurifier removed 55% of HIV from human blood in three hours and
in excess of 85% of HIV in twelve hours. Additionally, the HIV-Hemopurifier
captured 90% of gp120, a toxic protein that depletes human immune cells, during
a one-hour pre-clinical blood study. We have also published pre-clinical blood
studies of its HCV-Hemopurifier, which documented the ability to capture 58% of
the Hepatitis-C virus from infected blood in two hours. Our potential customers
may not accept our interpretation of results from our test sites until our
customers repeat the tests and independently verify the tests. Since inception,
our only source of revenue has been grants from certain agencies of the Federal
Government, subcontract revenue and sale of research and development. No grant
revenues have been received after 1999. Since then, from time to time, we have
applied for, but have not been awarded, any such grants. Since our current focus
is to develop, test and obtain approval of our products, we do not expect to
obtain subcontract revenue, nor do we expect to sell our research and
development expertise. Any future income derived from grant submissions is
likely to be the primary source of revenues until such time that our
Hemopurifier has been approved for sale in the marketplace.

THE HEMOPURIFIER(TM)

         The Hemopurifier(TM) is an expansive platform technology that converges
the established scientific principles of affinity chromatography (method of
selective capture of proteins, sugars, fats and organic compounds) and
hemodialysis (artificial kidneys) as a means to augment the natural immune
response of clearing infectious viruses and toxins from the blood before cells
and organs can be infected. The therapeutic goal of each Hemopurifier(TM)
application is to improve patient survival rates by reducing viral load and
preserving the immune function. We feel that the Hemopurifier(TM) will enhance
and prolong the benefit of current infectious disease drug therapies, and fill
the void for patients who inevitably become resistant to drug therapies. The
Hemopurifier(TM) is also being positioned to treat patients that might become
infected by a biological agent with no established drug or vaccine treatment.

         Traditionally, hemodialysis has been used to remove urea and other
small metabolic toxins that build up in the blood of patients with acute or
chronic kidney failure. Acute renal failure is generally handled in the
intensive care unit using continuous renal replacement therapy (CRRT) while
chronic renal is treated using intermittent, thrice-weekly hemodialysis (IHD) in
a stand-alone dialysis clinic.


                                       3

<PAGE>

         While there are several variations of technique, a catheter is most
often the primary method utilized to gain access to the blood, which is then
pumped through a hollow-fiber hemodialysis cartridge. Within the cartridge,
toxic salts, urea and excess water pass through small pores in the walls of the
hollow-fibers and are removed. Proteins and blood cells that are too large to
pass through the membrane are retained. The purified blood is then returned back
into circulation.

         There are two issues in kidney dialysis as it is practiced today that
limit its application to a wide array of toxins and pathogens. Both issues are
related to the separation membranes. First, hemodialysis cartridges
non-selectively remove substances of a particular size from the blood. Thus in
addition to removing toxins, the dialyzer may also remove important substances
that the body would prefer to retain. Second, many important toxins are too
large pass through the dialysis membrane and are therefore not removed even when
it would be desirable.

         We have solved these problems by designing a Hemopurifier(TM) cartridge
which has pores large enough to let the largest toxins pass through (i.e.
particles as large as whole viruses), yet selective enough to remove only the
targeted toxins. Materials such as antibodies, which bind only to their
corresponding antigen, provide selectivity, while the use of a sealed cartridge
allows the process to use large pore sizes that are normally incompatible with
kidney dialysis.

         The binding antibodies or other selective agents are chemically bound
to the surface of glass or plastic beads located on the outside of the
hollow-fibers. This effectively prevents the active materials from entering the
bloodstream. Viruses and toxins in the blood diffuse or are transported through
the pores in the hollow-fibers and become trapped by the immobilized antibody.

         In this way, materials of very large sizes are allowed enter the
cartridge while non-toxic materials of similar size readily leave and re-enter
the bloodstream. Blood cells and platelets, which are too large to enter the
membrane, remain in the hollow-fiber and are returned to the patient.
Importantly, the Hemopurifier(TM) cartridge does not require the development of
any new equipment. The cartridge fits directly onto the global infrastructure of
dialysis machines already located in hospitals and clinics.

INFECTIOUS DISEASE

         The current treatment for viral illnesses include vaccines and
antiviral drugs. Vaccines have been the most successful in curing viral diseases
(e.g. polio and smallpox). Unfortunately, newly emerging pathogens (e.g. SARS),
highly mutable RNA viruses (e.g. HIV and Hepatitis C virus) and exotic viruses
that might be used in terrorist attacks often do not have vaccine treatments.
Similarly, antiviral drugs are often useful in controlling viral infections.
However, there do not seem to be any general, broad-spectrum antiviral agents
similar to penicillin for bacteria and viruses capable of rapidly developing
drug resistant mutations. In addition, it generally takes years and millions of
dollars to develop vaccine and drug candidates that may or may not be approved
by the FDA.

         Our Hemopurifier(TM) technology represents a new approach to treating
viral diseases. The treatment is designed to work with current treatments to
remove infectious virus, toxic viral proteins and injurious immunological
mediators directly from the blood of the patient. By removing circulating virus
and toxins from the blood, the Hemopurifier(TM) cartridge prevents virus from
infecting unaffected tissues and cells, thereby allowing the body's natural
defenses a chance to recover and reject the disease.

BIOLOGICAL WEAPONS

         On January 29, 2004, we announced that it we are developing treatments
to combat infectious agents that may be used in biological warfare and
terrorism. This expands our intent to treat infectious diseases beyond HIV/AIDS
and Hepatitis-C. We are working to design Hemopurifiers(TM) that can be rapidly
deployed by armed forces as wearable post-exposure treatments on the
battlefield, as well as dialysis-based treatments for civilian populations. We
are focusing our bio-defense strategy on treating "Category A" agents, which are
considered by the Centers for Disease Control (CDC) to be the worst bioterror
threats. These agents include the viruses that cause Smallpox, hemorrhagic
fevers such as Ebola and Marburg, the Anthrax bacteria, and Botulinum toxin
which is a gangrene toxin. Each treatment device will be based on the same
proprietary Hemopurifier(TM) filtration technology that is utilized in advancing
our HIV/AIDS, and Hepatitis-C treatments. We have not yet published any data
related to the treatment of any "Category A" agent.

                                       4

<PAGE>

         Viral and bacterial illnesses have always been with us and have
sometimes been used as weapons. In recent times, some nations have refined and
weaponized several pathogens for use in warfare. Although there are specific
differences between bioweapons grade organisms in the way they are transmitted
or how they are designed to kill, nearly all result in sepsis.

         Sepsis is essentially a dysregulation of the immune system, often
described as a septic shock. Microbial invasion sets off an immunological chain
reaction mediated by proteins produced by cells and tissues. Overexpression of
these protein immunological mediators "confuses" the immune system, ultimately
resulting in major organ failure and death. Hemodialysis has been used for many
years as a treatment in septic shock, which is generally acknowledged to be
beneficial. Unfortunately, the technique is limited in the size of the toxins is
can remove and inherently non-selective, making it less than completely
effective.

         Our Hemopurifier(TM) is capable of selectively targeting specific
immune mediators responsible for shock and returning the system to functional
levels. At the same time, our Hemopurifier(TM) can remove viral and bacterial
fragments or toxins that are too large to be removed by normal hemodialysis.
Thus, our Hemopurifier(TM) adds the capability of removing the antigens that are
responsible for generating immune mediator production in the first place,
effectively removing the source of the problem.

         Perhaps just as important is the speed with which new treatment options
can be developed. Each new bioweapon comes without a corresponding treatment.
Typical biowarfare pathogens have been genetically engineered to contain genes
that make them resistant to available drugs and vaccines. This presents a
substantial problem since the development of new drugs or vaccines usually takes
several years. However, our Hemopurifier(TM), when targeted to the new pathogen
can often be constructed within a matter of a few months. All that is required
is the existence of an antibody or binding protein that selectively adheres to
the surface of the target pathogen or toxin. In this regard, our
Hemopurifier(TM) is positioned as a rapid response countermeasure against
untreatable pathogens that are released as biowarfare agents.

         On March 4, 2004, we announced that we have entered into a cooperative
agreement with the National Center for Biodefense (NCBD) at George Mason
University in Manassas, Virginia. The purpose of the agreement is to broaden
scientific resources, and jointly pursue business and funding opportunities
within the federal government. Under the terms of the agreement, each party will
contribute to the preparation of proposals. One party will be designated as
having the primary responsibility for the preparation of all technical and
non-technical aspects of the proposal including but not limited to (i) marketing
and promotional effort, (ii) proposal content, assembly and production, (iii)
liaison with government customer personnel, and (iv) oral discussions and
negotiations, if held. The party designated as the subcontractor shall
contribute to the preparation of the proposal to the extent necessary to assure
the inclusion of a thorough and accurate description of its responsibilities to
the proposed project. We will each bear our own expenses for our own performance
of proposal and related work under the cooperative agreement. There are
proprietary data provisions which prohibit George Mason University and us from
using certain information other than in the submission of proposals to
government agencies or reports that must be submitted in connection with George
Mason University's performance. The duration of the agreement last until
earliest of the following events to occur:

         a)       The failure or inability of either party to provide the
                  support for the preparation of identified proposal
                  opportunities.

         b)       Mutual consent of the parties to terminate the agreement.

         c)       Lapse of 24 months from the effective date of this agreement
                  without award of a contract to support one or more projects
                  unless procurement is still open.

         d)       The indictment, suspension, or debarment by the federal
                  government of either party.

         e)       A receiver, trustee in bankruptcy or other custodian of the
                  property or assets of a party hereto is appointed, or if
                  either party hereto commits an act of bankruptcy or is
                  adjudicated bankrupt or insolvent.

         f)       During the term of the agreement, it is determined that either
                  party may be ineligible for award due to a conflict of
                  interest.

                                       5

<PAGE>

MANUFACTURING

         We plan to manufacture a small number of cartridges sufficient to
complete clinical trials in our current facilities. Ultimately we will outsource
cartridge manufacturing to a GMP/ISO9001 compliant contract manufacturer.
Hemopurifiers(TM) to treat pathogens that are bioweapons candidates will be sold
directly to the U.S. military and the federal government. Sale of Hempurifiers
to treat HIV and Hepatitis C will be directed through organizations with
established distribution channels.

TREATMENT CLASSIFICATION

         Aethlon Medical's treatments for infectious diseases are classified as
"IMMUNOTHERAPIES" that augment or mimic the immune system's response of clearing
infectious virus, and as "ENTRY INHIBITORS" that curb the re-infection process
by physically removing infectious viruses before healthy cells are infected.

         Immunotherapy - The "Immunotherapy" classification is a result of our
ability to mimic the immune system's natural response of generating antibodies
to fight foreign invaders such as viruses. Antibodies are specifically created
by the immune system to attach themselves to the antigens (chemical compounds
which cause antibodies to be produced e.g. proteins and other component parts of
viruses), forming an antigen-antibody complex which neutralizes the invader. The
neutralized antigens are then physically removed from the bloodstream by organs
such as the liver.

         Our treatment technology uses a hemodialysis cartridge (e.g. artificial
kidney or plasmapheresis cartridge) modified to contain immobilized antibodies
targeted against specific viruses. Plasmapheresis cartridges are utilized to
separate blood plasma from blood cells in treating various diseases. Viruses in
the blood are captured inside the cartridge through the formation of an
antigen-antibody complex, physically removing the virus from circulation. As a
result, the physical elimination of infectious virus occurs without the
side-effects common in drug therapy.

         Entry Inhibitor - Our treatment technology is also classified as an
"Entry Inhibitor" since the re-infection process is interrupted when viruses are
removed from circulation before cells can be infected. As a result, the
replication cycle is inhibited as infectious virus is denied entry into the
cells that it seeks to kill. From a therapeutic standpoint, entry inhibitors
represent a departure from the traditional drug action of inhibiting viral
replication within the cells that have already been infected. The novel
therapeutic mechanism offered by "Entry Inhibitors", combined with the high
level of treatment resistance to currently approved drugs, positions "Entry
Inhibitors" as an important new treatment strategy to assist HIV/AIDS and
Hepatitis-C infected individuals in managing their disease.

         Heavy Metal Treatments

         Historically, the original Hemopurifier(TM) treatment applications were
developed to treat individuals burdened with heavy metal intoxicants. Products
developed in this category include treatments for iron overload, aluminum
intoxication, lead poisoning, and cisplatin removal. Cisplatin is a platinum
compound used to treat cancers but can be toxic in large amounts. The plan to
commercialize the iron and aluminum applications of the Hemopurifier(TM) were
discontinued when our research and development activities were realigned. In
fiscal year 2001, we realigned our research and development activities from
developing Hemopurifiers(TM) to treat harmful metals to developing
Hemopurifiers(TM) for the treatment of HIV/AIDS and Hepatitis-C. Additionally,
our management changed as the board of directors appointed Mr. Joyce to replace
Mr. Barry as the President and CEO in June of 2001. We are not currently
pursuing the commercialization of these products as we are focused on developing
infectious disease related Hemopurifiers(TM).

RESEARCH AND DEVELOPMENT

         In fiscal year 2001, we realigned our research and development
activities from developing Hemopurifiers(TM) to treat harmful metals to
developing Hemopurifiers(TM) for the treatment of HIV/AIDS and Hepatitis-C. As a
result of this strategic realignment, we initiated the consolidation of all
scientific and administrative functions into our San Diego facilities during the
fourth quarter of fiscal 2001. This consolidation was completed during the first
quarter of fiscal 2002 and our facilities in Buffalo, N.Y. were closed. In 2004,
we expanded our research effort to include the development of Hemopurifiers(TM)
as countermeasures against biological weapons.

         The cost of research and development, all of which has been charged to
operations, amounted to approximately $400,000 over the last two fiscal years.

                                       6

<PAGE>

PATENTS

         Effective January 1, 2000, we entered into an agreement with a related
party under which an invention and related patent rights for a method of
removing HIV and other viruses from the blood using the Hemopurifier(TM) were
assigned to us by the inventors in exchange for a royalty to be paid on future
sales of the patented product or process and shares of our common stock. On
March 4, 2003, the related patent was issued and we issued 196,078 shares of
restricted common stock. We have applied for and obtained several patents
relating to our HIV-Hemopurifier(TM) and related technology. Any resulting
medical device or process will require approval by the FDA, and we have not yet
begun efforts to obtain FDA approval on any infectious disease related
Hemopurifier(TM). Since many of our patents were issued in the 1980's, they may
expire before FDA approval, if any, is obtained. However, we believe that
certain patent applications filed and/or other patents issued more recently will
help to protect the proprietary nature of the Hemopurifier(TM) treatment
technology. The Hemopurifier(TM) is protected by seven issued patents in the
United States, Europe and Japan. Three additional patent applications deal with
treatments for virus infection and manufacturing methods. The following is a
list of patents and patent applications we currently hold. Patent Issuance #7
below, and application #9 are exclusively licensed to us.

         ISSUED PATENTS:

         1.       Ambrus CA and Horvath C (1986) Removing heavy metal ions from
                  blood. USA No. 4,612,122 (Issued September 16, 1986).

         2.       Ambrus CA and Horvath C (1986) Removing heavy metal ions from
                  blood. Europe No. 0,073,888 (Issued April 23, 1986).

         3.       Ambrus CA and Horvath C (1986) Removing heavy metal ions from
                  blood. Japan No: 110,047/82 (Issued June 7, 1994).

         4.       Ambrus CA and Horvath C (1987) Blood purification. US Patent
                  No. 4,714,556 (Issued December 22, 1987)

         5.       Ambrus CA and Horvath C (1988) Blood purification. US Patent
                  No. 4,787,974 (Issued November 29, 1988)

         6.       Ambrus CA and Stadler A (2000) Process for immobilizing a
                  chelator on silica device containing immobilized chelator and
                  use thereof. US Patent 6,071,412 (June 6, 2000).

         7.       Ambrus JL and Scammurra D (2003) Method for removing HIV and
                  other viruses from blood. US Patent 6,528,057 (issued March 4,
                  2003);

         PATENT APPLICATIONS:

         8.       Ambrus CA and Stadler A (2000) Process for immobilizing a
                  chelator on silica device containing immobilized chelator and
                  use thereof. International Application PCT/US99/17125

         9.       Ambrus JL and Scamurra D (2003) Method for removing HIV and
                  other viruses from blood. International Application
                  PCT/US99/19448 (filed August 30, 1999)

         10.      Tullis, R.H. (2003) Lectin affinity hemodialysis method for
                  removal of HIV other viruses from blood. US Patent
                  Application, filed January 3, 2003.

The issued patents cover a range of applications of the Hemopurifier(TM) and
variations thereof. The initial applications (Ambrus and Horvath, 1986 and
related issues) refer to methods and constructions for removing heavy metals
from blood. The U.S. patent will expire on September 16, 2006. The Japanese
patent will expire on June 7, 2011. The European patent expired on April 23rd of
2003.

Ambrus and Horvath (1987 and 1988) refer to methods and constructions for using
modified hollow-fiber dialysis devices for removing antigenically reactive
substances from blood (e.g. antibodies, antigens, toxins and pathogens such as
bacteria or viruses). These patents will expire on March 13, 2005 and October
22, 2007, respectively.


                                       7

<PAGE>

Ambrus and Stadler (2000) refers to improved methods for attaching chelators to
glass beads (silica) in order to more efficiently remove heavy metals (e.g.
iron, lead and aluminum). This patent will expire on July 27, 2018. Ambrus and
Scammura (2003) is a patent that speaks to the removal of viruses and viral
fragments from the blood of infected patients using a modified hollow-fiber
dialysis device. This patent will expire in March 5, 2019. The European
application is ongoing.

         Tullis R.H. (2003) is a patent application that covers the use of
lectins as an improved means of removing HIV and other viruses from blood. This
patent is not yet issued.

INDUSTRY

         The industry for treating infectious disease is extremely competitive,
and companies developing new treatment procedures are faced with severe
regulatory challenges. In this regard, only a small percentage of companies that
are developing new treatments will actually obtain approval from the FDA to
market their treatments in the United States. Currently, the market for treating
HIV/AIDS and Hepatitis-C (HCV) is comprised of drugs designed to reduce viral
load by inhibiting viral replication or by inhibiting viruses from infecting
healthy cells. Unfortunately, these drugs are toxic, they are expensive to
develop, and inevitably, infected patients will develop viral strains that
become resistant to drug treatment. As a result, patients are left without
treatment options.

COMPETITION

         We are advancing our Hemopurifier(TM) technology as a treatment to
enhance and prolong current drug therapies by removing the viral strains that
cause drug resistance. The Hemopurifier(TM) is also designed to prolong life for
infected patients who have become drug resistant and have no other treatment
options. Therefore, we do not believe that the Hemopurifier(TM) competes with
the current drug therapy treatment standard. However, if the industry considered
the Hemopurifier(TM) to be a potential replacement for drug therapy, then the
marketplace for the Hemopurifier would be extremely competitive. We are also
pursuing the development of Hemopurifiers(TM) to be utilized as treatment
countermeasures against biological weapons. In this regard, we are targeting the
treatment of pathogens in which current treatments are either limited or do not
exist. We believe that we are the sole developer of viral filtration systems
(Hemopurifiers(TM)) to treat HIV-AIDS, Hepatitis-C, and Biological weapons.

GOVERNMENT REGULATION

         Our activities and products are significantly regulated by a number of
governmental entities, including the FDA in the United States. These entities
regulate, among other things, the manufacture, testing, safety, effectiveness,
labeling, documentation, advertising and sale of our future commercial products.
We must obtain regulatory approval for a product in all of these areas before we
can commercialize the product. Product development within this regulatory
framework takes a number of years and involves the expenditure of substantial
resources. Many products that initially appear promising ultimately do not reach
the market because they are found to be unsafe or ineffective when tested. Our
inability to commercialize a product would impair our ability to earn future
revenues.

         In the United States, vaccines and immunotherapeutics for human use are
subject to FDA approval as "biologics" under the Public Health Service Act and
"drugs" under the Federal Food, Drug and Cosmetic Act. The steps required before
a new product can be commercialized include: pre-clinical studies in animals,
clinical trials in humans to determine safety and efficacy and FDA approval of
the product for commercial sale.

         Data obtained at any stage of testing is susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval.
Moreover, during the regulatory process, new or changed drug approval policies
may cause unanticipated delays or rejection of our product. We may not obtain
necessary regulatory approvals within a reasonable period of time, if at all, or
avoid delays or other problems in testing our products. Moreover, even if we
received regulatory approval for a product, the approval may require limitations
on use, which could restrict the size of the potential market for the product.


                                       8

<PAGE>

         A product's safety and effectiveness in one test is not necessarily
indicative of its safety and effectiveness in another test. Moreover, we may not
discover all potential problems with a product even after completing testing on
it. Some of our products and technologies have undergone only pre-clinical
testing. As a result, we do not know whether they are safe or effective for
humans. Also, regulatory authorities may decide, contrary to our findings that a
product is unsafe or not as effective in actual use as its test results
indicated. This could prevent the product's widespread use, require its
withdrawal from the market or expose us to liability.

         The FDA requires that the manufacturing facility that produces a
licensed product meet specified standards, undergo an inspection and obtain an
establishment license prior to commercial marketing. Subsequent discovery of
previously unknown problems with a product or its manufacturing process may
result in restrictions on the product or the manufacturer, including withdrawal
of the product from the market. Failure to comply with the applicable regulatory
requirements can result in fines, suspensions of regulatory approvals, product
recalls, operating restrictions and criminal prosecution.

         We have completed preclinical studies that demonstrate the removal of
HIV and Hepatitis C virus from infected human blood. We are now in the process
of developing our manufacturing protocols and seeking to obtain regulatory
approval from the FDA to initiate clinical trials. The following outline
references an anticipated clinical path required to obtain market clearance from
the FDA so that we can begin sales of the Hemopurifier(TM) within the United
States.

For HIV and Hepatitis C Virus treatment

o        Animal Safety Trials - complete July 1, 2005

o        IDE Submission and FDA Approval for Human Safety Trial - November 1,
         2005

o        Human Safety Trial - 90-120 days - complete February 1, 2006

o        FDA Market Clearance - complete July 1, 2006

For Biodefense applications

o        Animal Trials - complete April 1, 2005

o        IDE Submission and FDA Approval for Human Safety Trial - July, 2005
         oHuman Safety Trial - 90-120 days - complete November 1, 2005

o        FDA Market Clearance - complete April 15, 2006

We have estimated the direct costs for performing the proposed submissions and
clinical tests on the timetable given at $5,001,465 through the end of 2005.

     Because we may market our products abroad, we will be subject to varying
foreign regulatory requirements. Although international efforts are being made
to harmonize these requirements, applications must currently be made in each
country. The data necessary and the review time varies significantly from one
country to another. Approval by the FDA does not ensure approval by the
regulatory bodies of other countries.

     Any future collaborators will also be subject to all of the above-described
regulations in connection with the commercialization of products utilizing our
technology.

PRODUCT LIABILITY

         The risk of product liability claims, product recalls and associated
adverse publicity is inherent in the testing, manufacturing, marketing and sale
of medical products. We do not have clinical trial liability insurance coverage.
There can be no assurance that future insurance coverage will to be adequate or
available. We may not be able to secure product liability insurance coverage on
acceptable terms or at reasonable costs when needed. Any liability for mandatory
damages could exceed the amount of our coverage. A successful product liability
claim against us could require us to pay a substantial monetary award. Moreover,
a product recall could generate substantial negative publicity about our
products and business and inhibit or prevent commercialization of other future
product candidates.


                                       9

<PAGE>

SUBSIDIARIES

         We have four dormant wholly-owned subsidiaries, Aethlon, Inc., Cell
Activation, Inc., Syngen Research, Inc., and Hemex, Inc.

EMPLOYEES

         At March 31, 2004, we had two full-time employees, comprised of our
Chief Executive Officer and our Chief Science Officer. Subsequently, as of
September 7, 2004, we have added additional full-time employees comprised of our
Director of Administrative Services, a research scientist, a research associate
and our senior bioengineer and a molecular biologist. We utilize, whenever
appropriate, contract and part time professionals in order to conserve cash and
resources. We believe that our employee relations are good. None of our
employees is represented by a collective bargaining unit.

WHERE YOU CAN FIND MORE INFORMATION

         We file annual reports on Form 10-KSB, quarterly reports on Form
10-QSB, current reports on Form 8-K and proxy and information statements and
amendments to reports files or furnished pursuant to Sections 13(a) and 15(d) of
the Securities Exchange Act of 1934, as amended. The public may read and copy
these materials at the SEC's Public Reference Room at 450 Fifth St NW,
Washington, DC 20549. The public may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a website (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding other companies, like us,
that file materials with the SEC electronically. Our headquarters are located at
3030 Bunker Hill Street, Suite 4000, San Diego, CA 92109. Our phone number at
that address is (858) 459-7800. Our website is www.aethlonmedical.com.

ITEM 2. DESCRIPTION OF PROPERTY

         We currently rent approximately 3,200 square feet of executive office
space and laboratory space at 3030 Bunker Hill Street, Suite 4000, San Diego,
California 92109 at the rate of $7,520 per month on a lease that expires on July
12, 2006.

ITEM 3. LEGAL PROCEEDINGS

         We may be involved from time to time in various claims, lawsuits,
disputes with third parties or breach of contract actions incidental to the
normal course of business operations. We are currently not involved in any such
litigation or any pending legal proceedings that we believe could have a
material adverse effect on our financial position or results of operations.

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

None


                                       10

<PAGE>
                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         LIMITED PUBLIC MARKET FOR SHARES OF COMMON STOCK

         Our Common Stock is quoted on the OTCBB. Our trading symbol is "AEMD."
Our Common Stock has had a limited and sporadic trading history.

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

                                                  HIGH             LOW
                                                  ----             ---
   2004
2nd Quarter                                      $   1.70         $   0.54
1st Quarter                                      $   4.25         $   0.37

   2003
4th Quarter                                      $   0.55         $   0.36
3rd Quarter                                      $   1.01         $   0.25
2nd Quarter                                      $   0.60         $   0.20
1st Quarter                                      $   0.56         $   0.15

   2002
4th Quarter                                      $   0.85         $   0.15
3rd Quarter                                      $   1.05         $   0.65
2nd Quarter                                      $   1.95         $   0.55
1st Quarter                                      $   2.30         $   1.15

         We have not declared any cash dividends on our common stock since
inception and do not anticipate any in the future. Our current business plan is
to retain any future earnings to finance the expansion and development of our
business. Any future determination to pay cash dividends will be at the
discretion of our board of directors, and will be dependent upon our financial
condition, results of operations, capital requirements and other factors our
board may deem relevant at that time.

         There are approximately 800 record holders of our Common Stock at
August 20, 2004. The number of registered shareholders includes any beneficial
owners of common shares held in street name.

         The transfer agent and registrar for our common stock is Computershare
Trust Company, located in Denver, Colorado.

         PENNY STOCK

         Until our shares qualify for inclusion in the NASDAQ system, the public
trading, if any, of our common stock will be on the OTC Bulletin Board. As a
result, an investor may find it more difficult to dispose of, or to obtain
accurate quotations as to the price of, our common stock offered. Our common
stock is subject to provisions of Section 15(g) and Rule 15g-9 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), commonly referred to as
the "penny stock rule." Section 15(g) sets forth certain requirements for
transactions in penny stocks, and Rule 15g-9(d) incorporates the definition of
"penny stock" that is found in Rule 3a51-1 of the Exchange Act. The SEC
generally defines "penny stock" to be any equity security that has a market
price less than $5.00 per share, subject to certain exceptions. If our common
stock is deemed to be a penny stock, trading in the shares will be subject to
additional sales practice requirements on broker-dealers who sell penny stock to
persons other than established customers and accredited investors. "Accredited
investors" are persons with assets in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with their spouse. For transactions
covered by these rules, broker-dealers must make a special suitability
determination for the purchase of such security and must have the purchaser's
written consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the first transaction, of a risk disclosure document,
prepared by the SEC, relating to the penny stock market. A broker-dealer also
must disclose the commissions payable to both the broker-dealer and the
registered representative, and current quotations for the securities. Finally,
monthly statements must be sent disclosing recent price information for the
penny stocks held in an account and information on the limited market in penny
stocks. Consequently, these rules may restrict the ability of a broker-dealer to
trade and/or maintain a market in our common stock and may affect the ability of
our shareholders to sell their shares.

                                       11

<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES

         We have sold or issued the following securities not registered under
the Securities Act in reliance upon the exemption from registration pursuant to
Section 4(2) of the Securities Act or Regulation D of the Securities Act during
the three year period ending on the date of filing of this registration
statement. Except as stated below, no underwriting discounts or commissions were
payable with respect to any of the following transactions.

CONVERTIBLE DEBT

         In April 2003, we issued a 9% convertible note in the amount of
$150,000 issued to Ms. Jill Brodersen, an accredited investor. The note was
convertible at $0.25 until June 30, 2003, at which time the conversion feature
expired. This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

         In March 2004, we issued a 10% convertible note to RP Capital, LLC, an
accredited investor, in the amount of $50,000 for cash. The note was due on
April 30, 2004 and was converted at $0.44 per share in May 2004. This
transaction was exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

COMMON STOCK AND WARRANTS

         In April 2003, we issued 600,000 shares of restricted common stock at a
price of $0.25 per share for cash totaling $150,000 to Mr. Rod Tompkins, an
accredited individual investor. In connection with the issuance of these shares,
we granted Mr. Tompkins 600,000 warrants to purchase our common stock at $0.25
per share. The warrants vested immediately and expire in April 2005. This
transaction was exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

         In May 2003, we issued 40,000 shares of restricted common stock at a
price of $0.25 per share for cash totaling $10,000 to entities controlled by Mr.
Calvin Leung, et al, an accredited individual investor. Mr. Leung is a director
of Aethlon Medical, Inc. In connection with the issuance of these shares, we
granted the entities 40,000 warrants to purchase common stock of the Company at
$0.25 per share. The warrants vested immediately and expire in May 2004. This
transaction was exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

         In May 2003, we issued 10,000 shares of restricted common stock at a
price of $0.25 per share for services valued at $2,500 to Comprehensive
Communications, an accredited corporate investor. This transaction was exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933.

         In July 2003, we issued 380,000 shares of restricted common stock at
prices between $0.25-$0.30 per share for cash totaling $100,000. 100,000 shares
of restricted common stock were issued to Mr. John D. Garber, an accredited
individual investor, for $30,000 and 280,000 shares of restricted common stock
were issued to entities controlled by Calvin Leung, et al, an accredited
individual investor, for $70,000. Mr. Leung is a director of Aethlon Medical,
Inc. In connection with the issuance of these shares, we granted these
stockholders a total of 380,000 warrants to purchase our common stock at amounts
and prices equal to their shares and purchase prices herein. The warrants vested
immediately and expire in July 2004. These transactions were exempt from
registration pursuant to Regulation D promulgated under the Securities Act of
1933.

         In September 2003, we issued 160,000 shares of restricted common stock
at a price of $0.25 per share for cash totaling $40,000 to Mr. Rod Tompkins, an
accredited investor. In connection with the issuance of these shares, we granted
Mr. Tompkins 160,000 warrants to purchase our common stock at a price of $0.25
per share. The warrants vested immediately and expire in September 2004. This
transaction was exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

         In September 2003, we issued 60,000 shares of restricted common stock
for cash totaling $15,000 to entities controlled by Mr. Calvin Leung, an
accredited individual investor, in connection with the exercise of 60,000
warrants to purchase our common stock at $0.25 per share. Mr. Leung is a
director of Aethlon Medical, Inc. This transaction was exempt from registration
pursuant to Regulation D promulgated under the Securities Act of 1933.

                                       12

<PAGE>

         In October 2003, we issued 80,000 shares of restricted common stock for
cash totaling $20,000 to Mr. Rod Tompkins, an accredited investor, in connection
with the exercise of 80,000 warrants to purchase our common stock at $0.25 per
share. This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

         In November 2003, we issued 100,000 shares of restricted common stock
at a price of $0.25 per share for cash totaling $25,000. 60,000 shares of
restricted common stock were sold to Mr. Phillip Ward, an accredited individual
investor, and 40,000 were sold to entities controlled by Mr. Calvin Leung, an
accredited individual investor. Mr. Leung is a director of Aethlon Medical, Inc.
In connection with the issuance of these shares, we granted the stockholders
100,000 warrants to purchase our common stock at a price of $0.25 per share. The
warrants vested immediately and expire in November 2004. These transactions were
exempt from registration pursuant to Regulation D promulgated under the
Securities Act of 1933.

         In November 2003, we issued 11,017 shares of restricted common stock at
a price of $0.50 per share to Mr. Paul Hastings, an accredited individual
investor in connection with the conversion of $5,000 of notes payable plus
accrued interest. This transaction was exempt from registration pursuant to
Regulation D promulgated under the Securities Act of 1933.

         In November 2003, we issued 100,000 shares of restricted common stock
for cash totaling $25,000, in connection with the exercise of 100,000 warrants
to purchase our common stock at $0.25 per share. Mr. John D. Garber, an
accredited individual investor, exercised 60,000 of the warrants and an entity
controlled by Mr. Calvin Leung, an accredited individual investor, exercised
40,000 warrants. Mr. Leung is a director of Aethlon Medical, Inc. This
transaction was exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

         In November 2003, we issued 40,000 shares of restricted common stock
for cash totaling $10,000, to entities controlled by Mr. Calvin Leung, an
accredited individual investor, in connection with the exercise of 40,000
warrants to purchase our common stock at $0.25 per share. Mr. Leung is a
director of Aethlon Medical, Inc. This transaction was exempt from registration
pursuant to Regulation D promulgated under the Securities Act of 1933.

         In December 2003, we issued 20,000 shares of restricted common stock at
a price of $0.25 per share for cash totaling $5,000 to two accredited investors.
In connection with the issuance of these shares, we granted the stockholders
20,000 warrants to purchase our common stock at a price of $0.25 per share. The
warrants vested immediately and expire in December 2004. These transactions were
exempt from registration pursuant to Regulation D promulgated under the
Securities Act of 1933.

         In December 2003, we issued 461,667 shares of restricted common stock
at a price of $0.25 per share and 461,667 warrants to purchase common stock at
an exercise price of $0.25 per share, to Provident Life Sciences Sector Fund,
LP, an institutional investor, in connection with the conversion of $100,000 of
convertible notes payable plus accrued interest. The warrants vested immediately
and are exercisable through December 2004. This transaction was exempt from
registration pursuant to Regulation D promulgated under the Securities Act of
1933.

         In December 2003, we issued 120,000 shares of restricted common stock
for cash totaling $30,000, in connection with the exercise of 120,000 warrants
to purchase our common stock at $0.25 per share. Mr. John D. Garber, an
accredited individual investor, exercised 40,000 of the warrants and Mr. Rod
Tompkins, an accredited individual investor, exercised 80,000 of the warrants.
This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

         In January 2004, we issued 26,000 shares of restricted common stock at
a price of $0.25 per share for cash totaling $6,500 three entities controlled by
Mr. Calvin Leung, an accredited investor. Mr. Leung is a director of Aethlon
Medical, Inc. In connection with the issuance of these shares, we granted the
entities 6,500 warrants to purchase our common stock at a price of $0.25 per
share. The warrants vested immediately and expire in January 2005. These
transactions were exempt from registration pursuant to Regulation D promulgated
under the Securities Act of 1933.

                                       13

<PAGE>

         In January 2004, we issued 161,334 shares of restricted common stock at
a price of $0.25 per share and 161,334 warrants to purchase common stock at an
exercise price of $0.25 per share, in connection with the conversion of $35,000
of notes payable plus accrued interest to Mr. Rob Edward, who held $30,000 in
notes and Ms. Linda Price, who held $5,000 in notes, both accredited individual
investors. The warrants vested immediately and are exercisable through January
2005. This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

         In January 2004, we issued 62,000 shares of restricted common stock at
a price of $0.40 per share for services in the amount of approximately $25,000.
50,000 shares of restricted common stock were issued to executives of Innovative
Health Solutions who provided consulting on biodefense marketing and 12,000
shares of restricted common stock were issued to Ms. Deborah Porter, a
consultant who provided consulting on technical solutions. This transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

         In February 2004, we issued 100,000 shares of restricted common stock
for cash totaling $25,000, in connection with the exercise of 100,000 warrants
to purchase our common stock at $0.25 per share. Mr. Rod Tompkins, an accredited
individual investor, exercised 60,000 of the warrants and an entity controlled
by Mr. Calvin Leung, an accredited investor, exercised 40,000 of the warrants.
Mr. Leung is a director of Aethlon Medical, Inc. This transaction was exempt
from registration pursuant to Regulation D promulgated under the Securities Act
of 1933.

         In February 2004, we issued 139,063 shares of restricted common stock
at a price of $0.25 per share and 139,063 warrants to purchase common stock at
an exercise price of $0.25 per share, in connection with the conversion of
$25,000 of notes payable plus accrued interest to Mr. Robb Newman, an accredited
individual investor. The warrants vested immediately and are exercisable through
February 2005. This transaction was exempt from registration pursuant to
Regulation D promulgated under the Securities Act of 1933.

         In February 2004, we issued 190,185 shares of restricted common stock
at a prices between $0.50 - $0.54 per share for services in the amount of
approximately $105,000. 185,185 shares were issued to executives of The Research
Works, Inc, who provided research report and investor relations consulting and
5,000 shares were issued to Ms. Cherry Kau, a consultant, for investor relations
conference services. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

         In March 2004, we issued 125,000 shares of restricted common stock at
prices between $0.30 - $1.125 per share to Mr. Phillip Ward 80,000 shares at
$0.30, Mr. Lance Hall 40,000 shares at $0.525, Mr. Jonathan LeBaron 5,000 shares
at $1.125, all accredited individual investors for cash totaling $50,625. In
connection with the issuance of these shares, we granted the stockholders
125,000 warrants, equal in amount and price to their shares, to purchase our
common stock at prices between $0.30 - $1.125 per share. The warrants vested
immediately and expire in March 2005. These transactions were exempt from
registration pursuant to Regulation D promulgated under the Securities Act of
1933.

         In March 2004, we issued 80,000 shares of restricted common stock for
cash totaling $20,000, in connection with the exercise of 80,000 warrants to
purchase our common stock at $0.25 per share to Mr. Rod Tompkins, an accredited
investor. This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

         In March 2004, we issued 854,574 shares of restricted common stock at
prices between $0.35-$0.65 per share in connection with the conversion of
$242,500 of notes payable plus accrued interest. 813,790 of the shares of
restricted common stock were issued to LH Financial (Esquire Trade and Finance),
an accredited institutional investor, in conjunction with the conversion of
$225,000 in principal amount of notes, plus accrued interest, at $0.35 per
share, in accordance with their convertible note agreement. 27,059 shares of
restricted common stock were issued to Mr. Robert B. Martin for conversion of
$12,500 of convertible notes, plus accrued interest at $0.65 per share and
13,725 shares of restricted shares of common stock were issued at $0.42 per
share to Ms. Pamella Fine for conversion of $5,000 of convertible notes, plus
accrued interest. We issued 40,784 warrants to purchase our common stock at
exercise prices ranging from $0.42 (13,725 to Ms. Fine) to $0.65 (27,059 to Mr.
Martin) per share. These warrants vested immediately and are exercisable through
March 2005. This transaction was exempt from registration pursuant to Regulation
D promulgated under the Securities Act of 1933.

                                       14

<PAGE>

         In March 2004, we issued 73,529 shares of restricted common stock at a
price of $0.34 per share for legal services in the amount of approximately
$25,000 to Richardson & Patel, LLP, our corporate counsel. This transaction was
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

EQUITY COMPENSATION PLANS

         SUMMARY EQUITY COMPENSATION PLAN DATA

         The following table sets forth March 31, 2004 information on our equity
compensation plans (including the potential effect of debt instruments
convertible into common stock) in effect as of that date:

<TABLE>
<CAPTION>
<S>     <C>
                          (a)                         (b)                         (c)

Plan category             Number of securities to     Weighted-average             Number of securities
                          be issued upon exercise     exercise price of            remaining available
                          of outstanding options,     outstanding options,         for future issuance
                          warrants and rights (1)(2)  warrants and rights          under equity
                                                                                   compensation plans
                                                                                   (excluding securities
                                                                                   reflected in column
                                                                                   (a))(3)

Equity compensation
plans approved by
security holders                 47,500                    $2.75                          452,500

Equity compensation
plans not approved by
security holders (1)          5,121,809                     2.29                              N/A
                             -----------                   ------                         --------
            Totals            5,169,309                     2.32                          452,500
</TABLE>


(1) The description of the material terms of non-plan issuances of equity
instruments is discussed in Notes 4, 5 and 6 to the accompanying consolidated
financial statements.

(2) Net of equity instruments forfeited, exercised or expired.

(3) This column does not include 926,475 shares of common stock that remain to
be issued under the 2003 Consultant Stock Plan.

         2000 STOCK OPTION PLAN

         Our 2000 Stock Option Plan (the "Plan"), adopted by us in August 2000,
provides for the grant of incentive stock options (ISOs") to our full-time
employees (who may also be Directors) and nonstatutory stock options ("NSOs") to
non-employee Directors, consultants, customers, vendors or providers of
significant services. The exercise price of any ISO may not be less than the
fair market value of the Common Stock on the date of grant or, in the case of an
optionee who owns more than 10% of the total combined voting power of all
classes of our outstanding stock, not be less than 110% of the fair market value
on the date of grant. The exercise price, in the case of any NSO, must not be
less than 75% of the fair market value of the Common Stock on the date of grant.
The amount reserved under the Plan is 500,000 options. At March 31, 2004, we had
granted 47,500 options under the Plan, with 452,500 available for future
issuance.

         2003 CONSULTANT STOCK PLAN

         Our 2003 Consultant Stock Plan (the "Stock Plan"), adopted by us in
August 2003, advances our interests by helping us obtain and retain the services
of persons providing consulting services upon whose judgment, initiative,
efforts and/or services we are substantially dependent, by offering to or
providing those persons with incentives or inducements affording such persons an
opportunity to become owners of our capital stock. Consultants or advisors are
eligible to receive grants under the plan program only if they are natural
persons providing bona fide consulting services to us, with the exception of any
services they may render in connection with the offer and sale of our securities
in a capital-raising transaction, or which may directly or indirectly promote or
maintain a market for our securities.

                                       15

<PAGE>

         We reserved a total of 1,000,000 common shares for issuance under the
Stock Plan. The Stock Plan provides for the grants of common stock. No awards
may be issued after the ten year anniversary of the date we adopted the Stock
Plan, the termination date for the plan.

         On March 29, 2004, we filed with the SEC a registration statement on
Form S-8 for the purpose of registering 1,000,000 common shares issuable under
the Stock Plan under the Securities Act of 1933.

         STAND-ALONE GRANTS

         From time to time our board of directors grants common share purchase
options or warrants to selected directors, officers, employees, consultants and
advisors in payment of goods or services provided by such persons on a
stand-alone basis outside of any of our formal stock plans. The terms of these
grants are individually negotiated.

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

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

         Certain statements contained herein that are not related to historical
results, including, without limitation, statements regarding the Company's
business strategy and objectives, future financial position, expectations about
pending litigation and estimated cost savings, are forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Securities Exchange Act") and
involve risks and uncertainties. Although we believe that the assumptions on
which these forward-looking statements are based are reasonable, there can be no
assurance that such assumptions will prove to be accurate and actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, regulatory policies, competition from other similar businesses, and
market and general economic factors. All forward-looking statements contained in
this Form 10-KSB are qualified in their entirety by this statement.

         PLAN OF OPERATION

         We are a development stage therapeutic device company that has not yet
engaged in significant commercial activities. The primary focus of our resources
is the advancement of our proprietary Hemopurifier(TM) platform treatment
technology, which is designed to rapidly reduce the presence of infectious
viruses and toxins in human blood. Our main focus during fiscal 2004 was to
prepare our HIV-Hemopurifier(TM) to treat HIV/AIDS, and our HCV-Hemopurifier(TM)
to treat Hepatitis-C for human clinical trials. We are also working to advance
pathogen filtration devices to treat infectious agents that may be used in
biological warfare and terrorism. See Item 1, " BUSINESS".

         We plan to continue our research and development activities related to
our Hemopurifier(TM) platform technology, with particular emphasis on the
advancement of our lead product candidates for the treatment of HIV/AIDS. We
plan to continue our pre-clinical trials for both our HIV/AIDS Hemopurifier(TM)
products as well as for our biodefense Hemopurifier(TM) products. We plan to
start small human clinical trials for HIV patients in fiscal 2005. We also plan
to implement a regulatory strategy for the use of our Hemopurifier(TM) for
biodefense treatments in fiscal 2005 pursuant to a recent rule implemented by
the FDA for medical countermeasures to weapons of mass destruction. Under this
rule, in situations where it is deemed unethical to conduct efficacy studies in
humans, a treatment can be reviewed for approval on the basis of efficacy in the
most relevant animal species and safety data in humans.

         We expect to add approximately seven additional employees in the next
twelve months, associated with our expanded research and development effort that
will include expanding our goal beyond treating infectious diseases HIV/AID and
Hepatitis-C and new applications to combat infectious agents that may be used in
biological warfare and terrorism. This will involve designing Hemopurifier(TM)
products that can be rapidly deployed by armed forces as wearable post-exposure
treatments on the battlefield, as well as dialysis-based treatments for civilian
populations. This will entail developing the new treatment device based on the
same proprietary Hemopurifier(TM) filtration technology that is utilized in
advancing our HIV/AIDS, and Hepatitis-C treatments. An important part of this
will include our cooperative agreement with the National Center for Biodefense
at George Mason to jointly pursue business and funding opportunities within the
federal government.

                                       16

<PAGE>

         Accordingly, due to this increase in activity during the next twelve
months, we anticipate increasing our spending on research and development during
the next twelve months. Additionally, associated with our anticipated increase
in research and development expenditures, we anticipate purchasing significant
amounts of equipment and tenant improvements, during this period to support our
laboratory and testing operations.

         Our operations to date have consumed substantial capital without
generating revenues, and we will continue to require substantial and increasing
capital funds to conduct necessary research and development and pre-clinical and
clinical testing of our Hemopurifier(TM) products, and to market any of those
products that receive regulatory approval. We do not expect to generate revenue
from operations for the foreseeable future, and our ability to meet our cash
obligations as they become due and payable is expected to depend for at least
the next several years on our ability to sell securities, borrow funds or a
combination thereof. Our future capital requirements will depend upon many
factors, including progress with pre-clinical testing and clinical trials, the
number and breadth of our programs, the time and costs involved in preparing,
filing, prosecuting, maintaining and enforcing patent claims and other
proprietary rights, the time and costs involved in obtaining regulatory
approvals, competing technological and market developments, and our ability to
establish collaborative arrangements, effective commercialization, marketing
activities and other arrangements. We expect to continue to incur increasing
negative cash flows and net losses for the foreseeable future.

         We recorded a consolidated net loss of $(1,518,798) or ($0.19) per
share and $(2,361,116) or ($0.43) per share for the fiscal years ended March 31,
2004 and 2003, respectively.

         Our consolidated operating expenses for fiscal 2004 were $995,549
versus $1,871,385 for fiscal 2003. This decrease in operating expenses of
$875,836 or 46.8% is largely attributable to a reduction in our professional
fees by $321,162, or 48.6%, principally due to lower investor relations fees,
lower patent royalty fees, and lower legal, accounting, technical and other
professional services; lower payroll by $132,231, or 24%, principally due to
fewer full time executive and administrative personnel and lower general and
administrative expenses in the amount of $88,245, or 27% due to lower insurance
and warrant costs all totaling $641,532, and the absence of the patent
impairment charge of $234,304 incurred in fiscal 2003. Our capital equipment
expenditures were insignificant in fiscal 2003 and 2002.

         In fiscal year 2003, we incurred non-cash expenses in the amount of
$234,304 related to the impairment of the carrying value of patents pending. We
capitalize the cost of patents and patents pending, some of which were acquired,
and amortize such costs over the shorter of the remaining legal life or their
estimated economic life, upon issuance of the patent. We write off unamortized
cost of patents and patents pending when we determine there is no future
benefit.

         In fiscal year 2003, we also incurred non-cash expenses in the amount
of $114,000 related to options granted to a consultant. These expenses
represented a significant portion of the professional fees that we incurred
during fiscal 2003.

         Our current plan of operation is to fund our anticipated increased
research and development activities and operations for the near future through
the $673,000 private placement of common stock and the common stock purchase
agreement with Fusion Capital Fund II, LLC ("Fusion Capital") in May 2004,
whereby Fusion Capital has committed to buy up to an additional $6,000,000 of
our common stock over a 30-month period, commencing, at our election, after the
Securities and Exchange Commission has declared effective a registration
statement covering such shares. However, no assurance can be given that we will
receive any additional funds under our agreement with Fusion Capital. Based on
our projections of additional employees for operations and to complete research,
development and testing associated with our Hemopurifier(TM) products, we
anticipate that these funds will satisfy our cash requirements, including this
anticipated increase in operations, in excess of the next twelve months.
However, due to market conditions, and to assure availability of funding for
operations in the long term, we may arrange for additional funding, subject to
acceptable terms, during the next twelve months.

         GOING CONCERN

         Our independent registered public accounting firm has stated in their
audit report on the Company's March 31, 2004 consolidated financial statements,
that we have a working capital deficit and a significant deficit accumulated
during the development stage. These conditions, among others, raise substantial
doubt about our ability to continue as a going concern.

                                       17

<PAGE>

         CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires us to make judgments, assumptions and estimates that affect the
amounts reported in the consolidated financial statements and the accompanying
notes. The amounts of assets and liabilities reported on our balance sheet and
the amounts of revenues and expenses reported for each of our fiscal periods are
affected by estimates and assumptions, which are used for, but not limited to,
the accounting for the issuance of convertible notes payable and various equity
instruments. Actual results could differ from these estimates. The following
critical accounting policies are significantly affected by judgments,
assumptions and estimates used in the preparation of the financial statements:

         ACCOUNTING FOR TRANSACTIONS INVOLVING STOCK COMPENSATION

         Financial Accounting Standards Board ("FASB") Interpretation No. 44
("FIN 44"), "ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION,
AN INTERPRETATION OF APB 25" clarifies the application of APB 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain provisions cover specific events that occur after either December
15, 1998, or January 12, 2000.

         Under Accounting Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES," compensation expense is the excess, if any, of the
estimated fair value of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. Compensation expense,
if any, is recognized over the applicable service period, which is usually the
vesting period.

         Statement of Financial Accounting Standards ("SFAS") 123, "ACCOUNTING
FOR STOCK-BASED COMPENSATION," if fully adopted, changes the method of
accounting for employee stock-based compensation plans to the fair value based
method. For stock options and warrants, fair value is estimated using an option
pricing model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option or warrant, stock volatility and
the annual rate of quarterly dividends. Compensation expense, if any, is
recognized over the applicable service period, which is usually the vesting
period. The adoption of the accounting methodology of SFAS 123 is optional and
the Company has elected to continue accounting for stock-based compensation
issued to employees using APB 25; however, pro forma disclosures, as the Company
adopted the cost recognition requirement under SFAS 123, are required to be
presented.

         SFAS 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE, AN AMENDMENT OF FASB STATEMENT NO. 123," was issued in December 2002
and is effective for fiscal years ending after December 15, 2002. SFAS 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of SFAS 123 to
require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.

         STOCK PURCHASE WARRANTS ISSUED WITH NOTES PAYABLE

         The Company granted warrants in connection with the issuance of certain
notes payable. Under Accounting Principles Board Opinion No. 14, " ACCOUNTING
FOR CONVERTIBLE DEBT AND DEBT ISSUED WITH STOCK PURCHASE WARRANTS," the relative
estimated fair value of such warrants represents a discount from the face amount
of the notes payable.

                                       18

<PAGE>

         BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

         The convertible feature of certain notes payable provides for a rate of
conversion that is below market value. Such feature is normally characterized as
a "beneficial conversion feature" ("BCF"). Pursuant to Emerging Issues Task
Force Issue No. 98-5 ("EITF Issue No. 98-5"), "ACCOUNTING FOR CONVERTIBLE
SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY ADJUSTABLE
CONVERSION RATIO" and Emerging Issues Task Force Issue No. 00-27, " APPLICATION
OF EITF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS," the estimated fair
value of the BCF is recorded in the consolidated financial statements as a
discount from the face amount of the notes. Such discounts are amortized to
interest expense over the term of the notes.

         IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

         SFAS 144, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF" addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS 144 requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If
the cost basis of a long-lived asset is greater than the projected future
undiscounted net cash flows from such asset (excluding interest), an impairment
loss is recognized. Impairment losses are calculated as the difference between
the cost basis of an asset and its estimated fair value. SFAS 144 also requires
companies to separately report discontinued operations and extends that
reporting requirement to a component of an entity that either has been disposed
of (by sale, abandonment or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or the estimated fair value less costs to sell. The Company
adopted SFAS 144 on January 1, 2002. The provisions of this pronouncement
relating to assets held for sale or other disposal generally are required to be
applied prospectively after the adoption date to newly initiated commitments to
plan to sell or dispose of such asset, as defined, by management. As a result,
management cannot determine the potential effects that adoption of SFAS 144 will
have on the Company's financial statements with respect to future disposal
decisions, if any. Management believes no impairment exists at March 31, 2004.

         INCOME TAXES

         Under SFAS 109, "ACCOUNTING FOR INCOME TAXES," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference between the consolidated financial statements and their respective
tax basis. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes, and (b) tax
credit carryforwards. The Company records a valuation allowance for deferred
income tax assets when, based on management's best estimate of taxable income in
the foreseeable future, it is more likely than not that some portion of the
deferred income tax assets may not be realized.

         OFF-BALANCE SHEET ARRANGEMENTS

         We have not entered into any off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources and would be
considered material to investors.

RISK FACTORS

         We have described below a number of uncertainties and risks which, in
addition to uncertainties and risks presented elsewhere in this annual report,
may adversely affect our business, operating results and financial condition.
The uncertainties and risks enumerated below as well as those presented
elsewhere in this annual report should be considered carefully in evaluating our
company and our business and the value of our securities.


                                       19

<PAGE>

RISKS RELATING TO OUR BUSINESS

WE HAVE ACCUMULATED LOSSES SINCE OUR INCEPTION, AND CURRENTLY HAVE NO PRODUCTS
OR SERVICES ON THE MARKET THAT ARE CURRENTLY GENERATING REVENUES.

         Our inability to generate revenues and profits from products we have
recently introduced onto the market could cause us to go out of business and for
you to lose your entire investment. We have not had any revenues for the past
three years. To date, we have engaged primarily in research, development and
clinical testing. Since our inception, we have not been profitable, and we
cannot be certain that we will ever achieve or sustain profitability. We have
incurred a cumulative net loss in the amount of $17,045,313 from our inception
through March 31, 2004. We have no products or services on the market that are
currently generating revenues. Our failure to generate meaningful revenues and
ultimately profits from potential products and applications of our technology
could force us to reduce or suspend our operations and ultimately go out of
business. Developing our product candidates will require significant additional
research and development, including non-clinical testing and clinical trials, as
well as regulatory approval. We expect these activities, together with our
general and administrative expenses, to result in operating losses for the
foreseeable future.

WE HAVE RECEIVED AN OPINION FROM OUR AUDITORS REGARDING OUR ABILITY TO CONTINUE
AS A GOING CONCERN

         Our independent auditors noted in their report accompanying our
financial statements for our fiscal year ended March 31, 2004 that we had net
losses since our inception, had a working capital deficit and that a significant
amount of additional capital will be necessary to advance the development of our
products to the point at which we may become commercially viable and stated that
those conditions raised substantial doubt about our ability to continue as a
going concern. Note 1 to our financial statements addressed management's plans
to address these matters. We cannot assure you that our business plans will be
successful in addressing these issues. This opinion about our ability to
continue as a going concern could affect our ability to obtain additional
financing at favorable terms, if at all, as such an opinion may cause investors
to lose faith in our long term prospects. If we cannot successfully continue as
a going concern, our shareholders may lose their entire investment in our common
shares.

WE MAY FAIL TO OBTAIN GOVERNMENT CONTRACTS TO DEVELOP OUR HEMOPURIFIER(TM)
TECHNOLOGY FOR BIODEFENSE APPLICATIONS.

         The U.S. Government has undertaken commitments to help secure improved
countermeasures against bioterrorism. We have submitted two Small Business
Innovative Research grant proposals, one in 2002 and the other in April 2004,
with the National Institutes of Health that relate to the use of our
Hemopurifier(TM) as a countermeasure treatment against certain biological
weapons and anticipate submitting further proposals on U.S. Government
contracts. We have not had any material discussions with the National Institutes
of Health. The Hemopurifier(TM) has not been approved for use by any government
agency, nor have we received any contracts to purchase the Hemopurifier(TM).
Since inception, we have not generated revenues from the sale of any product
based on our Hemopurifier(TM) technology platform. The process of obtaining
government contracts is lengthy and uncertain and we must compete for each
contract. Accordingly, we cannot be certain that we will be awarded any future
government contracts utilizing our Hemopurifier(TM) platform technology. If the
U.S. Government makes significant future contract awards to our competitors our
business will be harmed.

         In addition, the determination of when and whether a product is ready
for large scale purchase and potential use will be made by the government
through consultation with a number of governmental agencies, including the Food
and Drug Administration (the "FDA"), the National Institutes of Health, the
Centers for Disease Control and Prevention and the Department of Homeland
Security.

IF THE U.S. GOVERNMENT FAILS TO PURCHASE SUFFICIENT QUANTITIES OF ANY
FUTURE BIODEFENSE CANDIDATE UTILIZING OUR HEMOPURIFIER(TM) PLATFORM TECHNOLOGY,
WE MAY BE UNABLE TO GENERATE SUFFICIENT REVENUES TO CONTINUE OPERATIONS.

         We cannot be certain of the timing or availability of any future
funding from the U.S. Government, and substantial delays or cancellations of
funding could result from protests or challenges from third parties once such
funding is obtained. If we develop products utilizing our Hemopurifier(TM)
platform technology that are approved by the Food and Drug Administration, but
the U.S. Government does not place sufficient orders for these products, our
future business will be harmed.

                                       20

<PAGE>

U.S. GOVERNMENT AGENCIES HAVE SPECIAL CONTRACTING REQUIREMENTS, WHICH CREATE
ADDITIONAL RISKS.

         Our business plan to provide biodefense product candidates and
HIV-Hemopurifier(TM) candidates may involve contracts with the U.S. Government.
U.S. Government contracts typically contain unfavorable termination provisions
and are subject to audit and modification by the government at its sole
discretion, which subjects us to additional risks. These risks include the
ability of the U.S. Government to unilaterally:

         o        suspend or prevent us for a period of time from receiving new
                  contracts or extending existing contracts based on violations
                  or suspected violations of laws or regulations;

         o        audit and object to our contract-related costs and fees,
                  including allocated indirect costs;

         o        control and potentially prohibit the export of our products;
                  and

         o        change certain terms and conditions in our contracts.

         If we were to become a U.S. Government contractor, we would be required
to comply with applicable laws, regulations and standards relating to our
accounting practices and would be subject to periodic audits and reviews. As
part of any such audit or review, the U.S. Government may review the adequacy
of, and our compliance with, our internal control systems and policies,
including those relating to our purchasing, property, estimating, compensation
and management information systems. Based on the results of its audits, the U.S.
Government may adjust our contract-related costs and fees, including allocated
indirect costs. In addition, if an audit or review uncovers any improper or
illegal activity, we would possibly be subject to civil and criminal penalties
and administrative sanctions, including termination of our contracts, forfeiture
of profits, suspension of payments, fines and suspension or prohibition from
doing business with the U.S. Government. We could also suffer serious harm to
our reputation if allegations of impropriety were made against us. Although
adjustments arising from government audits and reviews have not seriously harmed
our business in the past, future audits and reviews could cause adverse effects.
In addition, under U.S. Government purchasing regulations, some of our costs,
including most financing costs, amortization of intangible assets, portions of
our research and development costs, and some marketing expenses, would possibly
not be reimbursable or allowed under such contracts. Further, as a U.S.
Government contractor, we would be subject to an increased risk of
investigations, criminal prosecution, civil fraud, whistleblower lawsuits and
other legal actions and liabilities to which purely private sector companies are
not.

WE WILL FACE INTENSE COMPETITION FROM COMPANIES THAT HAVE GREATER FINANCIAL,
PERSONNEL AND RESEARCH AND DEVELOPMENT RESOURCES THAN OURS.

         These competitive forces may impact our projected growth and ability to
generate revenues and profits, which would have a negative impact on our
business and the value of your investment.

         Our competitors are developing vaccine candidates, which could compete
with the Hemopurifier(TM) product candidates we are developing. our commercial
opportunities will be reduced or eliminated if our competitors develop and
market products for any of the diseases that we target that:

         o        are more effective;

         o        have fewer or less severe adverse side effects; are better
                  tolerated;

         o        are more adaptable to various modes of dosing; are easier to
                  administer;

         o        or are less expensive than the products or product candidates
                  we are developing.

         Even if we are successful in developing effective Hemopurifier(TM)
products, and obtain FDA and other regulatory approvals necessary for
commercializing them, our products may not compete effectively with other
successful products. Researchers are continually learning more about diseases,
which may lead to new technologies for treatment. Our competitors may succeed in
developing and marketing products either that are more effective than those that
we may develop, alone or with our collaborators, or that are marketed before any
products we develop are marketed.

                                       21

<PAGE>

         The Congress' recent passage of the $5.6 billion Project BioShield
Bill, a comprehensive effort to develop and make available modern, effective
drugs and vaccines to protect against attack by biological and chemical weapons
or other dangerous pathogens, may encourage competitors to develop their own
product candidates. We cannot predict the decisions that will be made in the
future by the various government agencies as a result of such legislation.

         Our competitors include fully integrated pharmaceutical companies,
biotechnology companies, universities and public and private research
institutions. Many of the organizations competing with us, have substantially
greater capital resources, larger research and development staffs and
facilities, greater experience in product development and in obtaining
regulatory approvals, and greater marketing capabilities than we do.

         The market for medical devices is intensely competitive. Many of our
potential competitors have longer operating histories, greater name recognition,
more employees, and significantly greater financial, technical, marketing,
public relations, and distribution resources than we have. This intense
competitive environment may require us to make changes in our products, pricing,
licensing, services or marketing to develop, maintain and extend our current
technology. Price concessions or the emergence of other pricing or distribution
strategies of competitors may diminish our revenues, adversely impact our
margins or lead to a reduction in our market share, any of which may harm our
business.

OUR HEMOPURIFER(TM) TECHNOLOGY MAY BECOME OBSOLETE.

         Our Hemopurifier(TM) products may be made unmarketable by new
scientific or technological developments where new treatment modalities are
introduced that are more efficacious or more economical than our
Hemopurifier(TM) products. The Homeland Security industry is growing rapidly
with many competitors trying to develop products or vaccines to protect against
infectious disease. Any one of our competitors could develop a more effective
product which would render our technology obsolete.

OUR USE OF HAZARDOUS MATERIALS, CHEMICALS AND VIRUSES REQUIRE US TO COMPLY WITH
REGULATORY REQUIREMENTS AND EXPOSES US TO POTENTIAL LIABILITIES.

         Our research and development involves the controlled use of hazardous
materials, chemicals and viruses. The primary hazardous materials include
chemicals needed to construct the Hemopurifier(TM) cartridges and HIV and
Hepatitis C infected plasma samples used in preclinical test of the
Hemopurifier(TM). All other chemicals are fully inventoried and reported to the
appropriate authorities, such as the fire department, who inspect the facility
on a regular basis. We are subject to federal, state, local and foreign laws
governing the use, manufacture, storage, handling and disposal of such
materials. Although we believe that our safety procedures for the use,
manufacture, storage, handling and disposal of such materials comply with the
standards prescribed by federal, state, local and foreign regulations, we cannot
completely eliminate the risk of accidental contamination or injury from these
materials. We have had no incidents or problems involving hazardous chemicals or
biological samples. In the event of such an accident, we could be held liable
for significant damages or fines. We currently do not carry insurance to protect
us from these damages. In addition, we may be required to incur significant
costs to comply with regulatory requirements in the future.

WE ARE DEPENDENT FOR OUR SUCCESS ON A FEW KEY EXECUTIVE OFFICERS.

         Our success depends to a critical extent on the continued services of
our Chief Executive Officer, James A. Joyce, our Chief Financial Officer, Edward
C. Hall and our Chief Science Officer, Richard H. Tullis. Were we to lose one
or more of these key executive officers, we would be forced to expend
significant time and money in the pursuit of a replacement, which would result
in both a delay in the implementation of our business plan and the diversion of
limited working capital. The loss of Dr. Tullis was harm the clinical
development of our products due to his unique experience with the Hemopurifier
technology. We can give you no assurance that we can find satisfactory
replacements for these key executive officers at all, or on terms that are not
unduly expensive or burdensome to our company. Although Mr. Joyce and Mr. Tullis
have signed employment agreements providing for their continued service to the
company, these agreements will not preclude them from leaving the company. Mr.
Hall is a part-time employee and his employment is severable by either party
upon 30-days notice. We do not currently carry key man life insurance policies
on any of our key executive officers which would assist us in recouping our
costs in the event of the loss of those officers.

                                       22

<PAGE>

OUR INABILITY TO ATTRACT AND RETAIN QUALIFIED PERSONNEL COULD IMPEDE OUR ABILITY
TO GENERATE REVENUES AND PROFITS AND TO OTHERWISE IMPLEMENT OUR BUSINESS PLAN
AND GROWTH STRATEGIES, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND
COULD ADVERSELY AFFECT THE VALUE OF YOUR INVESTMENT.

         We currently have an extremely small staff comprised of seven full time
employees consisting of our Chief Executive Officer, our Chief Science Officer,
our Director of Administrative Services, a research scientist, a research
associate, a senior bioengineer and a molecular biologist as well as other
personnel employed on a contract basis. Although we believe that these
employees, together with the consultants currently engaged by our company, will
be able to handle most of our additional administrative, research and
development and business development in the near term, we will nevertheless be
required over the longer-term to hire highly skilled managerial, scientific and
administrative personnel to fully implement our business plan and growth
strategies. We cannot assure you that we will be able to engage the services of
such qualified personnel at competitive prices or at all, particularly given the
risks of employment attributable to our limited financial resources and lack of
an established track record.

WE PLAN TO GROW VERY RAPIDLY, WHICH WILL PLACE STRAINS ON OUR MANAGEMENT TEAM
AND OTHER COMPANY RESOURCES TO BOTH IMPLEMENT MORE SOPHISTICATED MANAGERIAL,
OPERATIONAL AND FINANCIAL SYSTEMS, PROCEDURES AND CONTROLS AND TO TRAIN AND
MANAGE THE PERSONNEL NECESSARY TO IMPLEMENT THOSE FUNCTIONS. OUR INABILITY TO
MANAGE OUR GROWTH COULD IMPEDE OUR ABILITY TO GENERATE REVENUES AND PROFITS AND
TO OTHERWISE IMPLEMENT OUR BUSINESS PLAN AND GROWTH STRATEGIES, WHICH WOULD HAVE
A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.

         We will need to significantly expand our operations to implement our
longer-term business plan and growth strategies. We will also be required to
manage multiple relationships with various strategic partners, technology
licensors, customers, manufacturers and suppliers, consultants and other third
parties. This expansion and these expanded relationships will require us to
significantly improve or replace our existing managerial, operational and
financial systems, procedures and controls; to improve the coordination between
our various corporate functions; and to manage, train, motivate and maintain a
growing employee base. The time and costs to effectuate these steps may place a
significant strain on our management personnel, systems and resources,
particularly given the limited amount of financial resources and skilled
employees that may be available at the time. We cannot assure you that we will
institute, in a timely manner or at all, the improvements to our managerial,
operational and financial systems, procedures and controls necessary to support
our anticipated increased levels of operations and to coordinate our various
corporate functions, or that we will be able to properly manage, train, motivate
and retain our anticipated increased employee base.

WE MAY HAVE DIFFICULTY IN ATTRACTING AND RETAINING MANAGEMENT AND OUTSIDE
INDEPENDENT MEMBERS TO OUR BOARD OF DIRECTORS AS A RESULT OF THEIR CONCERNS
RELATING TO THEIR INCREASED PERSONAL EXPOSURE TO LAWSUITS AND SHAREHOLDER CLAIMS
BY VIRTUE OF HOLDING THESE POSITIONS IN A PUBLICLY-HELD COMPANY.

         The directors and management of publicly traded corporations are
increasingly concerned with the extent of their personal exposure to lawsuits
and shareholder claims, as well as governmental and creditor claims which may be
made against them, particularly in view of recent changes in securities laws
imposing additional duties, obligations and liabilities on management and
directors. Due to these perceived risks, directors and management are also
becoming increasingly concerned with the availability of directors and officers
liability insurance to pay on a timely basis the costs incurred in defending
such claims. We currently do not carry directors and officers liability
insurance. Directors and officers liability insurance has recently become much
more expensive and difficult to obtain. If we are unable to obtain directors and
officers liability insurance at affordable rates or at all, it may become
increasingly more difficult to attract and retain qualified outside directors to
serve on our board of directors. The fees of directors are also rising in
response to their increased duties, obligations and liabilities as well as
increased exposure to such risks. As a company with a limited operating history
and limited resources, we will have a more difficult time attracting and
retaining management and outside independent directors than a more established
company due to these enhanced duties, obligations and liabilities.


                                       23

<PAGE>

IF WE FAIL TO COMPLY WITH EXTENSIVE REGULATIONS ENFORCED BY DOMESTIC AND FOREIGN
REGULATORY AUTHORITIES, THE COMMERCIALIZATION OF OUR PRODUCT CANDIDATES COULD BE
PREVENTED OR DELAYED.

         Our pathogen filtration devices, or Hemopurifier(TM) products, are
subject to extensive government regulations related to development, testing,
manufacturing and commercialization in the United States and other countries.
The determination of when and whether a product is ready for large scale
purchase and potential use will be made by the government through consultation
with a number of governmental agencies, including the FDA, the National
Institutes of Health, the Centers for Disease Control and Prevention and the
Department of Homeland Security. Our product candidates are in the pre-clinical
and clinical stages of development and have not received required regulatory
approval from the FDA to be commercially marketed and sold. The process of
obtaining and complying with FDA and other governmental regulatory approvals and
regulations is costly, time consuming, uncertain and subject to unanticipated
delays. Despite the time and expense exerted, regulatory approval is never
guaranteed. We also are subject to the following risks and obligations, among
others.

         o        The FDA may refuse to approve an application if they believe
                  that applicable regulatory criteria are not satisfied.

         o        The FDA may require additional testing for safety and
                  effectiveness.

         o        The FDA may interpret data from pre-clinical testing and
                  clinical trials in different ways than we interpret them.

         o        If regulatory approval of a product is granted, the approval
                  may be limited to specific indications or limited with respect
                  to its distribution.

         o        The FDA may change their approval policies and/or adopt new
                  regulations.

Failure to comply with these or other regulatory requirements of the FDA may
subject us to administrative or judicially imposed sanctions, including:

         o        warning letters;

         o        civil penalties;

         o        criminal penalties;

         o        injunctions;

         o        product seizure or detention;

         o        product recalls; and

         o        total or partial suspension of productions.

DELAYS IN SUCCESSFULLY COMPLETING OUR CLINICAL TRIALS COULD JEOPARDIZE OUR
ABILITY TO OBTAIN REGULATORY APPROVAL OR MARKET OUR HEMOPURIFIER(TM) PRODUCT
CANDIDATES ON A TIMELY BASIS.

         Our business prospects will depend on our ability to complete clinical
trials, obtain satisfactory results, obtain required regulatory approvals and
successfully commercialize our Hemopurifier(TM) product candidates. Completion
of our clinical trials, announcement of results of the trials and our ability to
obtain regulatory approvals could be delayed for a variety of reasons,
including:

         o        serious adverse events related to our vaccine candidates;

         o        unsatisfactory results of any clinical trial;

         o        the failure of our principal third-party investigators to
                  perform our clinical trials on our anticipated schedules;
                  and/or

         o        different interpretations of our pre-clinical and clinical
                  data, which could initially lead to inconclusive results.


                                       24

<PAGE>

OUR DEVELOPMENT COSTS WILL INCREASE IF WE HAVE MATERIAL DELAYS IN ANY CLINICAL
TRIAL OR IF WE NEED TO PERFORM MORE OR LARGER CLINICAL TRIALS THAN PLANNED.

         If the delays are significant, or if any of our Hemopurifier(TM)
product candidates do not prove to be safe or effective or do not receive
required regulatory approvals, our financial results and the commercial
prospects for our product candidates will be harmed. Furthermore, our inability
to complete our clinical trials in a timely manner could jeopardize our ability
to obtain regulatory approval.

THE INDEPENDENT CLINICAL INVESTIGATORS THAT WE RELY UPON TO CONDUCT OUR CLINICAL
TRIALS MAY NOT BE DILIGENT, CAREFUL OR TIMELY, AND MAY MAKE MISTAKES, IN THE
CONDUCT OF OUR CLINICAL TRIALS.

         We depend on independent clinical investigators to conduct our clinical
trials. The investigators are not our employees, and we cannot control the
amount or timing of resources that they devote to our product development
programs. If independent investigators fail to devote sufficient time and
resources to our product development programs, or if their performance is
substandard, it may delay FDA approval of our vaccine candidates. These
independent investigators may also have relationships with other commercial
entities, some of which may compete with us. If these independent investigators
assist our competitors at our expense, it could harm our competitive position.

THE APPROVAL REQUIREMENTS FOR MEDICAL PRODUCTS USED TO FIGHT BIOTERRORISM ARE
STILL EVOLVING, AND WE CANNOT BE CERTAIN THAT ANY PRODUCTS WE DEVELOP, IF
EFFECTIVE, WOULD MEET THESE REQUIREMENTS.

         We are developing product candidates based upon current governmental
policies regulating these medical countermeasure treatments. For instance, we
intend to pursue FDA approval of our proprietary pathogen filtration devices to
treat infectious agents under requirements published by the FDA that allow the
FDA to approve certain vaccines used to reduce or prevent the toxicity of
chemical, biological, radiological or nuclear substances based on human clinical
data to demonstrate safety and immune response, and evidence of effectiveness
derived from appropriate animal studies and any additional supporting data. Our
business is subject to substantial risk because these policies may change
suddenly and unpredictably and in ways that could impair our ability to obtain
regulatory approval of these products, and we cannot guarantee that the FDA will
approve our proprietary pathogen filtration devices.

OUR PRODUCT DEVELOPMENT EFFORTS MAY NOT YIELD MARKETABLE PRODUCTS DUE TO RESULTS
OF STUDIES OR TRIALS, FAILURE TO ACHIEVE REGULATORY APPROVALS OR MARKET
ACCEPTANCE, PROPRIETARY RIGHTS OF OTHERS OR MANUFACTURING ISSUES.

         Our success depends on our ability to successfully develop and obtain
regulatory approval to market new filtration devices. We expect that a
significant portion of the research that we will conduct will involve new and
unproven technologies. Development of a product requires substantial technical,
financial and human resources even if the product is not successfully completed.

         Our previously planned products have not become marketable products due
in part to our transition in 2001 from a focus on utilizing our Hemopurifier(TM)
technology on treating harmful metals to treating infectious diseases prior to
our having completed the FDA approval process. Our transition was made in order
to focus on larger markets and too take advantage of the sense of greater sense
of urgency surrounding infectious diseases. Our pending products face similar
challenges of obtaining successful clinical trials in route to gaining FDA
approval prior to commercialization.

         Our potential products may appear to be promising at various stages of
development yet fail to reach the market for a number of reasons, including the:

         o        lack of adequate quality or sufficient prevention benefit, or
                  unacceptable safety during pre-clinical studies or clinical
                  trials;

         o        failure to receive necessary regulatory approvals;

         o        existence of proprietary rights of third parties; and/or

         o        inability to develop manufacturing methods that are efficient,
                  cost-effective and capable of meeting stringent regulatory
                  standards.

                                       25

<PAGE>

POLITICAL OR SOCIAL FACTORS MAY DELAY OR IMPAIR OUR ABILITY TO MARKET OUR
PRODUCTS.

         Products developed to treat diseases caused by or to combat the threat
of bioterrorism will be subject to changing political and social environments.
The political and social responses to bioterrorism have been highly charged and
unpredictable. Political or social pressures may delay or cause resistance to
bringing our products to market or limit pricing of our products, which would
harm our business. Bioterrorism has become the focus of political debates
especially with the upcoming presidential elections, both in terms of how to
approach bioterrorism and the amount funding the government should provide for
any programs involving homeland protection. Government funding for products on
bioterrorism could be reduce which would hinder our ability to obtain
governmental grants.

OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD NEGATIVELY
IMPACT OUR PROJECTED GROWTH AND ABILITY TO GENERATE REVENUES AND PROFITS, WHICH
WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF YOUR INVESTMENT.

         We rely on a combination of patent, patent pending, copyright,
trademark and trade secret laws, proprietary rights agreements and
non-disclosure agreements to protect our intellectual properties. We cannot give
you any assurance that these measures will prove to be effective in protecting
our intellectual properties.

         In the case of patents, we cannot give you any assurance that our
existing patents will not be invalidated, that any patents that we currently or
prospectively apply for will be granted, or that any of these patents will
ultimately provide significant commercial benefits. Further, competing companies
may circumvent any patents that we may hold by developing products which closely
emulate but do not infringe our patents. While we intend to seek patent
protection for our products in selected foreign countries, those patents may not
receive the same degree of protection as they would in the United States. We can
give you no assurance that we will be able to successfully defend our patents
and proprietary rights in any action we may file for patent infringement.
Similarly, we can give you any assurance that we will not be required to defend
against litigation involving the patents or proprietary rights of others, or
that we will be able to obtain licenses for these rights. Legal and accounting
costs relating to prosecuting or defending patent infringement litigation may be
substantial. Since many of our patents were issued in the 1980's, they may
expire before FDA approval, if any, is obtained. However, we believe that
certain patent applications filed and/or other patents issued more recently will
help to protect the proprietary nature of the Hemopurifier treatment technology.

         The Hemopurifier(TM) is protected by seven issued patents, in the
United States, Europe and Japan, six of which we own and one which we own the
exclusive license. Three additional patent applications deal with treatments for
virus infection and manufacturing methods, two of which we own and one which we
own the exclusive license.

         We also rely on proprietary designs, technologies, processes and
know-how not eligible for patent protection. We cannot give you any assurance
that our competitors will not independently develop the same or superior
designs, technologies, processes and know-how.

         While we have and will continue to enter into proprietary rights
agreements with our employees and third parties giving us proprietary rights to
certain technology developed by those employees or parties while engaged by our
company, we can give you no assurance that courts of competent jurisdiction will
enforce those agreements.

THE PATENTS WE OWN COMPRISE A MAJORITY OF OUR ASSETS WHICH COULD LIMIT OUR
FINANCIAL VIABILITY.

         The Hemopurifier(TM) is protected by seven issued patents, in the
United States, Europe and Japan, six of which we own and one which we own the
exclusive license. These patents comprise a majority of our assets. If our
existing patents are invalidated or if they fail to provide significant
commercial benefits, it will severely hurt our financial condition as a majority
of our assets would lose their value. Further, since our patents are written
down over the course of their term until they expire, our assets comprised of
patents will continually be written down until they lose value altogether.

                                       26

<PAGE>

LEGISLATIVE ACTIONS AND POTENTIAL NEW ACCOUNTING PRONOUNCEMENTS ARE LIKELY TO
IMPACT OUR FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS.

         There have been regulatory changes, including the Sarbanes-Oxley Act of
2002, and there may potentially be new accounting pronouncements or additional
regulatory rulings which will have an impact on our future financial position
and results of operations. The Sarbanes-Oxley Act of 2002 and other rule changes
as well as proposed legislative initiatives following the Enron bankruptcy have
increased general and administrative costs as we have incurred increased legal
and accounting fees to comply with such rule changes. Further, proposed
initiatives are expected to result in changes in certain accounting rules,
including legislative and other proposals to account for employee stock options
as a compensation expense. These and other potential changes could materially
increase the expenses we report under generally accepted accounting principles,
and adversely affect our operating results.

OUR PRODUCTS MAY BE SUBJECT TO RECALL OR PRODUCT LIABILITY CLAIMS.

         Our Hemopurifier(TM) products may be used in connection with medical
procedures in which it is important that those products function with precision
and accuracy. If our products do not function as designed, or are designed
improperly, we may be forced by regulatory agencies to withdraw such products
from the market. In addition, if medical personnel or their patients suffer
injury as a result of any failure of our products to function as designed, or an
inappropriate design, we may be subject to lawsuits seeking significant
compensatory and punitive damages. Any product recall or lawsuit seeking
significant monetary damages may have a material affect on our business and
financial condition.

RISKS RELATING TO AN INVESTMENT IN OUR SECURITIES

TO DATE, WE HAVE NOT PAID ANY CASH DIVIDENDS AND NO CASH DIVIDENDS WILL BE PAID
IN THE FORESEEABLE FUTURE.

         We do not anticipate paying cash dividends on our common shares in the
foreseeable future, and we cannot assure an investor that funds will be legally
available to pay dividends, or that even if the funds are legally available,
that the dividends will be paid.

THE APPLICATION OF THE "PENNY STOCK" RULES COULD ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON SHARES AND INCREASE YOUR TRANSACTION COSTS TO SELL THOSE
SHARES.

         As long as the trading price of our common shares is below $5 per
share, the open-market trading of our common shares will be subject to the
"penny stock" rules. The "penny stock" rules impose additional sales practice
requirements on broker-dealers who sell securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of securities and
have received the purchaser's written consent to the transaction before the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the broker-dealer must deliver, before the transaction, a disclosure
schedule prescribed by the SEC relating to the penny stock market. The
broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common shares, and may result in decreased
liquidity for our common shares and increased transaction costs for sales and
purchases of our common shares as compared to other securities.


                                       27

<PAGE>

OUR COMMON SHARES ARE THINLY TRADED, SO YOU MAY BE UNABLE TO SELL AT OR NEAR ASK
PRICES OR AT ALL IF YOU NEED TO SELL YOUR SHARES TO RAISE MONEY OR OTHERWISE
DESIRE TO LIQUIDATE YOUR SHARES.

         Our common shares have historically been sporadically or
"thinly-traded" on the OTCBB, meaning that the number of persons interested in
purchasing our common shares at or near ask prices at any given time may be
relatively small or non-existent. As of August 19, 2004, our average trading
volume per day for the past three months was approximately 31,000 shares a day
with a high of 249,853 shares traded and a low of zero shares traded. This
situation is attributable to a number of factors, including the fact that we are
a small company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company such as ours or purchase or recommend the purchase of our
shares until such time as we became more seasoned and viable. As a consequence,
there may be periods of several days or more when trading activity in our shares
is minimal or non-existent, as compared to a seasoned issuer which has a large
and steady volume of trading activity that will generally support continuous
sales without an adverse effect on share price. We cannot give you any assurance
that a broader or more active public trading market for our common shares will
develop or be sustained, or that current trading levels will be sustained.

         In May 2004, Fusion Capital committed to buy up to $6,000,000 of our
common stock. (SEE "PLAN OF OPERATIONS"). Fusion Capital's purchase of $10,000
of our common stock each trading day could cause our common stock price to
decline due to the additional shares available in the market, particularly in
light of the relatively thin trading volume of our common stock. The market
price of our common stock could decline and the voting power and value of your
investment would be subject to continual dilution if Fusion Capital purchases
the shares and resells those shares into the market. Any adverse affect on the
market price of our common stock would increase the number of shares issuable to
Fusion Capital each trading day which would increase the dilution of your
investment. Although we have the right to reduce or suspend Fusion Capital
purchases at any time, our financial condition at the time may require us to
waive our right to suspend purchases even if there is a decline in the market
price. Additionally, up to 2,372,728 shares of our common stock will be
registered by other selling shareholders with the shares committed to by Fusion
Capital. Sales of large amount of these shares in the public market could
substantially depress the prevailing market prices for our shares. If that were
to happen, the value of your investment could decline substantially.

         Contractual 9.9% beneficial ownership limitations prohibit Fusion
Capital, together with its affiliates, from beneficially owning more than 9.9%
of our outstanding common stock. This 9.9% limitation does not prevent Fusion
Capital from purchasing shares of our common stock and then reselling those
shares in stages over time where Fusion Capital and its affiliates do not, at
any given time, beneficially own shares in excess of the 9.9% limitation.
Consequently, these limitations will not necessarily prevent substantial
dilution of the voting power and value of your investment.

WE MAY NOT HAVE ENOUGH AUTHORIZED SHARES TO ISSUE ALL OF THE SHARES ELIGIBLE TO
BE SOLD TO FUSION CAPITAL.

         Our Articles of Incorporation currently authorize the Board of
Directors to issue up to 25,000,000 shares of common stock. As of August 20,
2004, we have 13,453,550 shares of common stock outstanding and common share
purchase options and warrants entitling the holders to purchase up to 5,513,749
common shares. Additionally, there are 303,000 shares underlying promissory
notes convertible into common stock. Under our agreement with Fusion Capital, we
will be registering 7,431,819 shares of our common stock for the daily purchases
by Fusion Capital. If Fusion Capital were to purchase all 7,431,810 shares and
holders exercised all of the common share purchase options and warrants or
converted the promissory notes, we would exceed the number of shares we are
authorized to issue. We would need to amend our Articles of Incorporation which
could prove costly and would require shareholder approval. Any delay in amending
our Articles of Incorporation could harm our business by preventing us from
raising capital from the issuance of our common stock or delay the payment of
services via issuance of our common stock.


                                       28

<PAGE>

THE MARKET PRICE FOR OUR COMMON SHARES IS PARTICULARLY VOLATILE GIVEN OUR STATUS
AS A RELATIVELY UNKNOWN COMPANY WITH A SMALL AND THINLY-TRADED PUBLIC FLOAT,
LIMITED OPERATING HISTORY AND LACK OF REVENUES WHICH COULD LEAD TO WIDE
FLUCTUATIONS IN OUR SHARE PRICE. THE PRICE AT WHICH YOU PURCHASE OUR COMMON
SHARES MAY NOT BE INDICATIVE OF THE PRICE THAT WILL PREVAIL IN THE TRADING
MARKET. YOU MAY BE UNABLE TO SELL YOUR COMMON SHARES AT OR ABOVE YOUR PURCHASE
PRICE, WHICH MAY RESULT IN SUBSTANTIAL LOSSES TO YOU.

         The market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the indefinite
future. In fact, during the 52-week period ended August 19, 2004, the high and
low sale prices of a share of our common stock were $4.25 and $0.25,
respectively. The volatility in our share price is attributable to a number of
factors. First, as noted above, our common shares are sporadically and/or thinly
traded. As a consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our shareholders may disproportionately influence
the price of those shares in either direction. The price for our shares could,
for example, decline precipitously in the event that a large number of our
common shares are sold on the market without commensurate demand, as compared to
a seasoned issuer which could better absorb those sales without adverse impact
on its share price. Secondly, we are a speculative or "risky" investment due to
our limited operating history and lack of revenues or profits to date, and
uncertainty of future market acceptance for our potential products. As a
consequence of this enhanced risk, more risk-adverse investors may, under the
fear of losing all or most of their investment in the event of negative news or
lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a
seasoned issuer. The following factors may add to the volatility in the price of
our common shares: actual or anticipated variations in our quarterly or annual
operating results; acceptance of our proprietary technology as viable method of
augmenting the immune response of clearing viruses and toxins from human blood;
government regulations, announcements of significant acquisitions, strategic
partnerships or joint ventures; our capital commitments; and additions or
departures of our key personnel. Many of these factors are beyond our control
and may decrease the market price of our common shares, regardless of our
operating performance. We cannot make any predictions or projections as to what
the prevailing market price for our common shares will be at any time, including
as to whether our common shares will sustain their current market prices, or as
to what effect that the sale of shares or the availability of common shares for
sale at any time will have on the prevailing market price.

         Shareholders should be aware that, according to SEC Release No.
34-29093, the market for penny stocks has suffered in recent years from patterns
of fraud and abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. Our management is aware of the abuses that
have occurred historically in the penny stock market. Although we do not expect
to be in a position to dictate the behavior of the market or of broker-dealers
who participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.

VOLATILITY IN OUR COMMON SHARE PRICE MAY SUBJECT US TO SECURITIES LITIGATION.

         The market for our common shares is characterized by significant price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be more volatile than a seasoned issuer for the indefinite
future. In the past, plaintiffs have often initiated securities class action
litigation against a company following periods of volatility in the market price
of its securities. We may in the future be the target of similar litigation.
Securities litigation could result in substantial costs and liabilities and
could divert management's attention and resources.


                                       29

<PAGE>

OUR OFFICERS AND DIRECTORS OWN OR CONTROL APPROXIMATELY 22% (EXCLUDING ALL
OPTIONS AND WARRANTS EXERCISABLE WITHIN 60 DAYS OF AUGUST 20, 2004) OF OUR
OUTSTANDING COMMON SHARES, WHICH MAY LIMIT THE ABILITY OF YOURSELF OR OTHER
SHAREHOLDERS, WHETHER ACTING SINGLY OR TOGETHER, TO PROPOSE OR DIRECT THE
MANAGEMENT OR OVERALL DIRECTION OF OUR COMPANY. ADDITIONALLY, THIS CONCENTRATION
OF OWNERSHIP COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY
THAT MIGHT OTHERWISE RESULT IN YOU RECEIVING A PREMIUM OVER THE MARKET PRICE FOR
YOUR COMMON SHARES.

         As of August 20, 2004, our officers and directors beneficially own or
control approximately 22% (excluding all options and warrants exercisable within
sixty days of August 20, 2004) of our outstanding common shares. These persons
will have the ability to control substantially all matters submitted to our
shareholders for approval and to control our management and affairs, including
extraordinary transactions such as mergers and other changes of corporate
control, and going private transactions.

A LARGE NUMBER OF COMMON SHARES ARE ISSUABLE UPON EXERCISE OF OUTSTANDING COMMON
SHARE PURCHASE OPTIONS, WARRANTS AND CONVERTIBLE PROMISSORY NOTES. THE EXERCISE
OR CONVERSION OF THESE SECURITIES COULD RESULT IN THE SUBSTANTIAL DILUTION OF
YOUR INVESTMENT IN TERMS OF YOUR PERCENTAGE OWNERSHIP IN THE COMPANY AS WELL AS
THE BOOK VALUE OF YOUR COMMON SHARES. THE SALE OF A LARGE AMOUNT OF COMMON
SHARES RECEIVED UPON EXERCISE OF THESE OPTIONS OR WARRANTS ON THE PUBLIC MARKET
TO FINANCE THE EXERCISE PRICE OR TO PAY ASSOCIATED INCOME TAXES, OR THE
PERCEPTION THAT SUCH SALES COULD OCCUR, COULD SUBSTANTIALLY DEPRESS THE
PREVAILING MARKET PRICES FOR OUR SHARES.

         As of August 20, 2004, there are outstanding non-variable priced common
share purchase options and warrants entitling the holders to purchase 5,513,749
common shares at a weighted average exercise price of $2.10 per share. The
exercise price for all of the aforesaid warrants, both variable and non-variable
priced, may be less than your cost to acquire our common shares. In the event of
the exercise or conversion of these convertible securities, you could suffer
substantial dilution of your investment in terms of your percentage ownership in
the company as well as the book value of your common shares. In addition, the
holders of the common share purchase options or warrants may sell common shares
in tandem with their exercise of those options or warrants to finance that
exercise, or may resell the shares purchased in order to cover any income tax
liabilities that may arise from their exercise of the options or warrants.

OUR ISSUANCE OF ADDITIONAL COMMON SHARES, OR OPTIONS OR WARRANTS TO PURCHASE
THOSE SHARES, WOULD DILUTE YOUR PROPORTIONATE OWNERSHIP AND VOTING RIGHTS.

         We are entitled under our certificate of incorporation to issue up to
25,000,000 shares of common stock. After taking into consideration our
outstanding common stock at August 20, 2004, we will be entitled to issue up to
11,546,450 additional common shares. Our board may generally issue shares of
common stock, or options or warrants to purchase those shares, without further
approval by our shareholders based upon such factors as our board of directors
may deem relevant at that time. It is likely that we will be required to issue a
large amount of additional securities to raise capital to further our
development. It is also likely that we will be required to issue a large amount
of additional securities to directors, officers, employees and consultants as
compensatory grants in connection with their services, both in the form of
stand-alone grants or under our stock plans. We cannot give you any assurance
that we will not issue additional common, or options or warrants to purchase
those shares, under circumstances we may deem appropriate at the time.

THE ELIMINATION OF MONETARY LIABILITY AGAINST OUR DIRECTORS, OFFICERS AND
EMPLOYEES UNDER OUR CERTIFICATE OF INCORPORATION AND THE EXISTENCE OF
INDEMNIFICATION RIGHTS TO OUR DIRECTORS, OFFICERS AND EMPLOYEES MAY RESULT IN
SUBSTANTIAL EXPENDITURES BY OUR COMPANY AND MAY DISCOURAGE LAWSUITS AGAINST OUR
DIRECTORS, OFFICERS AND EMPLOYEES.

         Our certificate of incorporation contains provisions which eliminate
the liability of our directors for monetary damages to our company and
shareholders. Our bylaws also require us to indemnify our officers and
directors. We may also have contractual indemnification obligations under our
agreements with our directors, officers and employees. The foregoing
indemnification obligations could result in our company incurring substantial
expenditures to cover the cost of settlement or damage awards against directors,
officers and employees, which we may be unable to recoup. These provisions and
resultant costs may also discourage our company from bringing a lawsuit against
directors, officers and employees for breaches of their fiduciary duties, and
may similarly discourage the filing of derivative litigation by our shareholders
against our directors, officers and employees even though such actions, if
successful, might otherwise benefit our company and shareholders.

                                       30

<PAGE>

ANTI-TAKEOVER PROVISIONS MAY IMPEDE THE ACQUISITION OF OUR COMPANY.

         Certain provisions of the Nevada General Corporation Law have
anti-takeover effects and may inhibit a non-negotiated merger or other business
combination. These provisions are intended to encourage any person interested in
acquiring us to negotiate with, and to obtain the approval of, our Board of
Directors in connection with such a transaction. However, certain of these
provisions may discourage a future acquisition of us, including an acquisition
in which the shareholders might otherwise receive a premium for their shares. As
a result, shareholders who might desire to participate in such a transaction may
not have the opportunity to do so.

ITEM 7. FINANCIAL STATEMENTS

         The financial statements listed in the accompanying Index to Financial
Statements are attached hereto and filed as a part of this Report under Item 13.

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

None

ITEM 8A. EVALUATION OF CONTROLS AND PROCEDURES

         Under the supervision and with the participation of our management,
including our Chief Executive Officer ("CEO") and Chief Financial Officer
("CFO"), we evaluated the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
of the Exchange Act as of a date (the "Evaluation Date") within 90 days prior to
filing the Company's March 31, 2004 Form 10-KSB/A. Based upon that evaluation,
our CEO and CFO concluded that, as of March 31, 2004, our disclosure controls
and procedures were effective in timely alerting management to the material
information relating to us (or our consolidated subsidiaries) required to be
included in our periodic filings with the SEC. Based on their most recent
evaluation as of the Evaluation Date, our CEO and the CFO have also concluded
that there are no significant deficiencies in the design or operation of
internal controls over financial reporting, at the reasonable assurance level,
which are reasonably likely to adversely affect our ability to record, process,
summarize and report financial information, and such officers have identified no
material weaknesses in our internal controls over financial reporting.

CHANGES IN CONTROLS AND PROCEDURES

         There were no significant changes made in our internal controls over
financial reporting during the quarter ended March 31, 2004 that have materially
affected or are reasonably likely to materially affect these controls. Thus, no
corrective actions with regard to significant deficiencies or material
weaknesses were necessary.

LIMITATIONS ON THE EFFECTIVENESS OF INTERNAL CONTROL

         Our management, including the CEO, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will
necessarily prevent all fraud and material errors. An internal control system,
no matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations on all internal control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within Aethlon Medical have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, and/or by management override of
the control. The design of any system of internal control is also based in part
upon certain assumptions about the likelihood of future events, and there can be
no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate
because of changes in circumstances, and/or the degree of compliance with the
policies and procedures may deteriorate. Because of the inherent limitations in
a cost-effective internal control system, financial reporting misstatements due
to error or fraud may occur and not be detected on a timely basis.

                                       31

<PAGE>

                                    PART III

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

         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

         Section 16 (a) of the Securities Exchange Act of 1934 requires our
officers, directors, and persons who own more than 10% of a registered class of
our equity securities to file reports of ownership and changes in ownership with
the SEC and Nasdaq. Officers, directors, and greater than 10% beneficial owners
are required by SEC regulation to furnish the Company with copies of all Section
16 (a) forms they file. We believe that all filing requirements applicable to
its officers, directors, and greater than 10% beneficial owners were complied
with.

         EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES

         The names, ages and positions of our directors and executive officers
as of August 20, 2004 are listed below:


NAMES                        TITLE OR POSITION                              AGE
- -----                        -----------------                              ---
James A. Joyce (1)           Chairman, President, Chief Executive            42
                             Officer and Secretary

Richard H. Tullis, PhD (2)   Vice President, Chief Science Officer           59
                             and Director

Edward C. Hall (3)           Vice President, Chief Financial Officer         63

Franklyn S. Barry, Jr.       Director                                        64

Edward G. Broenniman         Director                                        67

Calvin M. Leung (4)          Director                                        66

         (1) Effective June 1, 2001, Mr. Joyce was appointed our President and
Chief Executive Officer, replacing Mr. Barry, who continues as a member of the
board of directors. Mr. Barry also served as a consultant to us on strategic
business issues from June 1, 2001 to May 31, 2003.

         (2) Also effective June 1, 2001, Dr. Tullis was appointed as the
Company's Chief Science Officer, replacing Dr. Clara M. Ambrus, who retired.

         (3) Effective August 14, 2002 Mr. Hall was elected our Vice President
and Chief Financial Officer, replacing Robert S. Stefanovich, who resigned July
26, 2002.

         (4) Effective June 30, 2003 Mr. Leung was elected to our board of
directors.

         RESUMES OF MANAGEMENT:

         James A. Joyce, Chairman, President and CEO
         -------------------------------------------

         Mr. Joyce is the founder of Aethlon Medical, and has been the Chairman
of the Board and Secretary since March 1999. On June 1, 2001, our Board of
Directors appointed Mr. Joyce with the additional roles of President and CEO. In
February of 1993, Mr. Joyce founded James Joyce & Associates, an organization
that provided management consulting and corporate finance advisory services to
CEOs and CFOs of publicly traded companies. Previously, Mr. Joyce was Chief
Executive Officer of Mission Labs, Inc., and a principal in charge of U.S.
operations for London Zurich Securities, Inc. Mr. Joyce is a graduate from the
University of Maryland.


                                       32

<PAGE>

         Edward C. Hall, Vice President, Chief Financial Officer
         -------------------------------------------------------

         Mr. Hall has been Vice President, Chief Financial Officer of the
Company since August 2002 on a part-time basis. Mr. Hall has held senior
financial executive positions with both public and privately-held life sciences
and technology companies for over 25 years. Prior to his appointment as Chief
Financial Officer of Aethlon Medical, he served as Vice President and Chief
Financial Officer of Chromagen, Inc, a private biotech tools company which
develops proteomic and genomic assays for use in drug discovery. Prior to that
Mr. Hall was Vice President, Finance and Chief Financial Officer of Cytel
Corporation, a public biotech company and developer of anti-inflammatory drugs.
Prior to that, Mr. Hall was Vice President, Finance and Chief Financial Officer
of Medical Device Technologies, a public medical device company. Mr. Hall is
also Vice President, Chief Financial Officer of Alliance Pharmaceutical Corp., a
public research-based pharmaceutical development company, and he is a Partner of
Tatum CFO Partners, LLP.

         Richard H. Tullis, Ph.D., Vice President, Chief Science Officer
         ---------------------------------------------------------------

         Dr. Tullis has been Vice President and a director of the Company since
January 2000 and Chief Science Officer since June 2001. Dr. Tullis has extensive
biotechnology management and research experience, and is the founder of Syngen
Research, a wholly-owned subsidiary of Aethlon Medical, Inc. Previously, Dr.
Tullis co-founded Molecular Biosystems, Inc., a former NYSE company. At
Molecular Biosystems, Dr. Tullis was Director of Research and Development,
Director of Oligonucleotide Hybridization, Senior Research Scientist and Member
of the Board of Directors. In research, Dr. Tullis developed and patented the
first application of oligonucleotides to antisense antibiotics and developed new
methods for the chemical synthesis of DNA via methoxy-phosphorochloridites. Dr.
Tullis also co-developed the first applications of covalently coupled DNA-enzyme
conjugates using synthetic oligonucleotides during his tenure at Molecular
Biosystems. In 1985, Dr. Tullis founded, and served as President and CEO of
Synthetic Genetics, Inc., a pioneer in custom DNA synthesis, which was sold to
Molecular Biology Resources in 1991. Dr. Tullis also served as interim-CEO of
Genetic Vectors, Inc., which completed its IPO under his management, and was
co-founder of DNA Sciences, Inc., a company that was eventually acquired by
Genetic Vectors. Dr Tullis received his Ph.D. in Biochemistry and Cell Biology
from the University of California at San Diego, and has done extensive
post-doctoral work at UCSD, USC, and The Scripps Research Institute.

         Franklyn S. Barry, Jr.
         ----------------------

         Mr. Barry has over 25 years of experience in managing and building
companies. He was President and Chief Executive Officer of Hemex from April 1997
through May 31, 2001 and our President and CEO from March 10, 1999 to May 31,
2001. He became a director of Aethlon Medical on March 10, 1999. From 1994 to
April 1997, Mr. Barry was a private consultant. Included among his prior
experiences are tenures as President of Fisher-Price and as co-founder and CEO
of Software Distribution Services, which today operates as Ingram Micro-D, an
international distributor of personal computer products. Mr. Barry serves on the
Board of Directors of Merchants Mutual Insurance Company.

         Edward G. Broenniman
         --------------------

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

                                       33

<PAGE>

         Calvin M. Leung
         ---------------

         Mr. Leung became a director of Aethlon Medical on June 30, 2003. He is
the President of Mandarin Investment Corporation, specializing in investment,
development and management of mobile home and recreational vehicle parks in
California, Arizona and the Midwest since 1975. He has syndicated a number of
land and housing developments in the western United States.

         Mr. Leung, born in Hong Kong, received his advanced education in the
United States where he was awarded a doctorate degree in psychology specializing
in experimental research. He taught at the university level for several years.

         Our Board of Directors has the responsibility for establishing broad
corporate policies and for overseeing our overall performance. Members of the
Board are kept informed of our business activities through discussions with the
President and other officers, by reviewing analyses and reports sent to them,
and by participating in board and committee meetings. Our bylaws provide that
each of the directors serves for a term that extends to our next Annual Meeting
of Shareholders. Our Board of Directors presently has an Audit Committee and a
Compensation Committee on each of which Messrs. Barry and Broenniman and Leung
serve. Mr. Barry is Chairman of the Audit Committee, and Mr. Broenniman is
Chairman of the Compensation Committee.

         Non-employee Board members are accruing stock options and cash
compensation according to the plan approved in August 2000. Employee directors
receive no compensation.

         FAMILY RELATIONSHIPS.

         There are no family relationships between or among the directors,
executive officers or persons nominated or charged by us to become directors or
executive officers

         There are no arrangements or understandings between any two or more of
our directors or executive officers. There is no arrangement or understanding
between any of our directors or executive officers and any other person pursuant
to which any director or officer was or is to be selected as a director or
officer, and there is no arrangement, plan or understanding as to whether
non-management shareholders will exercise their voting rights to continue to
elect the current board of directors. There are also no arrangements, agreements
or understanding between non-management shareholders that may directly or
indirectly participate in or influence the management of our affairs.

         REGULATORY AND CLINICAL ADVISOR

         Kenneth R. Michael, Pharm.D., R.A.C.
         ------------------------------------

         Dr. Michael is the President of KRM Associates LLC, a regulatory and
clinical affairs consulting organization. He is the former VP of Regulatory
Affairs and Quality Assurance at Siemens Medical Systems, and he is the founder,
past President and Chairman of The Regulatory Affairs Professional Society. He
is also the founder of the San Diego Regulatory Affairs Network.

         SCIENTIFIC ADVISORY BOARD

         Each person listed below is a current member of our Science Advisory
Board. The role of the Science Advisory Board is to provide scientific guidance
related to the development of our Hemopurifier(TM) technology. Unlike the
members of our board of directors, the Science Advisory Board members are not
involved in the management or operations of our company. Members of the Science
Advisory Board are paid $500 per day for services rendered either on-site or at
a mutually agreeable location.

         Jean-Claude Chermann, Ph.D.
         ---------------------------

         Dr. Chermann is a pioneer in the study of retroviruses, and was the
principal investigator of the research team that collaborated in the first
isolation and characterization of HIV at the Pasteur Institute in 1983. Dr.
Chermann was also the Director of Research of INSERM (French National Institute
of Health and Medical Research) and also held the position of Director of
Research of Unit INSERM U322 on "Retrovirus and Associated Diseases" from 1989
until June 2001 when he accepted his current role as Chief Scientific Director
of Urrma Biopharma based in Montreal, Canada, and Research & Development
Director of URRMA R&D, based in Aubagne, France.

                                       34

<PAGE>

         Larry Cowgill, D.V.M., Ph.D.
         ----------------------------

         Dr. Cowgill is a Professor in the Department of Medicine and
Epidemiology at the School of Veterinary Medicine, University of
California--Davis and has nearly 30 years of experience as a clinical instructor
in small animal internal medicine, nephrology and hemodialysis. He currently
Heads the Companion Animal Hemodialysis Units at the Veterinary Medical Teaching
Hospital at UC Davis and the UC Veterinary Medical Center-San Diego. Dr. Cowgill
is also Associate Dean for Southern California Clinical Programs and is
Co-Director of the University of California Veterinary Medical Center-San Diego.
Prior to his appointment at the University of California, he was a National
Institutes of Health (NIH) Special Research Fellow at the University of
Pennsylvania School of Veterinary Medicine and at the Renal Electrolyte Section
at the University of Pennsylvania School of Medicine, where he conducted
research in basic renal physiology and clinical nephrology. Dr. Cowgill received
his D.V.M. from the University of California--Davis School of Veterinary
Medicine and his Ph.D. in Comparative Medical Sciences from the University of
Pennsylvania, where he also completed his internship and Residency training in
Small Animal Internal Medicine. He became a Diplomat of the American College of
Veterinary Internal Medicine in 1977. Dr. Cowgill has published extensively in
the area of veterinary nephrology and has established a Clinical Fellowship in
Renal Medicine and Hemodialysis, which is the first of its kind in veterinary
Medicine.

         Pedro Cuatrecasas, M.D.
         -----------------------

         Dr. Cuatrecasas was President of the Pharmaceutical Research Division
of Parke-Davis Co., and Corporate Vice President for Warner Lambert Company from
1989 until his retirement in 1997. From 1986 to 1989, he served as SVP and
Director of Glaxo Inc. For the prior 10 years, he was VP/R&D and Director, of
the Burroughs Wellcome Company. During his career in pharmaceutical research, he
was involved in the discovery, development and marketing registration of more
than 40 novel medicines. Dr. Cuatrecasas is widely recognized for the invention
and development of affinity chromatography which is a method for the selective
capture of proteins, sugars, fats and inorganic compounds. He is a member of the
National Academy of Sciences, The Institute of Medicine, and the American
Academy of Arts & Sciences, and he has authored more than 400 original
publications.

         Nathan W. Levin, M.D.
         ---------------------

         Dr. Levin is recognized as a leading authority within the hemodialysis
industry. He is the Medical and Research Director of the Renal Research
Institute, LLC, a joint venture between Fresenius Medical Care - North America
and Beth Israel Medical Center, New York. Dr. Levin also serves as Professor of
Clinical Medicine at the Albert Einstein College of Medicine.

         Raveendran (Ravi) Pottathil, Ph.D.
         ----------------------------------

         Dr. Pottathil was the Section Manager for Retroviruses (focus on HIV
and HCV) and Tumor markers and PCR diagnostics at Hoffman La Roche from 1985 to
1992. He then co-founded Specialty Biosystems, Inc, a venture of Specialty Labs,
one of the largest independent reference laboratories in California. Dr.
Pottathil has also advised the World Health Organization's Sexually Transmitted
Diseases and Global Vaccination Program. Dr. Pottathil has worked with Dr.
Robert Huebner of the NIH in immunology and virology at The Jackson Laboratory,
and with Drs. David Lang and Wolfgang Joklik at Duke University on interferons,
anti-tumor RNAs and antigenic suppression of tumorigenic retroviruses. Academic
positions include: Assistant Professor at the University of Maryland School of
Medicine; Associate Professor at the City of Hope Medical Center in Duarte,
California where he published extensively with Dr. Pedro Cuatrecasas (one of
developers of affinity chromatography); and Adjunct Professor in Cellular and
Molecular Biology at Down State Medical Center and Rutgers University. As a
virologist and molecular biologist, Dr. Pottathil has over 40 refereed
publications to his credit and has been a Director of OncQuest, Inc., GeneQuest,
Inc., Specialty Laboratories Asia in Singapore and Specialty Ranbaxy in India.
Currently, Dr. Pottathil is the President of AccuDx, Inc. a pharmaceutical
diagnostics company he founded in 1996.

                                       35

<PAGE>

         Claudio Ronco, M.D.
         -------------------

         Dr. Ronco is the Director of the Dialysis and Renal Transplantation
Programs of St. Bartolo Hospital in Vicenza, Italy. He has published 17 books on
nephrology and dialysis and has written or co-authored over 350 scientific
articles. Dr. Ronco also serves on the editorial board of 12 scientific
journals, is a director of three international scientific societies, and is
recognized as being instrumental in the introduction of continuous
hemofiltration and high flux dialysis in Europe.

         Ken Alibek, M.D., Ph.D., D.Sc.
         ------------------------------

         Dr. Alibek is the Executive Director of Education at the National
Center for Biodefense at George Mason University (GMU), and is a Distinguished
Professor at GMU as well. Dr. Alibek specializes in medical and scientific
research dedicated to developing new forms of protection against biological
weapons and other infectious diseases.

         Formerly, Dr. Alibek was a Soviet Army Colonel, and served as First
Deputy Chief of the civilian branch of the Soviet Union's biological weapons
program until he defected to the United States in 1992 and subsequently served
as a consultant to numerous U.S. government agencies in the areas of medical
microbiology, biological weapons defense, and biological weapons
nonproliferation. Dr. Alibek has worked with the National Institutes of Health,
testified extensively before the U.S. Congress on nonproliferation of biological
weapons and is the author of Biohazard: The Chilling True Story of the Largest
Covert Biological Weapons Program in the World--Told from Inside by the Man Who
Ran It, published by Random House Books. He holds numerous patents, is widely
published in science journals, and has provided over 300 lectures and
presentations to military and civilian universities, as well as foreign
governments. The December 2003 issue of the Acumen Journal of Life Sciences
named Dr. Alibek as one of top five biological warfare experts in the nation.

         Charles Bailey, Ph.D.
         ---------------------

         Dr. Bailey is the former commander of the U.S. Army Medical Research
Institute of Infectious Diseases (USAMRIID). Dr. Bailey has 25 years U.S. Army
experience in R&D and management in infectious diseases and biological warfare
defense. As an officer of the Defense Intelligence Agency, Dr. Bailey wrote
extensively on foreign biological warfare capabilities. Dr. Bailey is currently
the Executive Director for Research & International Relations at the National
Center for Biodefense at George Mason University (GMU), and is a Distinguished
Professor of Biology at GMU as well. The Acumen Journal of Life Sciences named
Dr. Bailey as one of the top five biological warfare experts in the nation.

         Members of the Scientific Advisory Board do not receive any
compensation for service on the Board. From time to time, as management sees
fit, we may engage them on consulting assignments for a fee on specific
projects.

         INVOLVEMENT IN LEGAL PROCEEDINGS.

         To the best of our knowledge, during the past five years, none of the
following occurred with respect to a present or former director or executive
officer of the Company: (1) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time; (2) any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor offenses); (3) being
subject to any order, judgment or decree, not subsequently reversed, suspended
or vacated, of any court of any competent jurisdiction, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities; and (4) being found
by a court of competent jurisdiction (in a civil action), the SEC or the
Commodities Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed, suspended
or vacated.

         CODE OF ETHICS

         Our Board of Directors is in the process of preparing a code of ethics
which would apply to all of our officers, directors and employees.

                                       36

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

         The following table sets forth compensation received for the fiscal
years ended March 31, 2002 through 2004 by our Chief Executive Officer and all
executive officers.


SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
<S>     <C>

                                  ANNUAL COMPENSATION                 LONG-TERM COMPENSATION
                                 --------------------------------- -------------------------
                                                                         AWARDS
                                                                   ------------------
                                                         OTHER                          PAYOUTS/
                                                         ANNUAL    RESTRICTED OPTIONS     LTIP        OTHER
NAME AND PRINCIPAL               SALARY       BONUS   COMPENSATION   STOCK      SARs     PAYOUTS   COMPENSATION
POSITION                 YEAR    ($)(1)        ($)        ($)          ($)       (#)        ($)        (1)
- --------                 ----    ------        ---        ---          ---       ---        ---        ---
James A. Joyce           2004    180,000        -                                    -
Chairman,                2003    180,000        -                              250,000
President/CEO            2002    180,000

Richard H. Tullis,       2004    150,000        -                                    -
Ph.D. Vice President,    2003    150,000        -                              250,000
Chief Scientific Officer 2002    150,000                                        30,000

Edward C. Hall (2)       2004     28,530(2)     -                                    -
Vice President, Chief    2003     25,000
Financial Officer        2002        N/A

</TABLE>

         (1) The remuneration described in the above table does not include our
cost of benefits furnished to the named executive officers, including premiums
for health insurance and other personal benefits provided to such individuals
that are extended to all our employees in connection with their employment.
Perquisites and other personal benefits, securities, or property received by an
executive officer are either the lesser of $50,000 or 10% of the total salary
and bonus reported for each named executive officer, except as otherwise
disclosed.

         (2) Mr. Hall became a part-time employee and was elected CFO of the
Company on August 14, 2002. He is compensated on an hourly basis, a portion of
which, amounting to $5,706 in fiscal 2004, is paid to Tatum CFO Partners, LLP of
which he is a partner.

OPTION/SAR GRANTS IN THE LAST FISCAL YEAR

None.

  AGGREGATED OPTIONS/SAR EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR-END
                                OPTION/SAR VALUES

         The following table sets forth the number of common stock options, both
exercisable and unexercisable, held by each of our Named Executive Officers and
the value of any in-the-money options at March 31, 2004, utilizing a value of
$1.35 per share, the closing price of our common stock on the OTCBB on March 31,
2004:


                                                NUMBER OF          VALUE OF
                                               UNEXERCISED       IN-THE-MONEY
                                               OPTIONS AT         OPTIONS AT
                        SHARES                  MARCH 31,          MARCH 31,
                       ACQUIRED      VALUE        2004                2004
                     ON EXERCISE   REALIZED   (EXERCISABLE/       (EXERCISABLE/
                         (#)          ($)     UNEXERCISABLE)      UNEXERCISABLE)
                     -----------   --------   -------------      -------------
James A. Joyce           --          $ --       250,000/--         $0.0/$0.0
Richard H. Tullis        --          $ --       280,000/--         $0.0/$0.0
Edward C. Hall           --          $ --          N/A                N/A


                                       37

<PAGE>

         EMPLOYMENT AGREEMENTS

         We entered into an employment agreement with Mr. Joyce effective April
1, 1999. Effective June 1, 2001, Mr. Joyce was appointed our President and Chief
Executive Officer and his base annual salary was increased from $120,000 to
$180,000. Under the terms of the agreement, his employment continues at a salary
of $180,000 per year for successive one year periods, unless given notice of
termination 60 days prior to the anniversary of his employment agreement.

         We entered into an employment agreement with Dr. Tullis effective
January 10, 2000. Effective June 1, 2001, Dr. Tullis was appointed our Chief
Science Officer of the Company. His compensation under the agreement was
modified in June 2001 from $80,000 to $150,000 per year. Under the terms of the
agreement, his employment continues at a salary of $150,000 per year for
successive one year periods, unless given notice of termination 60 days prior to
the anniversary of his employment agreement. Dr. Tullis was granted 250,000
stock options to purchase our common stock in connection the completing certain
milestones, such as the initiation and completion of certain clinical trials,
the submission of proposals to the FDA and the filing of a patent application.

         Both Mr. Joyce and Dr. Tullis' agreements provide for medical insurance
and disability benefits, one year of severance pay if their employment is
terminated by us without cause or due to change in our control before the
expiration of their agreements, and allow for bonus compensation and stock
option grants as determined by our Board of Directors.

         Both agreements also contain restrictive covenants preventing
competition with us and the use of confidential business information, except in
connection with the performance of their duties for us, for a period of two
years following the termination of their employment with us.

         Effective August 14, 2002, Mr. Hall was elected our Vice President,
Chief Financial Officer. His employment is subject to 30 days' notice, with no
severance pay provisions, in accordance with his employment agreement. He
receives no medical or other benefits from us.

         STOCK OPTION GRANTS

         Our 2000 Stock Option Plan (the "Plan"), adopted by us in August 2000,
provides for the grant of incentive stock options ("ISOs") to full-time
employees (who may also be Directors) and nonstatutory stock options ("NSOs") to
non-employee Directors, consultants, customers, vendors or providers of
significant services. The exercise price of any ISO may not be less than the
fair market value of our Common Stock on the date of grant or, in the case of an
optionee who owns more than 10% of the total combined voting power of all
classes of our outstanding stock, not be less than 110% of the fair market value
on the date of grant. The exercise price, in the case of any NSO, must not be
less than 75% of the fair market value of our Common Stock on the date of grant.
The amount available under the Plan is 500,000 options.

         At March 31, 2004, we had granted 47,500 options under the Plan, with
452,500 available for future issuance. We issued the remaining 1,966,415 options
(of which 637,800 have been exercised or cancelled) outside of the Plan.

         At March 31, 2004, we had outstanding options to purchase 1,376,115
shares of our Common Stock. See Item 11, "Security Ownership of Certain
Beneficial Owners and Management."

OUTSTANDING STOCK PURCHASE WARRANTS

Common Stock purchase warrants

         At March 31, 2004, we had outstanding a total of 3,907,764 warrants,
exercisable at prices between $0.25 - 6.50 per share and with expiration dates
from 2004 - 2007.

See Item 11, "Security Ownership of Certain Beneficial Owners and Management."


                                       38

<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth certain information regarding the
beneficial ownership of our Common Stock as of August 20, 2004 for:

         - each person known by us to be the beneficial owner of 5% or more of
         our Common Stock;

         - each of our Directors and each of our executive officers whose name
         appears in the summary compensation table (the "Executive Officers");
         and

         - all of our Directors and the Executive Officers as a group.

         Except as otherwise noted in the footnotes below, the entity,
individual Director or Executive Officer has sole voting and investment power
over such securities.


                                                      --------------------------
                                                      COMMON
                                                      (VOTING)
                                                      --------------------------
NAME AND ADDRESS OF BENEFICIAL OWNERS (1) (2)         AMOUNT               %(3)
- --------------------------------------------          -------------------- -----

Calvin M. Leung (5)(6)(7)                           2,352,643              17.1%
P.O. Box 2366
Costa Mesa, CA 92628

Rod Tompkins (6)(8)                                 1,520,000              11.3%
420 Douglas
Wayne, NE 68787

Fusion Capital Fund II, LLC (6)(9)                  1,604,966               9.9%
222 Merchandise Mart Plaza, Suite 9-112
Chicago, IL 60654

James A. Joyce (4)(5)(6)(10)                          850,000               6.2%

Franklyn S. Barry, Jr. (5)(11)                        418,593               3.0%

Richard H. Tullis (4)(5)(12)                          330,000               2.4%

Edward G. Broenniman (5)(13)                          261,374               1.9%

Edward C. Hall(4)                                     0                     *

Directors and executive officers, as a group        4,212,610              28.7%
(6 members)

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

* Less than one percent.

         (1)      Beneficial ownership is determined in accordance with Rule
                  13d-3 under the Securities Exchange Act and is generally
                  determined by voting power and/or investment power with
                  respect to securities. Except as indicated by footnote and
                  subject to community property laws where applicable, we
                  believe that the persons named in the table above have sole
                  voting and investment power with respect to all shares of
                  Common Stock shown as beneficially owned by them. Unless
                  otherwise indicated, the address of each shareholder is 3030
                  Bunker Hill Street, Suite 4000, San Diego, CA 92109.

         (2)      A person is deemed to be the beneficial owners of securities
                  that can be acquired by such person within 60 days from August
                  20, 2004 upon the exercise of warrants or options. Each
                  beneficial owner's percentage ownership is determined by
                  assuming that options and warrants that are held by such
                  person (but not those held by any other person) and that are
                  exercisable within 60 days from August 20, 2004.

         (3)      Assumes 13,453,550 shares of Common Stock outstanding at
                  August 20, 2004.

                                       39

<PAGE>


         (4)      Executive officer.

         (5)      Director.

         (6)      More-than-5% shareholder.

         (7)      Includes all shares owned by members of Mr. Leung's family and
                  entities he controls plus 10,000 warrants at $3.00, expiring
                  on January 1, 2006 and 306,000 warrants at $0.25, expiring on
                  July 11, 2004 and January 29, 2005.

         (8)      Includes 20,000 warrants to purchase common stock at $0.25 per
                  share, expiring on April 2, 2005.

         (9)      Includes 568,181 warrants to purchase common stock at $0.76
                  per share, expiring on the third anniversary of the date of an
                  effective registration statement, the initial filing of which
                  is expected to be on June 29, 2004. Pursuant to the terms of
                  the warrant, Fusion Capital is not entitled to exercise the
                  warrants to the extent such exercise would cause the aggregate
                  number of shares of common stock beneficially owned by the
                  Fusion Capital to exceed 9.9% of the outstanding shares of the
                  common stock following such exercise.

         (10)     Includes 250,000 stock options exercisable at $1.90 per share.

         (11)     Includes options to purchase 412,500 shares at $3.00.

         (12)     Includes 250,000 stock options exercisable at $1.90 per share
                  and 30,000 stock options exercisable at $2.56 per share. (13)
                  Includes 53,885 shares owned by Mr. Broenniman's wife and his
                  options to purchase 3,000 shares at $1.78 and 2,500 shares at
                  $3.75.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Franklyn S. Barry, Jr., a director and shareholder of Aethlon Medical,
was engaged as a consultant to the Company on strategic and business issues from
June 1, 2001 to May 31, 2003 and was paid $60,000 per year. Mr. Barry had been
our original President and Chief Executive Officer and served in such capacities
until 2001. See Item 9, "Directors and Executive Officers" and Item 11,
"Security Ownership of Certain Beneficial Owners and Management."

         Calvin M. Leung, a director and shareholder of Aethlon Medical, was
previously engaged as our consultant and he and his affiliates have invested
approximately $939,500 in Aethlon Medical to date, through equity and
convertible debt securities. $448,000 was invested via convertible promissory
notes from November 2001 through May 2002. The notes accrued interest at rates
ranging from 6.75% to 12% per annum. Mr. Leung invested $300,000 via the
exercise of stock options received while our consultant for which he received
600,000 shares of restricted common stock. Mr. Leung and his affiliates also
invested during 2003 a total of $146,500 in cash for 586,000 shares of our
restricted common stock. Finally, Mr. Leung and his affiliates invested
approximately $45,000 from September 2003 to February 2004 via the exercise of
warrants that resulted in the issuance of 180,000 shares of our restricted
common stock. Mr. Leung worked as our consultant from January 7, 2001 to January
7, 2003. We do not expect Mr. Leung to provide consulting services now that he
is a member of our board of directors. He currently owns 2,036,643 of our common
shares and 316,000 warrants to purchase common stock at prices between $0.25 to
$3.00 per share. (See ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT)

         Certain of our officers and other related parties have advanced us
funds, agreed to defer compensation or paid expenses on behalf of us to cover
short-term working capital deficiencies in the aggregate amount of approximately
$1.7 million. These non interest-bearing liabilities have been included as due
to related parties in the accompanying financial statements.

                                       40

<PAGE>

         Effective January 1, 2000, we entered into an agreement with Dr. Julian
Ambrus, the son of Dr. Clara Ambrus, who was the original founder of Hemex, Inc.
Under this agreement, an invention and related patent rights for a method of
removing HIV and other viruses from the blood using the Hemopurifier(TM) were
assigned to us by the inventors in exchange for (a) a royalty to be paid on
future sales of the patented product or process equal to 8.75% of net sales, as
defined and (b) 12,500 shares of our restricted common stock. Upon the issuance
of the first United States patent relating to the invention, we were obligated
to issue an additional 12,500 shares of our restricted common stock to the
inventors. If the market price of our common stock on the date the patent was
issued was below $8 per share, the number of shares to be issued was that amount
which equates to $100,000 of market value. On March 4, 2003, the related patent
was issued and, as a result, we issued 196,078 shares of our restricted common
stock valued at $100,000 which is included in professional fees in the
accompanying consolidated statements of operations.

         We believe that each of the related party transactions discussed above
is on terms as favorable as could have been obtained from unaffiliated third
parties.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

The following documents are filed as part of this report on Form 10-KSB:

         1. Consolidated Financial Statements for the periods ended March 31,
2004 and 2003:

                           Independent Auditors' Reports
                           Consolidated Balance Sheet
                           Consolidated Statements of Operations
                           Consolidated Statements of Cash Flows
                           Consolidated Statements of Stockholders' Deficit
                           Notes to Consolidated Financial Statements

         2. Exhibits

         The following exhibits are being filed with this Annual Report on Form
         10-KSB and/or are incorporated by reference therein in accordance with
         the designated footnote references:

3.1      Our Articles of Incorporation and Bylaws (1)

3.2      Certificate of Amendment of Articles of Incorporation dated March 28,
         2000 (2)

10.1     Employment Agreement between us and Franklyn S. Barry, Jr. dated April
         1, 1999 (3)

10.2     Employment Agreement between us and James A. Joyce dated April 1, 1999
         (3)

10.3     Agreement and Plan of Reorganization Between Aethlon Medical and
         Aethlon, Inc. dated March 10, 1999 (4)

10.4     Agreement and Plan of Reorganization Between us and Hemex, Inc. dated
         March 10, 1999 (4)

10.5     Agreement and Plan of Reorganization Between us and Syngen Research,
         Inc. (5)

10.6     Agreement and Plan of Reorganization Between us and Cell Activation,
         Inc. (6)

10.7     Common Stock Purchase Agreement between Aethlon Medical and Fusion
         Capital Fund II, LLC. (7)

10.8     Registration Rights Agreement between Aethlon Medical and Fusion
         Capital Fund II, LLC. (7)

10.9     Form of Securities Purchase Agreement for Private Placement closing on
         June 7, 2004 (7)

10.10    Form of Common Stock Purchase Warrant for Private Placement closing on
         June 7, 2004 (7)

10.11    Form of Registration Rights Agreement for Private Placement closing on
         June 7, 2004 (7)

                                       41

<PAGE>

10.12    2003 Consultant Stock Plan (8)

10.13    Lease by and between Aethlon Medical and San Diego Science Center*

10.14    Consulting Agreement by and between Aethlon Medical and Jean-Claude
         Chermann, PhD.*

10.15    Consulting Agreement by and between Aethlon Medical, Inc. and Franklyn
         S. Barry, Jr.*

10.16    Patent License Agreement by and amongst Aethlon Medical, Inc., Hemex,
         Inc., Dr. Julian L. Ambrus and Dr. David O. Scamurra*

10.17    Employment Agreement by and between Aethlon Medical, Inc. and Dr.
         Richard H. Tullis*

10.18    Employment Agreement by and between Aethlon Medical, Inc. and Mr.
         Edward C. Hall*

23.1     Consent of Independent Auditors

31.1     Certification of our Chief Executive Officer and President, pursuant to
         Securities Exchange Act rules 13a-14(a) and 15d-14(a) as adopted
         pursuant to Section 302 of the Sarbanes Oxley Act of 2002.

31.2     Certification of our Chief Financial Officer, pursuant to Securities
         Exchange Act rules 13a-14(a) and 15d-14(a) as adopted pursuant to
         Section 302 of the Sarbanes Oxley Act of 2002.

32.1     Statement of our Chief Executive Officer under Section 906 of the
         Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

32.2     Statement of our Chief Financial Officer under Section 906 of the
         Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

         In accordance with Item 601(b)(32)(ii) of Regulation S-B and SEC

Release Nos. 33-8238 and 34-47986, Final Rule: Management's Reports on Internal
Control Over Financial Reporting and Certification of Disclosure in Exchange Act
Periodic Reports, the certifications furnished in Exhibit 32.1 hereto are deemed
to accompany this Form 10-KSB and will not be deemed "filed" for purpose of
Section 18 of the Exchange Act. Such certifications will not be deemed to be
incorporated by reference into any filing under the Securities Act or the
Exchange Act, except to the extent that the Registrant specifically incorporates
it by reference

         (1) Filed with our Registration Statement on Form SB-2 dated December
18, 2000 and incorporated by reference.

         (2) Filed with our Annual Report on Form 10-KSB for the year ended
March 31, 2000 and incorporated by reference.

         (3) Filed with our Annual Report on Form 10-KSB for the year ended
March 31, 1999 and incorporated by reference.

         (4) Filed with our Current Report on Form 8-K dated March 10, 1999 and
incorporated by reference.

         (5) Filed with our Current Report on Form 8-K dated January 10, 2000
and incorporated by reference.

         (6) Filed with our Current Report on Form 8-K dated April 10, 2000 and
incorporated by reference.

         (7) Filed with our Current Report on Form 8-K dated June 7, 2004 and
incorporated by reference.

         (8) Incorporated by reference from our Registration Statement on Form
S-8 (File No. 333-114017) filed on March 29, 2004.

         (b) Reports on Form 8-K.

         Current Report on Form 8-K dated June 7, 2004 (filed with the SEC on
         June 7, 2004) relating to our private placement and common stock
         purchase agreement with Fusion Capital Fund II, LLC

* Filed herewith

                                       42

<PAGE>

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by Squar,
Milner, Reehl & Williamson LLP ("Squar Milner") for the annual audit of our
consolidated financial statements as of and for the fiscal years ended March 31,
2004, and 2003 and fees billed for other services rendered by Squar Milner
during such years:


                                      Fiscal Years Ended March 31,
                                        2004                2003
                                      -------             -------

         Audit Fees                   $55,500             $60,000
         Audit Related Fees             2,500 (1)               -
         Tax Fees                           -                   -
         All Other Fees                     -                   -
                                      ---------------------------
                                      $58,000             $60,000
                                      ===========================


         (1) Such amount represents services rendered in connection with Form
S-8.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR

         Our audit committee of the Board of Directors is responsible for
pre-approving all audit and permitted non-audit services to be performed for us
by our independent auditor.

                                       43

<PAGE>

                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized, on the 8th day of September 2004.


         BY: /S/  JAMES A. JOYCE
             ---------------------------------------------
             JAMES A. JOYCE
             CHAIRMAN, PRESIDENT & CHIEF EXECUTIVE OFFICER

         BY: /S/  EDWARD C. HALL
             ---------------------------------------------
             EDWARD C. HALL
             VICE PRESIDENT AND CHIEF FINANCIAL OFFICER


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


       SIGNATURE                         TITLE                       DATE
       ---------                         -----                       ----

/S/ JAMES A. JOYCE                CHAIRMAN OF THE BOARD        SEPTEMBER 8, 2004
- -------------------------
    JAMES A. JOYCE

/S/ FRANKLYN S. BARRY, JR.        DIRECTOR                     SEPTEMBER 8, 2004
- --------------------------
    FRANKLYN S. BARRY, JR.

/S/ EDWARD G. BROENNIMAN          DIRECTOR                     SEPTEMBER 8, 2004
- --------------------------
    EDWARD G. BROENNIMAN

/S/ RICHARD H. TULLIS             DIRECTOR                     SEPTEMBER 8, 2004
- --------------------------
    RICHARD H. TULLIS

/S/ CALVIN M. LEUNG               DIRECTOR                     SEPTEMBER 8, 2004
- --------------------------
    CALVIN M. LEUNG

                                       44

<PAGE>

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

                        CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2004

                          INDEX TO FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm.................... F-1

Consolidated Balance Sheet ................................................ F-2

Consolidated Statements of Operations ..................................... F-3

Consolidated Statements of Stockholders' Deficit........................... F-4

Consolidated Statements of Cash Flows ..................................... F-8

Notes to Consolidated Financial Statements................................. F-9


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Aethlon Medical, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheet of Aethlon Medical,
Inc. and Subsidiaries (the "Company"), a development stage company, as of March
31, 2004 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the years in the two-year period then ended
and for the period from January 31, 1984 (Inception) to March 31, 2004. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Aethlon Medical,
Inc. and Subsidiaries as of March 31, 2004 and the results of their operations
and their cash flows for the each of the years in the two-year period then ended
and for the period from January 31, 1984 (Inception) to March 31, 2004, in
conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. At March 31, 2004, the
Company has negative working capital of approximately $3,930,000 and a deficit
accumulated during the development stage of approximately $17,045,000. As
discussed in Note 1 to the consolidated financial statements, a significant
amount of additional capital will be necessary to advance the development of the
Company's products to the point at which they may become commercially viable.
These conditions, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters are also described in Note 1. The accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

As more fully described in Note 12, management has recently determined that
$100,000 assigned to certain common stock issued in March 2003 related to the
acquisition of a patent was inadvertently expensed. Accordingly, the March 31,
2003 consolidated balance sheet has been restated to report such amount as a
charge to additional paid-in capital. In addition, the accompanying consolidated
statement of operations for the year then ended has been restated to reduce the
fiscal 2003 net loss by $100,000 ($0.01 per common share).


                  /S/ SQUAR, MILNER, REEHL & WILLIAMSON, LLP
                  MAY 18, 2004 (except for the fifth paragraph
                  of this report and the last paragraph of Note 12,
                  as to which the date is August 31, 2004)

                  NEWPORT BEACH, CALIFORNIA

                                      F-1

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                    CONSOLIDATED BALANCE SHEET (AS RESTATED)
                                 March 31, 2004
- --------------------------------------------------------------------------------

                                     ASSETS

CURRENT ASSETS

       Cash                                                        $      1,619
       Prepaid expenses                                                   5,582
                                                                   -------------

TOTAL CURRENT ASSETS                                                      7,201
                                                                   -------------

       Property and equipment, net                                       16,741
       Patents, net                                                     237,314
       Other assets                                                      20,405
                                                                   -------------

TOTAL NONCURRENT ASSETS                                                 274,460
                                                                   -------------

       TOTAL ASSETS                                                $    281,661
                                                                   =============


                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

       Accounts payable and accrued liabilities                    $  1,588,381
       Due to related parties                                         1,673,457
       Notes payable                                                    500,000
       Convertible notes payable                                        175,000
                                                                   -------------

TOTAL CURRENT LIABILITIES                                             3,936,838
                                                                   -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT

       Common stock, par value of $0.001, 25,000,000 shares
         authorized; 10,649,329 issued and outstanding                   10,649
       Additional paid in capital (as restated)                      13,379,487
       Deficit accumulated during the development
         stage (as restated)                                        (17,045,313)
                                                                   -------------

TOTAL STOCKHOLDERS' DEFICIT                                          (3,655,177)
                                                                   -------------

       TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                 $    281,661
                                                                   =============

         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

                                      F-2

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
               CONSOLIDATED STATEMENTS OF OPERATIONS (As Restated)
             For the Years Ended March 31, 2004 and 2003 and
       For the Period January 31,1984 (Inception) Through March 31, 2004
- --------------------------------------------------------------------------------

                                                                January 31, 1984
                                                                   (Inception)
                                                                     Through
                                        2004           2003      March 31, 2004
                                   -------------  -------------  --------------
Grant income                       $         --   $         --   $  1,424,012
Subcontract income                           --             --         73,746
Sale of research and development             --             --         35,810
                                   -------------  -------------  -------------
                                             --             --      1,533,568

OPERATING EXPENSES
Professional fees                       339,787        660,949      3,666,626
Payroll and related                     417,486        549,611      5,570,510
General and administrative              238,276        326,521      3,482,441
Impairment of intangible assets              --        334,304      1,231,531
                                   -------------- -------------- --------------
                                        995,549      1,871,385     13,951,108
                                   -------------  -------------  -------------

OPERATING LOSS                         (995,549)    (1,871,385)   (12,417,540)

OTHER (INCOME) EXPENSE
Interest expense                        523,249        489,731      4,507,581
Interest income                              --             --        (17,415)
Other                                        --             --        137,607
                                   -------------  -------------  -------------
                                        523,249        489,731      4,627,773
                                   -------------  -------------  -------------

NET LOSS                           $ (1,518,798)  $ (2,361,116)  $(17,045,313)
                                   ============== ============== ==============

Basic and diluted loss
  per common share                 $      (0.19)  $      (0.43)
                                   =============  =============

Weighted average number of common
  shares outstanding                  8,181,612      5,553,196
                                   =============  =============

         SEE ACCOMANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                       F-3

<PAGE>

<TABLE>
<CAPTION>
                                      AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                           (A Development Stage Company)
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                           (As Restated) For the Years Ended March 31, 2004 and 2003 and
                        For the Period January 31, 1984 (Inception) Through March 31, 2004
- -----------------------------------------------------------------------------------------------------------------
                                                                                       DEFICIT
                                                                                     ACCUMULATED
                                                  COMMON STOCK          ADDITIONAL      DURING          TOTAL
                                          ------------------------       PAID IN      DEVELOPMENT   STOCKHOLDERS'
                                              SHARES        AMOUNT       CAPITAL         STAGE         DEFICIT
                                          ------------- ------------- -------------  -------------  -------------
<S>      <C>
Balance, January 31, 1984 (Inception)               --  $         --  $         --   $         --   $         --

Common stock issued for cash
at $1 per share                                 22,000            22        26,502             --         26,524

Common stock issued for cash
at $23 per share                                 1,100             1        24,999             --         25,000

Common stock issued for cash
at $86 per share                                   700             1        59,999             --         60,000

Common stock issued for cash
at $94 per share                                   160             1        14,999             --         15,000

Common stock issued for cash
at $74 per share                                   540             1        39,999             --         40,000

Common stock issued for cash
at $250 per share                                4,678             5     1,169,495             --      1,169,500

Capital contributions                               --            --       521,439             --        521,439

Common stock issued for
compensation at $103 per share                   2,600             3       267,403             --        267,406

Conversion of due to related
parties to common stock at
$101 per share                                   1,120             1       113,574             --        113,575

Conversion of due to related
parties to common stock at
$250 per share                                   1,741             2       435,092             --        435,094

Effect of reorganization                     2,560,361         2,558        (2,558)            --             --

Common stock issued in connection
with employment contract at
$8 per share                                    65,000            65       519,935             --        520,000

Common stock issued in connection
with the acquisition of patents
at $8 per share                                 12,500            13        99,987             --        100,000

Warrants issued to note holders
in connection with notes payable                    --            --       734,826             --        734,826

Warrantes issued for services                       --            --         5,000             --          5,000

Net loss                                            --            --            --     (4,746,416)    (4,746,416)
                                          ------------- ------------- -------------  -------------  -------------
BALANCE, MARCH 31, 2000                      2,672,500         2,673     4,030,691     (4,746,416)      (713,052)

Common stock and options issued
in connection with acquisition of
Cell Activation, Inc. at $7.20
per share                                       99,152            99     1,067,768             --      1,067,867

Warrants issued to note holders in
connection with notes payable                       --            --       218,779             --        218,779

Warrants issued to promoter in
connection with notes payable                       --            --       298,319             --        298,319

Beneficial conversion feature of
convertible notes payable                           --            --       150,000             --        150,000

Warrants issued to promoter in
connection with convertible notes
payable                                             --            --       299,106             --        299,106

Options issued to directors for
services as board members                           --            --        14,163             --         14,163

Options and warrants issued
for services                                        --            --       505,400             --        505,400

Common stock issued for services
at $3 per share                                  5,500             5        16,495             --         16,500

Common stock issued for cash
at $1 per share                                100,000           100        99,900             --        100,000

Net loss                                            --            --            --     (4,423,073)    (4,423,073)
                                          ------------- ------------- -------------  -------------  -------------
BALANCE, MARCH 31, 2001                      2,877,152  $      2,877  $  6,700,621   $ (9,169,489)  $ (2,465,991)

(continued)
                         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                       F-4
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                      AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                           (A Development Stage Company)
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                           (As Restated) For the Years Ended March 31, 2004 and 2003 and
                  For the Period January 31, 1984 (Inception) Through March 31, 2004 (continued)
- -----------------------------------------------------------------------------------------------------------------
                                                                                       DEFICIT
                                                                                     ACCUMULATED
                                                  COMMON STOCK          ADDITIONAL      DURING          TOTAL
                                          ---------------------------    PAID IN      DEVELOPMENT   STOCKHOLDERS'
                                              SHARES        AMOUNT       CAPITAL         STAGE         DEFICIT
                                          ------------- ------------- -------------  -------------  -------------
<S>     <C>
BALANCE, MARCH 31, 2001                      2,877,152  $      2,877  $  6,700,621   $ (9,169,489)  $ (2,465,991)

Common stock, warrants and
options issued for accounts
payable and accrued liabilities                 21,750            22       243,353             --        243,375

Common stock issued for services
at $2.65 per share                               6,038             6        15,994             --         16,000

Common stock issued for cash at
$1.00 per share, net of issuance
costs of $41,540 paid to a
related party                                  730,804           731       688,533             --        689,264

Common stock issued for services
at $2.75 per share                              10,000            10        27,490             --         27,500

Common stock issued in connection
with license agreement at $3.00
per share                                        6,000             6        17,994             --         18,000

Common stock issued to holder of
convertible notes payable at
$3.00 per share                                 70,586            71       211,687             --        211,758

Options issued to directors for
services as board members                           --            --         7,459             --          7,459

Common stock issued for cash at
$1.50 per share, net of issuance
costs of $2,500                                 16,667            17        22,483             --         22,500

Beneficial conversion feature of
convertible notes payable                           --            --       185,000             --        185,000

Common stock issued for conversion
of convertible notes payable and
accrued interest at an average price
of $1.24 per share                             134,165           134       166,352             --        166,486

Common stock issued for services at
$2.72 per share                                  9,651            10        26,240             --         26,250

Options issued to consultant for
services                                            --            --       562,000             --        562,000

Common stock and warrants for
services at $1.95 per share                     62,327            62       161,475             --        161,537

Common stock issued for services at
$1.90 per share                                  9,198             9        17,491             --         17,500

Stock options exercised for cash               400,000           400       199,600             --        200,000

Warrants issued to note holders for
90-day forebearance                                 --            --       118,000             --        118,000

Common stock and warrants issued to
note holders and vendors in the
debt-to-equity conversion program
at $1.25 per share                             816,359           816     1,623,635             --      1,624,451

Other warrant transactions                          --            --       (32,715)            --        (32,715)

Net loss                                            --            --            --     (3,995,910)    (3,995,910)
                                          ------------- ------------- -------------  -------------  -------------
BALANCE - MARCH 31, 2002                     5,170,697  $      5,171  $ 10,962,692   $(13,165,399)  $ (2,197,536)

(continued)
                         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                        F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                      AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                           (A Development Stage Company)
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                           (As Restated) For the Years Ended March 31, 2004 and 2003 and
                  For the Period January 31, 1984 (Inception) Through March 31, 2004 (continued)
- -----------------------------------------------------------------------------------------------------------------
                                                                                       DEFICIT
                                                                                     ACCUMULATED
                                                  COMMON STOCK          ADDITIONAL      DURING          TOTAL
                                          ---------------------------    PAID IN      DEVELOPMENT   STOCKHOLDERS'
                                              SHARES        AMOUNT       CAPITAL         STAGE         DEFICIT
                                          ------------- ------------- -------------  -------------  -------------
<S>  <C>
BALANCE - MARCH 31, 2002                     5,170,697  $      5,171  $ 10,962,692   $(13,165,399)  $ (2,197,536)

Proceeds from the issuance of
common stock at $0.50 per share
in connection with the exercise
of options                                     200,000           200        99,800             --        100,000

Interest expense related to
beneficial conversion feature                       --            --       150,000             --        150,000

Pro-rata fair value assigned to warrants
issued in connection with
conversion of accounts payable                      --            --        71,000             --         71,000

Pro-rata fair value assigned to warrants
issued in connection with note payable              --            --        30,000             --         30,000

Issuance of common stock at $1.25
per share in connection with the
conversion of accounts payable                 150,124           150       187,505             --        187,655

Issuance of common stock at $1.25
per share in connection with the
conversion of notes payable                    420,000           420       104,580             --        105,000

Estimated fair value of
options issued for service                          --            --       114,000             --        114,000

Issuance of common stock at $0.25
per share for cash                             461,600           462       114,938             --        115,400

Issuance of common stock at $0.26
per share for cash                              19,230            19         4,981             --          5,000

Issuance of common stock at $1.25
per share for cash                               8,000             8         9,992             --         10,000

Issuance of common stock at $0.65
per share for services                          69,231            69        44,931             --         45,000

Issuance of common stock at $0.51
per share for services                         196,078           196          (196)            --             --

Net loss (As Restated)                              --            --            --     (2,361,116)    (2,461,116)
                                          ------------- ------------- -------------  -------------  -------------
BALANCE - MARCH 31, 2003 (As Restated)       6,694,960  $      6,695  $ 11,894,223   $(15,526,515)  $ (3,625,597)

(continued)
                         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                       F-6
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                      AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                           (A Development Stage Company)
                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                           (As Restated) For the Years Ended March 31, 2004 and 2003 and
                  For the Period January 31, 1984 (Inception) Through March 31, 2004 (continued)
- -----------------------------------------------------------------------------------------------------------------
                                                                                       DEFICIT
                                                                                     ACCUMULATED
                                                  COMMON STOCK          ADDITIONAL      DURING          TOTAL
                                          ---------------------------    PAID IN      DEVELOPMENT   STOCKHOLDERS'
                                              SHARES        AMOUNT       CAPITAL         STAGE         DEFICIT
                                          ------------- ------------- -------------  -------------  -------------
<S>    <C>
BALANCE - MARCH 31, 2003 (As Restated)       6,694,960         6,695    11,894,223    (15,526,515)    (3,625,597)

Proceeds from the issuance of
common stock at $0.25 per share
in connection with the exercise
of warrants                                    540,000           540       134,460             --        135,000

Issuance of common stock at $0.25
per share in connection with the
conversion of notes payable,
including interest of $15,099                  300,397           300        74,799             --         75,099

Issuance of common stock at $0.35
per share in connection with the
conversion of notes payable,
including interest of $59,827                  813,790           814       284,013             --        284,827

Issuance of common stock at $0.50
per share in connection with the
conversion of notes payable,
including interest of $509                      11,017            11         5,498             --          5,509

Issuance of common stock at $0.42
per share in connection with the
conversion of notes payable,
including interest of $696                      13,725            14         5,682             --          5,696

Issuance of common stock at $0.65
per share in connection with the
conversion of notes payable,
including interest of $5,088                    27,059            27        17,561             --         17,588

Issuance of common stock at $0.25
per share in connection with the
conversion of notes payable,
including interest of $15,416                  461,667           462       114,954             --        115,416

Issuance of common stock at $0.25
per share for cash                           1,226,000         1,226       305,274             --        306,500

Issuance of common stock at $0.30
per share for cash                             180,000           180        53,820             --         54,000

Issuance of common stock at $0.525
per share for cash                              40,000            40        20,960             --         21,000

Issuance of common stock at $1.125
per share for cash                               5,000             5         5,620             --          5,625

Issuance of common stock at $0.25
per share for services                          10,000            10         2,490             --          2,500

Issuance of common stock at $0.34
per share for services                          73,529            73        24,927             --         25,000

Issuance of common stock at $0.40
per share for services                          62,000            62        24,763             --         24,825

Issuance of common stock at $0.45
per share for services                         185,185           185        83,148             --         83,333

Issuance of common stock at $0.50
per share for services                           5,000             5         2,495             --          2,500

Interest expense related to beneficial
conversion feature                                  --            --       324,800             --        324,800

Net loss (As Restated)                              --            --            --     (1,518,798)    (1,518,798)
                                          ------------- ------------- -------------  -------------  -------------
BALANCE - MARCH 31, 2004 (As Restated)      10,649,329  $     10,649  $ 13,379,487   $(17,045,313)  $ (3,655,177)
                                          ============= ============= =============  =============  =============

(continued)
                         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                       F-7
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                      AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                           (A Development Stage Company)
                                     CONSOLIDATED STATEMENTS OF CASH FLOWS (As
                             Restated) For the Years Ended March 31, 2004 and 2003 and
                        For the Period January 31, 1984 (Inception) Through March 31, 2004
- ------------------------------------------------------------------------------------------------------------------
                                                                                                  January 31, 1984
                                                                                                    (Inception)
                                                                                                      Through
                                                                          2004          2003       March 31, 2004
                                                                     -------------  -------------  ---------------
<S>                                                                  <C>            <C>            <C>
Cash flows from operating activities:
     Net loss                                                        $ (1,518,798)  $ (2,361,116)  $(17,045,313)
     Adjustments to reconcile net loss to net cash used in
       operating activities:
        Depreciation and amortization                                     127,000        159,783        909,915
        Gain of sale of property and equipment                                 --             --        (13,065)
        Estimated fair value of warrants issued in connection
          with accounts payable and debt                                       --        101,000      2,715,736
        Estimated fair value of common stock, warrants and options
          issued for services                                             138,158        159,000      2,168,592
        Beneficial conversion feature of convertible notes payable        324,800        150,000        809,800
        Impairment of patents and patents pending                              --        334,304        334,304
        Impairment of goodwill                                                 --             --        897,227
        Deferred compensation forgiven                                         --             --        217,223
        Changes in operating assets and liabilities:
           Prepaid expenses                                                 4,728        130,478        155,955
           Other assets                                                   (14,800)        (3,650)       (20,405)
           Accounts payable and accrued liabilities                       138,398        474,054      1,772,671
           Due to related parties                                         258,458        341,644      1,673,457
                                                                     -------------  -------------  -------------

     Net cash used in operating activities                               (542,056)      (514,503)    (5,423,903)
                                                                     -------------  -------------  -------------

Cash flows from investing activities:
     Purchases of property and equipment                                   (4,782)        (1,198)      (214,166)
     Patents and patents pending                                               --        (49,034)      (352,833)
     Proceeds from the sale of property and equipment                          --             --         17,065
     Cash of acquired company                                                  --             --         10,728
                                                                     -------------  -------------  -------------

     Net cash used in investing activities                                 (4,782)       (50,232)      (539,206)
                                                                     -------------  -------------  -------------

Cash flows from financing activities:
     Proceeds from the issuance of notes payable                               --         65,000      1,480,000
     Principal repayments of notes payable                               (180,000)       (10,000)      (190,000)
     Proceeds from the issuance of convertible notes payable              200,000        275,000        998,000
     Proceeds from the issuance of common stock                           522,125        230,400      3,676,728
                                                                     -------------  -------------  -------------

     Net cash provided by financing activities                            542,125        560,400      5,964,728
                                                                     -------------  -------------  -------------

Net (decrease) increase in cash                                            (4,713)        (4,335)         1,619

Cash at beginning of period                                                 6,332         10,667             --
                                                                     -------------  -------------  -------------

Cash at end of period                                                $      1,619   $      6,332   $      1,619
                                                                     =============  =============  =============

Supplemental disclosure of cash flow information -
     Cash paid during the period for:
        Interest                                                     $     13,000   $     13,000   $    220,492
                                                                     =============  =============  =============
        Income taxes                                                 $      1,180   $      1,180   $     13,346
                                                                     =============  =============  =============

Supplement schedule of noncash investing activities:

Debt converted to common stock                                       $    407,500   $    205,000   $  2,048,094
                                                                     =============  =============  =============
Issuance of common stock, warrants and options for accounts payable  $         --   $     87,655   $    512,816
                                                                     =============  =============  =============
Issuance of common stock in connection with license agreements       $         --   $         --   $     18,000
                                                                     =============  =============  =============
Net assets of entities acquired in exchange for equity securities    $         --   $         --   $  1,597,867
                                                                     =============  =============  =============
Debt placement fees paid by issuance of warrants                     $         --   $         --   $    843,538
                                                                     =============  =============  =============
Patent pending acquired for 12,500 shares of common stock            $         --   $         --   $    100,000
                                                                     =============  =============  =============
Common stock issued for prepaid expenses                             $         --   $         --   $    161,537
                                                                     =============  =============  =============

                         SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                       F-8
</TABLE>

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Aethlon Medical, Inc. ("Aethlon") engages in the research and development of a
medical device known as the Hemopurifier(TM) that removes harmful substances
from the blood. Aethlon is in the development stage on the Hemopurifier(TM) and
significant research and testing are still needed to reach commercial viability.
Any resulting medical device or process will require approval by the U.S. Food
and Drug Administration ("FDA"), and Aethlon has not yet begun efforts to obtain
any FDA approval, which may take several years. Since many of Aethlon's patents
were issued in the 1980's, they are scheduled to expire in the near future.
Thus, such patents may expire before FDA approval, if any, is obtained. However,
the Company believes that certain patent applications and/or other patents
issued more recently will help protect the proprietary nature of the
Hemopurifier(TM) treatment technology.

Aethlon is classified as a development stage enterprise under accounting
principles generally accepted in the United States of America ("GAAP"), and has
not generated revenues from its planned principal operations.

Aethlon's common stock is quoted on the Over-the-Counter Bulletin Board
administered by the National Association of Securities Dealers ("OTCBB") under
the symbol "AEMD."

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Aethlon Medical, Inc. and its inactive legal wholly-owned subsidiaries Aethlon,
Inc., Hemex, Inc., Syngen Research, Inc. and Cell Activation, Inc. (hereinafter
collectively referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated in consolidation.

GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern, which contemplates, among other
things, the realization of assets and satisfaction of liabilities in the
ordinary course of business. The Company has negative working capital of
approximately $3,930,000 and a deficit accumulated during the development stage
of approximately $17,045,000 at March 31, 2004, which among other matters, raise
substantial doubt about its ability to continue as a going concern. A
significant amount of additional capital will be necessary to advance the
development of the Company's products to the point at which they may become
commercially viable. The Company intends to fund operations through debt and/or
equity financing arrangements, which management believes may be insufficient to
fund its capital expenditures, working capital and other cash requirements
(consisting of accounts payable, accrued liabilities, amounts due to related
parties and amounts due under various notes payable) for the fiscal year ending
March 31, 2005. Therefore, the Company will be required to seek additional funds
to finance its long-term operations.

The Company is currently addressing its liquidity issue by continually seeking
investment capital through the public markets, specifically, through private
placement of common stock and a common stock purchase agreement with an investor
which has committed to buy up to an additional $6,000,000 of the Company's
common stock over a 30-month period, commencing, at the Company's election, if
and after the Securities Exchange Commission (the "SEC") declares effective a
registration statement covering such shares. However, no assurance can be given
that the Company will receive any additional funds under such agreement and
there is no guarantee that these strategies will enable the Company to meet its
obligations for the foreseeable future. The successful outcome of future
activities cannot be determined at this time and there is no assurance that if
achieved, the Company will have sufficient funds to execute its intended
business plan or generate positive operating results.

The consolidated financial statements do not include any adjustments related to
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.

                                      F-9

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

RISKS AND UNCERTAINTIES

The Company operates in an industry that is subject to intense competition,
government regulation and rapid technological change. The Company's operations
are subject to significant risk and uncertainties including financial,
operational, technological, regulatory and other risks associated with a
development stage company, including the potential risk of business failure.

USE OF ESTIMATES

The Company prepares its consolidated financial statements in conformity with
GAAP, which require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Significant estimates made by
management include, among others, realization of long-lived assets. Actual
results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") No. 107, "DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS," requires disclosure of fair value
information about financial instruments when it is practicable to estimate that
value. The carrying amount of the Company's cash, accounts payable, accrued
liabilities and notes payable approximates their estimated fair values due to
the short-term maturities of those financial instruments. The fair values of
amounts due to related parties are not determinable as these transactions are
with related parties and were not necessarily consummated at arm's length. .

CONCENTRATIONS OF CREDIT RISKS

Cash is maintained at various financial institutions. The Federal Deposit
Insurance Corporation ("FDIC") insures accounts at each institution for up to
$100,000. At times, cash may be in excess of the FDIC insurance limit. The
Company had no amounts exceeding this limit at March 31, 2004.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the related assets,
which range from two to five years. Repairs and maintenance are charged to
expense as incurred while improvements are capitalized. Upon the sale or
retirement of property and equipment, the accounts are relieved of the cost and
the related accumulated depreciation with any gain or loss included in the
statements of operations. At March 31, 2004, property and equipment consisted
exclusively of furniture and equipment with a total cost approximating $209,000
and accumulated depreciation approximating $192,000. Depreciation expense
approximated $8,000 and $18,000 for the years ended March 31, 2004 and 2003,
respectively.

INCOME TAXES

Under SFAS 109, "ACCOUNTING FOR INCOME TAXES," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the consolidated financial statements and their respective
tax basis. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes, and (b) tax
credit carryforwards. The Company records a valuation allowance for deferred tax
assets when, based on management's best estimate of taxable income in the
foreseeable future, it is more likely than not that some portion of the deferred
income tax assets may not be realized.

                                      F-10

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LONG-LIVED ASSETS

SFAS 144, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF," addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 requires that long-lived
assets be reviewed for impairment whenever events or changes in circumstances
indicate that their carrying amounts may not be recoverable. If the cost basis
of a long-lived asset is greater than the projected future undiscounted net cash
flows from such asset, an impairment loss is recognized.

Impairment losses are calculated as the difference between the cost basis of an
asset and its estimated fair value. SFAS 144 also requires companies to
separately report discontinued operations and extends that reporting requirement
to a component of an entity that either has been disposed of (by sale,
abandonment or in a distribution to owners) or is classified as held for sale.
Assets to be disposed of are reported at the lower of the carrying amount or the
estimated fair value less costs to sell. The Company adopted SFAS 144 on January
1, 2002. The provisions of this pronouncement relating to assets held for
disposal generally are required to be applied prospectively after the adoption
date to newly initiated commitments to sell or dispose of such assets, (as
defined), by management. As a result, management cannot determine the potential
effects that adoption of SFAS 144 will have on the Company's financial
statements with respect to future disposal decisions, if any. Management
believes no impairment exists at March 31, 2004.

EARNINGS PER SHARE

Under SFAS 128, "EARNINGS PER SHARE," basic earnings per share is computed by
dividing net income available to common stockholders by the weighted average
number of common shares assumed to be outstanding during the period of
computation. Diluted earnings per share is computed similar to basic earnings
per share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive
(If the Company had net income in each of the years ended March 31, 2004 and
2003, approximately 2,500,000 and 2,900,000 shares would have been considered
additional common stock equivalents, respectively, based on the treasury stock
method). As the Company had net losses for the period presented, basic and
diluted loss per share are the same, as any additional common stock equivalents
would be antidilutive.

SEGMENTS

SFAS 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,"
changes the way public companies report information about segments of their
business in their annual financial statements and requires them to report
selected segment information in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services an
entity provides, the foreign countries in which it holds significant assets and
how the Company reports revenues and its major customers. The Company currently
operates in one segment, as disclosed in the accompanying consolidated
statements of operations.

                                      F-11

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation issued to employees using the
intrinsic value based method as prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock issued to Employees." Under the
intrinsic value based method, compensation expense is the excess, if any, of the
estimated fair value of the stock at the grant date or other measurement date
over the amount an employee must pay to acquire the stock. Compensation expense,
if any, is recognized over the applicable service period, which is usually the
vesting period.

SFAS 123, "Accounting for Stock-Based Compensation," if fully adopted, changes
the method of accounting for employee stock-based compensation plans to the fair
value based method. For stock options and warrants, fair value is estimated
using an option pricing model that takes into account the stock price at the
measurement date, the exercise price, the expected life of the option or
warrant, stock volatility and the annual rate of quarterly dividends.
Compensation expense, if any, is recognized over the applicable service period,
which is usually the vesting period.

The adoption of the accounting methodology of SFAS 123 is optional and the
Company has elected to continue accounting for stock-based compensation issued
to employees using APB 25; however, pro forma disclosures, as if the Company had
adopted the cost recognition requirement under SFAS 123, are required to be
presented (see below). For stock-based compensation issued to non-employees, the
Company uses the fair value method of accounting under the provisions of SFAS
123.

Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 44,
"Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB 25" clarifies the application of APB 25 for (a) the
definition of employee for purpose of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a non compensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously
fixed stock option or award and (d) the accounting for an exchange of stock
compensation awards in a business combination. Management believes that the
Company accounts for transactions involving stock-based employee compensation in
accordance with FIN 44.

SFAS 148, "Accounting for Stock-Based Compensation - Transition and Disclosure,
an amendment of FASB Statement No. 123," provides alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.

At March 31, 2004, the Company has one stock-based employee compensation plan
(the "Plan"), which is described more fully in Note 7. The Company accounts for
the Plan under the recognition and measurement principles of APB 25, and related
interpretation. No stock-based employee compensation cost is recognized in net
loss. Stock options granted under the Plan have exercise prices equal to or
greater than the estimated fair value of the underlying common stock on the
dates of grant. The following table illustrates the effect on net loss and loss
per common share (as restated for fiscal 2003 - see Note 12) if the Company had
applied the fair value recognition provisions of SFAS 123 to stock-based
employee compensation.

                                      F-12

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK BASED COMPENSATION (continued)

<TABLE>
<CAPTION>

                                                                YEAR ENDED MARCH 31,
                                                           -----------------------------
                                                               2004             2003
                                                           ------------     ------------
<S>                                                        <C>              <C>
Net loss available to common stockholders, as reported     $ 1,518,798      $ 2,361,116
Pro forma compensation expense                                   6,000            9,000
                                                           ------------     ------------
Pro forma net loss available to common stockholders        $ 1,524,798      $ 2,370,116
                                                           ============     ============
Loss per common share, as reported
  Basic and diluted                                        $     (0.19)     $     (0.43)

Loss per common share, pro forma
  Basic and diluted                                        $     (0.19)     $     (0.45)
</TABLE>

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 146, "Accounting for Costs Associated with Exit and Disposal
Activities," was issued in June 2002 and is effective for exit and disposal
activities initiated after December 31, 2002. The Company is complying with SFAS
No. 146.

SFAS No. 147 relates exclusively to certain financial institutions, and thus
does not apply to the Company.

In November 2002, the FASB issued FIN No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." FIN No. 45 clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the estimated fair
value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions of FIN No. 45 are applicable on a
prospective basis to guarantees issued or modified after December 31, 2002,
while the disclosure requirements became applicable in 2002. The Company is
complying with the disclosure requirements of FIN No. 45. The other requirements
of this pronouncement did not materially affect the Company's consolidated
financial statements.

In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB 51." The primary objectives of FIN No. 46 are
to provide guidance on the identification of entities for which control is
achieved through means other than voting rights (variable interest entities or
"VIEs") and how to determine when and which business enterprise should
consolidate the VIE. This new model for consolidation applies to an entity for
which either: (1) the equity investors do not have a controlling financial
interest; or (2) the equity investment at risk is insufficient to finance that
entity's activities without receiving additional subordinated financial support
from other parties. In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. As amended in December 2003, the effective
dates of FIN No. 46 for public entities that are small business issuers, as
defined ("SBIs"), are as follows: (a) For interests in special-purpose entities
("SPEs": periods ended after December 15, 2003; and (b) For all other VIEs:
periods ending after December 15, 2004. The December 2003 amendment of FIN No.
46 also includes transition provisions that govern how an SBI which previously
adopted the pronouncement (as it was originally issued) must account for
consolidated VIEs. The Company has determined that it does not have any variable
interest in any SPEs, and is presently evaluating the other effects of FIN No.
46 (as amended) on its consolidated financial statements.

                                      F-13

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

In April 2003, the FASB issued SFAS No. 149, "Amendments of Statement 133 on
Derivative Instruments and Hedging Activities," which amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities
under SFAS No. 133. This pronouncement is effective for contracts entered into
or modified after June 30, 2003 (with certain exceptions), and for hedging
relationships designated after June 30, 2003. The adoption of SFAS No. 149 did
not have a material impact on the Company's consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
establishes standards for how a company classifies and measures certain
financial instruments with characteristics of both liabilities and equity, and
is effective for public companies as follows: (i) in November 2003, the FASB
issued FASB Staff Position ("FSP") FAS 150-03 ("FSP 150-3"), which defers
indefinitely (a) the measurement and classification guidance of SFAS No. 150 for
all mandatorily redeemable non-controlling interests in (and issued by)
limited-life consolidated subsidiaries, and (b) SFAS No. 150's measurement
guidance for other types of mandatorily redeemable non-controlling interests,
provided they were created before November 5, 2003; (ii) for financial
instruments entered into or modified after May 31, 2003 that are outside the
scope of FSP 150-3; and (iii) otherwise, at the beginning of the first interim
period beginning after June 15, 2003. The Company adopted SFAS No. 150 on the
aforementioned effective dates. The adoption of this pronouncement did not have
a material impact on the Company's results of operations or financial condition.

Other recent accounting pronouncements are discussed elsewhere in these notes to
the consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its
Emerging Issues Task Force), the American Institute of Certified Public
Accountants, and the SEC did not or are not believed by management to have a
material impact on the Company's present or future consolidated financial
statements.

PATENTS

The Company capitalizes the cost of patents and patents pending, some of which
were acquired, and amortizes such costs over the shorter of the remaining legal
life or their estimated economic life, upon issuance of the patent. STOCK

PURCHASE WARRANTS ISSUED WITH NOTES PAYABLE

The Company granted warrants in connection with the issuance of certain notes
payable (see Notes 45and 6). Under Accounting Principles Board Opinion No. 14,
"ACCOUNTING FOR CONVERTIBLE DEBT AND DEBT ISSUED WITH STOCK PURCHASE WARRANTS,"
the estimated fair value of such warrants represents a discount from the face
amount of the notes payable. Accordingly, the relative estimated fair value of
the warrants has been recorded in the financial statements as a discount from
the face amount of the notes. The discount is amortized using the effective
yield method over the respective lives of the related notes payable.

                                      F-14

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

The convertible feature of certain notes payable (see Notes 5 and 6) provides
for a rate of conversion that is below market value. Such feature is normally
characterized as a "beneficial conversion feature" ("BCF"). Pursuant to Emerging
Issues Task Force Issue No. 98-5 ("EITF Issue No. 98-5"), "ACCOUNTING FOR
CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR CONTINGENTLY
ADJUSTABLE CONVERSION RATIO" and Emerging Issues Task Force Issue No. 00-27,
"APPLICATION OF EITF ISSUE NO. 98-5 TO CERTAIN CONVERTIBLE INSTRUMENTS," the
Company has determined the fair value of such BCF to be approximately $325,000
and $450,000 for the years ended March 31, 2004 and 2003, respectively.
Accordingly, the relative estimated fair value of the BCF has been recorded in
the consolidated financial statements as a discount from the face amount of the
notes. Such discounts were amortized to interest expense in accordance with the
related conversion feature.

RESEARCH AND DEVELOPMENT EXPENSES

The Company incurred approximately $200,000 of research and development expenses
during each of the two years ended March 31, 2004 and 2003, which are included
in operating expenses in the accompanying consolidated statements of operations.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2003 financial statement
presentation to correspond to the 2004 format.

2. OTHER ASSETS

Other assets consist of approximately $2,000 of deposits and approximately
$18,000 of advances to employees.

3. EMPLOYMENT CONTRACT

On January 10, 2000, the Company completed the acquisition of the assets of
Syngen Research, Inc. ("Syngen"). As part of the transaction, the Company
executed a two-year employment contract, which was subsequently amended to
increase the term to four years, with Syngen's sole shareholder to perform
research. The cost associated with this employment contract was amortized over
four years on a straight-line basis and was fully amortized as of March 31,
2004.

4. DEBT-TO-EQUITY CONVERSION PROGRAM

In March 2002, the Company extended an offer to certain note holders and vendors
to convert past due amounts into restricted common stock and warrants to
purchase common stock of the Company. The offer entails the conversion of
liabilities at a rate of one share and one-half of a warrant for every $1.25
converted. The warrants have an exercise price of $2.00 per share and expire
three years from the date of issuance.

During the year ended March 31, 2003 and 2002, note holders and vendors
representing liabilities of approximately $188,000 and $1,020,000 converted
their debt in exchange for 150,124 and 816,359 shares of common stock and 75,061
and 408,180 warrants to purchase common stock, respectively. Such warrants were
valued using the Black-Scholes option pricing model based on their estimated pro
rata fair value of approximately $71,000 and $339,000. The warrant conversion
rate was below estimated fair value for warrants issued during the fiscal year
ended March 31, 2002; therefore a BCF approximating $265,000 was recorded during
the year ended March 31, 2002.

                                      F-15

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

5. NOTES PAYABLE

12% AND 15% NOTES

The Company entered into arrangements for the issuance of notes payable from
private placement offerings (the "12% Notes"). The 12% Notes bear interest at
12% per annum, interest payable quarterly, mature one year from the date of
issuance, and carry detachable warrants. At March 31, 2003, all outstanding 12%
Notes had matured, and interest on such notes for periods after maturity is
accruing at the annual rate of 15%. The total amount of the original notes
issued was $422,500. As of March 31, 2004, all of such notes had been converted
to common stock and there was no balance outstanding on the 12% notes.

In January 2002, the Company issued warrants to purchase common stock in
exchange for an additional ninety days to become current with all past due
interest payments related to notes issued in prior years.

During the year ended March 31, 2004, a noteholder converted $12,500 of 15%
promissory notes including interest of $5,088 for 27,059 shares of common stock
and 27,059 warrants to purchase shares of common stock at $0.65 per share (see
Note 7). These warrants were valued using the Black Scholes option pricing
model; the relative fair value was insignificant and was charged to interest
expense upon grant.

During the year ended March 31, 2004, a noteholder converted an aggregate of
$25,000 of 15% promissory notes including interest of $9,766 for 139,063 shares
of common stock and 139,063 warrants to purchase shares of common stock at $0.25
per share (see Note 7). These warrants were valued using the Black Scholes
option pricing model; the relative fair value was insignificant and charged to
interest expense upon grant. A beneficial conversion feature approximating
$37,500 was recorded during the year ended March 31, 2004 related to the
conversion of 15% promissory notes.

All of the outstanding 15% Notes were past due and in default at March 31, 2004
and interest payable approximated $138,000 as of such date. Management's plans
to satisfy the remaining outstanding balance on these notes include converting
the notes to common stock at market value or repayment with available funds.

The total outstanding balance of the 15% Notes at March 31, 2004 was $335,000,
which is included in notes payable in the accompanying consolidated balance
sheet. The remaining $165,000 in notes payable in the accompanying consolidated
balance sheet is comprised of the $150,000 9% Convertible Note (see Note 6), and
two 10% Convertible Notes (see Note 6) totaling $15,000, all of which were no
longer convertible as of March 31, 2004.

10% NOTES

In December 2002, an existing noteholder increased its advances to the Company
by $40,000 to a total of $140,000. In consideration, the Company granted the
noteholder warrants (see Note 7), cancelled the noteholder's existing $100,000
of convertible debt and replaced it with a secured $140,000 note payable. A BCF
approximating $30,000 was recorded in connection with the issuance of the
$140,000 note. The new note was paid by the Company in accordance with its terms
and as a result, there was no outstanding balance at March 31, 2004.

6.75% NOTES

On March 18, 2002, the Company issued a promissory note to a stockholder in the
amount of $50,000, bearing interest at 6.75% per annum and maturing in May 2002.
Such note was converted in March 2003 (see Note 7).

In May 2002, the Company issued notes payable totaling $25,000, bearing interest
at 6.75% per annum, maturing in July 2002. The notes were converted into shares
of the Company's common stock in March 2003 (see Note 7).

There were no amounts owed under the 6.75% Notes at March 31, 2004.

The Company is currently seeking other financing arrangements to retire all past
due notes payable.

                                      F-16

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

6. CONVERTIBLE NOTES PAYABLE

8% CONVERTIBLE NOTE

In November 2000, the Company issued convertible notes payable ("8% Convertible
Notes") with original issue amounts totaling $395,000, bearing interest at 8%
per annum, with principal and accrued interest due on November 1, 2002. The 8%
Convertible Notes require no payment of principal or interest during the term
and may be converted to common stock of the Company at any time at the option of
the holder. The number of common shares issuable upon conversion is equal to the
total principal and unpaid interest as of the date of conversion, divided by the
conversion price. The conversion price per common share was changed effective
August 31, 2001 to the lesser of (a) 80% of the closing market price for the
common stock; or (b) 70% of the average of the three lowest closing market
prices for the common stock for the ten trading days prior to conversion. Such
change resulted in additional BCF approximating $57,000 during the year ended
March 31, 2002.

During fiscal year 2002, the holder converted principal and accrued interest of
approximately $49,000 into 40,267 shares of common stock, leaving principal of
$350,000 and interest thereon due and outstanding. The average conversion price
was approximately $1.22 per common share.

The 8% Convertible Notes required the Company to file an effective registration
statement by February 2001. The Company filed a Form SB-2 with the SEC in
December 2000; however, such registration statement was never declared effective
and was subsequently abandoned. However, as the underlying securities are no
longer restricted under Rule 144 of the Securities Act of 1933, the Company no
longer plans on filing a registration statement in connection with this
transaction. The Company accrued and expensed penalties approximating $150,000
at March 31, 2004 in connection with not filing an effective registration
statement. The Company does not believe it will incur any additional charges and
is in the process of renegotiating all penalties that have been recorded to
date.

In March 2004, the noteholder converted $225,000 of principal and accrued
interest in the amount of $59,827 into 813,790 shares of common stock.

At March 31, 2004, there was one outstanding 8% Convertible Note with a balance
of $125,000, which is included in convertible notes payable in the accompanying
consolidated balance sheets. Interest payable on such note totaled $17,143 at
March 31, 2004.

9% CONVERTIBLE NOTE

In April 2003, the Company issued a convertible note in the amount of $150,000
("9% Convertible Note"), bearing interest at 9% per annum, with principal and
interest due in June 2003, which is in default. The 9% Convertible Note required
no payment of principal or interest during the term and was convertible into
common stock of the Company at the conversion price of $0.25 per share through
June 2003 at the option of the shareholder. The Company has recorded a BCF of
$150,000 in connection with the issuance of the note and amortized such amount
to interest expense upon issuance based on the related conversion feature. As
this note is no longer convertible, the outstanding balance totaling $150,000
has been recorded as notes payable in the accompanying consolidated balance
sheet. Accrued interest payable on this note approximated $13,500 at March 31,
2004. Therefore, there were no remaining 9% Convertible Notes outstanding as of
March 31, 2004.

                                      F-17

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

6. CONVERTIBLE NOTES PAYABLE (continued)

10% CONVERTIBLE NOTES

>From time to time, the Company issued convertible notes payable ("10%
Convertible Notes") to various investors, bearing interest at 10% per annum,
with principal and interest due six months from the date of issuance. The 10%
Convertible Notes require no payment of principal or interest during the term
and may be converted to common stock of the Company at the conversion price of
$0.50 per share at any time at the option of the noteholder. The total amount of
the original notes issued was $275,000.

In April 2002, the Company issued a 10% Convertible Note in the amount of
$50,000. The conversion price of this note was $1.25 at the time of issuance,
but in August 2002, the Company reduced the conversion price to $0.50.

During the year ended March 31, 2003, the Company issued additional 10%
Convertible Notes totaling $225,000, of which $30,000 was converted into
restricted common stock (see Note 7).

In November 2003, a noteholder converted $5,000 of principal and accrued
interest of $509 for 11,017 shares of common stock.

In December 2003, a noteholder converted $100,000 of principal and accrued
interest of $15,416 for 461,667 shares of common stock and 461,667 warrants to
purchase common stock at $0.25 per share (see Note 7). These warrants were
valued using the Black Scholes option pricing model; the relative pro-rata fair
value was insignificant and was charged to interest expense upon grant.

In January 2004, two noteholders converted $35,000 of principal and accrued
interest of $5,333 for 161,334 shares of common stock and 161,334 warrants to
purchase common stock at $0.25 per share (see Note 7). These warrants were
valued using the Black Scholes option pricing model; the relative pro-rata fair
value was insignificant and was charged to interest expense upon grant.

In March 2004, the Company borrowed $50,000 under a non-interest bearing
convertible note payable, which was due in April 2004. In June 2004, the note
was converted into common stock of the Company at $0.44 per share, in connection
with the Company's private placement (see Note 11).

In March 2004, a noteholder converted $5,000 of principal and accrued interest
of $696 for 13,725 shares of common stock and 13,725 warrants to purchase common
stock at $0.42 per share (see Note 7). These warrants were valued using the
Black Scholes option pricing model, the relative pro-rata fair value was
insignificant, and charged to interest expense upon grant.

A BCF approximating $137,000 and $150,000 was recorded during each of the years
ended March 31, 2004 and 2003, respectively related to the issuance of 10%
Convertible Notes.

All of the 10% Convertible Notes, except the $50,000 borrowed in March 2004,
were past due and in default at March 31, 2004. As two of these notes were no
longer convertible at March, 31, 2004, the outstanding balances totaling $15,000
are included in notes payable in the accompanying consolidated balance sheet
(see Note 5). At March 31, 2004, interest payable on these notes totaled $4,125.
At March 31, 2004, there was one remaining outstanding 10% Convertible Note with
a balance of $50,000 and interest payable totaling $2,083. Management's plans to
satisfy the remaining outstanding balance on this note include converting the
note to common stock at market value or repayment with available funds.

At March 31, 2004 convertible notes payable in the accompanying consolidated
balance sheet totaling $175,000 is comprised of the only remaining 8%
Convertible Note and the only remaining 10% Convertible Note with outstanding
balances totaling $125,000 and $50,000, respectively (see above).

                                      F-18

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS

COMMON STOCK

During the year ended March 31, 2003, the Company issued 150,124 shares of
restricted common stock in connection with the conversion of amounts owed to
certain vendors and noteholders approximating $188,000 (see Note 4).

During the year ended March 31, 2003, the Company issued 200,000 shares of
restricted common stock for cash totaling $100,000 in connection with the
exercise of warrants.

During the year ended March 31, 2003, the Company issued 461,600 shares of
restricted common stock at $0.25 per share for cash totaling $115,400. In
connection with the issuance of certain shares, the Company granted the
stockholders warrants to purchase common stock of the Company at $0.25 per
share. The warrants vested immediately and expire through March 2004 (see
below).

During the year ended March 31, 2003, the Company issued 19,230 shares of
restricted common stock at $0.26 per share for cash totaling $5,000.

During the year ended March 31, 2003, the Company issued 8,000 shares of
restricted common stock at $1.25 for cash totaling $10,000.

During the year ended March 31, 2003, the Company issued 420,000 shares of
restricted common stock in connection with the conversion of $75,000 of 6.75%
Notes payable and $30,000 of 10% Convertible Notes (see Notes 4 and 5).

During the year ended March 31, 2003, the Company issued 69,231 shares of
restricted common stock for consulting services valued at $45,000 (estimated
based on the market price on the date of issue) and recorded such amount as
professional fees in the accompanying consolidated financial statements.

During the year ended March 31, 2003, the Company issued 196,078 shares of
restricted common stock in connection with the acquisition of a patent in 2000
(see Notes 8 and 12). Such shares were recorded at par value since the original
patent acquisition purchase transaction had been measured at $100,000 and
recorded as "patents" in the March 2000 consolidated balance sheet. The 196,078
shares merely satisfied a contingent obligation under the original purchase
agreement.

During the year ended March 31, 2004, the Company issued 540,000 shares of
restricted common stock for cash totaling $135,000 in connection with the
exercise of warrants at $0.25 per share.

During the year ended March 31, 2004, the Company issued 1,226,000 shares of
restricted common stock at $0.25 per share for cash totaling $306,500. In
connection with the issuance of common stock, the Company granted the
stockholders warrants to purchase 1,226,000 shares of common stock. The warrants
vested upon grant and expire through January 2005.

During the year ended March 31, 2004, the Company issued 180,000 shares of
restricted common stock at $0.30 per share for cash totaling $54,000. In
connection with the issuance of common stock, the Company granted the
stockholders warrants to purchase 180,000 shares of common stock. The warrants
vested upon grant and expire through March 2005.

                                      F-19

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (CONTINUED)

During the year ended March 31, 2004, the Company issued 40,000 shares of
restricted common stock at $0.525 per share for cash totaling $21,000. In
connection with the issuance of common stock, the Company granted the
stockholders warrants to purchase 40,000 shares of common stock. The warrants
vested upon grant and expire through March 2005.

During the year ended March 31, 2004, the Company issued 5,000 shares of
restricted common stock at $1.125 per share for cash totaling $5,625. In
connection with the issuance of common stock, the Company granted the
stockholders warrants to purchase 5,000 shares of common stock. The warrants
vested upon grant and expire through March 2005.

During the year ended March 31, 2004, the Company issued 10,000 shares of
restricted common stock at $0.25 for services valued at $2,500.

During the year ended March 31, 2004, the Company issued 73,529 shares of
restricted common stock at $0.34 for services valued at $25,000.

During the year ended March 31, 2004, the Company issued 62,000 shares of
restricted common stock at $0.40 for services valued at $24,825.

During the year ended March 31, 2004, the Company issued 185,185 shares of
restricted common stock at $0.45 for services valued at $83,333.

During the year ended March 31, 2004, the Company issued 5,000 shares of
restricted common stock at $0.50 for services valued at $2,500.

During the year ended March 31, 2004, noteholders converted $504,135 of
principal and interest into 1,627,655 shares of common stock (see Notes 5 and 6)
and warrants to purchase 802,848 shares of common stock ( see "Warrants" below).

WARRANTS

In January 2002, the Company issued 335,000 warrants to purchase common stock in
exchange for an additional ninety days to become current on all past due
interest payments (see Note 5). The warrants have an exercise price of $2.00 per
share, vest immediately, and expired twelve months from the date of issuance.
Such warrants were valued using the Black-Scholes option pricing model at
approximately $118,000, and were recorded as interest expense.

During the year ended March 31, 2002, the Company granted 239,000 warrants for
services and the satisfaction of certain liabilities. The warrants have exercise
prices ranging from $2.75 through $6.50 per common share, vested immediately and
are exercisable through January 2007. The warrants were valued at $118,000, of
which $78,000 was recorded as accounts payable and accrued liabilities in fiscal
year 2001.

In August 2002, the Company granted warrants to purchase 52,000 shares of the
Company's restricted common stock at an exercise price of $0.25 per share in
connection with equity fund raising activities. These warrants vested upon grant
and were exercisable through March 2004. As such warrants were issued in
connection with equity fund raising activities, there was no expense recorded in
the accompanying consolidated financial statements.

                                      F-20

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS (continued)

WARRANTS (CONTINUED)

In December 2002, the Company issued 580,000 warrants to purchase common stock
for $0.25 per share, which are exercisable through December 2007 and vested upon
grant. The warrants were issued in connection with a short-term secured note
payable (see Note 5). In accordance with GAAP, the proceeds of the financing
have been allocated to the debt and the warrants based on their relative
estimated fair values. Accordingly, a discount of $30,000 has been recorded as a
reduction of the debt balance and the off-setting credit has been reported as
additional paid-in capital. The debt discount was amortized to interest expense
in the year ended March 31, 2003 in accordance with the short-term nature of the
note payable.

During the year ended March 31, 2003, the Company granted 240,830 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.25 per share, vest immediately and were exercisable through
March 2004. As the warrants were issued in connection with equity financing, no
expense has been recorded in the accompanying consolidated financial statements.

During the year ended March 31, 2003, the Company granted 75,061 warrants to
certain vendors in connection with the conversion of amounts owed by the Company
into common stock. The warrants were valued at $71,000 (estimated based on the
relative fair values as determined by the Black Scholes option pricing model
pursuant to SFAS 123), have exercise prices of $2.00, vest immediately and are
exercisable through June 2005.

In March 2003, the Company issued 420,000 warrants to purchase common stock for
$0.25 per share, which were exercisable through March 2004 and vested upon
grant. The warrants were issued in connection with the conversion of notes
payable (see Notes 5 and 6). These warrants were valued using the Black Scholes
option pricing model; the relative pro-rata estimated fair value was
insignificant; and was charged to interest expense upon grant.

During the year ended March 31, 2004, the Company granted 1,226,000 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.25 per share, vest immediately and are exercisable through
March 2005. As the warrants were issued in connection with equity financing, no
expense has been recorded in the accompanying consolidated financial statements.

During the year ended March 31, 2004, the Company granted 180,000 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.30 per share, vest immediately and are exercisable through
March 2005. As the warrants were issued in connection with equity financing, no
expense has been recorded in the accompanying consolidated financial statements.

During the year ended March 31, 2004, the Company granted 40,000 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.525 per share, vest immediately and are exercisable through
March 2005. As the warrants were issued in connection with equity financing, no
expense has been recorded in the accompanying consolidated financial statements.

During the year ended March 31, 2004, the Company granted 5,000 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $1.125 per share, vest immediately and are exercisable through
March 2005. As the warrants were issued in connection with equity financing, no
expense has been recorded in the accompanying consolidated financial statements.

As noted under "Common Stock" above, 540,000 of the warrants granted to
investors in connection with the purchase of common stock during the year ended
March 31, 2004 were exercised.

                                      F-21

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS (continued)

WARRANTS (CONTINUED)

During the year ended March 31, 2004, the Company issued 762,064 warrants to
purchase common stock for $0.25 per share, which are exercisable through March
2005 and vested upon grant. The warrants were issued in connection with the
conversion of notes payable (see Notes 5 and 6). These warrants were valued
using the Black Scholes option pricing model; the relative pro-rata estimated
fair value was insignificant and was charged to interest expense upon grant.

In the year ended March 31, 2004, the Company issued 13,725 warrants to purchase
common stock for $0.42 per share, which are exercisable through March 2005 and
vested upon grant. The warrants were issued in connection with the conversion of
notes payable (see Notes 5 and 6). These warrants were valued using the Black
Scholes option pricing model; the relative pro-rata estimated fair value was
insignificant and was charged to interest expense upon grant.

In the year ended March 31, 2004, the Company issued 27,059 warrants to purchase
common stock for $0.65 per share, which vested upon grant and expire through
March 2005. The warrants were issued in connection with the conversion of notes
payable (see Notes 45and 6). These warrants were valued using the Black Scholes
option pricing model; the relative pro-rata fair estimated value was
insignificant and was charged to interest expense upon grant.

A summary of the aggregate warrant activity for the years ended March 31, 2004
and 2003 is presented below:

<TABLE>
<CAPTION>

                                                Year Ended March 31,
                                 -----------------------------------------------------
                                          2004                         2003
                                 -------------------------   -------------------------
                                                 Weighted                    Weighted
                                                 Average                      Average
                                                 Exercise                    Exercise
                                  Warrants        Price        Warrants       Price
                                 -----------   -----------   -----------   -----------
<S>                               <C>          <C>            <C>          <C>
Outstanding, beginning of year    2,906,746    $     2.29     1,873,855    $     3.65
      Granted                     2,253,848          0.29     1,367,891          0.35
      Exercised                    (540,000)         0.25            --            --
      Cancelled/Forfeited          (827,400)         0.25      (335,000)        (2.00)
                                 -----------   -----------   -----------   -----------

Outstanding, end of year          3,793,194    $     2.22     2,906,746    $     2.29
                                 ===========   ===========   ===========   ===========

Exercisable, end of year          3,793,194    $     2.22     2,906,746    $     2.29
                                 ===========   ===========   ===========   ===========

Weighted average estimated fair
  value of warrants granted                    $     0.40                  $     0.38
                                               ===========                 ===========
</TABLE>
The following outlines the significant assumptions used to estimate the fair
value information presented utilizing the Black-Scholes option pricing model:

                                              Years Ended March 31,
                                               2004          2003
                                            -----------   -----------
Risk free interest rate                         2.50%         3.50%
Average expected life                         3 years     2.5 years
Expected volatility                              365%          210%
Expected dividends                               None          None

                                      F-22

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS (continued)

WARRANTS (CONTINUED)

The detail of the warrants outstanding and exercisable as of March 31, 2004 is
as follows:
<TABLE>
<CAPTION>
<S>     <C>

                                     Warrants Outstanding                 Warrants Exercisable
                           ------------------------------------------ ----------------------------
                                             Weighted      Weighted                    Weighted
                                              Average      Average                     Average
                                Number       Remaining     Exercise       Number       Exercise
Range of Exercise Prices     Outstanding       Life         Price       Outstanding     Price
                           --------------- ------------- ------------ --------------- ------------
$        0.25                 1,913,494         1.7       $    0.25     1,913,494      $    0.25
$0.30 - $1.13                   265,784         0.7       $    0.39       265,784      $    0.39
$2.00 - $4.00                   711,166         1.3       $    2.33       711,166      $    2.33
$5.00 - $6.50                   902,750         1.0       $    5.25       902,750      $    5.25
                              ---------                                ----------
                              3,793,194                                 3,793,194
                              =========                                ==========
</TABLE>

OPTIONS

In August 2000, the Company adopted the 2000 Stock Option Plan ("Stock Option
Plan"), which was approved by its stockholders in September 2000. The Stock
Option Plan provides for the issuance of up to 500,000 options to purchase
shares of common stock. Such options can be incentive options or nonstatutory
options, and may be granted to employees, directors and consultants. The Stock
Option Plan has limits as to the eligibility of those stockholders who own more
than 10% of Company stock, as defined. The options granted pursuant to the Stock
Option Plan may have exercise prices of no less than 100% of fair market value
of the Company's common stock at the date of grant (incentive options), or no
less than 75% of fair market value of such stock at the date of grant
(nonstatutory).

In March 2002, the board of directors granted the Company's Chief Executive
Officer ("CEO") and Dr. Tullis non-qualified stock options to purchase up to
250,000 shares of common stock each, at an exercise price of $1.90 per share
(the estimated fair value at grant date) and expire March 2012. Awards are
earned upon achievement of certain financial and/or research and development
milestones.

In January 2002, the Company granted 400,000 stock options to a consultant for
services rendered valued at $562,000 (estimated based on the Black Scholes
option pricing model pursuant to SFAS 123) in connection with a consulting
agreement. In July 2002, the Company extended the original agreement by six
months to expire July 2003 and granted an additional 200,000 stock options
valued at $114,000 (estimated based on the Black Scholes option pricing model
pursuant to SFAS 123). All 600,000 options have been exercised as of March 31,
2003. The stock options had an exercise price of $0.50, and vested on the grant
dates.

                                      F-23

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

7. EQUITY TRANSACTIONS (continued)

OPTIONS (CONTINUED)

The following is a status of the stock options outstanding at March 31, 2004 and
the changes during the two years then ended:
<TABLE>
<CAPTION>
<S>     <C>

                                                  Year Ended March 31,
                                 -----------------------------------------------------
                                            2004                       2003
                                 -------------------------   -------------------------
                                                 Weighted                      Weighted
                                                 Average                       Average
                                                Exercise                      Exercise
                                   Options        Price         Options        Price
                                 -----------   -----------    -----------   -----------
Outstanding, beginning of year    1,376,115    $     2.49      1,376,115    $     2.49
      Granted                            --                      200,000          0.50
      Exercised                          --                     (200,000)        (0.50)
      Cancelled/Forfeited                --                           --            --
                                 -----------   -----------    -----------   -----------

Outstanding, end of year          1,376,115    $     2.49      1,376,115    $     2.49
                                 ===========   ===========    ===========   ===========

Exercisable, end of year          1,363,615    $     2.51      1,283,530    $     2.50
                                 ===========   ===========    ===========   ===========

Weighted average estimated fair
  value of options granted                             --                   $     0.57
                                               ===========                  ===========

The following outlines the significant assumptions used to estimate the fair
value information presented utilizing the Black-Scholes option pricing model for
the year ended March 31, 2003 (there were no issuances in fiscal 2004):

Risk free interest rate                                               3.50
Average expected life                                              3 years
Expected volatility                                                   210%
Expected dividends                                                    None

The detail of the options outstanding and exercisable as of March 31, 2004 is as
follows:

                                            Options Outstanding                 Options Exercisable
                                ------------------------------------------ -------------------------
                                                  Weighted     Weighted                     Weighted
                                                  Average       Average                      Average
                                    Number       Remaining     Exercise        Number       Exercise
Range of Exercise Prices         Outstanding        Life         Price      Outstanding       Price
                                --------------- ------------- ------------ --------------- ---------
        $0.39                       50,848       4.7 years      $ 0.39        50,848        $ 0.39
    $1.78 - $2.00                  515,267       8.9 years        1.90       515,267          1.90
    $2.25 - $3.00                  602,500       4.3 years        2.78       590,000          2.78
    $3.25 - $3.75                  207,500       2.9 years        3.27       207,500          3.27
                                -----------                                ----------
                                 1,376,115                                 1,363,615
                                ===========                                ==========

                                      F-24
</TABLE>

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

8. RELATED PARTY TRANSACTIONS

DUE TO RELATED PARTIES

Certain officers of the Company and other related parties have advanced the
Company funds, agreed to defer compensation and/or paid expenses on behalf of
the Company to cover working capital deficiencies. These non interest-bearing
liabilities have been included as due to related parties in the accompanying
consolidated financial statements.

ROYALTY AGREEMENT AND PATENT ACQUISITION

Effective January 1, 2000, the Company entered into an agreement with Dr. Julian
Ambrus, the son of Dr. Clara Ambrus, who was the original founder of Hemex, Inc.
under which an invention and related patent rights for a method of removing HIV
and other viruses from the blood using the Hemopurifier(TM) were assigned to the
Company by the inventors in exchange for (a) a royalty to be paid on future
sales of the patented product or process equal to 8.75% of net sales, as defined
and (b) 12,500 shares of the Company's common stock. Upon the issuance of the
first United States patent relating to the invention, the Company was obligated
to issue additional shares of common stock to the inventors. If the market price
of the Company's common stock on the date the patent is issued was below $8 per
share, the number of shares to be issued was that amount which equates to
$100,000 of market value. On March 4, 2003, the related patent was issued and
therefore the Company issued 196,078 shares of common stock recorded at par
value since the transaction was measured and reported as "patents" in fiscal
2000 for $100,000. (see Notes 7 and 12)

Other related party transactions are disclosed elsewhere in these notes to
consolidated financial statements.

9. INCOME TAX PROVISION

Income tax expense for the years ended March 31, 2004 and 2003 differed from the
amounts computed by applying the U.S. Federal income tax rate of 34 percent to
the loss from continuing operations before provision for income taxes as a
result of the following:

                                                          2004          2003
                                                       -----------   -----------
Computed "expected" tax benefit                        $ (516,000)   $ (837,000)

Reduction in income taxes resulting from:
    Equity instruments issued for services                     --        39,000
    Interest for warrants and BCF                          94,000        85,000
    Change in deferred tax assets valuation allowance     583,000       897,000
    State and local income taxes,
      net of federal benefit                             (134,000)     (162,000)
    Other                                                 (27,000)      (22,000)
                                                       -----------   -----------
                                                       $       --    $       --
                                                       ===========   ===========

                                      F-25

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

9. INCOME TAX PROVISION (continued)

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets at March 31, 2004 are presented below:

Deferred tax assets:
    Capitalized research and development                           $  1,833,000
    Net operating loss carryforwards                                  2,977,000
                                                                   -------------
        Total gross deferred tax assets                               4,810,000

        Less valuation allowance                                     (4,810,000)
                                                                   -------------
        Net deferred tax assets                                    $         --
                                                                   =============

The valuation allowance for deferred tax assets from continuing operations as of
March 31, 2004 and 2003 was $4,810,000 and $4,227,000, respectively.

As of March 31, 2004, the Company had tax net operating loss carryforwards of
approximately $8,000,000 and $3,000,000 available to offset future taxable
Federal and state income, respectively. The carryforward amounts expire in
various years through 2024.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in future years.

10. COMMITMENTS AND CONTINGENCIES

REGISTRATION RIGHTS AGREEMENTS

The Company is obligated under various agreements to register its common stock,
including the common stock underlying certain warrants and options. The Company
is subject to penalties for failure to register such securities, the amount of
which could be material to the Company's financial condition, results of
operations and cash flows. The Company filed a registration statement on Form
SB-2 with the SEC in December 2000 to register the necessary securities.
However, such registration statement was never declared effective and
subsequently abandoned. Management is currently unaware of any claims related to
the lack of registration. However, as the underlying securities are no longer
restricted under Rule 144 of the Securities Act of 1933, the Company no longer
plans on filing a registration statement in connection with this transaction.

EMPLOYMENT CONTRACTS

In addition to the employment contract discussed in Note 3, the Company entered
into an employment agreement with its Chairman of the Board effective April 1,
1999. The agreement, which is cancelable by either party upon sixty days notice,
will be in effect until the employee retires or ceases to be employed by the
Company. The Chairman of the Board was appointed President and Chief Executive
Officer ("CEO") effective June 1, 2001 upon which the base annual salary was
increased from $120,000 to $180,000. The CEO is eligible for an annual bonus at
the discretion of the Board of Directors, of which nil was earned during each of
the years ended March 31, 2004 and 2003, respectively. Under the terms of the
agreement, if the employee is terminated he may become eligible to receive a
salary continuation payment in the amount of at least twelve months' base
salary.

                                      F-26

<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2004

11. SUBSEQUENT EVENTS (unaudited)

In June 2004, the Company completed a $673,000 private placement of common stock
with accredited investors, including Fusion Capital Fund II, LLC, a
Chicago-based investor. In connection with the private placement, the Company
entered into a common stock purchase agreement with Fusion Capital, whereby
Fusion Capital has committed to buy up to an additional $6,000,000 of the
Company's common stock over a 30-month period, commencing, at the Company's
election, after the SEC has declared effective a registration statement covering
such shares. The funds the Company has received in connection with this
financing, together with any additional funds the Company may receive from
Fusion Capital under the common stock purchase agreement, will be used to fund
the Company's research and development activities and anticipated operations for
the future. The Company has issued 1,529,545 shares of common stock and
1,529,545 warrants to purchase common stock at $0.76 per share, which vested
upon grant and are exercisable through May 2007, for the funds the Company has
received in connection with this financing.

Subsequent to March 31, 2004, the Company issued 242,143 shares of restricted
common stock at prices ranging from $0.44 to $1.75 per share for services
approximating $129,000.

Subsequent to March 31, 2004, the Company issued 500,000 shares of restricted
common stock for cash totaling $125,000 in connection with the exercise of
warrants at $0.25 per share.

12. PATENTS

GENERAL

Patents include both foreign and domestic patents. There were no patents or
patents pending acquired during the years ended March 31, 2004 and 2003.
Approximately $147,000 of patents pending were approved during fiscal 2003
(excluding the patent discussed in the following paragraph) and there were no
patents pending at March 31, 2004 or 2003. The unamortized cost of patents and
patents pending is written off when management determines there is no future
benefit. During the years ended March 31, 2004 and 2003, zero and $334,000 of
capitalized patent costs were written off, respectively. At March 31, 2004, the
gross carrying amount of patents and the related accumulated amortization
approximated $345,000 and $108,000, respectively. Amortization of patents and
patents pending approximated $29,000 and $15,000 during the years ended March
31, 2004 and 2003, respectively. Amortization expense on patents is estimated to
be approximately $23,000 per year for the next five fiscal years. The weighted
average amortization period for patents was approximately 15 years at March 31,
2004.

RESTATEMENT

In August 2004, management determined that it had inadvertently recorded an
additional $100,000 of expense in March 2003 related to the 196,078 shares
issued in connection with the Company's acquisition of a patent (see Note 8).
The March 31, 2004 consolidated balance sheet and statement of operations for
the year ended March 31, 2003 have been restated accordingly. Such restatement
reduced fiscal 2003 professional fees and net loss by $100,000 ($0.01) per
common share) with a corresponding reduction to the previously reported
accumulated deficit at March 31, 2004.

                                      F-27


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.13
<SEQUENCE>2
<FILENAME>aethlon_lease.txt
<TEXT>
<PAGE>
EXHIBIT 10.13

                                     LEASE

               [San Diego Science Center / Aethlon Medical, Inc.]

         THIS LEASE ("LEASE") is dated for reference purposes only July 1, 2004,
by and between SAN DIEGO SCIENCE CENTER LLC, a California limited liability
company ("LANDLORD"), and AETHLON MEDICAL, INC., a Nevada corporation
("TENANT").

         1.       LEASE PREMISES.
                  ---------------

                  1.1 Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord during the term of this Lease, on the terms and conditions set
forth herein, those certain premises ("PREMISES") consisting of approximately
3,200 square feet of Rentable Area in the building (the "BUILDING") at 3030
Bunker Hill Street, San Diego, California, on real property legally described on
EXHIBIT A attached hereto and incorporated herein by this reference. The
Premises consist of approximately 811 square feet of Rentable Area on the third
floor of the Building and 2,389 square feet of Rentable Area on the first floor
of the Building. The Building consists of approximately 105,364 square feet of
Rentable Area. The Building, the real property upon which the Building is
located, and all landscaping, parking facilities, and other improvements and
appurtenances related thereto are hereinafter collectively referred to as the
"PROJECT." The site plan for the Project is attached hereto as EXHIBIT B, and
the Premises are outlined on EXHIBIT C. All portions of the Project which are
for the non-exclusive use of tenants of the Project, including without
limitation interior entrance ways, lobbies, corridors, stairwells, elevators,
equipment rooms, and rest rooms, and exterior roadways, driveways, sidewalks,
parking areas, and landscaped areas, are hereinafter referred to as "COMMON
AREAS."

         2.       BASIC LEASE PROVISIONS.
                  -----------------------

                  2.1 For convenience of the parties, certain basic provisions
of this Lease are set forth herein, which provisions are subject to the
remaining terms and conditions of this Lease and are to be interpreted in light
of such remaining terms and conditions.

                           2.1.1    Rentable Area of the Premises:
                                    Approximately 3,200 square feet.

                           2.1.2    Basic Annual Rent:
                                    $90,240 ($2.35 per square foot per month for
                                    3,200 square feet of Rentable Area, subject
                                    to adjustment pursuant to Sections 6.1 and
                                    8.3)

                           2.1.3    Monthly Installment of Basic Annual Rent:
                                    $7,520 ($2.35 per square foot per month for
                                    3,200 square feet of Rentable Area, subject
                                    to adjustment pursuant to Sections 6.1 and
                                    8.3)

                                       1
<PAGE>

                           2.1.4    Tenant's Pro Rata Share:
                                    3.04% of the Operating Expenses as
                                    determined pursuant to Section 7.3(a) and
                                    subject to adjustment pursuant to Section
                                    8.3.

                           2.1.5    (a)     Term Commencement Date:
                                            July 9, 2004

                                    (b)     Term Expiration Date:
                                            July 8, 2006

                           2.1.6    Security Deposit:

                                    (a)     Cash in the amount of $12,000.00
                                            representing one (1) month's base
                                            rent and estimated Operating
                                            Expenses, and

                                    (b)     Cash in the amount of $1,000
                                            representing advance deposit on Exit
                                            Phase I Report as required per
                                            Section 39.12.

                           2.1.7    Permitted Use:
                                    Uses permitted in Section 10.1

                           2.1.8    Address for Rent Payment and Notices to
                                    Landlord:

                                    San Diego Science Center LLC
                                    c/o Phase 3 Properties, Inc.
                                    8910 University Center Lane, Suite 265
                                    San Diego, CA   92122

                                    Address for Notices to Tenant Prior to
                                    Occupancy:

                                    Jim Joyce
                                    Aethlon Medical, Inc.
                                    7825 Fay Avenue, Suite 200
                                    La Jolla, CA  92037

                                    Address for Notices to Tenant After
                                    Occupancy:

                                    Jim Joyce
                                    Aethlon Medical, Inc.
                                    3030 Bunker Hill Street, Suite 4000
                                    San Diego, CA  92109

                           2.1.9    (a)     Landlord's Broker:
                                            Phase 3 Properties, Inc.
                                            8910 University Center Lane,
                                            Suite 265
                                            San Diego, CA 92122

                                       2
<PAGE>

                  2.2. The following exhibits are attached hereto and
incorporated herein by this reference:

                          Exhibit A    Legal Description of Real Property
                          Exhibit B    Site Plan of the Project
                          Exhibit C    Outline of the Premises
                          Exhibit D    Acknowledgment of Term Commencement Date
                          Exhibit E    Schematic Showing Tenant Improvements
                          Exhibit F    Architectural Drawings of Tenant
                                       Improvements
                          Exhibit G    Rules and Regulations
                          Exhibit H    Services to be Provided by Landlord
                          Exhibit I    Fitness Center Waiver of Liability
                          Exhibit J    Approved Contractors
                          Schedule 1   List of Removable Property (Section 17.7)

         3.       TERM.
                  -----

                  3.1 This Lease shall take effect upon the last date of
execution hereof by each of the parties hereto, and each of the provisions
hereof shall be binding upon and inure to the benefit of Landlord and Tenant
from the last date of execution hereof by each of the parties hereto.

                  3.2 The term of this Lease will be the period from the later
of the date set forth in Section 2.1.5(a) or execution of this Lease by both
parties pursuant to Section 3.1("TERM COMMENCEMENT DATE") (hereinafter sometimes
referred to as the "Term"), subject to earlier termination of this Lease as
provided herein. Landlord and Tenant shall execute a written acknowledgment of
the Term Commencement Date and the Term Expiration Date in substantially the
form attached hereto as EXHIBIT D and attach it to this Lease as EXHIBIT D-1;
however, failure to execute and deliver such acknowledgment shall not affect
Tenant's liability hereunder.

                  3.3 Landlord represents to Tenant that the Premises are
Substantially Complete. As used herein, the terms "SUBSTANTIALLY COMPLETE",
"SUBSTANTIALLY COMPLETED", and "SUBSTANTIAL COMPLETION" shall mean (i) the City
of San Diego has issued an interim or final right to occupy the Premises, and
(ii) Landlord has substantially completed construction of the Tenant
Improvements in accordance with EXHIBIT E and EXHIBIT F as certified by
Landlord's architect, including (a) the mechanical, electrical, plumbing and
other building systems which serve the Premises are in good working order, (b)
the lighting, ceiling tiles, and window coverings within the Premises are in
good working order, (c) all debris and clutter has been removed from the
Premises, (d) exterior windows of the Premises are washed inside and out, (e)
lobbies, corridors, stairwells and elevators serving the Premises are
substantially complete and in good working order, and (f) the Premises are in
compliance with Landlord's warranties set forth in Section 14.2; provided,
however, Tenant understands that construction of tenant improvements for other
tenants of the Building and in some Common Areas will be ongoing at the time of
Substantial Completion of the Tenant Improvements. ".

                                       3
<PAGE>

         4.       CONSTRUCTION AND POSSESSION.
                  ----------------------------

                  4.1 Landlord has constructed Tenant Improvements within the
Premises for Tenant's use and occupancy ("TENANT IMPROVEMENTS") in conformity
with the schematic attached hereto as EXHIBIT E and the architectural drawings
listed at EXHIBIT F at its cost and at no cost to Tenant. Tenant shall pay all
costs of changes to the Tenant Improvements requested by Tenant and approved by
Landlord, or improvements requested by Tenant and approved by Landlord which are
not included in EXHIBIT E or EXHIBIT F.

                  4.2 Prior to entry by Tenant onto the Premises before the Term
Commencement Date, for installing fixtures, placement of personal property, or
any other purpose, Tenant shall furnish to Landlord evidence satisfactory to
Landlord that insurance coverages required of Tenant under the provisions of
Article 21 are in effect. Entry by Tenant onto the Premises prior to the Term
Commencement Date for such purposes shall be subject to all of the terms and
conditions of this Lease other than the payment of Basic Annual Rent and
Operating Expenses, shall not interfere with the performance by Landlord or
Landlord's contractor with construction activities at the Project, shall be
limited to the last ten (10) days prior to the estimated Substantial Completion
of the Premises, and shall be made only with the advance written consent of
Landlord, which consent shall not be unreasonably withheld. In the event of
entry by Tenant or its agents onto the Premises prior to the Term Commencement
Date, Tenant agrees to indemnify, protect, defend and hold harmless Landlord and
its contractors and agents from any and all loss or damage to property,
completed work, fixtures, equipment, materials or merchandise, or from liability
for death of or injury to any person arising from Tenant's entry onto the
Premises, except to the extent caused by the gross negligence or willful
misconduct of Landlord or its agents or contractors.

         5.       RENT.
                  -----

                  5.1 Tenant agrees to pay Landlord as Basic Annual Rent for the
Premises the sum set forth in Section 2.1.2, subject to adjustment as set forth
in Section 6.1 and 8.3, in the equal monthly installments set forth in Section
2.1.3, subject to adjustment as set forth in Sections 6.1 and 8.3, each in
advance on the Term Commencement Date and on the first day of each and every
calendar month thereafter during the term of this Lease; provided, however, the
first two (2) months after the time period set for in Section 3.1 shall be free
of the monthly installment of Basic Annual Rent.

                  5.2 In addition to Basic Annual Rent, Tenant agrees to pay to
Landlord as additional rent ("ADDITIONAL RENT"), at the times hereinafter
specified in this Lease (i) Tenant's Pro Rata Share (as defined in Section
7.4(a) and as set forth in Section 2.1.4, subject to adjustment pursuant to
Section 8.3) of Operating Expenses as provided in Article 7 and (ii) all other
amounts that Tenant assumes or agrees to pay under the provisions of this Lease,
including but not limited to any and all other sums that may become due by
reason of any default of Tenant under this Lease or failure on Tenant's part to
comply with the agreements, terms, covenants and conditions of this Lease to be
performed by Tenant.

                  5.3 Basic Annual Rent and Additional Rent shall together be
denominated "RENT." Except as expressly set forth in this Lease, Rent shall be
paid to Landlord, without notice, demand, abatement, suspension, deduction,
setoff, counterclaim, or defense, in lawful money of the United States of
America, at the office of Landlord as set forth in Section 2.1.8 or to such
other person or at such other place as Landlord may from time to time designate
in writing.

                                       4
<PAGE>

                  5.4 In the event the Term of this Lease commences or ends on a
day other than the first day of a calendar month, then the Rent for such
fraction of a month shall be prorated for such period on the basis of a thirty
(30) day month and shall be paid at the then current rate for such fractional
month prior to the commencement of the partial month.

         6.       RENTAL ADJUSTMENTS.
                  -------------------

                  6.1 The Basic Annual Rent then in effect (and as previously
increased pursuant to this Section 6.1) shall be increased each year by three
percent (3%) on each annual anniversary of the Term Commencement Date for so
long as this Lease continues in effect.

         7.       OPERATING EXPENSES.
                  -------------------

                  7.1      As used herein, the term "OPERATING EXPENSES" shall
include:

                           (a) Government impositions including, without
limitation, real and personal property taxes and assessments (but excluding
personal property taxes and assessments of other tenants of the Project) levied
upon the Project or any part thereof; amounts due under any improvement bond
upon the Project and assessments levied in lieu thereof (except to the extent
they represent costs related to the initial construction of the Project); any
tax on or measured by gross rentals received from the rental of space in the
Project or tax based on the square footage of the Building to the extent such
tax is in lieu of or in the nature of a property tax (not an income tax, but a
tax based on revenue in the nature of a property tax if imposed in the future);
and any utilities surcharges or any other costs levied, assessed or imposed by,
or at the direction of, or resulting from statutes or regulations, or
interpretations thereof promulgated by, any federal, state, regional, municipal
or local government authority in connection with the use or occupancy of the
Building or Project, and any expenses, including the reasonable cost of
attorneys or experts, reasonably incurred by Landlord in seeking reduction by
the taxing authority of the applicable taxes not to exceed the amount of any
such reduction, less tax refunds obtained as a result of an application for
review thereof.

                           (b) Except as set forth in Section 7.2 below, all
other costs paid or incurred by Landlord which, in accordance with generally
accepted accounting principles as applied to the operation and maintenance of
first class buildings, are properly chargeable to the maintenance and operation
of the Project including, by way of examples and not as a limitation upon the
generality of the foregoing, costs of (i) maintenance, repairs and replacements
to improvements within the Project as appropriate to maintain the Project in
first class condition; (ii) utilities furnished to the Project (except those
utilities which are separately metered and paid by individual tenants); (iii)
sewer fees; (iv) trash collection; (v) cleaning (including windows); (vi)
maintenance of landscape and grounds; (vii) maintenance of drives and parking
areas, including periodic resurfacing; (viii) reasonable and customary security
services; (ix) maintenance, repair, and replacement of reasonable and customary
security devices; (x) building supplies; (xi) maintenance, repair, and
replacement of equipment utilized for operation and maintenance of the Project;


                                       5
<PAGE>

(xii) costs of maintenance, repairs and replacements of mechanical, electrical,
plumbing, sprinkler, and other systems of the Project; (xiii) insurance
premiums; (xiv) portions of insured losses deductible by reason of insurance
policy terms (insurance deductibles); (xv) periodic review of Hazardous Material
Inventories (as defined in Section 39.6) to confirm compliance with applicable
building and fire code requirements; (xvi) service contracts for work of a
nature before referenced; (xvii) costs of services of independent contractors
retained to do work of a nature before referenced at reasonable and customary
rates; (xviii) costs of compensation (including employment taxes and fringe
benefits) of all persons who perform regular and recurring duties connected with
the day-to-day operation and maintenance of the Project at reasonable and
customary rates; and (xviii) reasonable costs of management services equal to
four percent (4%) of the Basic Annual Rent; provided, however, that any costs
for repairs or replacements which would be deemed of a "capital" nature under
generally accepted accounting principles shall be amortized over the useful life
of the repair or replacement as determined under Internal Revenue Service
guidelines, and Tenant shall pay only that portion of the costs which are
amortized over the balance of the term, payable at the time the costs are
incurred to the extent Tenant's share of the costs are less than $1.75 per
square foot of Rentable Area of the Premises, with the balance payable on a
monthly basis during the balance of the term.

                  7.2 Notwithstanding the foregoing, Tenant shall not be
responsible for the payment of the following costs and expenses:

                           (a) costs incurred for the construction of the
Project (including the current renovation of the Project into a biotech
facility);

                           (b) costs incurred for the repair, maintenance or
replacement of the structural components of the footings, foundation, ground
floor slab, and load bearing walls of the Building (but excluding painting and
ordinary maintenance and repair of exterior surfaces, which are Operating
Expenses under Section 7.1(b));

                           (c) costs recovered under any construction or
materials warranty procured by Landlord, pursuant to Section 14.4 or otherwise,
to the extent paid pursuant to the warranty;

                           (d) costs of any kind, including attorneys fees,
incurred to correct any defects in design, materials or construction of the
Project;

                           (e) costs, expenses and penalties (including without
limitation attorneys' fees) incurred as a result of the use, storage, removal or
remediation of any toxic or hazardous substances or other environmental
contamination not caused by Tenant or its employees, contractors, agents,
representatives, or invitees;

                           (f) interest, principal, points and other fees on
debt or amortization of any debt secured in whole or part by all or any portion
of the Project (provided that interest upon a government assessment or
improvement bond payable in installments is an Operating Expense under Section
7.1(a));

                                       6
<PAGE>

                           (g) costs incurred in connection with the financing,
sale or acquisition of the Project or any portion thereof;

                           (h) costs, expenses, and penalties (including without
limitation attorneys' fees) incurred due to the violation by Landlord of any
underlying deed of trust or mortgage affecting the Project or any portion
thereof;

                           (i) depreciation and amortization of any type
(provided this exclusion is not intended to delete from Operating Expenses
actual costs of maintenance, repairs and replacements which are otherwise
included within Operating Expenses);

                           (j) any costs incurred as a result of Landlord's
violation of any statute, ordinance or other source of applicable law, or breach
of contract or tort liability to any other party, including without limitation,
any third party, or Landlord's employees, contractors, agents or
representatives;

                           (k) costs incurred in leasing or procuring tenants
(including, without limitation, lease commissions, advertising expenses,
attorneys' fees and expenses of renovating space for tenants);

                           (l) advertising, marketing, media and promotional
expenditures regarding the Project and costs of signs identifying the owner,
lender or any contractor thereof;

                           (m) any wages, fees, salaries, benefits or other
compensation of the executive employees or principals of Landlord;

                           (n) any rentals and related expenses incurred in
leasing equipment which may be classified as capital expenditures under
generally accepted accounting principles; provided, however, leasing and other
expenses of the deionized water system will be included in Operating Expenses.

                           (o) any net income, franchise, capital stock, estate
or inheritance taxes or taxes which are the personal obligation of Landlord or
of another tenant of the Project;

                           (p) expenses which relate to preparation of rental
space for other occupants of the Project, including without limitation building,
license and inspection costs, incurred with respect to the installation of
improvements made for other occupants of the Project or incurred in renovating
or otherwise improving, decorating, painting or redecorating vacant tenant space
in the Project for other occupants in the Project.

                           (q) legal expenses arising out of the initial
construction of the Project or any Tenant Improvements or for the enforcement of
the provisions of any tenant leases other than this Lease;

                           (r) the cost of any work or service performed for or
facilities furnished to another occupant of the Project at such occupant's cost;

                                       7
<PAGE>

                           (s) any interest or penalties imposed upon Landlord
by any taxing authority for late payment or otherwise;

                           (t) any other expense otherwise chargeable as part of
the cost of operation and maintenance but which is not of general benefit to the
Project but is primarily for the benefit of one or more specific tenants;

                           (u) Landlord's charitable or political contributions;

                           (v) the amount of any payments to subsidiaries and
affiliates of Landlord for services to the Project or for supplies or other
materials to the extent that the cost of such services, supplies or materials
exceeds the cost which would have been paid had the services, supplies or
materials been provided by unaffiliated parties on a competitive basis
(provided, however, any fee for management services paid to an affiliate of
Landlord shall be in the amount set forth in Section 7.1[b]); and

                           (w) electric power or other utility costs for which
Tenant directly contracts with a public service company.

                  7.3 Tenant shall pay to Landlord on the first day of each
calendar month of the Term of this lease, as Additional Rent, Landlord's written
good faith estimate of Tenant's Pro Rata Share (as set forth in 2.1.4) of
Operating Expenses with respect to the Project for such month.

                           (a) "TENANT'S PRO RATA SHARE" under this Lease shall
mean the percentage set forth in Section 2.1.4 (subject to adjustment pursuant
to Section 8.3), determined by dividing the Rentable Area of the Premises by the
total Rentable Area of the Project.

                           (b) Within sixty (60) days after the conclusion of
each calendar year, Landlord shall furnish to Tenant in writing a statement (the
"ANNUAL OPERATING EXPENSE STATEMENT") showing in reasonable detail the actual
Operating Expenses and Tenant's Pro Rata Share of Operating Expenses for the
previous calendar year. Any additional sum due from Tenant to Landlord shall be
due and payable within thirty (30) days of Tenant's receipt of such statement.
If the amounts paid by Tenant pursuant to this Section 7.3 exceed Tenant's Pro
Rata Share of Operating Expenses for the previous calendar year, the difference
shall be credited by Landlord against the Rent next due and owing from Tenant;
provided that, if the Lease term has expired, Landlord shall accompany said
statement with payment for the amount of such difference. (c) Any amount due
under this Section 7.3 for any period which is less than a full month shall be
prorated for such fractional month.

                           (d) Notwithstanding this Section 7.3, Operating
Expenses which can fairly and reasonably be allocated to one or more tenants of
the Project shall be so allocated, and shall be separately scheduled in the
Landlord's written good faith estimate and Landlord's Annual Operating Expense
Statement.

                  7.5 Tenant shall have the right, at Tenant's expense, upon
reasonable notice during reasonable business hours, to review that portion of
Landlord's books, records, invoices, and other data which are relevant to
preparation of the Annual Operating Expense Statement provided any request for
such review shall be furnished within one hundred eighty (180) days after


                                       8
<PAGE>

Tenant's receipt of such statement as to prior year's Operating Expenses. If the
amount of Operating Expenses relating to the Premises identified on such annual
statement is found to exceed the actual Operating Expenses of the Premises,
Landlord shall, within twenty (20) days after Tenant's request therefor, refund
to Tenant the amount of overpayment by Tenant. In addition, if such review
reveals that the Operating Expenses paid by Tenant in any year exceed one
hundred five percent (105%) of the actual Operating Expenses which should have
been paid by Tenant in such year, Landlord shall reimburse Tenant for the
reasonable cost of such review within 10 business days following Tenant's
written request for the cost of such review. In all other cases, Tenant shall
pay for the reasonable cost of the review.

                  7.6 Operating Expenses for the calendar year in which Tenant's
obligation to pay them commences and in the calendar year in which such
obligation ceases shall be prorated. Expenses such as taxes, assessments and
insurance premiums which are incurred for an extended time period shall be
prorated based upon time periods to which applicable so that the amounts
attributed to the Premises relate in a reasonable manner to the time period
wherein Tenant has an obligation to pay Operating Expenses.

         8.       RENTABLE AREA.
                  --------------

                  8.1 The Rentable Area of the Project is determined by making
separate calculations of the Rentable Area of each floor of the Building, and
totaling the Rentable Area of each floor within the Building. The Rentable Area
of a floor is calculated by measuring to the outside finished surface of each
permanent outer building wall where the wall intersects or joins the floor, or
where it would have intersected the floor except for recessed entryways, windows
and the like (also known as the "drip line", measured from where the outside
finished surface of the second floor wall intersects the roof). The full area
calculated as set forth above is included as Rentable Area of the Project
without deduction for (i) columns and projections, (ii) vertical penetrations
such as stairwells, elevator shafts, flues, pipe shafts, vertical ducts,
atriums, and the like, or their enclosing walls corridors, (iii) entrance ways,
lobbies, corridors, equipment rooms, and rest rooms, and the like, or their
enclosing walls, or (iv) any other unusable area of any nature.

                  8.2 The term "RENTABLE AREA" when applied to the Premises is
the area to be occupied exclusively by Tenant plus a pro rata allocation of
Rentable Area within the Project which is not then utilized or expected to be
utilized exclusively by Tenant or other tenants of the Project, including but
not limited to the portions of the Building devoted to columns, projections,
vertical penetrations, entrance ways, lobbies, corridors, equipment rooms, rest
rooms, lunch rooms, conference rooms, library, and fitness center. If the
Premises are separated from space occupied by another tenant, the Rentable Area
shall be measured to the center of any interior demising walls.

                  8.3 The Rentable Area as set forth in Section 2.1.1 is an
estimate of the area which constitutes the Rentable Area of the Premises, which,
at the request of either Landlord or Tenant made within ninety (90) days after
the Term Commencement Date, shall be adjusted in accordance with measurement and


                                       9
<PAGE>

written certification of the Project architect. If the Rentable Area as
determined hereunder is more or less than the Rentable Area set forth in Section
2.1.1, Basic Annual Rent, monthly installments of Basic Annual Rent, and
Tenant's Pro Rata Share of Operating Expenses shall be adjusted upward or
downward, as the case may be, based on the actual Rentable Area of the Premises.

         9.       SECURITY DEPOSIT.
                  -----------------

                  9.1 Concurrently with the execution of this Lease, Tenant
shall deposit with Landlord cash in the amount set forth in Section 2.1.6, to be
held by Landlord as security for the faithful performance by Tenant of all of
the terms, covenants, and conditions of this Lease to be kept and performed by
Tenant during the term and any extension term hereof. If Tenant defaults with
respect to any provision of this Lease, including but not limited to any
provision relating to the payment of Rent, and subject to any notice
requirements and cure periods for Tenant's benefit set forth in Article 24,
Landlord may (but shall not be required to) draw from the security deposit the
amount required to cure the default, and to use, apply or retain the security
deposit for the payment of any Rent or any other sum in default, or to
compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default. The security deposit shall not be deemed to be held
by Landlord in trust, need not be segregated from other funds of Landlord, and
shall not bear interest. Landlord is hereby granted a security interest in the
security deposit pursuant to the provisions of the California Commercial Code,
which security interest shall be perfected by Landlord taking possession of the
security deposit.

                  9.2 In the event Landlord applies any portion of the security
deposit in accordance with the terms of this Lease, Tenant shall within ten (10)
days after another request therefor replenish the security deposit to the full
amount set forth above.

                  9.3 The security deposit shall be transferable by Landlord to
a successor Landlord and to Landlord's mortgage lender which is a beneficiary of
a deed of trust encumbering the Premises, provided such lender agrees to hold
the security deposit pursuant to the terms of this Lease.

                  9.4 In the event of bankruptcy or other debtor/creditor
proceedings against Tenant, the security deposit shall be deemed to be applied
first to the payment of Rent and other charges due Landlord for all periods
prior to the filing of such proceedings.

                  9.5 Landlord shall deliver the security deposit to any
purchaser of Landlord's interest in the Premises, and thereupon Landlord shall
be discharged from any further liability with respect thereto provided that such
purchaser has agreed to assume in writing the obligations of Landlord hereunder.
This provision shall also apply to any subsequent transfers.

                  9.6 The security deposit shall be returned to Tenant within
thirty (30) days following the later of the expiration of the Lease or the date
Tenant fully vacates the Premises, except for amounts which are needed by
Landlord to cure any default by Tenant.

                                       10
<PAGE>

         10.      USE.
                  ----

                  10.1 Tenant may use the Premises only for laboratory research
and development and related administrative, office and other ancillary uses as
permitted by (i) the applicable zone under the City of San Diego Land
Development Code, (ii) any other laws, regulations, ordinances, and permits
applicable to the Project, and (iii) all covenants, conditions and restrictions
recorded against the property, and shall not use the Premises, or permit or
suffer the Premises to be used for any other purpose without the prior written
consent of Landlord.

                  10.2 Tenant shall conduct its business operations and use the
Premises in compliance with all federal, state, and local laws, regulations,
ordinances, requirements, permits and approvals applicable to the Premises.
Tenant shall not use or occupy the Premises in violation of any law or
regulation or the certificate of occupancy issued for the Building, and shall,
upon five (5) days written notice from Landlord, discontinue any use of the
Premises which is declared by any governmental authority having jurisdiction to
be a violation of law or the certificate of occupancy. Tenant shall comply with
any direction of any governmental authority having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or with respect to
Tenant's particular use or occupation thereof. Tenant shall not be deemed to be
in default of the foregoing obligation if it has the right to appeal such
directive and Tenant prosecutes such appeal in a timely fashion and in a manner
that does not impose or threaten to impose any lien, charge or other obligation
on Landlord or any portion of the Project.

                  10.3 Tenant shall not do or permit to be done anything which
will invalidate or increase the cost (unless Tenant agrees to pay such increased
cost) of any fire, extended coverage or any other insurance policy covering the
Premises, or which will make such insurance coverage unavailable on commercially
reasonable terms and conditions, and shall comply with all rules, orders,
regulations and requirements of the insurers of the Premises.

                  10.4 Subject to the warranty of Landlord in Section 14.3,
Tenant shall cause the Premises to comply with the Americans with Disabilities
Act of 1990 ("ADA"), and the regulations promulgated thereunder, as amended from
time to time. All responsibility for compliance with the ADA relating to the
Premises and the activities conducted by Tenant within the Premises after the
Term Commencement Date shall be exclusively that of Tenant and not of Landlord,
including any duty to make capital improvements, alterations, repairs and
replacements to the Premises; provided, however, (i) Landlord shall be
responsible for compliance with the ADA to the extent of a violation of
Landlord's warranty in Section 14.3; (ii) Landlord shall make all improvements
outside of the Premises required for compliance with the ADA (with only the
amortized costs of capital improvements payable by Tenant as an Operating
Expense under Section 7.1(b)); and (iii) neither Tenant nor Landlord shall be
required to make capital improvements, alterations, repairs or replacements to
comply with the ADA unless and until required to do so by order of a government
entity or court of law exercising proper jurisdiction with regard thereto,
subject to any right to appeal or otherwise contest any such order. Any
alterations to the Premises made by Tenant for the purpose of complying with the
ADA or which otherwise require compliance with the ADA shall be done in
accordance with Article 17; provided, that Landlord's consent to such


                                       11
<PAGE>

alterations shall not constitute either Landlord's assumption, in whole or in
part, of Tenant's responsibility for compliance with the ADA, or representation
or confirmation by Landlord that such alterations comply with the provisions of
the ADA.

                  10.5 Landlord shall identify Tenant on the Building directory
in the Building lobby, and shall identify Tenant on a plaque installed beside
the main door to the Premises. Tenant may not install any signage outside of the
Premises. The expense of the directory, plaque and any and all other signage, if
any, shall be paid by Tenant as an Operating Expense pursuant to Article 7.

                  10.6 No equipment shall be placed at a location within the
Building other than a location designed to carry the load of the equipment.
Equipment weighing in excess of floor loading capacity shall not be placed in
the Building.

                  10.7 Tenant shall not use or allow the Premises to be used for
any unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance or
waste in, on, or about the Premises.

                  10.8 Landlord shall provide services to the Project described
on Exhibit H attached hereto, subject to reimbursement by Tenant as Operating
Expenses pursuant to Section 7.1(b).


         11.      BROKERS.
                  --------

                  11.1 Landlord and Tenant represent and warrant one to the
other that there have been no dealings with any real estate broker or agent in
connection with the negotiation of this Lease other than the brokers set forth
in Section 2.1.9, whose commission(s) shall be paid by Landlord. Each shall
indemnify, defend, protect, and hold harmless the other from any claim of any
other broker as a result of any act or agreement of the indemnitor.

                  11.2 To the best of Tenant's knowledge, without investigation
or inquiry, Tenant represents and warrants that no broker or agent has made any
representation or warranty relied upon by Tenant in Tenant's decision to enter
into this Lease other than as contained in this Lease.

         12.      HOLDING OVER.
                  -------------

                  12.1 If, with Landlord's express written consent, Tenant holds
possession of all or any part of the Premises after the expiration or earlier
termination of this Lease, Tenant shall be deemed a tenant from month to month
upon the date of such expiration or earlier termination, and in such case Tenant
shall continue to pay in accordance with Article 5 the Basic Annual Rent as
adjusted in accordance with Article 6, together with Operating Expenses in
accordance with Article 7 and other Additional Rent as may be payable by Tenant,
and such month-to-month tenancy shall be subject to every other term, covenant
and condition contained herein.


                                       12
<PAGE>

                  12.2 If Tenant remains in possession of all or any portion of
the Premises after the expiration or earlier termination of the term hereof
without the express written consent of Landlord, Tenant shall become a tenant at
sufferance upon the terms of this Lease except that monthly rental shall be
equal to one hundred twenty-five percent (125%) of the Monthly Installment of
Basic Annual Rent in effect during the immediately preceding calendar month.

                  12.3 Acceptance by Landlord of Rent after such expiration or
earlier termination shall not result in a renewal or reinstatement of this
Lease.

                  12.4 The foregoing provisions of this Article 12 are in
addition to and do not affect Landlord's right to re-entry or any other rights
of Landlord under Article 24 or elsewhere in this Lease or as otherwise provided
by law.

         13.      TAXES ON TENANT'S PROPERTY
                  --------------------------

                  13.1 Tenant shall pay not less than ten (10) days before
delinquency taxes levied against any personal property or trade fixtures placed
by Tenant in or about the Premises. Tenant shall not be responsible for taxes
levied against any personal property or trade fixtures of other tenants.

                  13.2 If any such taxes on Tenant's personal property or trade
fixtures are levied against Landlord or Landlord's property or, if the assessed
valuation of the Project is increased by the inclusion therein of a value
attributable to Tenant's personal property or trade fixtures, and if Landlord
after written notice to Tenant pays the taxes based upon such increase in the
assessed value, then Tenant shall, within thirty (30) days of receipt of
satisfactory evidence of such tax increase, repay to Landlord the taxes so
levied against Landlord.

                  13.3 If any improvements in or alterations to the Premises,
whether owned by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which improvements in other
spaces in the Project are assessed, then the real property taxes and assessments
levied against Landlord or the Project by reason of such excess assessed
valuation shall be deemed to be taxes levied against personal property to Tenant
and shall be governed by the provisions of Section 13.2 above. Any such excess
assessed valuation due to improvements in or alterations to space in the Project
leased by other tenants of Landlord shall not be included in the Operating
Expenses defined in Section 7, but shall be treated, as to such other tenants,
as provided in this Section 13.3, and shall be allocated to such other tenants.
If the records of the county assessor are available and sufficiently detailed to
serve as a basis for determining whether said tenant improvements or alterations
are assessed at a higher valuation than improvements in other spaces in the
Project, such records shall be binding on both Landlord and Tenant.

                  13.4 To the extent Tenant fails to make any payment required
by this Article 13 and Landlord does so on Tenant's behalf, after notice to
Tenant and opportunity for Tenant to make such payment, Tenant shall reimburse
Landlord for the cost thereof pursuant to the provisions of Sections 7.1 and
24.3.

         14.      CONDITION OF PREMISES.
                  ----------------------

                  14.1 Tenant acknowledges that neither Landlord nor any agent
of Landlord has made any representation or warranty, express or implied, with
respect to the condition of the Premises or to the Project, except as set forth
herein, or with respect to their suitability for the conduct of Tenant's
business.

                                       13
<PAGE>

                  14.2 Landlord warrants to Tenant that the Tenant Improvements
were built in a good and workmanlike manner and in compliance with EXHIBIT E and
EXHIBIT F, and all applicable building code requirements, laws, rules, orders,
ordinances, directions, regulations, permits, approvals, and requirements of all
governmental agencies, offices, departments, bureaus and boards having
jurisdiction, and with the rules, orders, directions, regulations, and
requirements of any applicable fire rating bureau; that the mechanical,
electrical, plumbing and other building systems will be in good working order at
the commencement of the term; and that the Project and the Tenant Improvements
are free of patent and latent defects in design, materials and construction.
Promptly after notice from Tenant, Landlord shall correct any defect in the
Project or the Tenant Improvements in violation of the foregoing warranty which
interferes with Tenant's use or occupancy of the Premises.

                  14.3 Landlord warrants to Tenant that the Project and the
Tenant Improvements, at the time of initial completion, will be in compliance
with ADA and the regulations promulgated thereunder; provided, however, nothing
in this Lease shall be construed to require Landlord to make improvements,
alterations, repairs or replacements to comply with ADA unless and until
required to do so by order of any government entity or court of law exercising
proper jurisdiction with regard thereto, subject to any right to appeal or
otherwise contest any such order.

         15.      COMMON AREAS AND PARKING FACILITIES.
                  ------------------------------------

                  15.1 Tenant shall have the nonexclusive right, in common with
others, to use the Common Areas, subject to the rules and regulations adopted by
Landlord and attached hereto as EXHIBIT G together with such other reasonable
and nondiscriminatory rules and regulations as are hereafter promulgated by
Landlord (the "RULES AND REGULATIONS"); provided, however, that such rules and
regulations do not unreasonably interfere with Tenant's use and enjoyment of the
Premises and Common Areas. Without limiting the generality of the foregoing,
Tenant may allow its employees the nonexclusive right, in common with employees
of other tenants in the Building, to use the fitness facilities and equipment,
provided that Tenant ensures that each employee before using the fitness
facilities and equipment has executed and delivered to Landlord a waiver of
liability (the "FITNESS CENTER WAIVER OF LIABILITY") in the form attached hereto
as EXHIBIT I.

15.2 Tenant shall not place any storage facilities or water systems, mechanical
equipment, emergency generators or other facilities or property on the surface
parking area or otherwise outside of the Premises without the express written
consent of Landlord, and any space used for such facilities shall be deducted
from Tenant's Pro Rata Share of parking described below.

                  15.3 As an appurtenance to the Premises, Tenant, and its
employees and invitees, shall be entitled to use without charge three (3)
parking spaces (which includes a pro rata share of visitor and handicap parking
spaces) for each 1,000 square feet of usable area of the Premises in common with


                                       14
<PAGE>

other tenants of the Project. The Project shall have at least three (3) parking
spaces for each 1,000 square feet of usable area of the entire Project. The term
"usable area" as used herein refers not to the Rentable Area of the Premises,
but to the area actually occupied by Tenant.


         16.      UTILITIES AND SERVICES.
                  -----------------------

                  16.1 Tenant shall pay for all water, gas, electricity,
telephone, cable, and other utilities which may be furnished to the Premises
during the term of this Lease, together with any taxes thereon. If any such
utility is not separately metered to Tenant, Tenant shall pay Tenant's Pro Rata
Share of the costs thereof as an Operating Expense unless Landlord has installed
separate meters or measuring devices for the determination of Tenant's actual
use of such utility service. Utilities and services provided to the Premises
which are separately metered shall be paid by Tenant directly to the supplier of
such utility or service, and Tenant shall pay for such utilities and services
prior to delinquency during the term of this Lease. In the event one tenant of
the Project is using a disproportionate amount of any utility that is not
separately metered, Landlord shall allocate an equitable portion of such utility
cost directly to such tenant. The primary measurement for metering usage will be
based upon the cubic feet per minute of air supplied to the premises.

                  16.2 Landlord shall not be liable for, nor shall any eviction
of Tenant result from, any failure of any such utility or service, and in the
event of such failure Tenant shall not be entitled to any abatement or reduction
of Rent, nor be relieved from the operation of any covenant or agreement of this
Lease, and Tenant waives any right to terminate this Lease on account thereof.
Notwithstanding the foregoing:

                           (i) in the event that Landlord is unable to supply
any of the Building's sanitary, electrical, heating, air conditioning, water,
elevator, life safety or other essential systems serving the Premises
(collectively, the "ESSENTIAL SERVICES") from a cause within Landlord's
reasonable control, and such inability of Landlord materially impairs Tenant's
ability to carry on its business in the Premises for a period of ten (10)
consecutive calendar days, Basic Annual Rent and Additional Rent shall be abated
commencing with the eleventh (11th ) day of such material interference with
Tenant's business, based upon the extent to which such inability to supply
Essential Services materially impairs Tenant's ability to carry on its business
in the Premises. Such abatement shall continue until the Essential Services have
been restored to such extent that the lack of any remaining services no longer
materially impairs Tenant's ability to carry on its business in the Premises.
Tenant shall not be entitled to such an abatement to the extent that Landlord's
inability to supply Essential Services to Tenant is caused by Tenant or its
employees, contractors, agents, licensees or invitees; and

                           (ii) in the event that Landlord is unable to supply
any Essential Services by reason of acts of God, accidents, breakage, repairs,
strikes, lockouts, labor disputes, inability to obtain utilities or materials or
by any other reason beyond Landlord's reasonable control, and (i) such inability
of Landlord prevents Tenant from carrying on its business in the Premises for a
period of thirty (30) consecutive calendar days or (ii) such inability of
Landlord materially impairs Tenant's ability to carry on its business in the
Premises for a period of sixty (60) consecutive calendar days, then Basic Annual
Rent and Additional Rent shall be abated commencing with the day after such
thirty (30) or sixty (60) day period, as the case may be, based upon the extent


                                       15
<PAGE>

to which such inability to supply Essential Services materially impairs Tenant's
ability to carry on its business in the Premises. Such abatement shall continue
until the Essential Services have been restored to the extent that the lack of
any remaining services no longer materially impairs Tenant's ability to carry on
its business in the Premises. Tenant shall not be entitled to such an abatement
to the extent that Landlord's inability to supply Essential Services to Tenant
is caused by Tenant or its employees, contractors, agents, licensees or
invitees; and

                           (iii) in the event of any stoppage or interruption of
Essential Services to the Premises, Landlord shall use commercially reasonable
efforts to restore Essential Services to the Premises as soon as possible;
provided, that Tenant shall have the right, at its option, to terminate this
Lease by written notice to Landlord if such failure to provide Essential
Services by Landlord continues for any reason (other than the actions of Tenant
or its employees, contractors, agents, licensees or invitees) for more than one
hundred eighty (180) consecutive calendar days and such failure materially
impairs Tenant's ability to carry on its business in the Premises.

                  16.3 Tenant shall provide and pay for janitors, maintenance
personnel, and other persons who perform duties connected with the operation and
maintenance of the interior of the Premises.

         17.      ALTERATIONS.
                  ------------

                  17.1 Tenant shall make no alterations, additions or
improvements (hereinafter in this article, "IMPROVEMENTS") in or to the Premises
without Landlord's prior written consent, which shall not be unreasonably
withheld; provided, however, it shall not be unreasonable for Landlord to
withhold consent if the proposed Improvements would in the opinion of Landlord
adversely affect the use of the Premises for generic laboratory-based research
and development space as part of an integrated Building plan after the
expiration or earlier termination of this Lease. Tenant shall deliver to
Landlord final plans and specifications and working drawings for the
Improvements to Landlord, and Landlord shall have ten (10) days thereafter to
grant or withhold its consent. If Landlord does not notify Tenant of its
decision within the ten (10) days, Landlord shall be deemed to have given its
approval.

                  17.2 If a permit is required to construct the Improvements,
Tenant shall deliver a completed, signed-off inspection card to Landlord within
ten (10) days of completion of the Improvements, and shall promptly thereafter
obtain and record a notice of completion and deliver a copy thereof to Landlord.

                  17.3 The Improvements shall be constructed only by licensed
contractors or mechanics. Tenant shall use only those contractors listed on
EXHIBIT H for the trades listed thereon; all other contractors shall be approved
by Landlord, which approval shall not be unreasonably withheld or delayed. Any
such contractor must have in force a general liability insurance policy of not
less than $2,000,000 or such higher limits as Landlord may reasonably require,
which policy of insurance shall name Landlord as an additional insured. Tenant
shall provide Landlord with a copy of the contract with the contractor or
mechanic prior to the commencement of any construction requiring Landlord's
consent.

                                       16
<PAGE>

                  17.4 Tenant agrees that any work by Tenant shall be
accomplished in such a manner as to permit any fire sprinkler system and fire
water supply lines to remain fully operable at all times except when minimally
necessary for building reconfiguration work.

                  17.5 Tenant covenants and agrees that all work done by Tenant
shall be performed in full compliance with all laws, rules, orders, ordinances,
directions, regulations, permits, approvals, and requirements of all
governmental agencies, offices, departments, bureaus and boards having
jurisdiction, and in full compliance with the rules, orders, directions,
regulations, and requirements of any applicable fire rating bureau. Tenant shall
provide Landlord with "as-built" plans showing any material change in the
Premises within thirty (30) days after completion.

                  17.6 Before commencing any work, Tenant shall give Landlord at
least five (5) days' prior written notice of the proposed commencement of such
work.

                  17.7 At the time Landlord consents to the Improvements
pursuant to Section 17.1, Landlord shall identify those Improvements which
Tenant shall be required to remove upon the expiration or earlier termination of
the Lease, and Landlord and Tenant shall mutually identify those Improvements
which Tenant may remove upon the expiration or earlier termination of this
Lease. Landlord and Tenant shall list any such Improvements on SCHEDULE 1
attached hereto, designating those which Tenant shall be required to remove and
those which Tenant may remove. With respect to those Improvements not so
identified, Landlord and Tenant acknowledge and agree that Landlord's approval
of the final plans and specifications and working drawings for the Improvements
pursuant to Section 17.1 shall be deemed Landlord's and Tenant's agreement that
those Improvements not so identified shall become the property of Landlord upon
the expiration or earlier termination of this Lease, and shall remain upon and
be surrendered with the Premises as a part thereof. Those Improvements
identified as Improvements which Tenant may remove are included within the term
"Tenant's Removable Property" defined in Section 30.3. Notwithstanding the
provisions of Section 30.3, Tenant shall, at Landlord's election, upon the
expiration or earlier termination of this Lease, remove the Improvements which
are identified as Improvements which Tenant shall be required to remove, and
restore and return the Premises to the condition they were in when first
occupied by Tenant.

         18.      REPAIRS AND MAINTENANCE.
                  ------------------------

                  18.1 Landlord shall repair, replace and maintain the
structural and exterior portions of the Building and Project, including
foundations, exterior walls, load bearing walls, windows, plate glass, and
roofing, and the mechanical, electrical, plumbing, fire sprinkler, and elevator
systems of the Project, subject to reimbursement by Tenant as its Pro Rata Share
of Operating Expenses to the extent provided by Section 7.1. However, if such
maintenance or repairs are required because of any act, neglect, fault of or
omissions of any duty by Tenant, its agents, servants, employees or invitees,
Tenant shall pay to Landlord the entire cost of such maintenance and repairs
attributable to Tenant's act, neglect, fault or omission, unless such
maintenance and repairs are covered by insurance carried by Landlord.

                                       17
<PAGE>

                  18.2 Except as otherwise set forth in Section 18.1, Tenant
shall, throughout the term of this Lease, at Tenant's sole cost and expense,
keep the Premises and every part thereof in good condition and repair. Tenant
shall upon the expiration or earlier termination of the term hereof surrender
the Premises to Landlord in substantially the same condition as when received,
ordinary wear and tear and damage from casualty and causes beyond the reasonable
control of Tenant excepted.

                  18.3 Tenant hereby waives Civil Code Sections 1941 and 1942
relating to a landlord's duty to maintain the Premises in a tenantable
condition, and the under said sections or under any law, statute or ordinance
now or hereafter in effect to make repairs at Landlord's expense.

                  18.4 There shall be no abatement of Rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or improvements in or to any
portion of the Premises, or in or to improvements, fixtures, equipment and
personal property therein, unless such injury or interference is unreasonable or
is the result of Landlord's grossly negligent or willful act or omission. If
repairs or replacements become necessary which by the terms of this Lease are
the responsibility of Tenant and Tenant fails to make the repairs or
replacements, after notice from Landlord and opportunity for Tenant to make such
repairs or replacements, Landlord may do so pursuant to the provisions of
Section 24.3.

                  18.5 Notwithstanding any of the foregoing, in the event of a
fire, earthquake, flood, war or other similar cause of damage or destruction,
this Article shall not be applicable and the provisions of Article 22, entitled
"Damage or Destruction," shall apply and control.

         19.      LIENS.
                  ------

                  19.1 Tenant shall keep the Premises, the Building and the
property upon which the Building is situated free from any liens arising out of
work performed, materials furnished or obligations incurred by Tenant. Tenant
further covenants and agrees that any mechanic's lien filed against the Project
or the Premises for work claimed to have been done for, or materials claimed to
have been furnished to, Tenant will be discharged by Tenant, by bond or
otherwise, within thirty (30) days after receiving written notice thereof (or
within ten (10) business days after the filing thereof if requested by Landlord
as necessary to facilitate a pending sale or refinancing), at the cost and
expense of Tenant.

                  19.2 Should Tenant fail to discharge any lien of the nature
described in Section 19.1, Landlord may at Landlord's election pay such claim or
post a bond or otherwise provide security to eliminate the lien as a claim
against title and the cost thereof shall be immediately due from Tenant as
Additional Rent.

                  19.3 In the event Tenant shall lease or finance the
acquisition of equipment, furnishings, or other personal property utilized by
Tenant in the operation of Tenant's business, Tenant warrants that any Uniform
Commercial Code financing statement executed by Tenant will upon its face or by
exhibit thereto indicate that such financing statement is applicable only to
personal property of Tenant specifically described in the financing statement.
In no event shall the address of the Building be furnished on the financing
statement without qualifying language as to applicability of the lien only to
removable property of Tenant described in the financing statement. Should any


                                       18
<PAGE>

holder of a security agreement executed by Tenant record or place of record a
financing statement which appears to constitute a lien against any interest of
Landlord, Tenant shall within ten (10) days after the filing of such financing
statement cause (i) copies of the security agreement or other documents to which
the financing statement pertains to be furnished to Landlord to facilitate
Landlord's being in a position to show such lien is not applicable to any
interest of Landlord, and (ii) the holder of the security interest to amend
documents of record so as to clarify that such lien is not applicable to any
interest of Landlord in the Premises. Landlord shall execute such documents as
are reasonably required by Tenant or Tenant's lenders or equipment lessors
provided the same do not in any way alter the rights of Landlord under this
Lease.

         20.      INDEMNIFICATION AND EXCULPATION.
                  --------------------------------

                  20.1 Except to the extent of the responsibility of Landlord
pursuant to Section 20.2 hereof, Tenant agrees to indemnify Landlord and its
members and affiliates, and their respective shareholders, directors, managers,
members, partners, lenders, officers, agents, and employees (collectively,
"LANDLORD'S AGENTS"), against, and to protect, defend, and save them harmless
from, all demands, claims, causes of action, liabilities, losses and judgments,
and all reasonable expenses incurred in investigating or resisting the same
(including reasonable attorneys' fees), for death of or injury to person or
damage to property arising out of (i) any occurrence in, upon or about the
Premises during the term of this Lease, (ii) Tenant's use, occupancy, repairs,
maintenance, and improvements of the Premises and all improvements, fixtures,
equipment and personal property thereon, and (iii) any act or omission of
Tenant, its shareholders, directors, officers, agents, employees, servants,
contractors, invitees and subtenants, except to the extent caused by the
negligence or willful misconduct of Landlord or Landlord's Agents. Tenant's
obligation under this Section 20.1 shall survive the expiration or earlier
termination of the term of this Lease.

                  20.2 Landlord agrees to indemnify Tenant and Tenant's
shareholders, directors, managers, members, partners, lenders, affiliates,
officers, agents, and employees (collectively "TENANT'S AGENTS") against and
save them harmless from all demands, claims, causes of action and judgments, and
all reasonable expenses incurred in investigating or resisting the same
(including reasonable attorneys' fees), for death of, or injury to, any person
or damage to property arising from or out of any occurrence in, upon, or about
the Premises during the term of this Lease to the extent caused by the
negligence or willful misconduct of Landlord or Landlord's Agents. Landlord's
obligations under this Section 20.2 shall survive the expiration or earlier
termination of the term of this Lease.

                  20.3 Notwithstanding any provision of this Article 20 to the
contrary, Landlord shall not be liable to Tenant and Tenant assumes all risk of
damage to and loss of any fixtures, goods, inventory, merchandise, equipment,
records, research, experiments, animals and other living organisms, computer
hardware and software, leasehold improvements, and other personal property of
any nature whatsoever, and Landlord shall not be liable for injury to Tenant's
business or any loss of income therefrom relative to such damage, other than to
the extent Landlord receives proceeds of insurance specifically allocated to
such damage or loss. Tenant acknowledges that it is Tenant's obligation to
procure insurance against any such damages or loss pursuant to Section 21.4, and
that it would be impractical for Landlord to procure any such insurance in that


                                       19
<PAGE>

the nature of Tenant's business makes the risks uncertain and difficult to
underwrite and the potential risks are greater than Landlord is willing to
assume. Therefore, regardless of the fault of Landlord, Landlord shall not be
liable for any such damage or loss, other than to the extent Landlord receives
proceeds of insurance specifically allocated to such damage or loss.

                  20.4 The indemnity obligations of both Landlord and Tenant
under this Section 20 shall be satisfied to the extent of proceeds of applicable
insurance maintained by the indemnifying party to the extent thereof, and
thereafter to proceeds of any applicable insurance maintained by the other
party; Landlord and Tenant shall be required to satisfy any such obligation only
to the extent it is not satisfied by proceeds of applicable insurance as set
forth above.

                  20.5 Security devices and services, if any, while intended to
deter crime may not in given instances prevent theft or other criminal acts of
third parties and it is agreed that Landlord shall not be liable for injuries or
losses caused by criminal acts of third parties and the risk that any security
device or service may malfunction or otherwise be circumvented by a criminal is
assumed by Tenant, other than such injuries caused by the gross negligence or
intentional conduct of the Landlord. Tenant shall at Tenant's cost obtain
insurance coverage to the extent Tenant desires protection against such criminal
acts.

                  20.6 Neither Landlord nor Tenant shall be liable to the other
for any damages arising from any act or neglect of any other tenant or occupant
of the Building or Project.

         21.      INSURANCE - WAIVER OF SUBROGATION.
                  ----------------------------------

                  21.1 Commencing prior to Tenant's first entry onto the
Premises for purposes of installing any improvements, fixtures or personal
property, but no later than the Term Commencement Date, and continuing at all
times during the term of this Lease, Tenant shall maintain, at Tenant's expense,
commercial general liability insurance, on an occurrence basis, insuring Tenant
and Tenant's agents, employees and independent contractors against all bodily
injury, property damage, personal injury and other covered loss arising out of
the use, occupancy, improvement and maintenance of the Premises and the business
operated by Tenant, or any other occupant, on the Premises. Such insurance shall
have a minimum combined single limit of liability per occurrence of not less
than $2,000,000 and a general aggregate limit of $4,000,000. Such insurance
shall: (i) name Landlord, and Landlord's lenders if required by such lenders,
and any management company retained to manage the Project if requested by
Landlord, as additional insureds; (ii) include a broad form contractual
liability endorsement insuring Tenant's indemnity obligations under Section
20.1; (iii) provide that it is primary coverage and noncontributing with any
insurance maintained by Landlord or Landlord's lenders, which shall be excess
insurance with respect only to losses arising out of Tenant's negligence; and
(iv) provide for severability of interests or include a cross-liability
endorsement, such that an act or omission of an insured shall not reduce or
avoid coverage of other insureds.

                  21.2 At all times during the term of this Lease, Landlord
shall maintain, subject to reimbursement by Tenant as an Operating Expense under
Section 7.1(b), "all risk" insurance, including, but not limited to, coverage
against loss or damage by fire, vandalism, and malicious mischief covering the
Project (exclusive of excavations, foundations and footings, and including the


                                       20
<PAGE>

Tenant Improvements), in an amount equal to one hundred percent (100%) of the
full replacement value thereof. If any boilers or other pressure vessels or
systems are installed on the Premises, Landlord shall maintain, subject to
reimbursement by Tenant as an Operating Expense under Section 7.1(b), boiler and
machinery insurance in an amount equal to one hundred percent (100%) of the full
replacement value thereof. The insurance described in this Section 21.2 shall:
(i) insure Landlord, and Landlord's lenders if required by such lenders, as
their interests may appear; (ii) contain a Lender's Loss Payable Form (Form 438
BFU or equivalent) in favor of Landlord's lenders and name Landlord, or
Landlord's lender if required by such lender, as the loss payee; (iii) provide
for severability of interests or include a cross-liability endorsement, such
that an act or omission of an insured shall not reduce or avoid coverage of
other insureds; and (iv) provide that it is primary coverage and
non-contributing with any insurance maintained by Landlord or Landlord's
lenders, which shall be excess insurance. The full replacement value of the
Project, including the Tenant Improvements and other improvements and fixtures
insured thereunder, shall, for the purpose of establishing insurance limits and
premiums only, be determined by the company issuing the insurance policy and
shall be redetermined by said company within six (6) months after completion of
any material alterations or improvements to the Premises and otherwise at
intervals of not more than three (3) years. Landlord shall promptly increase the
amount of the insurance carried pursuant to this Section 21.2 to the amount so
redetermined. The proceeds of the insurance described in this Section shall be
used for the repair, replacement and restoration of the Project, including the
Tenant Improvements and other improvements and fixtures insured thereunder, as
further provided in Article 22; provided, however, if this Lease is terminated
after damage or destruction, the insurance policy or policies, all rights
thereunder and all insurance proceeds shall be assigned to Landlord

                  21.3 At all times during this Lease, Landlord shall maintain,
pursuant to requirements of its mortgage lender, subject to reimbursement by
Tenant as an Operating Expense under Section 7.1(b), commercial general
liability insurance, including coverage for death, bodily injury and broad form
property damage, with a combined single limit in an amount of not less than
$1,000,000 per occurrence and $2,000,000 in the aggregate; umbrella excess
liability coverage with a limit of not less than $20,000,000 over primary
insurance, which policy shall include coverage for water damage, assumed and
contractual liability coverage, premises medical payment, and automobile
liability; and rental and/or business interruption insurance to cover loss of
income in an amount not less than eighteen (18) months' projected receipts from
the entire Project.

                  21.4 At all times during the term of this Lease, Tenant shall
maintain, at Tenant's expense, "all risk" insurance against all damage and loss
to Tenant's Removable Property, including but not limited to fixtures, goods,
inventory, merchandise, equipment, records, research, experiments, animals and
other living organisms, computer hardware and software, leasehold improvements,
and other personal property of any nature whatsoever of Tenant or any subtenant
of Tenant that may be occupying the Premises, or any portion thereof, from time
to time, in an amount equal to the full replacement value thereof.
Notwithstanding anything to the contrary contained here, Tenant shall be
entitled to all proceeds from the insurance carried pursuant to this Section
21.4.

                                       21
<PAGE>

                  21.5 At all times during the term of this Lease, Tenant shall
maintain workers' compensation insurance in accordance with California law, and
employers' liability insurance with limits typical for companies similar to
Tenant.

                  21.6 All of the policies of insurance referred to in this
Article 21 shall be written by companies authorized to do business in California
and having a policyholder rating of not less than AA (or its equivalent), or a
lesser rating reasonably acceptable to Landlord, by a generally accepted
insurance rating agency. Each insurer referred to in this Article 21 shall
agree, by endorsement on the applicable policy or by independent instrument
furnished to Landlord, that it will give Landlord, and Landlord's lenders if
required by such lenders, at least ten (10) days' prior written notice by
registered mail before the applicable policy shall be canceled for non-payment
of premium, and thirty (30) days' prior written notice by registered mail before
the applicable policy shall be canceled or altered in coverage, scope, amount or
other material term for any other reason (although any failure of an insurer to
give notice as provided herein shall not be a breach of this Lease by Tenant).
No policy shall provide for a deductible amount in excess of $100,000, unless
approved in advance in writing by Landlord, which approval shall not be
unreasonably withheld or delayed. Tenant shall deliver to Landlord, and to
Landlord's lenders if required by such lenders, copies of the insurance policies
required to be carried by Tenant, certified by the insurer, or certificates
evidencing such insurance policies, issued by the insurer, together with
evidence of payment of the required premiums, prior to the required date for
commencement of such coverage. At least thirty (30) days prior to expiration of
any such policy, Tenant shall deliver to Landlord, and Landlord's lenders if
required by such lenders, a certificate evidencing renewal, or a certified copy
of a new policy or certificate evidencing the same, together with evidence of
payment of the required premiums. If Tenant fails to provide to Landlord any
such policy or certificate by the required date for commencement of coverage, or
within fifteen (15) days prior to expiration of any policy, or to pay the
premiums therefor when required, Landlord shall have the right, but not the
obligation, to procure said insurance and pay the premiums therefor. Any
premiums so paid by Landlord shall be repaid by Tenant to Landlord with the next
due installment of rent, and failure to repay the same shall have the same
consequences as failure to pay any installment of Rent.

                  21.7 Landlord may provide the property insurance required
under this Article 21 pursuant to a so-called blanket policy or policies of
property insurance maintained by Landlord.

                  21.8 Landlord and Tenant each hereby waive any and all rights
of recovery against the other or against the officers, directors, members,
managers, partners, employees, agents, and representatives of the other, on
account of loss or damage to such waiving party or such waiving party's property
or the property of others under its control, to the extent that such loss or
damage is caused by or results from risks insured against under any insurance
policy which insures such waiving party's property at the time of such loss or
damage, which waiver shall continue in effect as long as the parties' respective
insurers so permit. Any termination of such waiver shall be by written notice as
hereinafter set forth. Prior to obtaining policies of insurance required or
permitted under this Lease, Landlord and Tenant shall give notice to the
insurers that the foregoing mutual waiver is contained in this Lease, and each
party shall use its best efforts to cause such insurer to approve such waiver in
writing and to cause each insurance policy obtained by it to provide that the
insurer waives all right of recovery by way of subrogation against the other


                                       22
<PAGE>

party. If such written approval of such waiver of subrogation cannot be obtained
from any insurer or is obtainable only upon payment of an additional premium
which the party seeking to obtain the policy reasonably determines to be
commercially unreasonable, the party seeking to obtain such policy shall notify
the other thereof, and the latter shall have twenty (20) days thereafter to
either: (i) identify other insurance companies reasonably satisfactory to the
other party that will provide the written approval and waiver of subrogation; or
(ii) agree to pay such additional premium. If neither (i) nor (ii) are done, the
mutual waiver set forth above shall not be operative, and the party seeking to
obtain the policy shall be relieved of the obligation to obtain the insurer's
written approval and waiver of subrogation with respect to such policy during
such time as such policy is not obtainable or is obtainable only upon payment of
a commercially unreasonable additional premium as described above. If such
policies shall at any subsequent time be obtainable or obtainable upon payment
of a commercially reasonable additional premium, neither party shall be
subsequently liable for failure to obtain such insurance until a reasonable time
after notification thereof by the other party. If the release of either Landlord
or Tenant, as set forth in the first sentence of this Section 21.8, shall
contravene any law with respect to exculpatory agreements, the liability of the
party in question shall be deemed not released but shall be secondary to the
other's insurer.

         22.      DAMAGE OR DESTRUCTION.
                  ----------------------

                  22.1 In the event of damage to or destruction of all or any
portion of the Project or the Premises or the improvements and fixtures thereon
(collectively, "IMPROVEMENTS") arising from a risk covered by the insurance
described in Section 21.2, Landlord shall within a reasonable time commence and
proceed diligently to repair, reconstruct and restore (collectively, "RESTORE")
the improvements to substantially the same condition as they were in immediately
prior to the casualty. Tenant shall be responsible for its Pro Rata Share of
insurance deductibles and for all costs of restoration in excess of insurance
proceeds as Operating Expenses pursuant to the provisions of Article 7,
provided, however, that any such costs which would be deemed of a "capital"
nature under generally accepted accounting principles shall be amortized over
the useful life of the repair or replacement as determined under Internal
Revenue Service guidelines, and Tenant shall pay only that portion of the costs
which are amortized over the balance of the term, payable at the time the costs
are incurred to the extent Tenant's share of the costs are less than $1.75 per
square foot of Rentable Area of the Premises, with the balance payable on a
monthly basis during the balance of the term. In no event shall Tenant be liable
for costs of restoration to the extent the inadequacy of insurance proceeds is
due to Landlord's failure to carry the insurance required to be carried by
Landlord pursuant to the terms of this Lease.

                  22.2 In the event of any damage to or destruction of all or
any portion of the improvements arising from a risk which is not covered by the
insurance required to be carried by Landlord pursuant to Section 21.2, Landlord
may elect at its cost to restore the improvements, in which event Landlord
shall, within a reasonable time, commence and proceed diligently to restore the
improvements to substantially the same condition as they were in immediately
prior to the casualty. In the event Landlord elects not to restore the
improvements, this Lease shall terminate as of the date of the damage or
destruction unless Tenant elects to pay the full cost of restoration.

                                       23
<PAGE>

                  22.3 In the event the improvements are restored pursuant to
Section 22.1 or Section 22.2, this Lease shall continue in full force and
effect, notwithstanding such damage or destruction; provided, however, that if
the damage or destruction (i) occurs during the last year of the term and the
expense of restoration exceeds $500,000, or (ii) occurs at any other time and
the expense of restoration (after application of insurance proceeds) exceeds
$1,000,000, Landlord may at its election terminate the Lease unless Tenant
elects to pay the full cost of restoration.

                  22.4 In satisfying its obligations under this Article 22,
Landlord shall be not be required to fulfill its restoration responsibilities
with improvements identical to those which were damaged or destroyed; rather,
with the consent of Tenant, which consent will not be unreasonably withheld or
delayed, Landlord may restore the damage or destruction with improvements
reasonably equivalent or of reasonably equivalent value to those damaged or
destroyed. Provided, however, that such restoration complies with all the then
existing applicable building codes.

                  22.5 In the event of damage, destruction and/or restoration as
herein provided, Tenant shall not be entitled to any compensation or damages
occasioned by any such damage, destruction or restoration, but Tenant shall be
entitled to an equitable abatement of rent in proportion to the extent the
Premises are not usable by Tenant. Notwithstanding the foregoing, in the event
restoration cannot reasonably be completed within six (6) months following the
damage or destruction as estimated by Landlord's architect, Landlord will give
notice thereof to Tenant within fifteen (15) days following such damage or
destruction, and Tenant at its election may by written notice to Landlord
terminate this Lease. In the event of such termination, Tenant shall have no
responsibility for contributing to the expense of restoration.

                  22.6 Notwithstanding anything to the contrary contained in
this Article, should Landlord be delayed or prevented from completing the
restoration of the improvements after the occurrence of such damage or
destruction by reason of acts of God, war, terrorism, government restrictions,
inability to procure the necessary labor or materials, strikes, or other causes
beyond the control of Landlord (but excluding economic conditions or financial
inability to perform), the time for Landlord to commence or complete restoration
shall be extended for the time reasonably required as a result of such event.

                  22.7 If an insured casualty occurs, Landlord shall make the
loss adjustment with the insurance company for the insurance carried by
Landlord.

                  22.8 Tenant waives the provisions of Civil Code Section
1932(2) and 1933(4) or any similar statute now existing or hereafter adopted
governing destruction of the Premises, so that the parties' rights and
obligations in the event of damage or destruction shall be governed by the
provisions of this Lease.


         23.      EMINENT DOMAIN.
                  ---------------

                  23.1 In the event the whole of the Project shall be taken for
any public or quasi-public purpose by any lawful power or authority by exercise
of the right of appropriation, condemnation or eminent domain, or sold to
prevent such taking, Tenant or Landlord may terminate this Lease effective as of
the date possession is required to be surrendered to said authority.

                                       24
<PAGE>

                  23.2 In the event of a partial taking of the Project for any
public or quasi-public purpose by any lawful power or authority by exercise of
right of appropriation, condemnation, or eminent domain, or sold to prevent such
taking, then Landlord may elect to terminate this Lease if such taking is of a
material nature such as to make it uneconomical to continue use of the
unappropriated portions for the purposes for which they were intended, and
Tenant may elect to terminate this Lease if such taking is of material detriment
to, and substantially interferes with, Tenant's use and occupancy of the
Premises. In no event shall this Lease be terminated when such a partial taking
does not have a material adverse effect upon Landlord or Tenant or both.
Termination by either party pursuant to this section shall be effective as of
the date possession is required to be surrendered to said authority.

                  23.3 If upon any taking of the nature described in this
Article 23 this Lease continues in effect, then Landlord shall promptly proceed
to restore the remaining portion of the Project, including all improvements and
fixtures located in the Premises, to substantially their same condition prior to
such partial taking; provided, however, Landlord's obligation hereunder shall be
limited to the amount of the condemnation proceeds. Basic Annual Rent shall be
abated proportionately on the basis of the square feet of the Rentable Area of
the Project or Premises taken.

         24.      DEFAULTS AND REMEDIES.
                  ----------------------

                  24.1 Late payment by Tenant to Landlord of Rent and other sums
due will cause Landlord to incur costs not contemplated by this Lease, the exact
amount of which will be extremely difficult and impracticable to ascertain. Such
costs include, but are not limited to, processing and accounting charges and
late charges which may be imposed on Landlord by the terms of any mortgage or
trust deed covering the Premises. Therefore, if any installment of Rent due from
Tenant is not received by Landlord within ten (10) days of the date such payment
is due, Tenant shall pay to Landlord an additional sum of five percent (5%) of
the overdue rent as a late charge. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of late payment by Tenant. In addition to the late charge, Rent not
paid within thirty (30) days of the date such payment is due shall bear interest
from thirty (30) days after the date due until paid at the rate of ten percent
(10%) per annum.

                  24.2 No payment by Tenant or receipt by Landlord of a lesser
amount than the rent payment herein stipulated shall be deemed to be other than
on account of the rent, nor shall any endorsement or statement on any check or
any letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any other remedy
provided. If at any time a dispute shall arise as to any amount or sum of money
to be paid by Tenant to Landlord, Tenant shall have the right to make payment
"under protest" and such payment shall not be regarded as a voluntary payment,
and there shall survive the right on the part of Tenant to institute suit for
recovery of the payment paid under protest.

                                       25
<PAGE>

                  24.3 If Tenant fails to pay any sum of money (other than Basic
Annual Rent) required to be paid by it hereunder, or shall fail to perform any
other act on its part to be performed hereunder, Landlord may, without waiving
or releasing Tenant from any obligations of Tenant, but shall not be obligated
to, make such payment or perform such act; provided, that such failure by Tenant
continued for ten (10) days after written notice from Landlord demanding
performance by Tenant was delivered to Tenant, or resulted or could have
resulted in a violation of law or the cancellation of an insurance policy
maintained by Landlord. All sums so paid or incurred by Landlord, together with
interest thereon, from the date such sums were paid or incurred, at the annual
rate equal to ten percent (10%) per annum shall be payable to Landlord on demand
as Additional Rent.

                  24.4 The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:

                           (a) The failure by Tenant to make any payment of
Rent, as and when due, where such failure shall continue for a period of five
(5) days, without the necessity of notice thereof from Landlord to Tenant;

                           (b) The failure by Tenant to observe or perform any
obligation other than described in Section 24.4(a) to be performed by Tenant,
where such failure shall continue for a period of thirty (30) days after written
notice thereof from Landlord to Tenant; provided, however, that if the nature of
Tenant's default is such that more than thirty (30) days are reasonably required
to cure the default, then Tenant shall not be deemed to be in default if Tenant
shall commence such cure within said thirty (30) day period and thereafter
diligently prosecute the same to completion. Such notice shall be in lieu of,
and not in addition to, any notice required under California Code of Civil
Procedure Section 1161;

                           (c) Tenant makes an assignment for the benefit of
creditors;

                           (d) A receiver, trustee or custodian is appointed to,
or does, take title,
possession or control of all, or substantially all, of Tenant's assets;

                           (e) An order for relief is entered against Tenant
pursuant to a voluntary or involuntary proceeding commenced under any chapter of
the Bankruptcy Code;

                           (f) Any involuntary petition is filed against the
Tenant under any chapter of the Bankruptcy Code and is not dismissed within
ninety (90) days; or

                           (g) Tenant's interest in this Lease is attached,
executed upon, or otherwise judicially seized and such action is not released
within ninety (90) days of the action.

                           Notices given under this Section shall specify the
alleged default and shall demand that Tenant perform the provisions of this
Lease or pay the Rent that is in arrears, as the case may be, within the
applicable period of time, or quit the Premises. No such notice shall be deemed
a forfeiture or a termination of this Lease unless Landlord elects otherwise in
such notice, and in no event shall a forfeiture or termination occur without
such written notice.

                                       26
<PAGE>

                  24.5 In the event of a default by Tenant, and at any time
thereafter, and without limiting Landlord in the exercise of any right or remedy
which Landlord may have, Landlord shall be entitled to terminate Tenant's right
to possession of the Premises by any lawful means, in which case this Lease
shall terminate and Tenant shall immediately surrender possession of the
Premises to Landlord. In such event Landlord shall have the immediate right to
re-enter and remove all persons and property, and such property may be removed
and stored in a public warehouse or elsewhere at the cost of, and for the
account of Tenant, all without service of notice and without being deemed guilty
of trespass, or becoming liable for any loss or damage which may be occasioned
thereby. In the event that Landlord shall elect to so terminate this Lease, then
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including:

                           (a) The worth at the time of award any unpaid Rent
which had been earned at the time of such termination; plus

                           (b) The worth at the time of award of the amount by
which the unpaid Rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss which Tenant proves could
have been reasonably avoided; plus

                           (c) The worth at the time of award of the amount by
which the unpaid Rent for the balance of the term after the time of award
exceeds the amount of such rental loss which Tenant proves could have been
reasonably avoided; plus

                           (d) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligation under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of restoring
the Premises to the condition required under the terms of this Lease; plus

                           (e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
applicable law.

                           As used in Subsections (a), (b) and (c), the "time of
award" shall mean the date upon which the judgment in any action brought by
Landlord against Tenant by reason of such default is entered or such earlier
date as the court may determine . As used in Subsections (a) and (b), the "worth
at the time of award" shall be computed by allowing interest at the rate
specified in Section 24.1. As used in Subsection (c) above, the "worth at the
time of award" shall be computed by taking the present value of such amount
using the discount rate of the Federal Reserve Bank of San Francisco at the time
of award plus one percentage point.

                  24.6 In the event of a default by Tenant, and if Landlord does
not elect to terminate this Lease as provided in Section 24.5 or otherwise
terminate Tenant's right to possession of the Premises, Landlord shall have the
remedy described in Section 1951.4 of the Civil Code. Landlord may continue this
Lease in effect, as lessee has the right to sublet or assign, subject only to
reasonable limitations, pursuant to Section 25.1 and 25.2 for so long as
Landlord does not terminate Tenant's right to possession of the Premises, and
may enforce all of its rights and remedies under the Lease, including the right
from time to time to recover Rent as it becomes due under the Lease. At any time
thereafter, Landlord may elect to terminate this Lease and to recover damages to
which Landlord is entitled.

                                       27
<PAGE>

                  24.7 Notwithstanding anything herein to the contrary,
Landlord's reentry to perform acts of maintenance or preservation of, or in
connection with efforts to relet, the Premises, or any portion thereof, or the
appointment of a receiver upon Landlord's initiative to protect Landlord's
interest under this Lease, shall not terminate Tenant's right to possession of
the Premises or any portion thereof and, until Landlord does elect to terminate
this Lease, this Lease shall continue in full force and Landlord may pursue all
its remedies hereunder, including, without limitation, the right to recover from
Tenant as they become due hereunder all Rent and other charges required to be
paid by Tenant under the terms of this Lease.

                  24.8 All rights, options, and remedies of Landlord contained
in this Lease shall be construed and held to be nonexclusive and cumulative.
Landlord shall have the right to pursue any one or all of such remedies or any
other remedy or relief which may be provided by law, whether or not stated in
this Lease. No waiver of any default of Tenant hereunder shall be implied from
any acceptance by Landlord of any rent or other payments due hereunder or by any
omission by Landlord to take any action on account of such default if such
default persists or is repeated, and no express waiver shall affect defaults
other than as specified in said waiver.

24.9 Termination of this Lease or Tenant's right to possession by Landlord shall
not relieve Tenant from any liability to Landlord which has theretofore accrued
or shall arise based upon events which occurred prior to the last to occur of
(i) the date of Lease termination or (ii) the date possession of Premises is
surrendered.

                  24.10 Landlord shall not be in default unless Landlord fails
to perform obligations required of Landlord within a reasonable time, but in no
event later than thirty (30) days after written notice by Tenant specifying
wherein Landlord has failed to perform such obligation; provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30) days
are required for performance, then Landlord shall not be in default if Landlord
advises Tenant in writing of the need for more than thirty (30) days to perform
such obligation, commences performance within ten (10) days after Tenant serves
the written notice of Landlord's failure to perform and thereafter diligently
prosecutes the same to completion.

                  24.11 In the event of any default on the part of Landlord,
Tenant will give notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee of a mortgage covering the Premises whose address
shall have been furnished to Tenant, and shall offer such beneficiary and/or
mortgagee a reasonable opportunity to cure the default, but in no event less
than thirty (30) days after the notice is given or thirty (30) days beyond any
applicable cure period given to Landlord in this Article 24, whichever is later.

         25.      ASSIGNMENT OR SUBLETTING.
                  -------------------------

                  25.1 Except as hereinafter provided, Tenant shall not, either
voluntarily or by operation of law, sell, assign, hypothecate or transfer this
Lease, or sublet the Premises or any part thereof, or permit or suffer the
Premises or any part thereof to be used or occupied as work space, storage
space, concession or otherwise by anyone other than Tenant or Tenant's
employees, without the prior written consent of Landlord in each instance, which
consent shall not be unreasonably withheld or delayed.

                                       28
<PAGE>

                  25.2 If Tenant desires to assign this Lease to an entity into
which Tenant is merged, with which Tenant is consolidated, or which acquires all
or substantially all of the assets of Tenant, provided that the successor
entity's net worth and liquid assets are equal or greater than Tenant's
immediately prior to the assignment, and further provided that the assignee
first executes, acknowledges and delivers to Landlord an agreement whereby the
assignee agrees to be bound by all of the covenants and agreements in this Lease
arising after the effective date of the transfer, then Landlord upon receipt of
proof of foregoing, will consent to the assignment; provided however, Landlord's
consent shall not be required if such transfers occur in a public stock
exchange.

                  25.3 In the event Tenant desires to assign, hypothecate or
otherwise transfer this Lease or sublet the Premises or any part thereof to a
transferee other than one set forth in Section 25.2, then at least ten (10)
days, but not more than forty-five (45) days, prior to the date when Tenant
desires the assignment or sublease to be effective (the "ASSIGNMENT DATE"),
Tenant shall give Landlord a notice (the "ASSIGNMENT NOTICE") which shall set
forth the name, address and business of the proposed assignee or sublessee,
information (including references and financial statements) concerning the
reputation and financial ability of the proposed assignee or sublessee, the
Assignment Date, any ownership or commercial relationship between Tenant and the
proposed assignee or sublessee, and the consideration and all other material
terms and conditions of the proposed assignment or sublease, all in such detail
as Landlord shall reasonably require.

                  25.4 Landlord in making its determination as to whether
consent should be given to a proposed assignment or sublease, may give
consideration to (i) the financial strength of such successor (but may not
withhold consent on this ground if the successor's net worth and liquid assets
are equal to or greater than Tenant's immediately prior to the assignment),
notwithstanding the assignor remaining liable for Tenant's performance, (ii) any
use which such successor proposes to make of the Premises, and (iii) whether the
proposed assignee or sublessee represents a potential risk of compromise of
trade secrets of another tenant of the Project. If Landlord fails to deliver
written notice of its determination to Tenant within fifteen (15) days following
receipt of the Assignment Notice and the information required under Section
25.4, Landlord shall be deemed to have approved the request. As a condition to
any assignment or sublease to which Landlord has given consent, any such
assignee or sublessee must execute, acknowledge and deliver to Landlord an
agreement whereby the assignee or sublessee agrees to be bound by all of the
covenants and agreements in this Lease.

                  25.5 Any sale, assignment, hypothecation or transfer of this
Lease or subletting of Premises that is not in compliance with the provisions of
this Article 25 shall be void.

                  25.6 The consent by Landlord to an assignment or subletting
shall not relieve Tenant or any assignee of this Lease or sublessee of the
Premises from obtaining the consent of Landlord to any further assignment or
subletting or as releasing Tenant or any assignee or sublessee of Tenant from
full and primary liability.

                                       29
<PAGE>

                  25.7 If Tenant shall sublet the Premises or any part thereof,
Tenant hereby immediately and irrevocably assigns to Landlord, as security for
Tenant's obligations under this Lease, all rent from any subletting of all or a
part of the Premises, and Landlord as assignee of Tenant, or a receiver for
Tenant appointed on Landlord's application, may collect such rent and apply it
toward Tenant's obligations under this Lease; except that, until the occurrence
of an act of default by Tenant, Tenant shall have the right to collect such
rent. Furthermore, Tenant hereby immediately and irrevocably assigns to
Landlord, as security for Tenant's obligations under this Lease, any security
deposit received from the subtenant, which Landlord shall hold pursuant to the
terms of the sublease. The security deposit shall be transferable by Landlord to
a successor Landlord and to Landlord's mortgage lender which is the beneficiary
of a deed of trust encumbering the Premises, provided such lender agrees to hold
the security deposit pursuant to the terms of the sublease and this Lease.

                  25.8 Notwithstanding any subletting or assignment Tenant shall
remain fully and primarily liable for the payment of all Rent and other sums
due, or to become due hereunder, and for the full performance of all other
terms, conditions, and covenants to be kept and performed by Tenant. The
acceptance of rent or any other sum due hereunder, or the acceptance of
performance of any other term, covenant, or condition hereof, from any other
person or entity shall not be deemed to be a waiver of any of the provisions of
this Lease or a consent to any subletting or assignment of the Premises.
Landlord shall not withhold consent to an assignment back to the original Tenant
hereunder from a subsequent assignee.

                  25.9 Any sublease of the Premises shall be subject and
subordinate to the provisions of this Lease, shall not extend beyond the term of
this Lease, and shall provide that the sublessee shall attorn to Landlord, at
Landlord's sole option, in the event of the termination of this Lease. Landlord
and any lender shall upon Tenant's request provide any sublessee of the entirety
of the Premises with a recognition and nondisturbance agreement in the form
described in Article 35 on the condition that the sublessee agrees to attorn to
Landlord on exactly the same terms and conditions as this Lease. Any assignment
of the Lease or sublease of the Premises shall provide that the assignee or
sublessee shall provide financial statements to Landlord as reasonably required
by present and prospective lenders and purchasers of the Project.

                  25.10 In the event Tenant assigns, hypothecates or otherwise
transfer this Lease or sublets the Premises Tenant shall pay to Landlord, as
Additional Rent, fifty percent (50%) of the rent and other consideration
received from the transferee during the term of this Lease in excess of Rent
payable to Landlord under this Lease, after tenant has recouped any reasonable
commissions and legal expenses occasioned by such transfer and payable to third
parties.

                  25.11 Notwithstanding any of the foregoing provisions to the
contrary, in the event Tenant desires to assign this Sublease or sublet the
entire Premises to a transferee other than to a transferee describe in Section
25.2, Landlord may elect to terminate this Lease by written notice given by
Landlord to Tenant within fifteen (15) days following receipt of the Assignment
Notice and the information required under Section 25.3.

                                       30
<PAGE>

         26.      ARBITRATION/ATTORNEYS' FEES.
                  ----------------------------

                  26.1 Any and all disputes in any way arising out of or
relating to this Lease shall be submitted to binding arbitration before the
American Arbitration Association. The arbitration shall be presided over by one
arbitrator. The appointment of the arbitrator shall be in accordance with
California Code of Civil Procedure Section 1281.6. Prior to the arbitration
hearing, the Landlord and Tenant shall exchange all documents they intend to
rely on at the hearing. If approved by the arbitrator, the Landlord and Tenant
may also take depositions or engage in other forms of written discovery.

                  26.2 Notwithstanding the foregoing, Landlord may prosecute a
court action for unlawful detainer in order to effect an eviction of tenant to
the extent permitted by this Lease.

                  26.3 If either party commences an arbitration proceeding or
court action, the prevailing party shall be entitled to have and recover from
the other party reasonable attorneys' fees, expert witness fees and costs of
suit.


         27.      BANKRUPTCY.
                  -----------

                  27.1 In the event a debtor, trustee, or debtor-in-possession
under the Bankruptcy Code, or other person with similar rights, duties and
powers under any other law, proposes to cure any default under this Lease or to
assume or assign this Lease, and is obliged to provide adequate assurance to
Landlord that (i) a default will be cured, (ii) Landlord will be compensated for
its damages arising from any breach of this Lease, or (iii) future performance
under this Lease will occur, then adequate assurance shall include any or all of
the following, as determined by the Bankruptcy Court: (a) those acts specified
in the Bankruptcy Code or other law as included within the meaning of adequate
assurance; (b) a cash payment to compensate Landlord for any monetary defaults
or damages arising from a breach of this Lease; (c) the credit worthiness and
desirability, as a tenant, of the person assuming this Lease or receiving an
assignment of this Lease, at least equal to Landlord's customary and usual
credit worthiness requirements and desirability standards in effect at the time
of the assumption or assignment, as determined by the Bankruptcy Court; and (d)
the assumption or assignment of all of Tenant's interest and obligations under
this Lease.

         28.      DEFINITION OF LANDLORD.
                  -----------------------

                  28.1 The term "LANDLORD" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, shall be limited
to mean and include only Landlord or the successor-in-interest of Landlord under
this Lease at the time in question. In the event of any transfer, assignment or
conveyance of Landlord's title or leasehold, the Landlord herein named (and in
case of any subsequent transfers or conveyances, the then grantor and any prior
grantors) shall be automatically freed and relieved from and after the date of
such transfer, assignment or conveyance of all liability for the performance of
any covenants or obligations contained in this Lease thereafter to be performed
by Landlord and, without further agreement, the transferee of such title or
leasehold shall be deemed to have assumed and agreed to observe and perform any


                                       31
<PAGE>

and all obligations of Landlord hereunder, during its ownership of the Premises.
Landlord may transfer its interest in the Premises or this Lease without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on the part of Landlord or the then grantor of any of the terms or
conditions of this Lease.

         29.      ESTOPPEL CERTIFICATE.
                  ---------------------

                  29.1 Each party shall, within fifteen (15) days of written
notice from the other party, execute, acknowledge and deliver to the other party
a statement in writing on a form reasonably requested by a proposed lender,
purchaser, assignee or subtenant (i) certifying that this Lease is unmodified
and in full force and effect (or, if modified, stating the nature of such
modification and certifying that this Lease as so modified is in full force and
effect) and the dates to which the rental and other charges are paid in advance,
if any, (ii) acknowledging that there are not, to each party's knowledge, any
uncured defaults on the part of Landlord or Tenant hereunder (or specifying such
defaults if any are claimed) and (iii) setting forth such further information
with respect to this Lease or the Premises as may be reasonably requested
thereon. Any such statement may be relied upon by any prospective lender,
purchaser, assignee or subtenant of all or any portion of the Premises.

         30.      REMOVAL OF PROPERTY.
                  --------------------

                  30.1 Except as provided in Section 10.5 and in this Article
30, all fixtures and personal property owned by Tenant ("TENANT'S REMOVABLE
PROPERTY") shall be and remain the property of Tenant, and may be removed by
Tenant at any time. Landlord waives any and all rights, title and interest
Landlord now has, or hereafter may have, whether statutory or otherwise, in
Tenant's Removable Property. At the expiration or earlier termination of this
Lease, Tenant shall remove all Tenant's Removable Property in accordance with
this Lease, unless Landlord shall have otherwise agreed in writing.

                  30.2 The Project, Building and Tenant Improvements, and all
fixtures and personal property owned by Landlord, shall be and remain the
property of Landlord, and shall, upon the expiration or earlier termination of
this Lease, remain upon and be surrendered with the Premises as a part thereof.

                  30.3 Notwithstanding Section 30.1, Tenant may not remove any
property if such removal would cause material damage to the Premises, unless
such damage can be and is repaired by Tenant. Furthermore, Tenant shall repair
any damage to the Premises caused by Tenant's removal of any such property, and
shall, prior to the expiration or earlier termination of this Lease, restore and
return the Premises to substantially the same condition they were in when first
occupied by Tenant, reasonable wear and tear excepted. At a minimum, even if
they are determined to be fixtures or personal property owned by Tenant, and
notwithstanding the provisions of Section 30.1, Tenant shall leave in place and
repair any damage to the interior floors, walls, doors and ceilings of the
Premises, all cabling and wiring in the Premises, and the heating, ventilation,
air conditioning, plumbing, and electrical systems in the Premises; all such
property shall become the property of Landlord upon the expiration or earlier
termination of this Lease, and shall remain upon and be surrendered with the
Premises as a part thereof. The provisions of Article 17 shall apply to any
restoration work under this Article as if the restoration was an alteration,


                                       32
<PAGE>

addition or improvement thereunder. Should Tenant require any period beyond the
expiration or earlier termination of the Lease to complete such restoration,
Tenant shall be a tenant at sufferance subject to the provisions of Section 12.2
hereof, unless tenant obtains Landlord's consent pursuant to Section 12.1 prior
to the termination or earlier termination of the Lease.

                  30.4 If Tenant shall fail to remove any fixtures or personal
property which it is entitled to remove under this Article 30 from the Premises
prior to termination of this Lease, then Landlord may dispose of the property
under the provisions of Section 1980 et seq. of the California Civil Code, as
such provisions may be modified from time to time, or under any other applicable
provisions of California law.

         31.      LIMITATION OF LANDLORD'S LIABILITY.
                  -----------------------------------

                  31.1 If Landlord is in default of this Lease, and as a
consequence, Tenant recovers a money judgment against Landlord, the judgment
shall be satisfied only out of the proceeds of sale received on execution of the
judgment and levy against the right, title, and interest of Landlord in the
Project of which the Premises are a part, or, in the sole discretion of the
Tenant, out of rent or other income from the Project receivable by Landlord or
out of the consideration received by Landlord from the sale or other disposition
of all or any part of Landlord's right, title, and interest in the Building and
Project of which the Premises are a part.

                  31.2 Neither Landlord nor Landlord's Agents shall be
personally liable for any deficiency except to the extent liability is based
upon willful and intentional misconduct and except to the extent a court
determines the existence of an alter ego relationship. If Landlord is a
partnership or joint venture, the partners of such partnership shall not be
personally liable and no partner of Landlord shall be sued or named as a party
in any suit or action, or service of process be made against any partner of
Landlord, except as may be necessary to secure jurisdiction of the partnership
or joint venture or to the extent liability is caused by gross negligence,
willful and intentional misconduct. If Landlord is a corporation, other than as
provided above, the shareholders, directors, officers, employees, and/or agents
of such corporation shall not be personally liable and no shareholder, director,
officer, employee, or agent of Landlord shall be sued or named as a party in any
suit or action, or service of process be made against any shareholder, director,
officer, employee, or agent of Landlord, except as may be necessary to secure
jurisdiction of the corporation. If Landlord is a limited liability company,
other than as provided above, the members, managers, officers, employees, and/or
agents of such limited liability company shall not be personally liable and no
member, manager, officer, employee, or agent of Landlord shall be sued or named
as a party in any suit or action, or service of process be made against any
member, manager, officer, employee, or agent of Landlord, except as may be
necessary to secure jurisdiction of the corporation. No partner, shareholder,
director, member, manager, employee, or agent of Landlord shall be required to
answer or otherwise plead to any service of process and no judgment will be
taken or writ of execution levied against any partner, shareholder, director,
member, manager, employee, or agent of Landlord.

                  31.3 Each of the covenants and agreements of this Article 31
shall be applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or by common law.


                                       33
<PAGE>

         32.      CONTROL BY LANDLORD.
                  --------------------

                  32.1 Landlord reserves full control over the Project to the
extent not inconsistent with Tenant's quiet enjoyment and use of Premises. This
reservation includes the right to establish ownership of the Building separate
from fee title to the real property underlying the Building, to divide the
Project into more than one lot, and to construct other buildings or improvements
on the real property, provided Tenant's quiet enjoyment of the Premises is not
affected. Tenant shall, should Landlord so request, promptly join with Landlord
in execution of such documents as may be appropriate to assist Landlord to
implement any such action provided Tenant need not execute any document which is
of a nature wherein liability is created in Tenant or if by reason of the terms
of such document Tenant will be deprived of the quiet enjoyment and use of the
Premises as granted by this Lease.

                  32.2 Landlord reserves the right to enter the Premises, and to
cause its contractors to enter the Premises, upon reasonable prior written
notice to Tenant, to maintain, repair or replace mechanical (HVAC), electrical,
plumbing, sprinkler and other systems and equipment, and to install
improvements, within the Premises or within adjoining premises (including access
through the Premises to areas of the Building above and below the Premises).
Tenant acknowledges that because of the design and configuration of the
Building, and the nature of the Building as a multi-tenant biotech facility,
that temporary access through the Premises to other areas of the Building will
be reasonably necessary from time to time, and that such access may interfere
with Tenant's quiet enjoyment of the Premises; provided, however, that such
interference shall not materially interfere with Tenant's use and occupancy of
the Premises. There shall be no abatement of Rent and no liability of Landlord
by reason of any injury to or interference with Tenant's business arising from
the making of any repairs, alterations or improvements to adjoining premises
unless such injury or interference is unreasonable and is the result of
Landlord's grossly negligent or willful act or omission.


         33.      QUIET ENJOYMENT.
                  ----------------

                  33.1 So long as Tenant is not in default, Landlord covenants
that Landlord or anyone acting through or under Landlord will not disturb
Tenant's occupancy of the Premises except as permitted by the provisions of this
Lease and that Landlord shall use reasonable efforts to enforce the lease
obligations of tenants of the balance of the Building and Project to the extent
they might otherwise disturb Tenant's occupancy.


         34.      QUITCLAIM DEED.
                  ---------------

                  34.1 Tenant shall execute and deliver to Landlord on the
expiration or termination of this Lease, immediately on Landlord's request, a
quitclaim deed to the Premises and Project or other document in recordable form
suitable to evidence of record termination of this Lease.

                                       34
<PAGE>

         35.      SUBORDINATION AND ATTORNMENT.
                  -----------------------------

                  35.1 This lease shall be subject to and subordinate to the
lien of any mortgage or deed of trust now or hereafter in force against the
Project and Building of which the Premises are a part, and to all advances made
or hereafter to be made upon the security thereof without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination. However, if any such mortgagee or beneficiary so
elects at any time prior to or following a default by Tenant, this Lease shall
be deemed prior in lien to any such mortgage or deed of trust regardless of date
and Tenant will execute a statement in writing to such effect at Landlord's
request in a form reasonably satisfactory to Tenant

                  35.2 Notwithstanding the foregoing, Tenant shall execute and
deliver upon demand such further instrument or instruments evidencing such
subordination of this Lease to the lien of any such mortgage or deed of trust as
may be required by Landlord, provided that the lienholder, beneficiary, or
mortgagee concurrently therewith executes and delivers to Tenant a
non-disturbance agreement in recordable form.

                  35.3 In the event any proceedings are brought for foreclosure,
or in the event of the exercise of the power of sale under any mortgage or deed
of trust made by the Landlord covering the Premises, the Tenant shall at the
election of the purchaser at such foreclosure or sale attorn to the purchaser
upon any such foreclosure or sale and recognize such purchaser as the Landlord
under this Lease in accordance with the terms of the non-disturbance Agreement.

         36.      SURRENDER.
                  ----------

                  36.1 No surrender of possession of any part of the Premises
shall release Tenant from any of its obligations hereunder unless accepted by
Landlord.

                  36.2 The voluntary or other surrender of this Lease by Tenant
shall not work a merger, unless Landlord consents, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases or
subtenancies.

         37.      WAIVER AND MODIFICATION.
                  ------------------------

                  37.1 No provision of this Lease may be modified, amended or
added to except by an agreement in writing executed by Landlord and Tenant. The
waiver by Landlord or Tenant of any breach of any term, covenant or condition
herein contained shall not be deemed to be a waiver of any subsequent breach of
the same or any other term, covenant or condition herein contained.

         38.      HAZARDOUS MATERIAL.
                  -------------------

                  38.1 During the term, Tenant, at its sole cost, shall comply
with all federal, state and local laws, statutes, ordinances, codes, regulations
and orders relating to the receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge, release and disposal
of Hazardous Material (as defined below) in or about the Premises. Tenant shall


                                       35
<PAGE>

not cause or permit any Hazardous Material to be brought upon, kept or used in
or about the Premises by Tenant, its agents, employees, contractors, invitees or
subtenants, in a manner or for a purpose prohibited by any federal, state or
local agency or authority. The accumulation of Hazardous Material shall be in
approved containers and removed from the Premises by duly licensed carriers.

                  38.2 Tenant shall immediately provide Landlord with telephonic
notice, which shall promptly be confirmed by written notice, of any and all
spillage, discharge, release and disposal of Hazardous Material onto or within
the Premises, including the soils and subsurface waters thereof, which by law
must be reported to any federal, state or local agency, and any injuries or
damages resulting directly or indirectly therefrom. Further, Tenant shall
deliver to Landlord each and every notice or order, when said order or notice
identifies a violation which may have the potential to adversely impact the
Premises, received from any federal, state or local agency concerning Hazardous
Material and the possession, use and/or accumulation thereof promptly upon
receipt of each such notice or order by Tenant. Landlord shall have the right,
upon reasonable notice, to inspect and copy each and every notice or order
received from any federal, state or local agency concerning Hazardous Material
and the possession, use and/or accumulation thereof.

                  38.3 Tenant shall be responsible for and shall indemnify,
protect, defend and hold harmless Landlord and Landlord's Agents from any and
all liability, damages, injuries, causes of action, claims, judgments, costs,
penalties, fines, losses, and expenses which arise during or after the term of
this Lease and which result from Tenant's (or from Tenant's Agents, assignees,
subtenants, employees, agents, contractors, licensees, or invitees) receiving,
handling, use, storage, accumulation, transportation, generation, spillage,
migration, discharge, release or disposal of Hazardous Material in, upon or
about the Premises, including without limitation (i) diminution in value of the
Premises or any portion of the Project, (ii) damages for the loss or restriction
on use of any portion or amenity of the Premises or Project, (iii) damages
arising from any adverse impact on marketing of space in the Premises or the
Project, (iv) damages and the costs of remedial work to other property in the
vicinity of the Project owned by Landlord or an affiliate of Landlord, and (v)
reasonable consultant fees, expert fees, and attorneys' fees. Landlord shall be
responsible for and shall indemnify, protect, defend and hold harmless Tenant on
the same basis as above for any claims which result from Landlord's or from
Landlord's Agents receiving, handling, use, storage, accumulation,
transportation, generation, spillage, migration, discharge, release or disposal
of Hazardous Material in, upon or about the Premises or any Hazardous Material
at the Project existing prior to the Term Commencement Date.

                  38.4 The indemnification of Landlord and Landlord's Agents by
Tenant pursuant to the preceding Section 39.3 includes, without limiting the
generality of Section 39.3, reasonable costs incurred in connection with any
investigation of site conditions or any cleanup, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil,
subsoil, ground water, or elsewhere on, under or about the Premises, or on,
under or about any other property in the vicinity of the Project owned by
Landlord or an affiliate of Landlord, to the extent caused by Tenant. Without
limiting the foregoing, if the presence of any Hazardous Material on the
Premises caused or permitted by Tenant results in any contamination of the
Premises, or underlying soil or groundwater, Tenant shall promptly take all
actions at its sole expense as are necessary to return the Premises to that


                                       36
<PAGE>

condition required by applicable law as applied by any government entity with
proper jurisdiction with regard thereto, provided that Landlord's approval of
such action shall first be obtained, which approval shall not be unreasonably
withheld, except that Tenant shall not be required to obtain Landlord's prior
approval of any action of an emergency nature reasonably required or any action
mandated by a governmental authority, but Tenant shall give Landlord prompt
notice thereof.

                  38.5 Landlord acknowledges that it is not the intent of this
Article 39 to prohibit Tenant from operating its business as described in
Article 10 or to unreasonably interfere with the operation of Tenant's business.
Tenant may operate its business according to the custom of the industry so long
as the use or presence of Hazardous Material is strictly and properly monitored
according to all applicable governmental requirements. Any approval or consent
required by this Section 39.5 shall not be unreasonably withheld, conditioned or
delayed.

                  38.6 As a material inducement to Landlord to allow Tenant to
use Hazardous Material in connection with its business, Tenant agrees to provide
to Landlord a list identifying each type of Hazardous Material to be present in
or about the Premises and setting forth all governmental approvals or permits
required in connection with the presence of Hazardous Material in or about the
Premises ("HAZARDOUS MATERIAL INVENTORY"). Tenant shall deliver a Hazardous
Material Inventory to Landlord no later than twenty (20) days (i) prior to the
occupancy of any portion of the Premises or the placement of equipment anywhere
on the Project, (ii) prior to any increase in the types or amounts of Hazardous
Material, (iii) after a request of Landlord reasonably required for purposes of
monitoring the Project, and (iv) prior to the initiation by Tenant of any
changes in the Premises or elsewhere on the Project which involve any increase
in the types or amounts of Hazardous Material, and shall deliver a Hazardous
Material Inventory to Landlord in any event annually no later than December 31
of each year. For each type of Hazardous Material listed, the Hazardous Material
Inventory shall include the (i) chemical name; (ii) material state (solid,
liquid, gas, cryogen); (iii) concentration; (iv) storage amount and storage
condition (cabinets or no cabinets); (v) use amount and use condition (open use
or closed use); (vi) location (room number/identification); and (vii) chemical
abstract service (CAS) number, if known. In the event that Tenant's Hazardous
Material Inventory indicates non-compliance with this Lease or applicable
building and fire code requirements, Tenant shall at its expense diligently take
steps to bring its storage and use of Hazardous Material into compliance.

                  38.7 Tenant further agrees to make available to Landlord, upon
Landlord's reasonable request, true and correct copies of the following
documents ("HAZARDOUS MATERIAL DOCUMENTS"): governmental approvals or permits
required in connection with the presence of Hazardous Material on the Premises;
a copy of the Hazardous Material business plan prepared pursuant to Health and
Safety Code Section 25500 et seq.; documents relating to the handling, storage,
disposal and emission of Hazardous Material, including: permits; approvals;
reports and correspondence; notice of violations of any laws; plans relating to
the installation of any storage tanks to be installed in or under the Premises
(provided said installation of tanks shall be permitted only after Landlord has
given Tenant its written consent to do so, which consent may not be unreasonably
withheld); and all closure plans or any other documents required by any and all
federal, state and local governmental agencies and authorities for any storage
tanks installed in, on or about the Premises for the closure of any such tanks.
Tenant shall not be required, however, to provide Landlord with that portion of
any document which contains information of a proprietary nature and which, in


                                       37
<PAGE>

and of itself, does not contain a reference to any Hazardous Material which is
not otherwise identified to Landlord in such documentation, unless any such
Hazardous Material Document names Landlord as an "owner" or "operator" of the
facility in which Tenant is conducting its business. It is not the intent of
this subsection to provide Landlord with information which could be detrimental
to Tenant's business should such information become possessed by Tenant's
competitors. Landlord shall treat all information furnished by Tenant to
Landlord pursuant to this Article 39 as confidential and shall not disclose such
information to any person or entity, except as provided in this Article 39,
without Tenant's prior written consent, which consent shall not be unreasonably
withheld or delayed, except as required by law.

                  38.8 Notwithstanding other provisions of this Article 39, it
shall be a default under this Lease, and Landlord shall have the right to
terminate the Lease and/or pursue its other remedies under Article 24, in the
event that (i) Tenant's use of the Premises for the generation, storage, use,
treatment or disposal of Hazardous Material is in a manner or for a purpose
prohibited by applicable law unless Tenant is diligently pursuing compliance
with such law, (ii) Tenant has been required by any governmental authority to
take remedial action in connection with Hazardous Material contaminating the
Premises if the contamination resulted from Tenant's action or use of the
Premises, unless Tenant is diligently pursuing compliance with such requirement,
or (iii) Tenant is subject to an enforcement order issued by any governmental
authority in connection with Tenant's use, disposal or storage of a Hazardous
Material on the Premises, unless Tenant is diligently seeking compliance with
such enforcement order.

                  38.9 Notwithstanding the provisions of Article 25, if any
anticipated use of the Premises by a proposed assignee or subtenant involves the
generation or storage, use, treatment or disposal of Hazardous Material and (i)
the proposed assignee or sublessee has been required by any governmental
authority to take remedial action in connection with Hazardous Material
contaminating a property if the contamination resulted from such party's action
or use of the property in question and has failed to take such action, or (ii)
the proposed assignee or sublessee is subject to a final, unappealable
enforcement order issued by any governmental authority in connection with such
party's use, disposal or storage of Hazardous Material of a type such proposed
assignee or sublessee intends to use in the Premises and shall have failed to
comply with such order, it shall not be unreasonable for Landlord to withhold
its consent to an assignment or subletting to such proposed assignee or
sublessee.

                  38.10 Landlord represents that, to the best of its knowledge,
as of the date of this Lease, there is no Hazardous Material on the Premises.
Landlord shall provide Tenant with a current Phase I Environmental Site
Assessment, and any current Phase II Environmental Site Assessment recommended
therein, at the time of the completion of the current renovation of the Project
to a biotech facility. Should the environmental site assessment(s) disclose the
presence of Hazardous Material beyond legally permissible levels, Landlord shall
correct the deficiencies to Tenant's reasonable satisfaction and shall cause
updates to the environmental site assessment(s) to be issued reflecting the
remedy. The environmental site assessment(s) and all updates thereto are
hereinafter referred to as the "BASE LINE REPORT," and shall be deemed
conclusive as to the condition of the Premises, unless, within ninety (90) days
of receipt, Tenant causes an inspection of its own to be conducted, which
inspection discloses the presence of Hazardous Material materially different
from that disclosed in the Base Line Report.

                                       38
<PAGE>

                  38.11 At any time prior to the expiration or earlier
termination of the term of the Lease, Landlord shall have the right to enter
upon the Premises, upon reasonable prior notice to Tenant, at all reasonable
times and at reasonable intervals in order to conduct appropriate tests
regarding the presence, use and storage of Hazardous Material, and to inspect
Tenant's records with regard thereto. Tenant will pay the reasonable costs of
any such test which demonstrates that contamination in excess of permissible
levels has occurred and such contamination was caused by Tenant's use of the
Premises during the term of the Lease. Tenant shall correct any deficiencies
identified in any such tests in accordance with its obligations under this
Article 39 to the extent the result of Tenant's use of the Premises during the
term of this Lease.

                  38.12 Tenant shall at its own expense cause an environmental
site assessment of the Premises to be conducted and a report thereof delivered
to Landlord upon the expiration or earlier termination of the Lease, such report
to be as complete and broad in scope as is necessary to identify any impact on
the Premises Tenant's operations might have had (hereinafter referred to as the
"EXIT REPORT"). Tenant shall correct any deficiencies identified in the Exit
Report in accordance with its obligations under this Article 39 prior to the
expiration or earlier termination of this Lease. This Article 39 is the
exclusive provision in this Lease regarding clean-up, repairs or maintenance
arising from receiving, handling, use, storage, accumulation, transportation,
generation, spillage, migration, discharge, release or disposal of Hazardous
Material in, upon or about the Premises, and the provisions of Articles 7, 10,
18, and 20 shall not apply thereto.

                  38.13 Tenant's obligations under this Article 39 shall survive
the termination of the Lease.

                  38.14 As used herein, the term "HAZARDOUS MATERIAL" means any
hazardous or toxic substance, material or waste which is or becomes regulated by
any local governmental authority, the State of California or the United States
Government. The term "Hazardous Material" includes, without limitation, any
material or substance which is (i) defined as a "hazardous waste," "extremely
hazardous waste" or "restricted hazardous waste" under Sections 25515, 25117 or
25122.7, or listed pursuant to Section 25140, of the California Health and
Safety Code, Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii)
defined as a "hazardous substance" under Section 25316 of the California Health
and Safety Code, Division 2, Chapter 6.8 (Carpenter-Presly-Tanner Hazardous
Substance Account Act), (iii) defined as a "hazardous material," hazardous
substance" or "hazardous waste" under Section 25501 of the California Health and
Safety Code, Division 20, Chapter 6.95 (Hazardous Substances), (v) petroleum,
(vi) asbestos, (vii) listed under Article 9 and defined as hazardous or
extremely hazardous pursuant to Article 11 of Title 22 of the California
Administrative Code, Division 4, Chapter 20, (viii) designated as a "hazardous
substance" pursuant to Section 311 of the Federal Water Pollution Control Act
(33 U.S.C. Section 1317), (ix) defined as a "hazardous waste" pursuant to
Section 1004 of the Federal Resource Conservation and Recovery Act, 42 U.S.C.
Section 6901, et. seq. (42 U.S.C. Section 6903), or (x) defined as a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. Section 9601 et. seq. (42 U.S.C.
Section 9601).

                                       39
<PAGE>

         39.      MISCELLANEOUS.
                  --------------

                  39.1 TERMS AND HEADINGS. Where applicable in this Lease, the
singular includes the plural and the masculine or neuter includes the masculine,
feminine and neuter. The section headings of this Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.

                  39.2 EXAMINATION OF LEASE. Submission of this instrument for
examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.

                  39.3 TIME. Time is of the essence with respect to the
performance of every provision of this Lease in which time of performance is a
factor.

                  39.4 COVENANTS AND CONDITIONS. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.

                  39.5 CONSENTS. Whenever consent or approval of either party is
required, that party shall not unreasonably withhold or delay such consent or
approval, except as may be expressly set forth to the contrary.

                  39.6 ENTIRE AGREEMENT. The terms of this Lease are intended by
the parties as a final expression of their agreement with respect to the terms
as are included herein, and may not be contradicted by evidence of any prior or
contemporaneous agreement.

                  39.7 SEVERABILITY. Any provision of this Lease which shall
prove to be invalid, void, or illegal in no way affects, impairs or invalidates
any other provision hereof, and such other provisions shall remain in full force
and effect; provided, however, if the provisions of this Lease relating to
Tenant's stated use of the Premises shall be determined by any government agency
having jurisdiction to be invalid or unenforceable, this Lease, effective as of
the date of such determination, shall be deemed to be void and of no further
force and effect.

                  39.8 RECORDING. Either Landlord or Tenant may record a short
form memorandum hereof, subject to the requirement to execute and deliver a
quitclaim deed pursuant to the provisions of Section 34.1 hereof.

                  39.9 IMPARTIAL CONSTRUCTION. The language in all parts of this
Lease shall be in all cases construed as a whole according to its fair meaning
and not strictly for or against either Landlord or Tenant.

                  39.10 INUREMENT. Each of the covenants, conditions, and
agreements herein contained shall inure to the benefit of and shall apply to and
be binding upon the parties hereto and their respective heirs, legatees,
devisees, executors, administrators, successors, assigns, sublessees, or any
person who may come into possession of said Premises or any part thereof in any
manner whatsoever. Nothing in this Section 40.10 contained shall in any way
alter the provisions against assignment or subletting in this Lease provided.

                                       40
<PAGE>

                  39.11 FORCE MAJEURE. If either party cannot perform any of its
obligations (other than Tenant's obligation to pay Rent), or is delayed in such
performance (other than Tenant's obligation to pay Rent), due to events beyond
such party's control, the time provided for performing such obligations shall be
extended by a period of time equal to the delay attributable to such events.
Events beyond a party's control include, but are not limited to, acts of
terrorism, acts of God (including earthquake), war, civil commotion, labor
disputes, strikes, fire, flood or other casualty, shortage of labor or material,
government regulation or restriction and weather conditions, but do not include
financial inability to perform.

                  39.12 NOTICES. Any notice, consent, demand, bill, statement,
or other communication required or permitted to be given hereunder must be in
writing and may be given by personal delivery, by facsimile transmission, or by
mail, certified and return receipt requested, and if given by personal delivery
or facsimile transmission shall be deemed given on the date of delivery or
transmission, and if given by mail shall be deemed sufficiently given three (3)
days after time when deposited in United States Mail if sent by registered or
certified mail, addressed to Tenant at the Premises, or to Tenant or Landlord at
the addresses shown in Section 2.1.10 hereof. Either party may, by notice to the
other given pursuant to this Section, specify additional or different addresses
for notice purposes.

                  39.13 AUTHORITY TO EXECUTE LEASE. Landlord and Tenant each
acknowledge that it has all necessary right, title and authority to enter into
and perform its obligations under this Lease, that this Lease is a binding
obligation of such party and has been authorized by all requisite action under
the party's governing instruments, that the individuals executing this Lease on
behalf of such party are duly authorized and designated to do so, and that no
other signatories are required to bind such party.

         IN WITNESS WHEREOF, the parties hereto have executed this Lease as of
the date first above written.

LANDLORD:

Dated:   July 1, 2004

SAN DIEGO SCIENCE CENTER LLC
A California limited liability company

By:      SD Science Center, Inc.
         A California corporation
         Its Manager


         By:      ______________________________
                  John P. Bonanno
                  President


(Signatures continued on following page.)


                                       41
<PAGE>

TENANT:

Dated:   July ____, 2004

AETHLON MEDICAL, INC.
A Nevada corporation


By:      ______________________________
         Name: James A. Joyce
         Title: Chairman and Chief Executive Officer

                                       42
<PAGE>

                                    EXHIBIT A

                       LEGAL DESCRIPTION OF REAL PROPERTY
                       ----------------------------------



THE LAND REFERRED TO HEREIN IS SITUATED IN THE STATE OF CALIFORNIA, COUNTY OF
SAN DIEGO, AND IS DESCRIBED AS FOLLOWS:

PARCEL A:

LOT 1 OF HANSEN'S TRACT, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 4515, FILED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, APRIL 20, 1960.

PARCEL B:

LOT 1 OF HARRISON TRACT, IN THE CITY OF SAN DIEGO, COUNTY OF SAN DIEGO, STATE OF
CALIFORNIA, ACCORDING TO MAP THEREOF NO. 4786, FILED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY, JUNE 2, 1961.

TOGETHER WITH THAT PORTION OF THE NORTHWESTERLY HALF OF BUNKER HILL STREET
ADJOINING A PORTON OF SAID LOT 1 ON THE SOUTHEAST AS VACATED AND CLOSED TO
PUBLIC USE BY RESOLUTION NO. 215408, RECORDED IN THE OFFICE OF THE COUNTY
RECORDER OF SAN DIEGO COUNTY MARCH 2, 1976 AS FILE NO. 76-061804 OF OFFICIAL
RECORDS.

EXCEPTING THEREFROM THAT PORTION OF VACATED BUNKER HILL STREET LYING WITHIN THE
FOLLOWING DESCRIBED PARCEL:

THAT PORTION OF LOT 4 OF EUREKA LEMON TRACT, IN THE CITY OF SAN DIEGO, COUNTY OF
SAN DIEGO, STATE OF CALIFORNIA, ACCORDING TO MAP THEREOF NO. 753, FILED IN THE
OFFICE OF THE COUNTY RECORDER OF SAN DIEGO COUNTY, MAY 19, 1893, TOGETHER WITH A
PORTION OF THE NORTHWESTERLY 15.00 FEET OF THAT 30.00 FOOT WIDE UNNAMED ROAD
(NOW KNOWN AS BUNKER HILL STREET), LYING SOUTHEASTERLY OF AND ADJACENT TO SAID
LOT 4 AS VACATED AND CLOSED ON FEBRUARY 25, 1976 BY RESOLUTION NO. 215408 OF THE
COUNCIL OF THE CITY OF SAN DIEGO, RECORDED MARCH 2, 1976 AS FILE NO. 76-061804
OF OFFICIAL RECORDS AND BEING MORE PARTICULARLY DESCRIBED AS A WHOLE AS FOLLOWS:

COMMENCING AT THE MOST SOUTHERLY CORNER OF LOT 1 OF HARRISON TRACT, ACCORDING TO
MAP THEREOF NO. 4786, FILED IN THE OFFICE OF THE COUNTY RECORDER OF SAN DIEGO
COUNTY, JUNE 2, 1961, BEING ALSO A POINT ON THE NORTHWESTERLY LINE OF THE
SOUTHEASTERLY 10.00 FEET OF SAID LOT 4 OF MAP NO. 753; THENCE ALONG THE
SOUTHEASTERLY LINE OF SAID MAP NO. 4786, NORTH 63(Degree)14'32" EAST (RECORD -
NORTH 62(Degree)40'35" EAST), 431.46 FEET TO THE BEGINNING OF A TANGENT 125.00


                                       43
<PAGE>

FOOT RADIUS CURVE, CONCAVE NORTHWESTERLY, BEING AN ANGLE POINT IN THE BOUNDARY
OF LAND DESCRIBED IN DIRECTOR'S DEED TO PACIFIC BEACH MEDICAL ASSOCIATES, LTD.,
RECORDED FEBRUARY 8, 1972 AS FILE NO. 31151 OF OFFICIAL RECORDS AND BEING THE
TRUE POINT OF BEGINNING; THENCE ALONG THE BOUNDARY OF SAID DIRECTOR'S DEED AS
FOLLOWS: NORTHEASTERLY ALONG THE ARC OF SAID CURVE THROUGH A CENTRAL ANGLE OF
40(Degree)31'54" A DISTANCE OF 88.43 FEET; AND NON-TANGENT TO SAID CURVE, NORTH
04(Degree)17'58" EAST, 46.82 FEET TO THE MOST NORTHERLY CORNER OF SAID LAND
BEING ALSO AN ANGLE POINT IN THE SOUTHWESTERLY BOUNDARY OF CALIFORNIA STATE
HIGHWAY II-SD-5, AS CREATED BY SAID DIRECTOR'S DEED; THENCE ALONG SAID
SOUTHWESTERLY BOUNDARY, SOUTH 39(Degree)36'43" EAST TO THE CENTER LINE OF THE
ORIGINAL 30.00 FOOT WIDE UNNAMED LYING SOUTHEASTERLY OF AND ADJACENT TO SAID LOT
4 AS SHOWN ON SAID MAP NO. 753; THENCE ALONG SAID CENTER LINE, SOUTH
63(Degree)14'32" WEST TO A POINT ON THE ARC OF THAT 70.00 FOOT RADIUS CURVE,
CONCAVE SOUTHWESTERLY IN THE NORTHEASTERLY LINE OF RELINQUISHMENT PARCEL 3 AS
SHOWN ON STATE HIGHWAY MAP NO. 100, FILED IN THE OFFICE OF THE COUNTY RECORDER
OF SAN DIEGO COUNTY, MAY 8, 1969 AS FILE NO. 81182 OF OFFICIAL RECORDS; THENCE
ALONG SAID NORTHEASTERLY LINE, NORTHWESTERLY ALONG THE ARC OF SAID CURVE TO A
LINE WHICH BEARS AT RIGHT ANGLES, SOUTH 26(Degree)45'28" EAST FROM THE TRUE
POINT OF BEGINNING, BEING ALSO A POINT ON THE SOUTHWESTERLY LINE OF THAT PORTION
OF CALIFORNIA STATE HIGHWAY XI-SD-2 (NOW INTERSTATE 5), AS DESCRIBED IN DEED TO
THE STATE OF CALIFORNIA, RECORDED MAY 18, 1953 AS DOCUMENT NO. 67093 IN BOOK
4857, PAGE 559 OF OFFICIAL RECORDS, AND BEING ALSO AN ANGLE POINT IN THE
BOUNDARY OF SAID DIRECTOR'S DEED, A RADIAL LINE OF SAID CURVE BEARS NORTH
10(Degree)30'29" WEST TO SAID ANGLE POINT; THENCE ALONG THE SOUTHWESTERLY LINE
OF SAID LAND DESCRIBED IN SAID DIRECTOR'S DEED, NORTH 26(Degree)45'28" WEST TO
THE TRUE POINT OF BEGINNING.

                                       44
<PAGE>

                                    EXHIBIT B

                            SITE PLAN OF THE PROJECT
                            ------------------------


                                       45
<PAGE>

                                    EXHIBIT C

                             OUTLINE OF THE PREMISES
                             -----------------------


                                       46
<PAGE>

                                    EXHIBIT D

                    ACKNOWLEDGMENT OF TERM COMMENCEMENT DATE
                    ----------------------------------------


         Pursuant to Section 3.3 of that certain Lease dated
____________________, 20___, by and between ____________________, a
____________________, Landlord, and ____________________, a
____________________, Tenant, for the Premises described in the Lease in the
Building at ____________________, we hereby acknowledge that the Term
Commencement Date of the Lease, as defined therein, is _______________, 20___,
and the Term Expiration Date of the Lease, as defined therein, is
_______________, 20___.

         IN WITNESS WHEREOF, the parties hereto have executed this
Acknowledgment of Term Commencement Date as of __________, 20___.

LANDLORD:

SAN DIEGO SCIENCE CENTER LLC
A California limited liability company

By:      SD Science Center, Inc.
         A California corporation
         Its Manager


         By:      ______________________________
                  W. Neil Fox, III
                  Chief Executive Officer

TENANT:

____________________
A __________________


By:      ______________________________
         Name: ________________________
         Title: _________________________


                                       47
<PAGE>

                                    EXHIBIT E

                      SCHEMATIC SHOWING TENANT IMPROVEMENTS
                      -------------------------------------

                                       48
<PAGE>

                                    EXHIBIT F

                  ARCHITECTURAL DRAWINGS OF TENANT IMPROVEMENTS
                  ---------------------------------------------



                        A1.1       SITE PLAN

                        A3.3       EXITING PLAN - LEVEL 3

                        A4.3       DIMENSION FLOOR PLAN - LEVEL 3

                        A5.3       DOOR / WALL PLAN - LEVEL 3

                        A6.3       REFLECTED CEILING PLAN - LEVEL 3

                        A7.1       SCHEDULES - LEVELS 1, 2, 3

                        A8.1       WALL TYPES / DETAILS

                        A8.2       DETAILS

                        A9.1       RESTROOM PLANS / DETAILS / NOTES

                                       49
<PAGE>

                                    EXHIBIT G

                              RULES AND REGULATIONS
                              ---------------------


NOTHING IN THESE RULES AND REGULATIONS SHALL SUPPLANT ANY PROVISION OF THE
LEASE. IN THE EVENT OF A CONFLICT OR INCONSISTENCY BETWEEN THESE RULES AND
REGULATIONS AND THE LEASE, THE LEASE SHALL PREVAIL.

1.       Except as specifically provided in the Lease to which these Rules and
         Regulations are attached, no sign, placard, picture, advertisement,
         name or notice shall be installed or displayed on any part of the
         outside of the Premises or the Building without the prior written
         consent of Landlord. Landlord shall have the right to remove, at
         Tenant's expense and without notice, any sign installed or displayed in
         violation of this rule.

2.       If Landlord objects in writing to any curtains, blinds, shades, screens
         or hanging plants or other similar objects attached to or used in
         connection with any window or door of the Premises, or placed on any
         windowsill, which is visible from the exterior of the Premises, and
         which is not included in plans approved by Landlord, Tenant shall
         remove said object.

3.       Tenant shall not obstruct any sidewalks or entrances to the Building,
         or any halls, passages, exits, entrances, or stairways within the
         Premises, which are required to be kept clear for health and safety
         reasons.

4.       No deliveries shall be made which impede or interfere with other
         tenants or the operation of the Project.

5.       Tenant shall not place a load upon any floor of the Premises which
         exceeds the load per square foot which such floor was designed to carry
         and which is allowed by law. Fixtures and equipment which cause noise
         or vibration that may be transmitted to the structure of the Building
         to such a degree as to be objectionable to other tenants shall be
         placed and maintained by Tenant, at Tenant's expense, on vibration
         eliminators or other devices sufficient to eliminate such noise or
         vibration or reduce such noise and vibration to acceptable levels.

6.       Tenant shall not use any method of heating or air-conditioning other
         than that shown in Tenant Improvement plans.

7.       Tenant shall not install any radio, television or other antenna,, cell
         or other communications equipment or other devices on the roof or
         exterior walls of the Premises except to the extent shown on approved
         Tenant Improvement plans. Tenant shall not interfere with radio,
         television or other communications from or in the Premises or
         elsewhere.

                                       50
<PAGE>

8.       Canvassing, peddling, soliciting and distribution of handbills or any
         other written material in the Project outside of the Premises are
         prohibited, and Tenant shall cooperate to prevent such activities.

9.       Tenant shall store all its trash, garbage and Hazardous Material within
         its Premises or in designated receptacles outside of the Premises.
         Tenant shall not place in any such receptacle any material which cannot
         be disposed of in the ordinary and customary manner of trash, garbage
         and Hazardous Material disposal.

10.      The Premises shall not be used for any improper, immoral or
         objectionable purpose. No cooking shall be done or permitted on the
         Premises, except that use by Tenant of Underwriter's Laboratory
         approved equipment for brewing coffee, tea, hot chocolate and similar
         beverages or use of microwave ovens for employees use shall be
         permitted, or equipment shown on approved Tenant Improvement plans,
         provided that such equipment and use is in accordance with all
         applicable federal, state, county and city laws, codes, ordinances,
         rules and regulations.

11.      Without the written consent of the Landlord, Tenant shall not use the
         name of the Project, if any, in connection with or in promoting or
         advertising the business of Tenant except as Tenant's address.

12.      Tenant shall comply with all safety, fire protection and evacuation
         procedures and regulations established by Landlord or any governmental
         agency.

13.      Tenant assumes any and all responsibility for protecting its Premises
         from theft, robbery and pilferage, which includes keeping doors locked
         and other means of entry to the Premises closed.

14.      Landlord may waive any one or more of these Rules and Regulations for
         the benefit of Tenant or any other tenant, but no such waiver by
         Landlord shall be construed as a waiver of such Rules and Regulations
         in favor of Tenant or any other Tenant, nor prevent Landlord from
         thereafter enforcing any such Rules and Regulations against any or all
         of the tenants of the Project.

15.      These Rules and Regulations are in addition to, and shall not be
         construed to in any way modify or amend, in whole or in part, the
         terms, covenants, agreements and conditions of the Lease.

16.      Landlord reserves the right to make such other and reasonable rules and
         regulations as, in its judgment, may from time to time be needed for
         safety and security, for care and cleanliness of the Project, and for
         the preservation of good order therein, subject to prior notice to
         Tenant and Tenant's consent, which will not be unreasonably withheld,
         conditioned or delayed. Tenant agrees to abide by all such Rules and
         Regulations hereinabove stated and any additional rules and regulations
         which are adopted.

17.      Tenant shall be responsible for the observance of all of the foregoing
         rules by Tenant's employees, agents, clients, customers, invitees and
         guests.

                                       51
<PAGE>

                                    EXHIBIT H

                       SERVICES TO BE PROVIDED BY LANDLORD
                       -----------------------------------

         Landlord shall maintain, repair, and replace the following systems and
equipment, and shall provide the following services and utilities, in accordance
with the standards referenced below or, if no such standards are referenced,
then consistent with the standards of comparable buildings in San Diego,
California; provided, however, (i) Landlord reserves the right to adopt
nondiscriminatory modifications and additions hereto, (ii) the cost of all such
maintenance, repairs, replacements, services and utilities are subject to
reimbursement by Tenant as Operating Expenses to the extent set forth in Article
7 of the Lease, and (iii) such maintenance, repairs, replacements, services and
utilities are subject to any other applicable provisions of the Lease:

         1.       Heating, ventilation, and air conditioning systems, including
                  chillers, boilers, air handlers, ventilation and exhaust fans,
                  cooling towers, filtration, controls and control components
                  required to provide climate control to all usable areas of the
                  building, with cooled and heated air appropriate to the
                  seasons in the San Diego metropolitan area. Heating,
                  ventilation and air conditioning services shall be provided
                  twenty-four (24) hours per day each day of the year.

         2.       Plumbing to include hot and cold water supply pipes, valves,
                  and regulators, sanitary and waste piping, sump pumps and
                  associated holding reservoirs. Drain cleaning shall be limited
                  to normal maintenance and will not include cleaning required
                  by excessive use or abuse of plumbing by Tenant.

         3.       Emergency eyewashes and showers.

         4.       Electrical supply circuits to include main switches,
                  transformers and panels in mechanical spaces, local circuit
                  breaker panels and associated wiring, cables, switches, and
                  receptacles.

         5.       Emergency back-up power generators to include peripherals as
                  described in 4 (above), batteries, relays and other items
                  necessary to supply unit power when utility company fails to
                  do so.

         6.       Light bulbs, ballasts, wiring and fixtures.

         7.       Elevators, with service to be provided twenty-four (24) hours
                  per day each day of the year.

         8.       Steam boilers. Steam lines, valves, regulators and reheating
                  units supplying and located within the building.

         9.       Fire alarm system. Main panel in first floor lobby area,
                  wiring and local smoke, particle and heat detectors and pull
                  stations.

                                       52
<PAGE>

         10.      Fire hoses, valves, etc., affixed permanently to building and
                  sprinkler system.

         11.      Fire extinguishers including annual checks and recharging as
                  necessary.

         12.      Doors, knobs and hinges.

         13.      Floor tiles, carpeting and kick plates.

         14.      Repair of windows and annual exterior window cleaning.

         15.      Fume hoods, ducts, stacks, motors and fans.

         16.      Vacuum pumps, lines and valves located within the building.

         17.      Positive pressure air supply lines, compressors bleed valves,
                  regulators, and air supply condensing units.

         18.      Rest rooms. Toilets, urinals, showers and stalls, including
                  rest room facilities and necessary lavatory supplies, and
                  including hot and cold running water.

         19.      Sinks.

         20.      Gas lines, valves and regulators.

         21.      Basic security services, including periodic perimeter checks
                  of the Project, but excluding any internal readings or checks.

         22.      Site landscaping, including maintaining the planting areas,
                  walkways, ramps, gates, fences and parking areas.

         23.      Trash pick-up, limited to designated trash area(s).

         24.      Janitorial services in the Common Areas (Tenant is responsible
                  for janitorial services in the Premises).

         25.      Access to the Building will be provide twenty-four (24) hours
                  per day each day of the year (except in the case of
                  emergencies).

         26.      Bulk mail and express pickup services at a central receiving
                  area located on the lower level of the Building or such other
                  floor as Landlord designates.

                                       53
<PAGE>

                                    EXHIBIT I

                            SAN DIEGO SCIENCE CENTER
                       FITNESS CENTER WAIVER OF LIABILITY
                       ----------------------------------


         SAN DIEGO SCIENCE CENTER LLC, a California limited liability company
(the "OWNER"), the owner of the building (the "BUILDING") at 3030 Bunker Hill
Street, San Diego, California, grants to employees of tenants of the Building
the right to use and enjoy the fitness facilities and equipment located in the
Building on the terms and conditions of this waiver (this "WAIVER") and
otherwise in accordance with such other rules and regulations which Owner may
from time to time adopt.

         1. ASSUMPTION OF RISK. The undersigned understands that fitness
activities, especially strength and aerobic training, involve a potential risk
for physical injury and related damages. The undersigned understands that Owner
does not manufacture the fitness and other equipment used in the fitness center,
but purchases and/or leases the equipment from third parties. The undersigned
acknowledges that Owner will provide no supervision of his/her use of the
fitness facilities and equipment and other fitness activities in the fitness
center, and that he/she will be solely responsible for his/her safe and
appropriate use of the facility and equipment. The undersigned therefore
expressly agrees to assume the risk that he/she may suffer injury or damage as a
result of his/her use of the fitness facilities and equipment, and agrees for
himself/herself and on behalf of his/her personal representatives, successors
and assigns, that the Owner (including its members, managers, officers,
employees and agents) will not be liable for any damages nor injuries the
undersigned may suffer in or about the fitness center.

         2. WAIVER OF LIABILITY. The undersigned further agrees to hold the
Owner and its members, managers, officers, employees and agents harmless from
any injuries or damages sustained by the undersigned or the property of the
undersigned and to indemnify the Owner and its members, managers, officers,
employees and agents from any claims, demands, actions, injuries, liabilities or
damages whatsoever, including attorneys' fees, which result, directly or
indirectly, from the use of the fitness facilities and equipment by the
undersigned. The undersigned agrees to release and discharge the Owner and its
members, managers, officers, employees, and agents from all such claims,
demands, actions, injuries, liabilities, and damages. The failure or refusal of
the undersigned to inspect the fitness facilities and equipment constitutes a
waiver of any objection, contention or claim that might have been based on such
an inspection.

         3. LOSS, THEFT, DAMAGE. The undersigned agrees that neither the Owner
nor its members, managers, officers, employees or agents are responsible or
liable to the undersigned for articles damaged, lost or stolen in or about the
fitness facilities. The undersigned agrees not to store any valuable items in
lockers and to use the lockers solely for temporary clothing storage. The Owner
and its members, managers, employees and agents are not bailees and are not
responsible for protecting the valuables of the undersigned.

                                       54
<PAGE>

         4. PHYSICAL CONDITION. The undersigned warrants that he/she is in good
physical condition and to the best of his/her knowledge has no physical
impairment which would prevent him/her from engaging in any physical
conditioning available in the fitness center and that he/she has no condition
which might be aggravated by the use of the fitness facilities or equipment. The
undersigned acknowledges that a complete physical examination by a medical
doctor prior to beginning any work out program or strenuous new activity is
recommended.

         5. NO GUESTS. The undersigned acknowledges and agrees that guests,
including family members, are not permitted in the fitness center and may not
use the fitness facilities or equipment under any circumstances. Use of the
fitness facilities and equipment is limited to employees of tenants of the
Building.

         6. ATTIRE AND EQUIPMENT. The undersigned agrees to wear proper attire
when using the fitness facilities, and to wear a shirt and shoes in the fitness
facilities and all common areas of the Building. Attire must conform to
reasonable standards of decency and safety. Only equipment provided by Owner may
be used in the fitness center.

         7. LOCKERS. Lockers are available for day use only on a first come,
first served basis. Locks, though recommended, are not provided by Owner.

         8. DAMAGES. The undersigned agrees to pay for any damages to the
fitness facilities or equipment caused by the undersigned.

         9. SEVERABILITY. If any provision of this Waiver is ruled invalid or
unenforceable as applied to any person or circumstance, all other provisions of
this Waiver shall remain valid and enforceable as applied to all other persons
and circumstances.

         The undersigned acknowledges that he/she has read and understands the
terms and conditions of this Waiver and agrees to be bound by such terms and
conditions. The undersigned also agrees to read and comply with any other rules
and regulations governing use of the fitness facilities and equipment which may
be adopted or amended from time to time by the Owner and posted or otherwise
made available in the fitness facility or to the undersigned.

                           Dated: ____________________

                           Sign:  ______________________________________

                           Print Name: _________________________________

                           Employer: ___________________________________

                                       55
<PAGE>

                                    EXHIBIT J

                              APPROVED CONTRACTORS
                              --------------------

Casework:                  Doug Wessinger
                           Wesinco
                           P.O. Box 256
                           Irmo, SC   29063
                           803/749-0163
                           803/749-1703 (Facsimile)

Electrical:                Ron Wood
                           Berg Electric
                           650 Opper Street
                           Escondido, CA   92029
                           760/746-1003
                           760/741-918__ (Facsimile)

Mechanical/Plumbing:       Joe Mucher
                           Encompass Mechanical Services
                           7655 Convoy Street
                           San Diego, CA   92111
                           858/974-6500
                           858/941-6501 (Facsimile)

Phone/Data:                Rob Coulter
                           River Networks
                           5845 Avenida Encinas, Suite 130
                           Carlsbad, CA   92008
                           760/535-4837
                           619/449-1609

Janitorial Service:        Linsey A. Miller
                           Merchants Building Maintenance LLC
                           8380 Miramar Mall, Suite 125
                           San Diego, CA 92121
                           858/455-0163
                           858/455-0596 (Facsimile)

Environmental, Health
  and Safety:

                                       56
<PAGE>

                                   SCHEDULE 1

               LIST OF REMOVABLE PROPERTY PURSUANT TO SECTION 17.7
               ---------------------------------------------------


A.       PROPERTY TENANT IS REQUIRED TO REMOVE



















B.       PROPERTY TENANT MAY REMOVE


                                       57

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.14
<SEQUENCE>3
<FILENAME>chermann.txt
<TEXT>
<PAGE>
EXHIBIT 10.14
                             AETHLON MEDICAL, INC.

                              CONSULTING AGREEMENT

This Consulting Agreement (the "Agreement") is entered into effective as of
October 1, 2003 by and between AETHLON MEDICAL, INC. located at 7825 Fay Avenue,
La Jolla, California 92037 USA, ("Aethlon") and Jean-Claude CHERMANN, PhD (the
"Consultant") located at Centre de Vie Agora, Batiment C, B.P. 1055, Z.I. de
Paluds, 13781 Aubange Cedex, France.

1.       CONSULTING RELATIONSHIP. During the terms of this agreement, the
         Consultant will act as a science advisor in connection with advancing
         the development of Aethlon's HIV-Hemopurifier Technology. The
         Consultant shall use reasonable efforts to provide these services in a
         manner that provides benefit to Aethlon. If the services provided by
         the Consultant under this agreement exceed more than 20 hours per
         month, the Consultant shall request and negotiate additional
         compensation from Aethlon. The Consultant has also agreed to
         participate as a member of Aethlon's Science Advisory Board. In this
         regard, the Consultant shall also receive the compensation that is
         rewarded to each Aethlon Science Advisory Board Member. The Consultant
         also agrees that this relationship provides no rights or interest in
         Aethlon's HIV-Hemopurifier technology.

2.       CONSIDERATION. As consideration of Services to be provided by
         Consultant, Aethlon shall compensate the Consultant at a rate of Three
         Thousand Five Hundred U.S. Dollars ($3,500.00) per month. At the
         discretion of the Aethlon Medical management, the Consultant may also
         be eligible for bonus consideration.

3.       EXPENSES. Consultant shall not be authorized to incur on behalf of
         Aethlon any expenses, without the prior written consent of Aethlon
         Medical

4.       TERMS AND TERMINATION. Consultant shall provide the Services to Aethlon
         on a month-to-month basis until terminated by either party with thirty
         (30) days advance notice.

5.       INDEPENDENT CONTRACTOR. Consultant's relationship with Aethlon will be
         that of independent contractor and not that of an employee. Consultant
         will not be eligible for any employee benefits, nor will Aethlon make
         deductions from payment made to Consultant for taxes, which will be the
         Consultant's responsibility Consultant will have no authority to enter
         into contracts that bind Aethlon or create obligations on the part of
         Aethlon without the prior written authorization of Aethlon.



<PAGE>

6.       MISCELLANEOUS.

         A.       AMENDMENTS AND WAIVERS. Any term of this Agreement may be
                  amended or waived only with the written consent of the
                  parties.

         B.       DISPUTES. The initial attempt to resolve any disputes or claim
                  arising in connection with this Agreement shall first be
                  negotiated between the parties over a glass of wine at the
                  Restaurant Nino in the port of Cassis, France.

         The parties have executed this Agreement as of the date first set forth
above.

AETHLON MEDICAL, INC.

By: /s/ James A. Joyce
    ---------------------------
    Name:  James A Joyce
    Title: Chairman, CEO


CONSULTANT

Jean-Claude CHERMANN, PhD

     /s/ Jean-Claude Chermann, PhD






</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>4
<FILENAME>barry.txt
<TEXT>
<PAGE>
EXHIBIT 10.15

                              CONSULTING AGREEMENT
                              --------------------

         This AGREEMENT. dated as of June 1, 2001, is by and between FRANKLYN S.
BARRY, JR. ("Consultant") residing at 1141 Delaware Avenue, Unit 3N, Buffalo,
New York, 14209 and AETHLON MEDICAL. INC., formerly Bishop Equities, Inc. d/b/a
Aethlon Medical ("Company"), a Nevada corporation with its principal office at
7825 Fay Avenue, Suite 200, La Jolla, California 92037.

                                    RECITALS:
                                    ---------

         WHEREAS, Consultant and the Company are parties to an Employment
Agreement dated as of April 1, 1999 (the "Employment Agreement") pursuant to
which Consultant has served as the Chief Executive Officer and President of the
Company and its subsidiary Hemex, Inc.: and

         WHEREAS, as part of the Company's decision to consolidate all
scientific and administrative functions in San Diego and to close its facilities
in Buffalo, the Consultant's employment as Chief Executive Officer and President
of' the Company and its subsidiary Hemex, Inc. was terminated effective June 1,
2001 by the Company "Without Cause," as that term is used in the Employment
Agreement; and

         WHEREAS. as a result of the termination of Consultant's employment he
is entitled to the payments and benefits set forth in Section 4.3 of the
Employment Agreement; and

         WHEREAS, the Company desires to engage Consultant as an adviser on
strategic and business issues, and Consultant is willing to accept that role;
and

         WHEREAS, the Company and Consultant mutually desire that the Consulting
Fees and Benefits" (as defined in Section 4 below) payable to Consultant under
this Agreement shall be in lieu of any payments to which Consultant is otherwise
entitled under Section 4.3(f) and (g) of the Employment Agreement, provided that
the Company timely complies with its obligations under this Agreement; and

         WHEREAS, the Company and Consultant desire to make it clear that
Consultant's status as an officer and employee of the Company and Hemex, Inc.
under the Employment Agreement has been terminated, and in that regard to
terminate those sections of the Employment Agreement that no longer are
applicable due to the termination of Consultant's employment.

         NOW, THEREFORE, the parties hereto for good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, and intending to
be legally bound, hereby agree as follows:

         1.       ENGAGEMENT AS CONSULTANT.

                  Effective June 1, 2001, the Company engages Consultant as an
adviser and consultant to the Company President and Chief Executive Officer, and
Consultant hereby accepts such engagement, subject to the terms and conditions
set forth below.

         2.       TERM OF ENGAGEMENT.

                  The term of Consultant's engagement under this Agreement shall
be the 24-month period from June 1, 2001 through May 31, 2003 ("Term").

<PAGE>

         3.       SCOPE OF ENGAGEMENT.

                  The Consultant shall advise the Company's President and Chief
Executive Officer on strategic and business issues, as requested by the Company
from time-to-time during the Term. Consultant shall not be required to travel
from the Buffalo, New York area for these consulting activities, nor shall he be
required to spend more than 8 hours per month fulfilling his consulting duties
under this Agreement.

          4.     CONSULTING FEES AND BENEFITS.

                 (a) The Company shall pay Consultant a total of $120,000
("Consulting Fees"), plus reimbursement of any Federal and State
self-employment, FICA, Medicare and unemployment taxes owed by Consultant as a
result of his engagement under this Agreement, (collectively the
"Self-Employment Taxes").

                 (b) The Consulting Fees shall be paid in 24 equal monthly
installments of $5,000 payable on the last day of each month throughout the
Term, commencing June 30, 2001.

                 (c) The Consultant shall notify the Company on or prior to
December 31. 2001, December 31, 2002 and May 31, 2003 of the amount of
Self-Employment Taxes owed for the years 2001, 2002 and 2003, respectively. The
Company shall reimburse the Consultant for these Self-Employment Taxes within 30
days after receiving such notice from Consultant.

                 (d) In addition to the Consulting Fees and Self-Employment
Taxes, the Company shall maintain in full force and effect, for Consultant's and
his eligible beneficiaries' continued benefit, until the first to occur of (x)
his attainment of alternative employment that provides benefits comparable to
the Benefits defined below or (y) May 31, 2003, the employee benefits provided
pursuant to Company-sponsored benefit plans, programs of other arrangements in
which Consultant was entitled to participate as a full-time employee immediately
prior to June 1, 2001, subject to the terms and conditions of such plans and
programs (the "Benefits"). If Consultant's continued participation is not
permitted under the general terms and provisions of such plans, programs and
arrangements, the Company shall arrange to provide Consultant with Benefits
substantially similar to those which Consultant would have been entitled to
receive under such plans, programs and arrangements.

                 (e) In the event that Consultant dies or becomes disabled
during the Term, the Company shall continue making all payments required under
this Agreement to Consultant's heirs. legatees or estate in the event of his
death, or to him or his legal representative in the event of his disability;
such payments shall be made in the same amounts and at the same times as they
would have been made but for such death or disability.

         5.       PAYMENT ON DEFAULT BY COMPANY.

                 In the event that the Company fails to make any payment of
Consulting Fees, Self-Employment Taxes or Benefits required by Section 4 of this
Agreement within 30 days after such payment is due, it shall pay to Consultant
the sum of $120,000 less the total of all monthly Consulting Fees actually paid
to Consultant under Section 4(b) above, plus an amount equal to the
Self-Employment Taxes owed on the payment required under this Section 5, plus
the amount necessary to compensate Consultant for the loss of any Benefits for
the balance of the Term. Payment of these amounts shall not relieve the Company
of any other obligations owed to Consultant.

                                       2
<PAGE>

         6.       INTERESTED DIRECTOR TRANSACTION.

                  Because Consultant is a member of the Company's Board of
Directors, this Agreement constitutes an "interest director transaction" under
the Nevada General Corporation Law. The Company hereby represents that this
Agreement has been presented to, and approved by, the Company's Board of
Directors.

         7.       TERMINATION OF EMPLOYMENT AGREEMENT.

                 (a) Subject to Consultant's receipt of written acknowledgement
from the Company that it owed Consultant $224,150 as of June 1, 2001 for amounts
owed by Hemex, Inc. unpaid salary, unpaid medical benefits, and loans, advances
and business expenses, the Company and Consultant agree that the Employment
Agreement is hereby terminated and is null and void, except as otherwise
provided in Section 7(b) below.

                 (b) The Company and Consultant agree that Article V
(Restrictive Covenants). Sections 6.3(b) [DISPUTE RESOLUTION], 6.4 [SUCCESSORS;
BINDING AGREEMENT], 6.6 [SEVERABILITY]. 6.7 [NOTICES]. 6.12 [GOVERNING LAW], and
Exhibit "A" (Dispute Resolution Procedures) in the Employment Agreement shall
survive the termination of the Employment Agreement and shall apply in
accordance with their respective terms

         8.      MITIGATION OF DAMAGES; NO SET-OFF; DISPUTE RESOLUTION.

                 (a) Consultant shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement be
reduced by any compensation earned by Consultant as the result of employment by
another employer. The Company's obligation to make the payments provided for in
this Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim or action which the Company may have against Consultant.

                 (b) If there shall be any dispute between the Company and
Consultant, the dispute shall be resolved in accordance with the dispute
resolution procedures set forth in Exhibit "A" hereto, the provisions of which
are incorporated as a part hereof and the parties hereto hereby agree that such
dispute resolution procedures shall be the exclusive method for resolution of
disputes under this Agreement. In the event of a dispute hereunder, until there
is a resolution and award as provided in Exhibit the Company shall pay all
amounts, and provide all benefits, to Consultant and/or Consultant's family or
other beneficiaries, as the case may be, that the Company would be required to
pay or provide hereunder and shall pay the reasonable legal fees and expenses of
counsel for Consultant in connection with such. dispute resolution; provided,
however, that the Company shall not be required to pay any disputed amounts or
any legal fees and expenses pursuant to this Subparagraph (b) except upon
receipt of a written undertaking by or on behalf of Consultant (and/or
Consultant's family or other beneficiaries, as the case may be) to repay,
without interest or penalty, as soon as practicable after completion of the
dispute resolution (A) all such amounts to which Consultant (or Consultant's
family or other beneficiaries, as the case may be) is ultimately adjudged to not
be entitle with respect to the payment of such disputed amount(s) and (B) in
addition, in the case of legal fees and expenses, a proportionate amount of
legal fees and expenses attributable to any of Consultant's claim(s) or any of
Consultant's defenses or counter-claim(s), if any, which shall have been found
by the dispute resolver to have been frivolous or without merit.

                                       3
<PAGE>

         9. SUCCESSORS; BINDING AGREEMENT. This Agreement shall be binding upon
any successor to the Company and shall inure to the benefit of and be
enforceable by Consultant's personal or legal representatives, beneficiaries.
designees, executors, administrators, heirs, distributees, devisees and
legatees.

         10. MODIFICATION; NO WAIVER. This Agreement may not be modified or
amended except by an instrument in writing signed by the parties hereto. No term
or condition of this Agreement shall be deemed to have been waived, nor shall
there be any estoppel against the enforcement of any provision of this
Agreement, except by written instrument by the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a waiver of such term
or condition for the future or as to any other term or condition.

         11. SEVERABILITY. The covenants and agreements contained herein are
separate and severable and the invalidity or unenforceability of any one or more
of such covenants or agreements, if not material to the arrangement that is the
basis for this Agreement, shall not affect the validity or enforceability of any
other covenant or agreement contained herein.

         12. NOTICES. All the notices and other communications required or
permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at the following addresses:

                          If to the Company, to it at:

                          Aethlon Medical. Inc.
                          7825 Fay Avenue
                          Suite 200
                          La Jolla, California 92037

                          If Consultant, to him at:
                          Mr. Franklyn S. Barry, Jr.
                          1141 Delaware Avenue
                          Unit 3N
                          Buffalo, New York 14209

         13 ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided for herein.

         14. ENTIRE UNDERSTANDING. This Agreement (together with the Exhibit
incorporated as a part hereof constitutes the entire understanding between the
parties hereto with respect to the subject matter hereof, and no agreement,
representation, warranty or covenant has been made by either party except as
expressly set forth herein with respect to the subject matter hereof.

         15. CONSULTANT'S REPRESENTATIONS. Consultant represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound.

                                       4
<PAGE>

         16. INDEPENDENT CONTRACTOR. This Agreement calls for the performance of
Consultant's services as an independent contractor and he will not be considered
an employee of the Company for any purposes.

         17. GOVERNING LAW. This Agreement shall be construed in accordance with
and governed for all purposes by the laws of the State of New York applicable to
contracts executed and wholly performed within such state.

                 IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.

                                     COMPANY

                                     Aethlon Medical, Inc. a Nevada Corporation

                                     By:  /s/ James A Joyce President and CEO

                                     CONSULTANT


                                     FRANKLYN S BARRY, JR.

                                     By: /s/ Franklyn S Barry, Jr.


                                       5
<PAGE>

                                   EXHIBIT "A"
                          DISPUTE RESOLUTION PROCEDURES

         A. If a controversy should arise which is covered by Section 8(b) of
this Agreement, then not later than twelve (12) months from the date of the
event which is the subject of dispute either party may serve on the other a
written notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy");
PROVIDED that, in any event, the other party shall have at least thirty (30)
days from and after the date of the Notice of Controversy to serve a written
notice of any counterclaim ("Notice of Counterclaim"). The Notice of
Counterclaim shall specify the claim or claims in reasonably specific detail. If
the Notice of Controversy or the Notice of Counterclaim, as the case may be, is
not served within the applicable period, the claim set forth therein will be
deemed to have been waived, abandoned and rendered unenforceable.

         B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three (3) week period during
which the parties will make a good faith effort to resolve the dispute through
negotiation ("Period of Negotiation"). Neither party shall take any action
during the Period of Negotiation to initiate arbitration proceedings.

         C. If the parties should agree during the Period of Negotiation to
mediate the dispute, then the Period of Negotiation shall be extended by an
amount of time to be agreed upon by the parties to permit such mediation. In no
event, however, may the Period of Negotiation be extended by more than five (5)
weeks or, stated differently, in no event may the Period of Negotiation be
extended to encompass more than a total of eight (8) weeks.

         D. If the parties agree to mediate the dispute but are thereafter
unable to agree within one (1) week on the format and procedures for the
mediation, then the effort to mediate shall cease, and the Period of Negotiation
shall terminate four (4) weeks from the Notice of Controversy (or the Notice of
Counterclaim, as the case may be).

         E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set forth
below (referred to below as the "Arbitration Agreement").

         F. A notice of intention to arbitrate ("Notice of Arbitration") shall
be served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as
the case may be) will be deemed to have been waived, abandoned and rendered
unenforceable.

         G. The arbitration, including the Notice of Arbitration, will be
governed by the Commercial Rules of the American Arbitration Association except
that the terms of this Arbitration Agreement shall control in the event of any
difference or conflict between such Rules and the terms of this Arbitration
Agreement. The arbitration shall be scheduled to take place in Buffalo, New
York.

         H. The dispute resolver shall reach a decision on the merits on the
basis of applicable legal principles as embodied in the law of the State of New
York.

         I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States of
the United States or of the District of Columbia. The dispute resolver shall be
promptly appointed pursuant to Rule 13 of the Commercial Rules of the American
Arbitration Association ("AAA"). If the dispute resolver has not been appointed

                                       6
<PAGE>

within forty-five (45) days of the AAA's initial transmission of lists of
potential arbitrators, then the AAA shall unilaterally designate the dispute
resolver.

         J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of this
Arbitration Agreement and shall indicate such dispute resolver's agreement to
the Tribunal Administrator to comply with such provisions and time limitations.

         K. During the 30-day period following appointment of the dispute
resolver, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven (7) days of the request.

         L. Following the 30-day period of document production, there will be a
forty-five (45) day period during which limited depositions will be permissible.
Neither party will take more than five (5) depositions, and no deposition will
exceed three (3) hours of direct testimony.

         M. Disputes as to discovery or prehearing matters of a procedural
nature shall be promptly submitted to the dispute resolver pursuant to telephone
conference call or otherwise. The dispute resolver shall make every effort to
render a ruling on such interim matters at the time of the hearing (or
conference call) or within five (5) business days thereafter.

         N. Following the period of depositions, the arbitration hearing shall
promptly commence. The dispute resolver will make every effort to commence the
hearing within thirty (30) days of the conclusion of the deposition period and,
in addition, will make every effort to conduct the hearing on consecutive
business days to conclusion.

         O. An award will be rendered, at the latest, within nine (9) months of
the date of the Notice of Arbitration and within thirty (30) days of the close
of the arbitration hearing. The award shall set forth the grounds for the
decision in reasonably specific detail and shall also specify whether any claim
(or defense or counterclaim) of Executive is found to be frivolous or without
merit and what proportion, if any, of his legal fees and expenses which have
been paid by the Company Executive shall be required to repay to the Company in
accordance with Section 8(b). The award shall be final and nonappealable.

         P. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT THEY ARE WAIVING THEIR
RIGHTS TO A TRIAL IN A STATE OR FEDERAL COURT AND ARE ALSO WAIVING THEIR RIGHT
TO A JURY TRIAL.

          COMPANY                                  CONSULTANT

          AETHLON MEDICAL, INC.                    FRANKLYN S.  BARRY, JR.
          a Nevada corporation



          By: /s/ James A Joyce, President         By: /s/ Franklyn S Barry, Jr.

                  Its' Chairman of the Board


                                       7

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>5
<FILENAME>hemex.txt
<TEXT>
<PAGE>
EXHIBIT 10.16

                                    AGREEMENT


         THIS AGREEMENT, effective January 1, 2000, is made and entered into by
and among AETHLON MEDICAL, INC. (hereinafter "AETHLON"), HEMEX, Inc.
(hereinafter "HEMEX"), and Dr. Julian L. Ambrus, Jr., M.D. (hereinafter "Dr.
Ambrus") and Dr. David O. Scamurra, M.D. (hereinafter "Dr. Scamurra").

                                    RECITALS

         WHEREAS, INVENTORS have invented and are the sole owners of an
INVENTION relating to an apparatus and method for removing HIV and other viruses
from the blood; and

         WHEREAS, an application for a provisional patent was filed by INVENTORS
on August 31, 1998 with the United States Patent and Trademark Office under
serial number 60/098,477 with respect to such INVENTION, and US utility
application Serial No. 09/385166 and International Application No. PCT/US
99-19448 were filed by INVENTORS with respect to such INVENTION; and

         WHEREAS, HEMEX is engaged in the business of development, manufacture
and sale of medical devices; and

         WHEREAS, AETHLON plans to sell its common stock in a private placement
in order to fund its operations and its performance under this Agreement and in
partial consideration of the assignment and grant herein; and

         WHEREAS, HEMEX desires to obtain an assignment of all of the INVENTORS'
right, title and interest in arid to the INVENTION without reservation or
contingency, except as otherwise provided herein, and to have the exclusive
right to make, use and sell PATENTED PRODUCTS, as hereinafter defined, and
INVENTORS are willing to grant such rights, under and subject to the terms and
conditions set forth in this Agreement;

         NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

ARTICLE 1 - DEFINITIONS
- -----------------------

         1.1 "AETHLON" shall mean Bishop Equities, Inc. a Nevada corporation,
with its principal place of business located at 7825 Fay Avenue, Suite 200, La
Jolla, California 92307 doing business under the assumed name Aethlon Medical,
Inc.

         1.2 "EFFECTIVE DATE" shall mean January 1, 2000.

         1.3 "EQUITY OFFERING" shall mean a private placement of Aethlon
Medical, Inc. common stock or equivalent financial instrument.

          1.4 "FIELD OF USE" shall mean devices and methods for removing HIV and
other viruses from the blood employing a filtration device having antibodies
and/or DNA fragments immobilized on a material and retained by a membrane that
allows serum containing virus to interact with the antibodies and/or DNA,
including but not limited to such devices and methods as described in SUBJECT
PATENTS.


                                       1
<PAGE>

         1.5 "HEMEX" shall mean Hemex, Inc., a Delaware corporation authorized
to do business in New York, with its principal place of business located at 143
Windsor Avenue, Buffalo, New York 14209, a wholly--owned subsidiary of AETHLON.

         1.6 "INVENTION(S)" shall mean all devices and methods described in the
PROVISIONAL PATENT APPLICATION and in the UTILITY PATENT APPLICATION and in the
PCT INTERNATIONAL APPLICATION. INVENTION(S) shall further include any patentable
improvements in the FIELD OF USE both conceived and reduced to practice by
INVENTORS or HEMEX during the period extending through the EFFECTIVE DATE until
August 1, 2004. Any devices, methods or patentable improvements in the FIELD OF
USE which are either conceived or reduced to practice after August 1, 2004 are
specifically excluded as an INVENTION and therefore not includable under the
scope of this Agreement.

         1.7 "INVENTORS" shall mean, collectively, Julian L. Ambrus, Jr., M.D.
and David 0.Scamurra, M.D., individuals residing at 541 West Ferry Street,
Buffalo, New York 14222 and 66 Four Seasons West, Eggertsville, New York 14226,
respectively.

         1.8 "NET SALES PRICE" shall mean the price actually invoiced by HEMEX
(or by a licensee of HEMEX) for devices sold, leased or otherwise disposed of by
HEMEX (or a licensee of HEMEX) after deduction of customary trade and quantity
discounts but excluding broker or agent commissions as a deductible cost or
discount.

         1.9 "PATENTED PRODUCT" shall mean any medical device covered by a claim
of a non-expired, granted patent under SUBJECT PATENTS that has not been held
invalid or unenforceable by a court or administrative agency of competent
authority.

         1.10 "PCT INTERNATIONAL APPLICATION" shall mean PCT International
Application No. PCT/US 99-19448 filed under the Patent Cooperation Treaty on
August 30, 1999 by INVENTORS and entitled "Method For Removal of HIV and Other
Viruses For Blood".

         1.11 "PROVISIONAL PATENT APPLICATION" shall mean the Provisional Patent
Application filed on August 31, 1998 by INVENTORS with the United States Patent
and Trademark Office with respect to the INVENTIONS, under serial number
60/098,477 and entitled "Use of Immobilized DNA Fragments and Antibodies to
Remove HIV and Other Viruses For Blood".

         1.12 "SUBJECT PATENTS" shall mean all patent applications that may be
filed on INVENTIONS anywhere in the world, including any and all divisionals,
reissues, continuations and extensions thereof, and in and to any Letters
Patent, Inventors' Certificates, Design Registrations, Industrial Models,
Utility Models and all other forms of protection that may be granted thereon
worldwide. SUBJECT PATENTS specifically include the PROVISIONAL PATENT
APPLICATION, the UTILITY PATENT APPLICATION, and the PCT INTERNATIONAL
APPLICATION, and US and foreign patent applications that claim priority thereon,
and all divisions, continuations, reissues, substitutes and extensions thereof,
and all provisional patent application and patent applications and patents
claiming priority thereon, and any Letters Patent, Inventors' Certificates,
Design Registrations, Industrial Models, Utility Models and all other forms of
protection that may be granted thereon worldwide.

         1.13 "TERM" shall mean the time period from the EFFECTIVE DATE through
the later of (i) the expiration date of the last to expire of SUBJECT PATENTS or
(ii) the abandonment date of the last to be abandoned of any patent applications
under SUBJECT PATENTS, unless this Agreement is sooner terminated as provided in
Article 6 hereof.

                                       2
<PAGE>

         1.14 "UTILITY PATENT APPLICATION" shall mean the US Utility Patent
Application filed on August 30, 1999 by INVENTORS with the United States Patent
and Trademark Office with respect to the INVENTIONS, under serial number
09/385166 and entitled "Method For Removal of HIV and Other Viruses For Blood".

ARTICLE 2 - ASSIGNMENT
- ----------------------

         2.1 INVENTORS hereby assign and grant to HEMEX for the TERM and subject
to the provisions of this Agreement, with right to grant licenses to third
parties consistent with the terms of this Agreement, all of the INVENTORS'
right, title and interest worldwide in and to

                  (a) the INVENTIONS, and

                  (b) the SUBJECT PATENTS.

         2.2 INVENTORS agree to execute one or more assignments and such other
documents as may be reasonably requested by HEMEX from lime to time, at no cost
to INVENTORS, to evidence or effect the assignment and grant of rights provided
herein.

         2.3 HEMEX accepts the assignment and grant of Article 2.1, and AETHLON
consents to the assignment and grant to HEMEX.

ARTICLE 3 - ROYALTIES; PAYMENT AND REPORTING
- --------------------------------------------

         3.1 In consideration of the assignment to HEMEX and other covenants and
agreements contained in this Agreement, HEMEX or AETHLON, as the case may be,
shall pay and deliver to INVENTORS:

                  (a) within thirty (30) days of the date of signature of this
Agreement by authorized representatives of all parties, the greater of (i)
twelve thousand five hundred (12,500) shares of AETHLON common stock ($.00l Par
Value) issued and fully paid and non-assessable on the EFFECTIVE DATE, which
shares shall be deemed fully earned or (ii) such number of shares of AETHLON
common stock ($.001 Par Value) issued and fully paid and non-assessable on the
EFFECTIVE DATE, as will equal one hundred thousand dollars ($100,000) based upon
the per share trading price on the EFFECTIVE DATE, which shares shall be deemed
fully earned; and

                  (b) within thirty (30) days of the date of issuance of the
first US letters patent relating to an INVENTION, the greater of (i) twelve
thousand five hundred (12,500) shares of AETHLON common stock ($.001 Par Value)
issued and fully paid and non-assessable on said US letters patent issuance
date, which shares shall be deemed fully earned or (ii) such number of AETHLON
common stock ($.001 Par Value) issued and fully paid and non-assessable on said
US letters patent issuance date as will equal one hundred thousand dollars
($100,000.00) based upon the per share trading price on said US letters patent
issuance date, which shares shall be deemed fully earned; and

                                       3
<PAGE>

                  (c) a royalty equal to eight and three quarter percent (8.75%)
of the NET SALES PRICE of all PATENTED PRODUCTS sold, leased or otherwise
disposed of for resale to end users whether or not affiliated with HEMEX or
AETHLON. For purposes of payment under this Article 3.1(c), within thirty (30)
days after the last day of March, June, September and December in each relevant
year during the TERM and after the first commercial sale of a PATENTED PRODUCT,
Hemex shall furnish to INVENTORS a written statement in such detail as INVENTORS
may reasonably require of all amounts due pursuant to this Article 3.1(c) for
the preceding quarter, and shall pay to INVENTORS all amounts due to INVENTORS
thereunder.

         3.2 HEMEX and its licensees shall at all times keep an accurate account
of all sales, leases or other dispositions for resale to end users of PATENTED
PRODUCTS which are the subject of this Agreement, shall render written
statements thereof to INVENTORS as required under Article 3.1(d) and shall pay
to the INVENTORS with each such statement, the amount of all royalties earned
during such quarter. HEMEX shall keep accurate records containing all data
reasonably required for the computation and verification of the amounts to be
paid and the information to be reported to INVENTORS under this Agreement. HEMEX
shall permit an independent accounting firm designated by INVENTORS to audit
such records at HEMEX's principal place of business (or such other site as HEMEX
may reasonably designate) at any time and from time to time during normal
business hours upon reasonable advance notice to HEMEX. The auditor must sign a
nondisclosure agreement in a form reasonably acceptable to HEMEX. In no event
shall audits be conducted under this Article 3.2 more than one time in any
calendar year. If INVENTORS elect not to have an independent accounting firm
audit such records in any year, the right to audit the records for such year
shall carry forward. All costs and expenses incurred by INVENTORS for audit of
HEMEX's records shall be borne by INVENTORS unless the audit discovers errors or
omissions more than ten percent (10%) in HEMEX's favor, in which case the costs
and expenses shall be borne by HEMEX but not to exceed the amount of the error
or omission in HEMEX's favor. If such an audit discloses a discrepancy between
the amounts reported and paid by HEMEX and what should have been reported and
paid, HEMEX shall have the right to its own audit, at HEMEX's expense, within
sixty (60) days after notice from INVENTORS of the discrepancy. If the auditors
agree on the amount of the discrepancy, HEMEX shall pay the shortfall in full
within thirty (30) days if INVENTORS have been underpaid and INVENTORS shall
repay the overpayment in full within Thirty (30) days if INVENTORS have been
overpaid. lithe auditors do not agree on the amount of the discrepancy, the
dispute shall be submitted to binding arbitration in accordance with the
arbitration provisions of Section 6.4 of this Agreement.

ARTICLE 4 - LICENSING
- ---------------------

         HEMEX may from time to time grant one or more licenses with respect to
the SUBJECT PATENTS within its discretion, provided, however, that such licenses
shall be consistent with the terms of this Agreement, require periodic reporting
of all revenues derived by any licensees from the SUBJECT PATENTS and shall
automatically terminate upon expiration or sooner termination of this Agreement.
INVENTORS shall be entitled to inspect all such license agreements upon
reasonable prior notice to HEMEX and to make extracts and copies thereof, from
time to time and at any lime during the TERM. To the extent that such license
agreements or the terms of the agreements are confidential to HEMEX or to the
sublicensee, INVENTORS shall sign a nondisclosure agreement in a form reasonably
acceptable to HEMEX prior to inspection, or to making extracts and copies
thereof.

ARTICLE 5 - PATENT FILING AND PROSECUTION
- -----------------------------------------

         5.1 Upon signature of this Agreement, INVENTORS will promptly disclose
to HEMEX all information (collectively, the "INFORMATION") in its possession
pertaining to the filed patent applications under SUBJECT PATENTS which may be
necessary or useful for prosecuting such patent applications for the protection
of INVENTIONS. HEMEX will, upon receipt of the INFORMATION: accept liaison and


                                       4
<PAGE>

financial responsibility for prosecution by a patent attorney nominated by HEMEX
and approved by INVENTORS of the application to allowance or through necessary
appeal from a final rejection by an examiner of the United States Patent and
Trademark Office; and reimburse INVENTORS for the costs involved in filing the
UTILITY PATENT APPLICATION and PCT INTERNATIONAL APPLICATION, the costs not to
exceed seven thousand dollars ($7000). INVENTORS will thereafter from time to
time supply HEMEX with additional information as may be necessary or desirable
to facilitate prosecution and preparation of patent applications on INVENTIONS.

         5.2 In. addition to the patent applications identified in Article 5.1,
HEMEX shall have the right to identify INVENTIONS that may be the subject of
additional US Patent applications. HEMEX shall also have the right to identify
INVENTIONS that may be the subject of foreign patent applications. HEMEX shall
have liaison and financial responsibility during the TERM for preparation,
filing and prosecution of any such patent applications, and maintenance of any
patent granted thereon, using a patent attorney nominated by HEMEX and approved
by INVENTORS.

         5.3 HEMEX will provide INVENTORS with copies of applications filed in
the United States or foreign patent offices, any papers received from the United
States or foreign patent offices pertaining to such applications, and any papers
filed in the United States or foreign patent offices pertaining to such
applications. Any written comments on prosecution of such applications received
from INVENTORS shall be provided to the patent attorney referenced in Articles
5.1 and 5.2.

         5.4 HEMEX shall not abandon any patent application under SUBJECT
PATENTS, nor permit any granted patent under SUBJECT PATENTS to lapse prior to
its full patent term, without first providing INVENTORS with the opportunity to
assume financial and patent liaison responsibility for such application or
patent. Any such application or patent under SUBJECT PATENTS for which INVENTORS
assume responsibility under this Section 5.4 shall revert to INVENTORS and HEMEX
shall execute and deliver to INVENTORS any and all assignments and other
documents necessary to effect such reversion and transfer, except as otherwise
provided in Article 6 Agreement upon a termination hereof.

ARTICLE 6 - TERMINATION; ARBITRATION
- ------------------------------------

         6.1 INVENTORS may terminate this Agreement upon the occurrence of any
of the following events (individually, "Event of Default" and collectively,
"Events of Default"):

                  (a) The default by HEMEX or AETHLON in observing any provision
of this Agreement and failure to cure such default within sixty (60) days
receipt of written notice from the INVENTORS specifying the nature of such
default, or (i) if by reason of its nature the failure or default can be
remedied, but not within such sixty (60) day period, HEMEX or AETI-ILON fails to
proceed with reasonable diligence after receipt of such notice to cure the
default, or (ii) if HEMEX or AETHLON fails to continue with reasonable diligence
its efforts to cure the default; provided, however, that in no event shall HEMEX
or AETHLON have more than one (1) additional sixty (60) day period to cure such
default.

                  (b) HEMEX or AETHLON (i) applies for or consents to the
appointment of or the taking of possession by a receiver, custodian, trustee or
liquidator of itself or of any of its assets, (ii) commences a voluntary case
under the Federal Bankruptcy Code (as now or hereafter in effect), or (iii)
files a petition or other request seeking to take advantage of any other law
relating to bankruptcy or insolvency.


                                       5
<PAGE>

                  (c) A proceeding or case is commenced without the application
or consent of HEMEX or AETHLON or an affiliated party of HEMEX or AETHLON in any
court of competent jurisdiction, seeking (i) liquidation, reorganization,
adjudication as a bankrupt, dissolution, or winding-up, (ii) the appointment of
a trustee, receiver, custodian, liquidator or the like of HEMEX or AETHLON, or
(iii) similar relief under any law relating to bankruptcy, insolvency,
reorganization, or winding-up, and such proceeding or case continues
undismissed, or an order, judgment or decree approving or ordering any of the
foregoing is entered and continues unstayed and in effect, for a period of sixty
(60) days.

                  (d) INVENTORS have not received payment of at least fifteen
thousand dollars ($15,000) in any year during the TERM beginning in the second
full year after both the issuance of any US letters patent and FDA approval of a
PATENTED PRODUCT (if required for marketing the product in the USA) and HEMEX
fails to make a payment to ENVENTORS during that year equivalent to the fifteen
thousand dollar ($15,000) royalty payment;

                  (e) The EQUITY OFFERING is not completed within twenty-four
(24) months after the EFFECTIVE DATE.

         6.2 HEMEX may terminate this Agreement upon the default by INVENTORS in
observing any provision of this Agreement and failure to cure such default
within sixty (60) days receipt of written notice from the HEMEX or AETHLON
specifying the nature of such default, or (i) if by reason of its nature the
failure or default can be remedied, but not within such sixty (60) day period,
INVENTORS fail to proceed with reasonable diligence after receipt of such notice
to cure the default, or (ii) if INVENTORS fails to continue with reasonable
diligence its efforts to cure the default; provided, however, that in no event
shall INVENTORS have more than one (1) additional sixty (60) day period to cure
such default.

         6.3 Upon termination of this Agreement as provided above in Article
6.1, all rights assigned and granted to HEMEX hereunder and all licenses granted
to third parties shall thereupon cease and ownership of the SUBJECT PATENTS, the
INVENTIONS and the INFORMATION shall immediately revert to and revest in the
INVENTORS. HEMEX shall promptly execute and deliver one or more assignments as
may reasonably be requested by INVENTORS to transfer ownership in the SUBJECT
PATENTS, INVENTIONS and shall promptly deliver a copy of the INFORMATION
previously received to INVENTORS. HEMEX shall notify INVENTORS of the inventory
of PATENTED PRODUCTS that it has on hand for which a royalty would be payable
upon the sale, lease or other disposition thereof under the provisions of this
Agreement, and HEMEX shall then have a twelve (12) month license to sell that
inventory, provided that HEMEX pays royalties for those PATENTED PRODUCTS and
renders reports to INVENTORS for those PATENTED PRODUCTS as provided for in this
Agreement. The terms of this Agreement that by their context are meant to
survive expiration or termination of this Agreement shall so survive. HEMEX
shall be required to destroy any PATENTED PRODUCTS that remain after the
expiration of this post-termination license, if the sale of such remaining
inventory would be unlawful without a license from INVENTORS. HEMEX shall retain
all books and records that would be used to account for the royalty payments due
to INVENTORS until such books and records are at least six (6) years old.


                                       6
<PAGE>

         6.4 Any dispute arising out of or related to this Agreement (other than
the validity or scope of any patents referred to herein), whether sounding in
tort or contract or otherwise (including but not limited to any claim of
misrepresentation, concealment, negligence, fraud, breach of implied duty,
etc.), which is not settled by amicable agreement of the parties shall be
determined by binding arbitration. The arbitration shall be held in the state of
New York in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, to the extent those rules are not inconsistent with
anything in this Agreement. The decision of the arbitrator or arbitrators shall
be final and binding, and judgment on the award may be entered in any court
having jurisdiction. Nothing in this Agreement to arbitrate shall prohibit
either party from seeking injunctive relief, including a temporary restraining
order or a preliminary injunction, in a court of competent jurisdiction. The
parties agree to both personal jurisdiction and venue in the County of Erie
before any Court of competent subject matter jurisdiction therein. Venue for any
arbitration proceeding hereunder shall also be in the County of Erie.

ARTICLE 7 - ADDITIONAL COVENANTS
- --------------------------------

         7.1 HEMEX shall defend, at its own expense, all infringement suits that
may be brought against it or its licensees based on or related to the
manufacture, use, or sale of PATENTED PRODUCTS.

         7.2 HEMEX shall, at its own expense, have the right to bring suit for
infringement under SUBJECT PATENTS. The INVENTORS shall, at the expense and at
the request of HEMEX, join the suit as a party plaintiff and give evidence and
execute such documents as HEMEX may reasonably require. HEMEX shall be entitled
to any recovery of damages from any such infringement action, but shall account
therefor to the INVENTORS and promptly pay a royalty at the rate set forth in
Section 3.1(d) of this Agreement on any recovery for infringement after
deduction of HEMEX's costs incurred in any such action.

         7.3 If INVENTORS provide HEMEX with written notice of an infringement
under SUBJECT PATENTS, the parties shall cooperate in obtaining an opinion of
patent counsel confirming infringement. If the opinion confirms infringement,
HEMEX shall have six months from the date of the opinion to bring suit, as
provided under Article 7.2, or to obtain an undertaking from the infringing
party for a sublicense under SUBJECT PATENTS. If HEMEX does not bring suit or
obtain the undertaking for a sublicense from the infringing party, then
INVENTORS shall have the right to bring suit for infringement under SUBJECT
PATENTS, and HEMEX shall, at the expense and at the request of INVENTORS, join
the suit as a party plaintiff and give evidence and execute such documents as
INVENTORS may reasonably require. HEMEX shall not be entitled to any recovery of
damages from any such infringement action brought by INVENTORS under this
Article 7.3.

         7.4 HEMEX agrees that before it begins to make, market and sell any
products covered by the SUBJECT PATENTS or INVENTIONS, it will carry products
liability insurance in amounts and coverages as are appropriate for such
products and naming INVENTORS as additional insureds. HEMEX agrees to indemnify,
defend and hold INVENTORS harmless from any products liability claim made
against INVENTORS for a product sold by HEMEX unless such claim results or
arises from a willful or negligent act or omission of INVENTORS.

         7.5 HEMEX agrees to mark all products made or sold in the United States
pursuant to this Agreement with the word "Patent" together with the number(s) of
the applicable SUBJECT PATENT in the manner prescribed in 35 U.S.C. ss.287
unless impractical.


                                       7
<PAGE>

ARTICLE 8 - REPRESENTATIONS AND WARRANTIES
- ------------------------------------------

         8.1 INVENTORS represent and warrant to HEMEX and its successors and
assigns that:

                  (a) They have sole and exclusive ownership of INVENTIONS and
SUBJECT PATENTS, and the sole and exclusive right to grant the assignment and
rights under this Agreement, and they have not granted licenses or conveyed
other rights, nor will they grant licenses or convey other rights in the future,
to any person or entity that would conflict with the assignment and rights
granted to HEMEX in this Agreement;

                  (b) They have the full power to enter into and fully perform
this Agreement, and that the execution, delivery and performance of this
Agreement will not violate any terms or obligations of INVENTORS in contracts
with third parties (including the State University of New York of Buffalo); and

                  (c) To the best of their knowledge and belief, practice of
INVENTIONS will not infringe any patents or proprietary rights of third parties.

         8.2 HEMEX and AETHLON jointly and severally represent and warrant to
INVENTORS that:

                  (a) Each of HEMEX and AETHLON is a corporation duly organized,
validly existing and in good standing under the laws of its state of
incorporation and HEMEX is qualified to do business and in good standing under
the laws of the State of New York. Each .of AETHLON and HEMEX has all corporate
power and authority to own, lease or operate its property and to carry on its
business as it is now and has since its incorporation been conducted by it.

                  (b) The execution and delivery of this Agreement and the
instruments to be executed and delivered pursuant hereto arid the consummation
of the transactions contemplated hereby by AETHLON and HEMEX have been approved
by all necessary corporation action. Upon execution and delivery, this
Agreement, and each document of transfer contemplated by this Agreement when
executed and delivered by each of AETHLON and HEMEX in accordance with the
provisions hereof, will constitute a legal, valid and binding agreement of
AETHLON and HEMEX, as applicable, enforceable against each in accordance with
its respective terms, except to the extent that a court may choose to award
monetary damages rather than specific performance, or that enforceability may be
limited by applicable bankruptcy, insolvency or other laws affecting the
enforcement of creditors' rights generally or by general equitable principles.

                  (c) On the EFFECTIVE DATE, the authorized capital of AETHLON
consists of 25,000,000 shares ($.001 par value) of one class of common stock
with 2,595,000 shares issued and outstanding. There are no outstanding warrants,
options or agreements to issue shares or restrictions on the transfer of shares
except for a certain stock option agreement with Franklyn S. Barry, Jr. dated
April 1, 1999 and certain warrants to be issued as described in the Offering
Summary of AETHLON dated June 28, 1999.

                  (d) On the EFFECTIVE DATE, AETHLON owns one hundred percent
(100%) of the issued and outstanding shares of HEMEX.


                                       8
<PAGE>



         8.3 HEMEX shall indemnify and hold harmless INVENTORS against all
liabilities, demands, damages, expenses, or losses resulting from or arising out
of HEMEX's material misrepresentation contained in any representation or
warranty in this Agreement as of the date hereof. INVENTORS shall indemnify and
hold harmless HEMEX against all liabilities, demands, damages, expenses, or
losses resulting from or arising out of INVENTORS' material misrepresentation
contained in any representation or warranty in this Agreement as of the date
hereof.

ARTICLE 9 - MISCELLANEOUS
- -------------------------

         9.1 This Agreement may be amended or modified only by a written
instrument duly executed by and authorized representative of each party.

         9.2 This Agreement shall be binding upon and inure to the benefit and
burden of the respective successors and permitted assigns of the parties. During
the period from the EFFECTIVE DATE through August 1, 2004, HEMEX may not assign
this Agreement without the prior written consent of INVENTORS which consent may
not be unreasonably withheld.

         9.3 This Agreement shall be deemed to have been made in and shall be
construed in accordance with the laws of the State of New York without reference
to its choice of law provisions.

         9.4 This Agreements may execute in several counterparts, provided that
each party receives a copy fully signed by the other parties.

         9.5 The headings and titles to the articles and paragraphs in this
Agreement are intended solely for convenience and shall be given no effect in
the construction or interpretation of this Agreement.

         9.6 Each party shall at the request of the other party, execute any
document reasonably necessary to implement the provisions of this Agreement.

         9.7 Nothing in this Agreement is intended or shall be deemed to
constitute a partnership, agency, employer-employee or a joint venture
relationship between HEMEX and INVENTORS, INVENTORS shall not incur any debts or
make any commitments for HEMEX, except to the extent, if at all, specifically
provided herein.

         9.8 This written Agreement embodies the entire understanding between
the parties with respect to the subject matter hereof and supersedes and
replaces any and all other prior understandings, arrangements, and/or
agreements, whether written or oral, relating to the SUBJECT PATENTS and
INVENTIONS.

         9.9 This Agreement is divisible and separable. If any provision of this
Agreement is held to be or becomes invalid, illegal or unenforceable, such
provision shall be reformed to approximate as nearly as possible the intent of
the parties and shall remain valid and enforceable to the greatest extent
permitted by law.

         9.10 The terms of this Agreement may be waived only by a written
instrument expressly waiving such term or terms and executed by the party
waiving compliance. The waiver of any term or condition of this Agreement by
either party hereto shall not constitute a modification of this Agreement, nor
prevent a party hereto from enforcing such term or condition in the future with
respect to any subsequent event, any other right accruing to such party
hereunder.


                                       9
<PAGE>

         9.11 All notices and other communications regarding this Agreement sent
to HEMEX shall be addressed to:

                    Hemex, Inc.
                    143 Windsor Avenue
                    Buffalo, New York 14209
                    Attention:    Mr. Franklyn Barry
                    Fax:   716-884-5930

All notices and other communications regarding this Agreement sent to Dr. Ambrus
shall be addressed to:

                    Julian L. Ambrus, Jr., M.D.
                    541 West Ferry Street
                    Buffalo, New York 14222
                    Fax:   716-859-2999
with a copy to:

                    Magavern & Rich, LLP
                    71 Main Street
                    P.O. Box 206
                    Hamburg, New York 14075-0206
                    Fax: 716-648-6187

All notices and other communications regarding this Agreement sent to Dr.
Scamurra shall be addressed to:

                    David O. Scamurra, M.D.
                    66 Four Seasons West
                    Eggertsville, New York 14226
                    Fax:   716-447-6253

with a copy to:

                    Magavem & Rich , LLP
                    71 Main Street
                    P.O. Box 206
                    Hamburg, New York 14075-0206
                    Fax:   617-648-6187

         Unless provided to the contrary in this Agreement, all written notices
required or permitted to be given under the terms of this Agreement shall be
deemed duly delivered upon receipt if (1) delivered in person, (2) sent by
facsimile using a machine that confirms delivery and confirmed by sending the
original via certified mail, return receipt requested, or (3) sent certified
mail, return receipt requested to the above address.



                                       10
<PAGE>




         IN WITNESS WHEREOF, the parties hereto caused this Agreement to be duly
executed.



HEMEX, INC.                                  JULIAN L. AMBRUS, JR., M.D.

By: /s/ signature                            /s/ Julian L. Ambrus
Title: President                             Date: 12/30/99
Date: 1/10/2000
                                             DAVID O. SCAMURRA, M.D.

                                             /s/ David O. Scamurra
                                             Date: 12 30 99


                                       11

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.17
<SEQUENCE>6
<FILENAME>tullis.txt
<TEXT>
<PAGE>
EXHIBIT 10.17
                              EMPLOYMENT AGREEMENT

         This Employment Agreement (the "Agreement") is made and entered into as
of January 10, 2000, by and between BISHOP EQUITIES, INC., dba AETHLON MEDICAL,
a Nevada corporation (the "Company") and RICHARD H. TULLIS ("Executive").

                                    ARTICLE I

                                 DUTIES AND TERM

         1.1 EMPLOYMENT. In consideration of their mutual covenants and other
good and valuable consideration, the receipt, adequacy and sufficiency of which
is hereby acknowledged, the Company agrees to hire Executive, and Executive
agrees to remain in the employ of the Company, upon the terms and conditions
herein provided.

         1 .2 POSITION AND RESPONSIBILITIES.

                  1.2.1 Executive shall serve as the Vice President--Business
Development of the Company and President of Aethlon, Inc., a wholly-owned
subsidiary of the Company (or in a capacity and with a title of at least
substantially equivalent quality) reporting directly to Chief Executive Officer
of the Company. Executive agrees to perform services not inconsistent with his
position as shall from time to time be assigned to him by the Chief Executive
Officer of the Company. Such services to be performed by Executive shall
include, but not be limited to, the following:

                           1.2.1.1 Management and supervision of government
                  grant proposals;

                           1.2.1.2 Technical due diligence for potential
                  acquisitions by the Company;

                           1.2.1.3 Liaison with the Company's scientific staff
                  and advisory board;

                           1.2.1.4 Scientific representation of the Company to
                  the financial community;

                           1.2.1.5 Identification of new business opportunities;
                  and

                           1.2.1.6 Management of the anticipated Cell Activation
                  subsidiary.


<PAGE>

                  1.2.2 Executive further agrees to serve, if elected, as a
director of the Company and as an officer or director of any subsidiary or
affiliate of the Company.

                  1.2.3 During the period of his employment hereunder, Executive
shall devote substantially all of his business time, attention, skill and
efforts to the faithful performance of his duties hereunder.

         1.3 TERM. The term of Executive's employment under this Agreement shall
commence on the date first above written and shall continue, unless sooner
terminated, until January 9, 2002, and it will continue thereafter for
successive One (1) year periods unless and until either party gives the other
party written notice of termination at least Sixty (60) days prior to the end of
a term.

                                   ARTICLE II

                                  COMPENSATION

         For all services rendered by Executive in any capacity during his
employment under this Agreement, including, without limitation, services as a
director, officer or member of any committee of the Board of the Company or of
the Board of Directors of any subsidiary or affiliate of the Company, the
Company shall compensate Executive as follows:

         2.1 BASE SALARY. The Company shall pay to Executive an annual base
salary commencing January 10, 2000 of not less than $80,000.00 (the "Base
Salary"). The Base Salary shall be reviewed annually by the Board or a committee
designated by the Board and the Board or such committee may, in its discretion,
increase the Base Salary.

         2.2 INCENTIVE PAYMENT. During the period of Executive's employment
under this Agreement, the Executive shall be eligible to participate in an
incentive compensation program implemented by the Board (the "Annual Incentive
Bonus") whereby Executive have the potential to earn an additional $30,000 per
annum.

         2.3 ADDITIONAL BENEFITS. Executive shall be entitled to participate in
all employee benefit and welfare programs, plans and arrangements (including,
without limitation, pension, profit-sharing, supplemental pension and other
retirement plans, insurance, hospitalization, medical and group disability
benefits, travel or accident insurance plans) and to receive fringe benefits,
such as dues and fees of professional organizations and associations, which are
from time to time available to the Company's executive personnel; PROVIDED,
HOWEVER, there shall be no duplication of termination or severance benefits, and
to the extent that such benefits are specifically provided by the Company to
Executive under other provisions of this Agreement, the benefits available under
the foregoing plans and programs shall be reduced by any benefit amounts paid
under such other provisions. Executive shall during the period of his employment


                                       2
<PAGE>

hereunder continue to be provided with benefits at a level which shall in no
event be less in any material respect than the benefits made available to
Executive by the Company as of the date of this Agreement. Notwithstanding the
foregoing, the Company may terminate or reduce benefits under any benefit plans
and programs to the extent such reductions apply uniformly to all Senior
Executives entitled to participate therein, and Executive's benefits shall be
reduced or terminated accordingly. Specifically, without limitation, Executive
shall receive the following benefits:

                  2.3.1 HEALTH INSURANCE. The Company shall provide Executive a
monthly cash allowance for payment of health insurance premiums obtained by and
for Executive (and Executive's spouse and/or dependents) up to a maximum of Four
Hundred Dollars ($400.00) per month. Executive must submit to the Company
statements showing the actual amount of the health insurance premiums, and the
Company shall have the option to either pay the health insurance premiums
directly or to reimburse Executive for the health insurance premiums. The
Company shall have the option to obtain a group medical insurance plan which
covers Executive in place and stead of providing this monthly cash allowance.
However, in no event shall Executive be entitled to a cash payment for any
unused portion of the monthly allowance (i.e., if Executive's health insurance
premiums are $300.00 per month, Executive is not entitled to receive cash for
the unused $100.00 portion of the allowance).

                  2.3.2 DISABILITY BENEFITS. In the event of Executive's failure
substantially to perform his duties hereunder on a full-time basis for a period
not exceeding 180 consecutive days or for periods aggregating not more than 180
days during any twelve-month period as a result of incapacity due to physical or
mental illness, the Company shall continue to pay the Base Salary to Executive
during the period of such incapacity, but only in the amounts and to the extent
that disability benefits payable to Executive under Company-sponsored insurance
policies are less than Executive's Base Salary. Additionally, during the term of
this Agreement, including any renewals hereof, the Company shall procure and
maintain, at its own expense, a long-term disability insurance policy for the
benefit of Executive in the event of Executive's total disability (as defined in
Section 6.1).

                  2.3.3 REIMBURSEMENT OF BUSINESS EXPENSES. The Company shall,
in accordance with standard Company policies, pay, or reimburse Executive for
all reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement.

                  2.3.4 VACATIONS. Executive shall be entitled to twenty (20)
business days excluding Company holidays, of paid vacation during each year of
employment hereunder. Executive may accrue and carry forward no more than ten
(10) unused vacation days from any particular year of his employment under this
Agreement to the next.


                                       3
<PAGE>

                                   ARTICLE III
                            TERMINATION OF EMPLOYMENT

         3.1 DEATH OR RETIREMENT OF EXECUTIVE. Executive's employment under this
Agreement shall automatically terminate upon the death or retirement (as defined
in Section 6.1) of Executive.

         3.2 BY EXECUTIVE. Executive shall be entitled to terminate his
employment under this Agreement by giving Notice of Termination (as defined in
Section 6.1) to the Company:

                  3.2.1 For good reason (as defined in Section 6.1);

                  3.2.2 At any time commencing with the date six (6) months
following the date of a change in control (as defined in Section 6.1) and ending
with the date twelve (12) months after the date of such change in control (a
"Change in Control Resignation"); and

                  3.2.3 At any time without good reason.

         3.3 BY COMPANY. The Company shall be entitled to terminate Executive's
employment under this Agreement by giving Notice of Termination (as defined in
Section 6.1) to Executive:

                  3.3.1 In the event of Executive's total disability (as defined
in Section 6.1);

                  3.3.2 For cause (as defined in Section 6.1); and

                  3.3.3 At any time without cause.

                                   ARTICLE IV

                   COMPENSATION UPON TERMINATION OF EMPLOYMENT

         If Executive's employment hereunder is terminated in accordance with
the provisions of Article III hereof except for any other rights or benefits
specifically provided for herein following his period of employment, the Company
shall be obligated to provide compensation and benefits to Executive only as
follows, subject to the provisions of Section 5.4 hereof:


                                       4
<PAGE>

         4.1 UPON TERMINATION FOR DEATH OR DISABILITY. If Executive's employment
hereunder is terminated by reason of his death or total disability, the Company
shall:

                  4.1.1 Pay Executive (or his estate) or beneficiaries any Base
Salary Which has accrued but not been paid as of the termination date (the
"Accrued Base Salary");

                  4.1.2 Pay Executive (or his estate) or beneficiaries for
unused vacation days accrued as of the termination date in an amount equal to
his Base Salary multiplied by a fraction the numerator of which is the number of
accrued unused vacation days and the denominator of which is 360 (the "Accrued
Vacation Payment");

                  4.1.3 Reimburse Executive (or his estate) or beneficiaries for
expenses incurred by him prior to the date of termination which are subject to
reimbursement pursuant to this Agreement (the "Accrued Reimbursable Expenses");

                  4.1.4 Provide to Executive (or his estate) or beneficiaries
any accrued and vested benefit required to be provided by the terms of any
Companysponsored benefit plans or programs (the "Accrued Benefits"), together
with any benefits required to be paid or provided in the event of Executive's
death or total disability under applicable law;

                  4.1.5 Pay Executive (or his estate) or beneficiaries any
Annual Incentive Bonus with respect to a prior fiscal year which has accrued but
has not been paid, plus a portion of the Annual Incentive Bonus for the year in
which Executive's employment is terminated hereunder computed at the end of the
fiscal year and pro rated to reflect the portion of the fiscal year that
Executive was employed by the Company (collectively, the "Accrued Annual
Incentive Bonus"); and in addition,

                  4.1.6 Executive (or his estate) or beneficiaries shall have
the right to exercise all vested unexercised stock options and warrants
outstanding at the termination date in accordance with terms of the plans and
agreements pursuant to which such options or warrants were issued.

         4.2 UPON TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE OTHER THAN
FOR GOOD REASON. If Executive's employment is terminated by the Company for
Cause, or if Executive terminates his employment with the Company other than (x)
upon Executive's death or total disability, (y) for good reason, or (z) pursuant
to a Change In Control Resignation (as defined in Section 3.2.2, the Company
shall:


                                       5
<PAGE>

                  4.2.1 Pay Executive the Accrued Base Salary;

                  4.2.2 Pay Executive the Accrued Vacation Payment;

                  4.2.3 Pay Executive the Accrued Reimbursable Expenses;

                  4.2.4 Pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable law;

                  4.2.5 Pay Executive any Annual Incentive Bonus with respect to
a prior fiscal year which has accrued but has not been paid; and in addition

                  4.2.6 Executive shall have the right to exercise vested
options and warrants in accordance with Section 4.1.6.

         4.3 UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR
GOOD REASON OR PURSUANT TO A CHANGE IN CONTROL RESIGNATION. If Executive's
employment is terminated (i) by the Company Without Cause, or (ii) by Executive
for Good Reason, or (iii) pursuant to a Change in Control Resignation, the
Company shall:

                  4.3.1 Pay Executive the Accrued Base Salary;

                  4.3.2 Pay Executive the Accrued Vacation Payment;

                  4.3.3 Pay Executive the Accrued Reimbursable Expenses;

                  4.3.4 Pay Executive the Accrued Benefits, together with any
benefits required to be paid or provided under applicable law;

                  4.3.5 Pay Executive the Accrued Annual Incentive Bonus;

                  4.3.6 Pay Executive commencing on the thirtieth (30th) day
following the termination date twelve (12) monthly payments equal to one-twelfth
(1/12th) of Executive's Base Salary in effect immediately prior to the time such
termination occurs;

                  4.3.7 Maintain in full force and effect, for Executive's and
his eligible beneficiaries' continued benefit, until the first to occur of (x)
his attainment of alternative employment or (y) twelve (12) months following the
termination date of his employment hereunder the employee benefits provided
pursuant to Company-sponsored benefit plans. programs or other arrangements in
which Executive was entitled to participate as a full-time employee immediately
prior to such termination in accordance with Section 2.4 hereof, subject to the
terms and conditions of such plans and programs (the "Continued Benefits"). If
Executive's continued participation is not permitted under the general terms and
provisions of such plans, programs and arrangements, the Company shall arrange
to provide Executive with Continued Benefits substantially similar to those
which Executive would have been entitled to receive under such plans, programs
and arrangements; and in addition

                                       6
<PAGE>

                  4.3.8 Executive shall have the right to exercise all vested
unexercised stock options and warrants in accordance with Section 4.1.6.


                                    ARTICLE V

                              RESTRICTIVE COVENANTS

         5.1 CONFIDENTIALITY.

                  5.1.1 Executive covenants and agrees to hold in strictest
confidence, and not disclose to any person without the express written consent
of the Company, any and all of the Company's proprietary information, as defined
in Subparagraph 5.1.3 below, except as such disclosure may be required in
connection with his employment hereunder. This covenant and agreement shall
survive this Agreement and continue to be binding upon Executive after the
expiration or termination of this Agreement, whether by passage of time or
otherwise, so long as such information and data shill remain proprietary
information.


                  5.1.2 Upon expiration or termination of this Agreement for any
reason, Executive shall immediately turnover to the Company any "Proprietary
Information." Executive shall have no right to retain any copies of any material
qualifying as Proprietary Information for any reason whatsoever after expiration
or termination of his employment hereunder without the express written consent
of the Company.

                  5.1.3 For purposes of this Agreement, "Proprietary
Information" means and includes the following: the identity of clients or
customers or potential clients or customers of the Company or its affiliates;
any written, typed or printed lists, or other materia1s identifying the clients
or customers of the Company or its affiliates; Research & Development programs,
plans and discoveries; product development, marketing, and plans; any business
plans or strategic contracts, partnerships or alliances; any financial or other
information supplied by clients or customers of the Company or its affiliates;
any and all data or information involving the Company, its affiliates, programs,
methods or contacts employed by the Company or its affiliates in the conduct of
their business; any lists, documents. manuals, records, forms or other materials
used by the Company or its affiliates in the conduct of their business; any
descriptive materials describing the methods and procedures employed by the
Company or its affiliates in the conduct of their business; and any other secret
or confidential information concerning the Company's or its affiliates' business
or affairs. The terms "list," "document" or their equivalents, as used in this
Subparagraph (c), are not limited to a physical writing or compilation but also


                                       7
<PAGE>

include any and all information whatsoever regarding the subject matter of the
"list" or "documents," whether or not such compilation has been reduced to
writing. "Proprietary Information" shall not include any information which: (i)
is or becomes publicly available through no act or failure of Executive; (ii)
was or is rightfully learned by Executive from a source other than the Company
before being received from the Company; or (iii) becomes independently available
to Executive as a matter of right from a third party. If only a portion of the
Proprietary Information is or becomes publicly available, then only than portion
shall not be Proprietary Information hereunder.

                  5.1.4 Executive acknowledges that he is the Vice
President--Business Development of the Company and President of Aethlon, Inc.
and in such capacity he will be a representative of the Company with respect to
clients and potential clients of the Company. Executive also acknowledges that
he has had and will continue to have access to confidential information about
the Company, its affiliates, and their clients and that "Proprietary
Information" acquired by him at the expense of the Company is for use in its
business. Executive has substantial experience in the management of medical
research and development and possesses special, unique, extraordinary skills and
knowledge in this field. Executive's management and scientific services to the
Company are special, unique and extraordinary and the success or failure of the
Company is dependent upon his discharge of his duties and obligations.
Accordingly, by execution of this Agreement, and subject to Subparagraph 5.1.3
hereof, Executive agrees that during his employment with the Company and for a
period of Two (2) years immediately after termination of his employment with the
Company (the "Non-Competition Period"), he shall not violate the provisions of
Section 5.2.

         5.2 COMPETITION.

                  5.2.1 During the Non-Competition Period specified in Section
5.1.4, Executive shall not:

                           5.2.1.1 Except as a passive investor in publicly-held
companies, and except for investments held as of the date hereof, directly or
indirectly own, operate, mange, consult with, control, participate in the
management or control of, be employed by, maintain or continue any interest
whatsoever in any company that directly competes with the Company or any parent
corporation, subsidiary corporations or affiliated entity or company
(hereinafter referred to as an "Affiliate") in the United States; or

                                       8
<PAGE>

                           5.2.1.2 Directly or indirectly solicit any business
of a nature that is directly competitive with the business of the Company or an
Affiliate from any individual or entity that obtained such products or services
from the Company or its Affiliates at any time during his employment with the
Company; or

                           5.2.1.3 Directly or indirectly solicit any business
of a nature that is directly competitive with the business of the Company or an
Affiliate from any individual or entity solicited by him on behalf of the
Company or its Affiliates; or

                           5.2.1.4 Employ, or directly or indirectly solicit, or
cause the solicitation of, any employees of the Company or its Affiliates who
are in the employ of the Company or its Affiliates on the termination date of
his employment hereunder for employment by others.

                  5.2.2 Executive expressly agrees and acknowledges that:

                           5.2.2.1 The Company and its Affiliates have protected
business interests throughout North America, Europe, and Asia and that
competition with and against such business interests would be harmful to the
Company and/or its Affiliates;

                           5.2.2.2 This covenant not to compete is reasonable as
to time and geographical area and does not place any unreasonable burden upon
him;

                           5.2.2.3 The general public will not be harmed as a
result of enforcement of this covenant not to compete;

                           5.2.2.4 He has had the opportunity to review this
covenant not to compete with his own independent legal counsel; and

                           5.2.2.5 He understands and hereby agrees to each and
every term and condition of to this covenant not to compete (including, without
limitation, the provisions of Section 5.4).

         5.3 NON-DISPARAGEMENT. During the term of this Agreement and the
Non-Competition Period, neither Executive nor the Company shall disparage the
other, and neither shall disclose to any third party the conditions of
Executive's employment with the Company except as may be required (1) pursuant
to applicable law or regulations, including the rules and regulations of the
Securities and Exchange Commission, (ii) to effectuate the provisions of
employee plans or programs and insurance policies, or (iii) as may be otherwise
contemplated herein or unless such information becomes publicly available
without fault of the party making such disclosure.


                                       9
<PAGE>

         5.4 REMEDIES. Executive expressly agrees and acknowledges that this
covenant not to compete is necessary for the protection of the Company and its
affiliates because of the nature and scope of their business and his position
with the Company. Further, Executive acknowledges that any breach of this
covenant not to compete would result in irreparable damage to the Company, and
in the event of his breach of this covenant not to compete, money damages will
not sufficiently compensate the Company for its injury caused thereby, and that
the remedy at law for any breach or threatened breach of Sections 5.1, 5.2 and
5.3 will be inadequate and, accordingly agrees, that the Company shall, in
addition to all other available remedies (including without limitation, seeking
such damages as it can show it has sustained by reason of such breach), be
entitled to injunctive relief or specific performance and that in addition to
such money damages he may be restrained and enjoined from any continuing breach
of this covenant not to compete without any bond or other security being
required of any court. Executive further acknowledges and agrees that if the
covenant not to compete herein is deemed to be unenforceable and/or the
Executive fails to comply with this Article V, the Company has no obligation to
provide any compensation or other benefits described in Article IV hereof.


         5.5 OWNERSHIP OF INVENTIONS.

                  5.5.1 During the employment by the Company, Executive will
have access to trade secrets, data, know-how, knowledge or other confidential
information originated in the Company or disclosed to the Company by others
under agreements to hold the same confidential (collectively referred to as
"Confidential Information"). Executive acknowledges that Confidential
Information includes any information not readily available to the public, and
includes not only technical information but also business information. In
addition, Executive may, during the period of employment, create, make, develop
or conceive inventions, discoveries, concepts, ideas, designs, works of
authorship, developments, information, improvements, or trade secrets, whether
patentable or not, and whether solely or jointly with others, which may or may
not also constitute Confidential Information (collectively referred to as
"Inventions"). Executive agrees that all works of authorship to which Executive
contributes shall be considered "works made for hire" and shall be the sole
property of the Company.

                  5.5.2 Executive agrees that Executive will neither utilize any
Confidential Information for Executive's own benefit or for the benefit of
anyone except the Company, nor disclose, disseminate, lecture upon or publish
articles about any Confidential Information to any one outside the Company, or
to any officer or employee of the~ Company not also having access to
Confidential Information, at any time either during or after employment by the
Company.


                                       10
<PAGE>

                  5.5.3 Executive agrees to disclose promptly, in writing to
Executive's Supervisor, Company's Counsel and Chief Executive Officer, any
Inventions that Executive may make, develop or conceive, solely or jointly,
during the period of employment by the Company, or by its predecessors,
successors in business, subsidiaries, parents or affiliates. All such Inventions
shall be and remain the property of the Company. Executive hereby assigns to the
Company all Executive's rights, titles and interests in and to any such
Inventions, whether or not such Inventions may be reduced to practice during the
period of Executive's employment, and to execute all patent or copyright
applications, assignments and other documents, and to take all other steps
necessary, to vest in the Company the entire right, title and interest in and to
those Inventions and in and to any patents or copyrights obtainable therefor in
the United States and in foreign countries, all at the Company's expense, but
for no consideration to Executive in addition to Executive's salary or wages.
Executive agrees to keep adequate records of all Inventions and make such
records available to the Company.

                  5.5.4 If the Company chooses to prosecute applications for
patents or copyrights for any such Inventions, the Company shall assume the
entire expense of preparing, filing and prosecuting such applications, through
counsel appointed by the Company; provided, however, that the Company is under
no obligation to prosecute such applications. Executive agrees to cooperate with
the Company and do whatever is necessary or appropriate to obtain patents,
copyrights or other legal protections for Inventions. If Executive is
incapacitated or refuses to so cooperate for any reason, Executive hereby
authorizes the Company to act as Executive's agent and to take whatever actions,
or execute whatever documents, may be needed to carry out this Agreement.

                  5.5.5 All records and other material pertaining to
Confidential Information, whether developed by Executive or others, shall be and
remain the property of the Company. Upon termination of Executive's employment
with the Company, all documents, records, notebooks and other material of any
kind pertaining to or containing Confidential Information then in Executive's
possession, or under Executive's control, whether prepared by Executive or
others, will be returned to the Company unconditionally.

                  5.5.6 Executive shall not be obligated to assign any Invention
which/relates to or would be useful in any business or activities in which the
Company is engaged if such Invention was conceived and reduced to practice by
Executive prior to Executive's employment with the Company, provided that all
such Inventions are listed at the time of employment on the attached Exhibit
"B." If no entry is made on Exhibit `B," then such entry shall be deemed to be
"none," whether or not Exhibit "B" is signed by Executive. Except as listed on
Exhibit "B," Executive will not assert any rights to any Inventions, as having
been made or acquired by Executive prior to being employed by the Company.


                                       11
<PAGE>

                  5.5.7 Executive shall not be obligated to assign any Invention
which may be wholly conceived by Executive after Executive leaves the employ of
the Company, except that Executive is so obligated if such Invention shall
involve the utilization of Confidential Information of the Company.

                  5.5.8 Notwithstanding anything in this Agreement to the
contrary, Executive shall not be obligated to assign to the Company and of
Executive's rights in an Invention that the Executive developed entirely on
Executive's own time without using the Company's equipment, supplies, facilities
or Confidential Information, except for those Inventions that either: (i)
relate, at the time of conception or reduction to practice of Invention, to
either the Company's business, or actual or demonstrably anticipated research or
development of the Company, or (ii) result from any work performed by the
Executive for the Company. THIS AGREEMENT DOES NOT APPLY TO ANY INVENTION WHICH
QUALIFIES FULLY UNDER THE PROVISIONS OF CALIFORNIA LABOR CODE SECTION 2870 OR
ANY OTHER SUBSTANTIALLY EQUIVALENT LAW IN THE STATE IN WHICH THE EXECUTIVE IS
EMPLOYED. With regard to those Inventions which Executive is not obligated to
assign to the Company, Executive shall give the Company a right of first refusal
on any and all such Inventions and the right to meet any firm offer of another
for such Inventions. The Company must exercise such right of first refusal
within thirty (30) days of receipt of written notice from Executive setting
forth such offer.

                                   ARTICLE VI

                                  MISCELLANEOUS

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

                  6.1.1 "Accrued Annual Incentive Bonus" - as defined in Section
4.1.5;

                  6.1.2 "Accrued Base Salary" - as defined in Section 4.1.1;

                  6.1.3 "Accrued Benefits" - as defined in Section 4.1.4;

                  6.1.4 "Accrued Reimbursable Expenses" - as defined in Section
4.1.3; 6.1.5 "Annual Vacation Payment" - as defined in Section 4.1.2;

                  6.1.6 "Annual Incentive Bonus" - as defined in Section 2.2;

                  6.1.7 "Base Salary" - as defined in Section 2.1;


                                       12
<PAGE>

                  6.1.8 "Board" - shall mean the Board of Directors of the
Company ;

                  6.1.9 "Cause" shall mean the occurrence of any of the
following:

                           6.1.9.1 Executive's gross and willful misconduct
which is injurious to the Company;

                           6.1.9.2 Executive's engaging in fraudulent conduct
with respect to the Company's business or in conduct of a criminal nature that
may have an adverse impact on the Company's standing and reputation;

                           6.1.9.3 The continued and unjustified failure or
refusal by Executive to perform the duties required of him by this Agreement
which failure or refusal shall not be cured within fifteen (15) days following
(a) receipt of Executive of written notice from the Board specifying the factors
or events constituting such failure or refusal, and (b) a reasonable opportunity
for Executive to correct such deficiencies;

                           6.1.9.4 Executive's use of drugs and/or alcohol in
violation of then current Company policy; or

                           6.1.9.5 Executive's breach of his obligation under
Section 1.2.3 hereof which shall not be cured within fifteen (15) days after
written notice thereof to Executive.

                  6.1.10 "Change In Control" shall mean and shall be deemed to
have occurred if:

                           6.1.10.1 After the date of this Agreement, any
"person" (as such term is used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any successor
provision thereto) shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act or any successor provision thereof) directly or
indirectly of securities of the Company representing fifteen percent (15%) or
more of the combined voting power of the Company's then outstanding securities
ordinarily having the right to vote at an election of directors; PROVIDED,
HOWEVER, that, for purposes of this Subparagraph, "person" shall exclude the
Company, its subsidiaries, any person acquiring such securities directly from
the Company, any employee benefit plan sponsored by the Company or from
Executive or any stockholder owning fifteen percent (15%) or more of the
combined voting power of the Company's outstanding securities as of the date of
this Agreement; or


                                       13
<PAGE>

                           6.1.10.2 Any stockholder of the Company owning
fifteen percent or more of the combined voting power of the Company's
outstanding securities as of the date of this Agreement shall become the
beneficial owner (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly of securities of the Company (other than through the
acquisition of securities directly from the Company or from Executive)
representing thirty-three and one-third percent (33 1/3%) or more of the
combined voting power of the Company's then outstanding securities ordinarily
having the right to vote at an election of directors; or

                           6.1.10.3 Individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any reason to constitute
at least eighty percent (80%) of the Board; provided, however, that any person
becoming a member of the Board subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least eighty percent (80%) of the members then comprising the Incumbent Board
(other than an election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election contest
relating to the election of directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any
successor provision thereto) shall be, for purposes of this Agreement,
considered as though such person were a member of the Incumbent Board; or

                           6.1.10.4 Approval by the stockholders of the Company
and consummation of (a) a reorganization, merger, consolidation, or sale or
other disposition of all or substantially all of the assets of the Company, in
each case, with or to a corporation or other person or entity of which persons
who were the stockholders of the Company immediately prior to such transaction
do not, immediately thereafter, own more than sixty percent (60%) of the
combined voting power of the outstanding voting securities entitled to vote
generally in the election of directors of the reorganized, merged, consolidated
or purchasing corporation (or, in the case of a noncorporate person or entity)
were not members of the Incumbent Board at the time of the execution of the
initial agreement providing for such reorganization, merger, consolidation or
sale, or (b) a liquidation or dissolution of the Company.

                  6.1.11 "Change In Control Resignation" - as defined in Section
3.2.2;

                  6.1.12 "Continued Benefits" - as defined in Section 4.3.7;

                  6.1.13 "Expiration" shall mean the expiration of Executive's
employment hereunder in accordance with Section 1.3;

                  6.1.14 "Good Reason" shall mean the occurrence of any of the
following:


                                       14
<PAGE>

                           6.1.14.1 The Company's failure to elect or reelect or
to appoint or reappoint Executive to offices, titles or positions carrying
comparable authority, responsibilities, dignity and importance to that of
Executive's offices and positions as of January 10, 2000;

                           6.1.14.2 Material change by the Company in
Executive's function, duties or responsibilities (including reporting
responsibilities) which would cause Executive's position with the Company to
become of less dignity, responsibility and importance than those associated with
his functions, duties or responsibilities as of January 10, 2000; or

                           6.1.14.3 Other material breach of this Agreement by
the Company, which breach is not cured within fifteen (15) days after written
notice thereof is, received by the Company.

                  6.1.15 "Non-Competition Period" - as defined in Section 5.1.4;

                  6.1.16 "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision of this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provisions
so indicated. Each Notice of Termination shall be delivered at least sixty (60)
days prior to the effective date of termination;

                  6.1.17 "Proprietary Information" - as defined in Section
5.1.3;

                  6.1.18 "Retirement" shall mean normal retirement at age as
determined by the Board;

                  6.1.19 "Senior Executives" shall mean the chief executive
officer and the four (4) most highly compensated executive officers of the
Company determined in accordance with the rules and regulations of the
Securities and Exchange Commission under the Exchange Act;

                  6.1.20 "Termination" shall mean the termination of Executive's
employment hereunder other than upon expiration of the term of such employment
in accordance with Section 1.3;


                                       15
<PAGE>

                  6.1.21 "Total Disability" shall mean Executive's failure
substantially to perform his duties hereunder on a full-time basis for a period
exceeding one hundred eighty (180) consecutive days or for periods aggregating
more than 180 days during any twelve-month period as a result of incapacity due
to physical or mental illness. If there is a dispute as to whether Executive is
or was physically or mentally unable to perform his duties under this Agreement,
such dispute shall be submitted for resolution to a licensed physician agreed
upon by the Board and Executive, or if an agreement cannot be promptly reached,
the Board and Executive each shall promptly select a physician, and if these
physicians cannot agree, the physicians shall promptly select a third physician
whose decision shall be binding on all parties. If such a dispute arises,
Executive shall submit to such examinations and shall provide such information
as such physician(s) may request, and the determination of the physician(s) as
to Executive's physical or mental condition shall be binding and conclusive.
Notwithstanding the foregoing, if Executive participates in any group disability
plan provided by the Company which offers long-term disability benefits, "Total
Disability" shall mean total disability as defined therein.

         6.2 KEY MAN INSURANCE. The Company shall have the right, in its sole
discretion, to purchase "key man" insurance on the life of Executive. The
Company shall be the owner and beneficiary of any such policy. If the Company
elects to purchase a policy, Executive shall take such physical examinations and
supply such information as may be reasonably requested by the insurer.

         6.3 MITIGATION OF DAMAGES; NO SET-OFF; DISPUTE RESOLUTION.

                  6.3.1 Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this Agreement be
reduced by any compensation earned by Executive as the result of employment by
another employer after the date of termination of his employment hereunder or
otherwise. The Company's obligation to make the payments provided for in this
Agreement shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim or action which the Company may have against Executive.

                  6.3.2 If there shall be any dispute between the Company and
Executive (i) in the event of any termination of Executive's employment by the
Company, whether such termination was for Cause, or (ii) in the event of any
termination of employment by Executive, whether Good Reason existed, or (iii)
otherwise, the dispute shall be resolved in accordance with the dispute
resolution procedures set forth in Exhibit "A" hereto, the provisions of which
are incorporated as a part hereof, and the parties hereto hereby agree that such
dispute resolution procedures shall be the exclusive method for resolution of
disputes under this Agreement. In the event of a dispute hereunder as to whether
a termination by the Company was for Cause or by the Executive for Good Reason,
until there is a resolution and award as provided in Exhibit "A," the Company
shall pay all amounts, and provide all benefits, to Executive and/or Executive's
family or other beneficiaries, as the case may be, that the Company would be
required to pay or provide hereunder as though such termination were by the
Company without Cause or by Executive for Good Reason and shall pay the


                                       16
<PAGE>

reasonable legal fees and expenses of counsel for Executive in connection with
such dispute resolution; provided, however, that the Company shall not be
required to pay any disputed amounts or any legal fees and expenses pursuant to
this Subparagraph (b) except upon receipt of a written undertaking by or on
behalf of Executive (and/or Executive's family or other beneficiaries, as the
case may be) to repay, without interest or penalty, as soon as practicable after
completion of the dispute resolution (A) all such amounts to which Executive (or
Executive's family or other beneficiaries, as the case may be) is ultimately
adjudged to not be entitled with respect to the payment of such disputed
amount(s) and (B) in addition, in the case of legal fees and expenses, a
proportionate amount of legal fees and expenses attributable to any of
Executive's claim(s) or any of Executive's defenses or counter-claim(s), if any,
which shall have been found by the dispute resolver to have been frivolous or
without merit.

                  6.4 SUCCESSORS; BINDING AGREEMENT. This Agreement shall be
binding upon any successor to the Company and shall inure to the benefit of and
be enforceable by Executive's personal or legal representatives, beneficiaries,
designees, executors, administrators, heirs, distributees, devisees and
legatees.

                  6.5 MODIFICATION; NO WAIVER. This Agreement may not be
modified or amended except by an instrument in writing signed by the parties
hereto. No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument by the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any other term or condition.

                  6.6 SEVERABILITY. The covenants and agreements contained
herein are separate and severable and the invalidity or unenforceability of any
one or more of such covenants or agreements, if not material to the employment
arrangement that is the basis for this Agreement, shall not affect the validity
or enforceability of any other covenant or agreement contained herein. If, in
any judicial proceeding, a court shall refuse to enforce one or more of the
covenants or agreements contained herein because the duration thereof is too
long, or the scope thereof is too broad, it is deemed reduced to the extent
necessary to permit the enforcement of such covenants or agreements.

                  6.7 NOTICES. All the notices and other communications required
or permitted hereunder shall be in writing and shall be delivered personally or
sent by registered or certified mail, return receipt requested, to the parties
hereto at the following addresses:


                                       17
<PAGE>


                         If to the Company, to it at:

                         Bishop Equities, Inc. dba Aethlon Medical
                         7825 Fay Avenue
                         Suite 200
                         La Jolla, California 92037


                         If Executive, to him at:

                         Mr. Richard H. Tullis
                         7825 Fay Avenue
                         Suite 200
                         La Jolla, California 92037

         6.8 ASSIGNMENT. This Agreement and any rights hereunder shall not be
assignable by either party without the prior written consent of the other party
except as otherwise specifically provided for herein.

         6.9 ENTIRE UNDERSTANDING. This Agreement (together with the Exhibit
incorporated as a part hereof) constitutes the entire understanding between the
parties hereto and no agreement, representation, warranty or covenant has been
made by either party except as expressly set forth herein.

         6.10 EXECUTIVE'S REPRESENTATIONS. Executive represents and warrants
that neither the execution and delivery of this Agreement nor the performance of
his duties hereunder violates the provisions of any other agreement to which he
is a party or by which he is bound.

         6.11 LIABILITY OF COMPANY WITH RESPECT TO INSURANCE POLICY. Executive
has selected the insurer and policy referred to in Section 2.4(a) hereof, and
the Company shall not have any liability to Executive (or his beneficiaries)
should the insurance company which issues the policy referred to therein fail or
refuse to pay (whether voluntarily or by reason of any order, injunction or
otherwise) thereunder or if any rights or elections otherwise available to
Executive thereunder are restricted or eliminated.

         6.12 GOVERNING LAW. This Agreement shall be construed in accordance
with and governed for all purposes by the laws of the State of California
applicable to contracts executed and wholly performed within such state.

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.


                                       18
<PAGE>

                                   COMPANY

                                   BISHOP EQUITIES, INC., a Nevada
                                   corporation dba Aethlon Medical


                                   By: /s/ Franklyn S. Barry, Jr.
                                       ----------------------------
                                       Franklyn S. Barry, Jr.
                                       Its President and C.E.O.


                                   EXECUTIVE


                                   /s/ Richard H. Tullis
                                   --------------------------------
                                   RICHARD H. TULLIS



                                       19
<PAGE>


                                   EXHIBIT "A"

                          DISPUTE RESOLUTION PROCEDURES
                          -----------------------------


         A. If a controversy should arise which is covered by Section 6.3 of
Article VI, then not later than twelve (12) months from the date of the event
which is the subject of dispute either party may serve on the other a written
notice specifying the existence of such controversy and setting forth in
reasonably specific detail the grounds thereof ("Notice of Controversy");
PROVIDED that, in any event, the other party shall have at least thirty (30)
days from and after the date of the Notice of Controversy to serve a written
notice of any counterclaim ("Notice of Counterclaim"). The Notice of
Counterclaim shall specify the claim or claims in reasonably specific detail. If
the Notice of Controversy or the Notice of Counterclaim, as the case may be, is
not served within the applicable period, the claim set forth therein will be
deemed to have been waived, abandoned and rendered unenforceable.

         B. Following receipt of the Notice of Controversy (or the Notice of
Counterclaim, as the case may be), there shall be a three (3) week period during
which the parties will make a good faith effort to resolve the dispute through
negotiation ("Period of Negotiation"). Neither party shall take any action
during the Period of Negotiation to initiate arbitration proceedings.

         C. If the parties should agree during the Period of Negotiation to
mediate the dispute, then the Period of Negotiation shall be extended by an
amount of time to be agreed upon by the parties to permit such mediation. In no
event, however, may the Period of Negotiation be extended by more than five (5)
weeks or, stated differently, in no event may the Period of Negotiation be
extended to encompass more than a total of eight (8) weeks.

         D. If the parties agree to mediate the dispute but are thereafter
unable to agree within one (1) week on the format and procedures for the
mediation, then the effort to mediate shall cease, and the Period of Negotiation
shall terminate four (4) weeks from the Notice of Controversy (or the Notice of
Counterclaim, as the case may be).

         E. Following the termination of the Period of Negotiation, the dispute
(including the main claim and counterclaim, if any) shall be settled by
arbitration, and judgment upon the award may be entered in any court having
jurisdiction thereof. The format and procedures of the arbitration are set forth
below (referred to below as the "Arbitration Agreement").


                                       20
<PAGE>

         F. A notice of intention to arbitrate ("Notice of Arbitration") shall
be served within forty-five (45) days of the termination of the Period of
Negotiation. If the Notice of Arbitration is not served within this period, the
claim set forth in the Notice of Controversy (or the Notice of Counterclaim, as
the case may be) will be deemed to have been waived, abandoned and rendered
unenforceable.

         G. The arbitration, including the Notice of Arbitration, will be
governed by the Commercial Rules of the American Arbitration Association except
that the terms of this Arbitration Agreement shall control in the event of any
difference or conflict between such Rules and the terms of this Arbitration
Agreement. The arbitration shall be scheduled to take place in San Diego,
California.

         H. The dispute resolver shall reach a decision on the merits on the
basis of applicable legal principles as embodied in the law of the State of
California.

         I. There shall be one dispute resolver, regardless of the amount in
controversy. The dispute resolver will be empowered to render an award and
interim decisions and shall be a member of the bar of any of the fifty States of
the United States or of the District of Columbia. The dispute resolver shall be
promptly appointed pursuant to Rule 13 of the Commercial Rules of the American
Arbitration Association ("AAA"). If the dispute resolver has not been appointed
within forty-five (45) days of the AAA's initial transmission of lists of
potential arbitrators, then the AAA shall unilaterally designate the dispute
resolver.

         J. At the time of appointment and as a condition thereto, the dispute
resolver will be apprised of the time limitations and other provisions of this
Arbitration Agreement and shall indicate such dispute resolver's agreement to
the Tribunal Administrator to comply with such provisions and time limitations.

         K. During the 30-day period following appointment of the dispute
resolver, either party may serve on the other a request for limited numbers of
documents directly related to the dispute. Such documents will be produced
within seven (7) days of the request.

         L. Following the 30-day period of document production, there will be a
forty-five (45) day period during which limited depositions will be permissible.
Neither party will take more than five (5) depositions, and no deposition will
exceed three (3) hours of direct testimony.

         M. Disputes as to discovery or prehearing matters of a procedural
nature shall be promptly submitted to the dispute resolver pursuant to telephone
conference call or otherwise. The dispute resolver shall make every effort to
render a ruling on such interim matters at the time of the hearing (or
conference call) or within five (5) business days thereafter.


                                       21
<PAGE>

         N. Following the promptly commence. The dispute hearing within thirty
(30) days of the will make every effort to conduct the period of depositions,
the arbitration hearing shall resolver will make every effort to commence the
conclusion of the deposition period and, in addition, hearing on consecutive
business days to conclusion.

         O. An award will be rendered, at the latest, within nine (9) months of
the date of the Notice of Arbitration and within thirty (30) days of the close
of the arbitration hearing. The award shall set forth the grounds for the
decision in reasonably specific detail and shall also specify whether any claim
(or defense or counterclaim) of Executive is found to be frivolous or without
merit and what proportion, if any, of his legal fees and expenses which have
been paid by the Company Executive shall be required to repay to the Company in
accordance with Section 6.3.2. The award shall be final and nonappealable.

         P. THE PARTIES HEREBY ACKNOWLEDGE AND AGREE THAT THEY ARE WAIVING THEIR
RIGHTS TO A TRIAL IN A STATE OR FEDERAL COURT AND ARE ALSO WAIVING THEIR RIGHT
TO A JURY TRIAL.


     COMPANY                                 EXECUTIVE

     BISHOP EQUITIES, INC.,
     a Nevada corporation dba
     Aethlon Medical



By: /s/ Franklyn S. Barry, Jr.               /s/ Richard H. Tullis
    ----------------------------             ------------------------------
    Franklyn S. Barry, Jr.                   RICHARD H. TULLIS
     Its: President and C.E.O.



                                       22


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.18
<SEQUENCE>7
<FILENAME>hall.txt
<TEXT>
<PAGE>
EXHIBIT 10.18
                                                                  Edward C. Hall
                              AETHLON MEDICAL, INC.
                           7825 FAY AVENUE, SUITE 200
                               LA JOLLA, CA 92037
                                TEL. 858/456-5777
                                FAX 858/456-4690


                                                                  James A. Joyce
                                                     Chairman, President and CEO


                              EMPLOYMENT AGREEMENT


August 12, 2002

Mr. Edward C. Hall 4645 Vereda Luz Del So! San Diego, CA 92130

Dear Ned:

This letter will serve as the entire agreement between Aethlon Medical, Inc (the
"Company") and you, Edward C. (Ned) Hall (the "Employee"), with respect to your
employment with the Company.

TERM
The Employee will work one (1) day per week, beginning on the week of August 12,
2002 (the `Beginning Date"). As an employee of the Company you will serve as its
Chief Financial Officer and perform such services as are customary for an
individual having such title and holding such position.

SALARY
The Employee will earn a weekly salary (the "Salary") of $1,000, paid $2,000
every two weeks. The salary rate for each additional day is $1,000. However, if
the Company agrees to increase Employee's work to three (3) days per week, the
Employee will earn a weekly salary of $2,500, paid $5,000 every two weeks. The
Salary rate for each additional day beyond three days per week is $1,000, The
Salary will be subject to increase by the Company from time to time. The Salary
will be processed through payroll and paid at the same time as other employees.

INCENTIVE BONUS AND EQUITY PARTICIPATION
The Employee will be entitled to receive incentive cash bonuses and/or warrants
or options for the purchase of the Company's stock as may be specified and
agreed to by the Aethlon Medical board of directors.

<PAGE>
                                                                  Edward C. Hall
Page two
August 12, 2002
Employment Agreement - Edward C. Hall

TATUM RESOURCES
The Company acknowledges and agrees that the Employee is and will remain a
partner of, and has and will retain an interest in, Tatum CFO Partners, LLP
("Tatum"), which will benefit the Company in that the Employee will have access
to certain Tatum resources. The Company further acknowledges and agrees that the
Employee has requested that a portion of his or her Salary and bonuses be
allocated to Tatum as compensation for Tatum's provision of resources to the
Employee as provided in the Resources Agreement between the Company and Tatum,
dated on or about the date of this agreement (the "Resources Agreement"). After
allocation of a portion of the Salary to Tatum, the Employee will be paid
$1,666.67 every two weeks, based on one (1) day per week. The Company and the
Employee agree that any payments made to Tatum will reduce the Employee's
compensation for purposes of determining taxable income and should not be
reflected as compensation in the Employee's W-2 report.

EMPLOYEE BENEFITS
The Employee will be eligible for vacation and holidays consistent with the
Company's policy as it applies to senior management.

The Company will reimburse the Employee for all reasonable out-of-pocket
business expenses promptly after they are incurred.

The Employee may elect to participate in the Company's employee retirement plan
and/or 401(k) plan, and the Employee will be exempt from any delay periods
required for eligibility. In lieu of the Employee participating in the
Company-sponsored employee health benefit and disability plan(s) the Employee
will participate in Tatum's group plan as a partner of Tatum, and the Company
will pay the Employee a pro-rated amount based on time commitment equal to the
costs that would normally be incurred by the Company for the Employee's
participation in the Company's plan(s), if the Employee is eligible under such
plan(s). Notwithstanding the preceding sentence, the Company may include the
Employee as a participant in the Company's own health benefit and disability
plan(s) if required to do so by law for plan qualification.

The Employee must receive written evidence that the Company maintains adequate
director and officer insurance to cover the Employee at no additional cost to
the Employee, and the Company will maintain such insurance at all times while
this agreement remains in effect.

The Company agrees to indemnify the Employee to the full extent permitted by law
for any losses, costs, damages, and expenses, including reasonable attorneys'
fees, as they arc incurred, in connection with any cause of action, suit, or
other proceeding arising in connection with employment with the Company
including, but not limited to, indemnification for deductibles on insurance
policies. This indemnity will not apply to employee gross negligence or willful
misconduct or to actions taken by the employee in bad faith.

<PAGE>
                                                                  Edward C. Hall
Page Three
August 12, 2002
Employment Agreement - Edward C. Hall



TERMINATION
The Company may terminate the Employee's employment for any reason upon at least
30 days' prior written notice to the Employee, such termination to be effective
on the date specified in the notice, provided that such date is no earlier than
30 days from the date of delivery of the notice. Likewise, the Employee may
terminate his or her employment for any reason upon at least 30 days' prior
written notice to the Company, such termination to be effective on the date 30
days following the date of the notice.

The Employee will continue to render services and to be paid during such 30-day
period, regardless of who gives such notice. The Employee may terminate this
letter agreement immediately if the Company has not remained current in its
obligations under this letter or if the Company engages in or asks the Employee
to engage in or to ignore any illegal or unethical conduct.

This agreement will terminate immediately upon the death or permanent disability
of the Employee. For purposes of this agreement, permanent disability will be as
defined by the applicable policy of disability insurance or, in the absence of
such insurance, by the Company's Board of Directors acting in good faith.

The Salary will be prorated for the final pay period based on the number of days
in the final pay period up to the effective date of termination or expiration.

MISCELLANEOUS
This agreement contains the entire agreement between the parties, superseding
any prior oral or written statements or agreements.

Neither the Employee nor the Company will be deemed to have waived any rights or
remedies accruing under this agreement unless such waiver is in writing and
signed by the party electing to waive the right or remedy. This agreement binds
and benefits the successors of the parties.

The provisions in this agreement concerning the payment of Salary and Bonuses
and confidentiality will survive any termination or expiration of this
agreement.

The terms of this letter agreement are severable and may not be amended except
in a writing signed by the parties. If any portion of this agreement is found to
be unenforceable, the rest of this agreement will be enforceable except to the
extent that the severed provision deprives either party of a substantial portion
of its bargain.

This agreement will be governed by and construed in all respects in accordance
with the laws of the State of California, without giving effect to
conflicts-of-laws principles.

Each person signing below is authorized to sign on behalf of the party
indicated, and in each case such signature is the only one necessary.


<PAGE>
                                                                  Edward C. Hall
Page Four
August 12, 2002
Employment Agreement - Edward C. Hall





Please sign below and return a signed copy of this letter to indicate your
agreement with its terms and conditions.

Sincerely yours,

AETHLON MEDICAL, INC.


By: /s/ James A. Joyce
    ----------------------------
    James A Joyce, CEO





Acknowledged and agreed by:

                                    EMPLOYEE


                                    /s/ Edward C. Hall
                                    --------------------------
                                    Edward C. Hall

                                    Date: 8/14/02


<PAGE>
                                                                  Edward C. Hall


SCHEDULE A
- ----------

                Incentive Cash Bonus, Stock, or Warrants/Options


                                       TBD





<PAGE>
                                                                  Edward C. Hall


                              AETHLON MEDICAL, INC.

                AGREEMENT RESTRICTING COMPETITION AND DISCLOSURE

          THIS AGREEMENT is made this 14th day of August 2002 by and between
AETHLON MEDICAL, INC., a Nevada corporation (hereinafter referred to as the
"Company") and Edward C. Hall (hereinafter referred to as "Disclosee").

          WHEREAS, the Company has expended considerable time, effort,
resources, and capital in developing a proprietary platform technology known as
the Hemopurifier(TM) to develop an extracorporeal therapeutic treatment system
for the removal of certain viruses from blood (the "Technology") and is
developing blood filtration products that address, among other things, the
treatment of HIV/AIDS and Hepatitis-C (the "Products"); and

          WHEREAS, Disclosee has desires to work with the Company in the further
development and operations of the Technology, the Products, the Company's
business or in connection with possible financing, merger, acquisition,
consolidation or other business arrangements that may be beneficial to the
Company's business; and

          WHEREAS, in connection with Disclosee's discussions with senior
officers of the Company, Disclosee will be provided with and have access to
certain "Confidential Information," as defined below, and the Company desires to
protect the Confidential Information;

          NOW THEREFORE, the parties agree as follows:

          1. DEFINITION OF CONFIDENTIAL INFORMATION. The term "Confidential
Information," for purposes of this Agreement, shall mean all non-public
confidential information, whether in oral, written, or other form, which the
Company provides Disclosee with access to or discloses including but not limited
to information of a technical, operational, administrative, economic, marketing,
planning, business or financial nature or in the nature of intellectual property
of any kind relating to the business of the Company. "Confidential Information"
shall not include information that (i) is or becomes generally available to the
public, other than as a result of a disclosure or other fault by you in
violation of this Agreement; (ii) becomes rightfully available to you on a
non-confidential basis, provided that the source of such information is not
prohibited from disclosing such information, to you by legal, contractual, or
fiduciary obligations; or (iii) is rightfully in the possession of Disclosee by
or on behalf of the Company, provided that the source of such information is not
prohibited from disclosing such information to you by legal, contractual or
fiduciary obligations.

          2. DISCLOSURE OF INFORMATION.

                  2.1 In consideration of Disclosee's promise to keep the
Confidential Information confidential and its promise not to circumvent the
Company in pursuing a business plan similar to the Company's, except to the
extent that they already are, the Company agrees to make available to Disclosee
such portion of the Confidential Information as the Company deems necessary,
promptly upon its execution and delivery of this Agreement, to enable Disclosee
to determine if it desires to work with the Company. Disclosee will hold the
Confidential Information in strict confidence and will not disclose to anyone
directly or indirectly at any time for a period of three years from the date of
this Agreement any of the Confidential Information relating to the business of
the Company that is confidential, without the prior written consent of the
Company. Disclosee agrees that the Confidential Information will not be used for
any purpose other than in connection with the evaluation of the Company. All
documents that Disclosee prepares or Confidential Information that is given
Disclosee in connection with this Agreement are the exclusive property of the
Company and shall be promptly returned to the Company at its request.


<PAGE>

                  2.2 Disclosee will within 15 days of receipt of a written
demand from the Company:

                            (i) return to the Company all Confidential
Information (and all and any copies thereof or of any part thereof);

                            (ii) remove and expunge all Confidential Information
from any computer or any similar device into which it was programmed or
installed;

                            (iii) destroy all notes, analyses or memoranda
containing Confidential Information prepared by Disclosee or on Disclosee's
behalf.

                  2.3 If any proceedings are commenced or action taken which
could result in Disclosee becoming compelled to disclose Confidential
Information, Disclosee will immediately notify the Company of such proceedings
or action in writing and will take all available steps to resist or avoid such
proceeding or actions, including all steps the Company may reasonably request
and keep the Company fully and promptly informed of all matters and developments
relating thereto. if Disclosee is required by law or otherwise obliged to
disclose Confidential Information to any third Party, Disclosee will disclose
such information only to such third Party, and only to the extent that required
by law or otherwise is to be disclosed.

                  2.4 Disclosee will insure that Disclosee's officers and
employees and advisors each act, or omit to act, as if he or she had agreed with
the Company on the same terms as this Agreement. Disclosee shall also insure
that each person to whom disclosure of Confidential Information is authorized to
be made by Disclosee or on Disclosee's behalf or in the course of representing
or advising Disclosee is made aware of and adheres to the terms of this
Agreement.

          3. NON-CIRCUMVENTION; PROHIBITION AGAINST COMPETITION. Neither
Disclosee nor any affiliate (as that term is defined in Federal securities
laws), officer, director, partner or agent of Disclosee, any principal
represented by Disclosee, or any corporation affiliated with Disclosee, shall at
any time for a period of three years from the date of this Agreement,
participate or hold an interest in any business or enterprise that is engaged in
a business that utilizes any of the Confidential Information whether as agent,
principal, partner, stockholder, or in any other individual or representative
capacity.

          4. REMEDIES. Disclosee recognizes and acknowledges that the Company
has made a substantial investment in developing the Confidential Information,
the Technology, the Products, and the business of the Company, and that the
restrictions on Disclosee's activities as contained in this Agreement are
required for the Company's reasonable protection. Disclosee agrees that in the
event of breach of this Agreement, the Company will be entitled, if it so
elects, to institute proceedings at law or in equity to obtain damages or to
enforce the specific performance of this Agreement by Disclosee or to enjoin
Disclosee from engaging in any activity in violation thereof.

          5. ATTORNEY'S FEES. In the event of any controversy, claim or dispute
between the parties hereto involving the terms and conditions of this Agreement,
or arising out of or relating to this Agreement or the breach thereof, the
prevailing party in any arbitration (as provided for in Section 10 below) shall
be entitled to recover reasonable expenses, attorney's fees and costs in such
arbitration as determined by the arbitrator(s).

          6. PARTIAL INVALIDITY, If any provision in this Agreement is held by a
court of competent jurisdiction to be invalid, void, or unenforceable the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.

          7. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California.

                                   Page 2 of 3
<PAGE>
                                                                  Edward C. Hall


          8. WAIVER; AMENDMENT. No failure or delay by either party in
exercising any right, power or privilege to which it is entitled hereunder shall
operate as a waiver nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise. The terms of this
Agreement and the obligations and acknowledgements hereunder may only be waived
or modified by an agreement in writing between the parties.

          9. ASSIGNMENT. Neither party shall not assign or transfer any of its
rights or obligations under this Agreement to any third party without the prior
written consent of the other Party.

          10. DISPUTE RESOLUTION. All disputes, claims, controversies and
differences ("Disputes") arising out of or relating to this Agreement shall, if
they cannot be amicably settled within a period of 30 days from the date of
notification of the Dispute to the other party, be referred to and finally
settled by arbitration in accordance with the rules of the American Arbitration
Association (the "Rules") in San Diego County, California, Disputes shall be
referred to a single arbitrator nominated and agreed upon by parties to this
Agreement. If the parties cannot agree upon the identity of a single arbitrator
within one month's time after the first call for arbitration has been made,
Disputes shall be finally settled by three arbitrators appointed in accordance
with the Rules. The decision or decisions of the arbitrators shall be binding
upon the parties to this Agreement and may be enforced in any court of competent
jurisdiction.


         IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first specified above.


THE COMPANY:                                AETHLON MEDICAL, INC.



                                            By: /s/ James A. Joyce
                                                --------------------------------
                                                James A Joyce, CEO
                                                Its Duly Authorized Agent



DISCLOSEE:                                      /s/ Edward C. Hall
                                                --------------------------------
                                                Edward C. Hall





                                  Page 3 of 3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>8
<FILENAME>aethlon_10ka1ex23-1.txt
<TEXT>
<PAGE>
EXHIBIT 23.1


              CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS


To the Board of Directors
Aethlon Medical, Inc.


We hereby consent to the incorporation by reference in the previously filed
Registration Statement of Aethlon Medical, Inc. on Form S-8 (File No. 333-114017
and 333-49896) of our report dual-dated May 18, 2004 and August 31, 2004
appearing on page F-1 of this Annual Report on Form 10-KSB/A of Aethlon Medical,
Inc. for the year ended March 31, 2004.





                                      /s/ Squar, Milner, Reehl & Williamson, LLP


Newport Beach, California
September 7, 2004




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>9
<FILENAME>aethlon_10ka1ex31-1.txt
<TEXT>
<PAGE>


EXHIBIT 31.1

CERTIFICATION

I, James Joyce, certify that:

1. I have reviewed this report on Form 10-KSB/A of Aethlon Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: September 8, 2004


                  /S/ JAMES A. JOYCE
                  ---------------------------
                  JAMES A. JOYCE
                  CHIEF EXECUTIVE OFFICER


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>10
<FILENAME>aethlon_10ka1ex31-2.txt
<TEXT>
<PAGE>


EXHIBIT 31.2

CERTIFICATION

I, Edward C. Hall, certify that:

1. I have reviewed this report on Form 10-KSB/A of Aethlon Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report.

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

c) disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and;

5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.

Date: September 8, 2004




                  /S/ EDWARD C. HALL
                  -----------------------
                  EDWARD C. HALL
                  CHIEF FINANCIAL OFFICER


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>11
<FILENAME>aethlon_10ka1ex32-1.txt
<TEXT>
<PAGE>


EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Aethlon Medical, Inc. Annual Report on Form 10-KSB/A for
the year ended March 31, 2004 as filed with the Securities and Exchange
Commission on the date hereof, I, James A. Joyce, Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:

1. Such annual report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in such Annual Report on Form 10-KSB/A fairly
presents, in all material respects, the financial condition and results of
operations of Aethlon Medical, Inc.

Date: September 8, 2004.


                  BY: /S/ JAMES A. JOYCE
                      JAMES A. JOYCE
                      CHIEF EXECUTIVE OFFICER


A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Aethlon Medical, Inc. and will be
retained by Aethlon Medical, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.2
<SEQUENCE>12
<FILENAME>aethlon_10ka1ex32-2.txt
<TEXT>
<PAGE>


EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Aethlon Medical, Inc. Annual Report on Form 10-KSB/A for
the year ended March 31, 2004 as filed with the Securities and Exchange
Commission on the date hereof, I, Edward C. Hall, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my
knowledge:

1. Such annual report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, and

2. The information contained in such Annual Report on Form 10-KSB/A fairly
presents, in all material respects, the financial condition and results of
operations of Aethlon Medical, Inc.

Date: September 8, 2004.


         BY:  /S/ EDWARD C. HALL
              EDWARD C. HALL
              CHIEF FINANCIAL OFFICER


A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Aethlon Medical, Inc. and will be
retained by Aethlon Medical, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.

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