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ACCESSION NUMBER:		0001019687-07-002140
CONFORMED SUBMISSION TYPE:	10KSB
PUBLIC DOCUMENT COUNT:		12
CONFORMED PERIOD OF REPORT:	20070331
FILED AS OF DATE:		20070713
DATE AS OF CHANGE:		20070713

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
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21846
		FILM NUMBER:		07979303

	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
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<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-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, 2007

                                       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 [ ]

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.[x]

The registrant had no revenue for the fiscal year ended March 31, 2007. The
aggregate market value of the Common Stock held by non-affiliates was
approximately $13,111,389 based upon the closing price of the Common Stock of
$0.67, as reported by the NASDAQ Over-the-Counter Bulletin Board ("OTCBB") on
June 29, 2007.

The number of shares of the Common Stock of the registrant outstanding as of
June 29, 2007 was 32,008,389.

           TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):

                                 Yes [ ] No [X]





<PAGE>




                                TABLE OF CONTENTS

                                                                            PAGE

Forward Looking Statements                                                     1


                                     PART I.


Item 1.    Description of Business                                             1


Item 2.    Description of Property                                             8


Item 3.    Legal Proceedings                                                   8


Item 4.    Submission of Matters to a Vote of Security Holders                 9


                                    PART II.


Item 5.    Market for Registrant's Common Equity and Related Stockholder
              Matters                                                          9


Item 6.    Management's Discussion and Analysis or Plan of Operation          18


Item 7.    Financial Statements                                               34


Item 8.    Changes in and Disagreements with Accountants on Accounting
              and Financial Disclosure                                        34


Item 8A.   Controls and Procedures                                            34


Item 8B.   Other Information                                                  34


                                    PART III.


Item 9.    Directors, Executive Officers, Promoters and Control Persons and
               Corporate Governance; Compliance with Section 16(a) of the
               Exchange Act                                                   35


Item 10.   Executive Compensation                                             40


Item 11.   Security Ownership of Certain Beneficial Owners and Management
               And Related Stockholder Matters                                42


Item 12.   Certain Relationships and Related Transactions
           and Director Independence                                          43


Item 13.   Exhibits                                                           44


Item 14.   Principal Accountant Fees and Services                             47

Signatures                                                                    48
Certifications






<PAGE>

FORWARD - LOOKING STATEMENTS

         All statements, other than statements of historical fact, included in
this Form 10-KSB 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. 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, 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. DESCRIPTION OF BUSINESS

GENERAL OVERVIEW

We are a developmental stage medical device company focused on expanding the
applications of our Hemopurifier(R) platform technology which is designed to
reduce the presence of infectious viruses and other toxins from human blood. As
such, we focus on developing therapeutic devices to treat acute viral conditions
brought on by pathogens targeted as potential biological warfare agents and
chronic viral conditions including HIV/AIDS and Hepatitis-C. The Hemopurifier(R)
combines the established scientific technologies of hemodialysis and affinity
chromatography as a means to mimic the immune system's response of clearing
viruses and toxins from the blood. The Hemopurifier(R) cannot cure these
afflictions but can lower viral loads and allow compromised immune systems to
overcome otherwise serious or fatal medical conditions.

On March 10, 1999, Aethlon, Inc., a California corporation ("Aethlon"), Hemex,
Inc., a Delaware corporation ("Hemex"), the accounting predecessor to the
Company and Bishop, Inc. ("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. Upon
completion of the transaction, Bishop was renamed Aethlon Medical, Inc.

On January 10, 2000, we acquired all of 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 to
employ Dr. Richard Tullis, the founder of Syngen. Dr. Tullis is a recognized
research scientist in the area of DNA synthesis and antisense. Syngen has no
significant assets, liabilities or operations and primarily served as the entity
through which Dr. Tullis performed research consulting services. As such, the
acquisition was 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 is presently the Chief Scientific Officer of Aethlon Medical, Inc.

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 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 a wholly-owned subsidiary of the
Company. The acquisition was accounted for as a purchase. At March 31, 2001, we
determined that goodwill recorded during the acquisition of Cell was impaired
due to the permanent suspension of operations by Cell and, accordingly, treated
the related goodwill as fully impaired.

                                       1





<PAGE>

THE HEMOPURIFIER

The Hemopurifier(R) is a broad spectrum platform technology that combines the
established scientific methods of hemodialysis (artificial kidneys) and affinity
chromatography (a method that allows the selective capture of viruses and
related toxins) as a means to augment the natural immune response of clearing
infectious virus and toxins from the blood. The therapeutic goal of each
Hemopurifier(R) application is to improve patient survival rates by reducing
viral load and preserving the immune function. We believe that the
Hemopurifier(R) will enhance and prolong the benefit of current infectious
disease drug therapies and fill present treatment gap for patients who
inevitably become resistant to such therapies. The Hemopurifier(R) is also
positioned to treat those infected by biological agents for which there are no
effective drug or vaccine treatments. The Hemopurifier(R) is not a substitute
for antiviral drug or vaccine therapies, as it is solely positioned to treat
drug and vaccine resistant pathogens.

Traditionally, hemodialysis (kidney dialysis) has been used to remove urea and
other small metabolic toxins that accumulate in the blood of people with acute
or chronic kidney failure (also called renal failure). Acute renal failure is
generally treated in hospital intensive care units using a continuous filtration
therapy. Chronic renal failure is treated through intermittent, thrice-weekly
kidney dialysis in a specialized clinic setting. A catheter is most often the
method used to gain access to the blood which is then pumped through thousands
of hollow micro-fibers running the length of the kidney dialysis cartridge.
Within the cartridge, toxins, urea and excess water pass through small pores in
the walls of the micro-fibers and are removed by a separately circulating
dialysis fluid outside of the fibers. Blood cells and molecules that are too
large to pass through the pores are retained and the cleansed blood is returned
back to circulation.

The Hemopurifier(R) modifies this process in several ways to provide an
efficient method to selectively remove targeted viruses and toxins. First, the
pores of the micro-fibers within the Hemopurifier(R) are large enough to allow
circulating infectious viruses and toxins to separate from the blood and diffuse
through the walls of the fibers. Second, within the cartridge but outside of the
fibers the Hemopurifier(R) contains a unique material (the "affinity agent")
which selectively binds to the viruses or toxins. Finally, because of the
affinity agent's ability to bind to viruses and toxins, there is no need for a
separate circulation of a dialysis solution with the Hemopurifier(R). This
provides the flexibility to use the Hemopurifier(R) either on kidney dialysis
machines (global infrastructure), by employing a simple pump mechanism or using
a patient's own blood pressure (in field or military applications).

         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) 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(R) technology represents a new approach to treating
viral diseases. The application 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 the Hemopurifier(R) cartridge prevents virus and toxins from
infecting tissues and cells. The device cannot cure HIV and Hepatitis-C but
appears to augment the immune response of clearing viruses and toxins from the
blood before infection can occur. Scientifically, this action is known as
"Fusion Inhibition" since the ability of the virus to enter or fuse with host
cells or organs is inhibited.

                                       2





<PAGE>

         The Hemopurifier(R) is positioned as a therapeutic medical device that
can be quickly deployed to treat genetically engineered and drug and vaccine
resistant biowarfare agents. For example, we demonstrated the ability to rapidly
build and test new antibody cartridges upon receipt of an antibody against HIV
which was previously untested for its utility as an agent to be immobilized
within the Hemopurifier(R) treatment cartridge. The process included the
attachment of the antibody to agarose beads to create an affinity or binding
solution that was immobilized within the hollow-fiber treatment cartridge as
means to capture HIV as it diffused through the fibers. Human blood infected
with HIV was then circulated through the cartridge to measure the ability of the
Hemopurifier(R) to capture HIV over a range of time periods. Human blood
infected with HIV was also circulated through a control cartridge without
immobilized antibodies as a means to document an improved ability to capture
infectious virus when the immobilized antibody was utilized in the treatment
cartridge. Upon completion of the circulation of infected blood, diagnostic
studies were conducted to verify the viral capture rate of the Hemopurifier(R)
with and without the immobilized antibody. The data was then provided in a
confidential report to the antibody manufacturer within ten days of the original
receipt of the antibody in our labs.

         BIOLOGICAL WEAPONS

         We are developing treatments to combat infectious agents that may be
used in biological warfare and terrorism. We are working to design
Hemopurifiers(R) 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 bioterrorism threats. These agents include the
viruses that cause Smallpox, hemorrhagic fevers such as Ebola and Marburg, the
Anthrax toxin, and Botulinum toxin. We have not yet published any data related
to the treatment of any "Category A" agent. In March 2007, we submitted an
Investigational Device Exemption ("IDE") with the FDA the goal of which is to
obtain approval to conduct human safety and, if applicable, animal efficacy
trials targeted to a specific bioterror viral agent. We are presently in the
process of conducting in-vitro trials to determine the most appropriate
"Category A" application.

         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(R) to treat pathogens that are bioweapons candidates
will be sold directly to the U.S. military and the federal government. Sale of
Hemopurifiers(R) to treat chronic viral conditions will be directed through
organizations with established distribution channels.

         RESEARCH AND DEVELOPMENT

         In fiscal year 2001, we realigned our research and development
activities from developing Hemopurifiers(R) to treat harmful metals to
developing Hemopurifiers(R) for the treatment of chronic viral conditions. 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 year 2001. This consolidation was completed during the
first quarter of fiscal year 2002 and our facilities in Buffalo, N.Y. were
closed. In 2004, we expanded our research effort to include the development of
Hemopurifiers(R) to treat acute viral diseases as well as countermeasures
against biological weapons. The cost of research and development, all of which
has been charged to operations, amounted to approximately $1,429,059 over the
last two fiscal years.

         PATENTS

         We currently own or have license rights to a number of U.S. and foreign
patents and patent applications and endeavor to continually improve our
intellectual property position. We consider the protection of our technology,
whether owned or licensed, to the exclusion of use by others, to be vital to our
business. While we intend to focus primarily on patented or patentable
technology, we may also rely on trade secrets, unpatented property, know-how,
regulatory exclusivity, patent extensions and continuing technological
innovation to develop our competitive position.

                                       3





<PAGE>

         In certain countries, medical devices are not patentable or only
recently have become patentable, and enforcement of intellectual property rights
in some countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many countries can be expected to be
problematic or unpredictable. We cannot guarantee that any patents issued or
licensed to us will provide us with competitive advantages or will not be
challenged by others. Furthermore, we cannot be certain that others will not
independently develop similar products or will not design around patents issued
or licensed to us. We cannot guarantee that patents that are issued will not be
challenged, invalidated or infringed upon or designed around by others, or that
the claims contained in such patents will not infringe the patent claims of
others, or provide us with significant protection against competitive products,
or otherwise be commercially valuable. We may need to acquire licenses under
patents belonging to others for technology potentially useful or necessary to
us. If any such licenses are required, we cannot be certain that they will be
available on terms acceptable to us, if at all. To the extent that we are unable
to obtain patent protection for our products or technology, our business may be
materially adversely affected by competitors who develop substantially
equivalent technology.

         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 very 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
chronic and acute viral diseases 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 generally toxic, are expensive to
develop, and inevitably infected patients will develop viral strains that become
resistant to drug treatment. As a result, patients are ultimately left without
treatment options.

         COMPETITION

         We are advancing our Hemopurifier(R) technology as a treatment to
enhance and prolong current drug therapies by removing the viral strains that
cause drug resistance. The Hemopurifier(R) 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(R) competes with the
current drug therapy treatment standard. However, if the industry considered the
Hemopurifier(R) to be a potential replacement for drug therapy, then the
marketplace for the Hemopurifier(R) would be extremely competitive. We are also
pursuing the development of Hemopurifiers(R) to be utilized as treatment
countermeasures against biological weapons. In this regard, we are targeting the
treatment of pathogens, which are microbial organisms that cause disease, in
which current treatments are either limited or do not exist. We believe that we
are the sole developer of viral filtration systems (Hemopurifiers(R)) to treat
chronic viral conditions, acute viral conditions and biological weapons.
However, we face competition from the producers of the following alternative
treatment options for all market applications.

         ANTIVIRAL DRUGS

         For viral infections, specific antiviral drugs can be effective, but
there are none that are effective against a broad-spectrum of infectious virus.
At present, only a few antiviral drugs are available to treat the multitude of
viruses that could be used as biological weapons. For example, Ribavirin is the
treatment of choice for certain viral hemorrhagic fever infections, but has no
current application to Ebola and Marburg infections. Newer antiviral drugs have
shown some promise in animal models, and limited case reports in humans are
encouraging. The lack of broad-spectrum antivirals takes on added significance
in light of the ability of many viruses to rapidly develop resistance.

         Current efforts to define the genetic details of normal and pathogenic
agents on a molecular level promise the hope of new points of attack. Genomic
analysis of viral pathogens and animal models of responses to infection provide
valuable information enabling the potential development of novel treatment and
prevention strategies. However, even the rapid elucidation of the genetic
structure of a specific pathogen does not provide sufficient information to
quickly design an effective cure.

                                       4





<PAGE>

         Another approach in drug development is combinatorial chemistry, which
provides the ability to rapidly synthesize large libraries of related compounds,
many of which are completely new. However, there is still a need to laboriously
screen each new compound for efficacy in fighting a particular disease. In that
sense, combinatorial drugs confront the same problem as the traditional method
of screening of plant and animal extracts for active compounds that block viral
or bacterial replication.

         Vaccines

         Historically, the most effective tools in controlling infections have
been vaccines. Polio, measles, mumps and many other viral illnesses are now
controllable and smallpox has been eradicated from nature. Licensed vaccines for
hemorrhagic fever viruses are limited to yellow fever (though others are in the
trial phase of approval). Promising vaccines are being tested for some of the
other diseases, but research is hampered by the need to conduct the studies in
secure laboratories.

         There are other problems with relying on vaccines as our primary
protection against a biological weapons attack. While vaccination may be an
effective treatment in a military setting, it would be problematic for civilian
populations for several reasons:


         o        The infectious virus would have to be known prior to vaccine
                  deployment. With the exception of smallpox, post-exposure
                  vaccination is ineffective.

         o        Even if a large population could be vaccinated, it would be
                  impossible to vaccinate people against every viral threat.

         o        Vaccines are only useful if the viral target has not mutated
                  or been genetically altered.


         Vaccines that are effective and safe are difficult to develop. History
has shown that such development can be a slow process and may not even be
possible for highly mutable pathogens like HIV and Hepatitis C. Moreover,
current vaccine strategies often carry significant risk for complications. For
example, the smallpox vaccine, which uses attenuated strains of a live virus,
can occasionally cause illness or death by infection from the very organism that
usually provides protection.

LICENSING AGREEMENTS

         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(R) 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.

         On February 9, 2006, we entered into an option agreement with the
Trustees of Boston University which provides for the right to negotiate an
exclusive license for a Boston University patent BU05-41, "Method to Prevent
Proliferation and Growth of Metastases". It is our intention to effect such
license within the term of the option. On February 8, 2007 we entered into an
amendment to this agreement to extend its term until August 9, 2007.

         On November 7, 2006 we entered into an assignment agreement with the
London Health Science Center Research, Inc. and Thomas Ichim under which an
invention and related patent rights for a method to treat cancer were assigned
to the Company. The invention provides for the "Depression of anticancer
immunity through extracorporeal removal of microvesicular particles" for which a
provisional patent application was filed in the United States. The agreement
provides that the Company will pay certain patent application and filing costs
as well as a 2% royalty on any future net sales.

GOVERNMENT REGULATION

         The Hemopurifier(R) is a medical device subject to extensive and
rigorous regulation by FDA, as well as other federal and state regulatory bodies
in the United States and comparable authorities in other countries. Therefore,
we cannot assure that our technology will successfully complete any regulatory
clinical trial for any of our proposed applications.

                                       5





<PAGE>

         One of the problems facing the FDA is the need to ensure public safety
while at the same time preventing unsafe treatments from reaching the public.
The balance between these competing pressures has resulted in a long and
deliberate process for approving new treatments which is not responsive to the
urgent need for new treatments presented in the era of bioterrorism. For most
drugs, the principal research and development phases take several years prior to
a drug being submitted to the FDA for testing. A clinical research program takes
two to ten years, depending on the agent and clinical indication, after which
the marketing application review period requires an average of one year. Once a
product is approved for market, long-term post-marketing surveillance,
inspections, and product testing must be performed to ensure the quality,
safety, and efficacy of the product, as well as appropriate product labeling.

         FDA'S PREMARKET CLEARANCE AND APPROVAL REQUIREMENTS. Each medical
device we wish to commercialize in the United States will require the filing of
a Premarket Approval ("PMA") from FDA. Medical devices are classified into one
of three classes--Class I, Class II, or Class III--depending on the degree or
risk associated with each medical device and the extent of control needed to
ensure safety and effectiveness. Devices deemed to pose lower risks are placed
in either Class I or II, which requires the manufacturer to submit to FDA a
premarket notification requesting permission to commercially distribute the
device. Our Hemopurifier(R) has been categorized as a Class III device,
requiring premarket approval.

         CLINICAL TRIALS. Clinical trials are almost always required to support
an FDA premarket application. In the United States, these trials generally
require submission of an application for an Investigational Device Exemption, or
IDE, to FDA. The IDE application must be supported by appropriate data, such as
animal and laboratory testing results, showing that it is safe to test the
device in humans and that the testing protocol is scientifically sound. The IDE
must be approved in advance by FDA for a specific number of patients unless the
product is deemed a non-significant risk device eligible for more abbreviated
IDE requirements. Clinical trials for significant risk devices may not begin
until the IDE application is approved by FDA and the appropriate institutional
review boards, or IRBs, at the clinical trial sites. Our clinical trials must be
conducted under the oversight of an IRB at the relevant clinical trial sites and
in accordance with FDA regulations, including but not limited to those relating
to good clinical practices. We are also required to obtain patients' informed
consent that complies with both FDA requirements and state and federal privacy
regulations. We, the FDA or the IRB at each site at which a clinical trial is
being performed may suspend a clinical trial at any time for various reasons,
including a belief that the risks to study subjects outweigh the benefits. Even
if a trial is completed, the results of clinical testing may not demonstrate the
safety and efficacy of the device, may not be equivocal or may otherwise not be
sufficient to obtain approval of the product. Similarly, in Europe the clinical
study must be approved by a local ethics committee and in some cases, including
studies with high-risk devices, by the Ministry of Health in the applicable
country.

         In March 2007 we submitted an IDE with the FDA the goal of which is to
obtain approval to conduct human safety and, if applicable, animal efficacy
trials targeted to a specific bioterror viral agent. We are presently in the
process of conducting in-vitro trials to determine the most appropriate
"Category A" bioterror application. Upon successful completion of the IDE
clinical trials, we would anticipate submitting a PMA (see below).

         PREMARKET APPROVAL PATHWAY. A PMA application must be supported by
extensive data, including but not limited to technical, preclinical, clinical
trials, manufacturing and labeling to demonstrate to FDA's satisfaction the
safety and effectiveness of the device.

         After a PMA application is submitted and FDA determines that the
application is sufficiently complete to permit a substantive review, FDA will
accept the application for review. FDA has 180 days to review an "accepted" PMA
application, although the review of an application generally occurs over a
significantly longer period of time and can take up to several years. During
this review period, FDA may request additional information or clarification of
the information already provided. Also, an advisory panel of experts from
outside FDA may be convened to review and evaluate the application and provide
recommendations to FDA as to the approvability of the device. In addition, FDA
will conduct a pre-approval inspection of the manufacturing facility to ensure
compliance with quality system regulations. New PMA applications or PMA
application supplements are required for significant modification to the
manufacturing process, labeling and design of a device that is approved through
the premarket approval process. Premarket approval supplements often require
submission of the same type of information as a premarket approval application,
except that the supplement is limited to information needed to support any
changes from the device covered by the original premarket approval application
and may not require as extensive clinical data or the convening of an advisory
panel.

                                       6





<PAGE>

         PERVASIVE AND CONTINUING REGULATION. After a device is placed on the
market, numerous regulatory requirements continue to apply. These include:

         o        FDA's Quality System Regulation, or QSR, which requires
                  manufacturers, including third-party manufacturers, to follow
                  stringent design, testing, control, documentation and other
                  quality assurance procedures during all aspects of the
                  manufacturing process;

         o        labeling regulations and FDA prohibitions against the
                  promotion of products for uncleared, unapproved or off-label
                  uses;

         o        clearance or approval of product modifications that could
                  significantly affect safety or efficacy or that would
                  constitute a major change in intended use;

         o        medical device reporting, or MDR, regulations, which require
                  that manufacturers report to FDA if their device may have
                  caused or contributed to a death or serious injury or
                  malfunctioned in a way that would likely cause or contribute
                  to a death or serious injury if the malfunction were to recur;
                  and

         o        post-market surveillance regulations, which apply when
                  necessary to protect the public health or to provide
                  additional safety and effectiveness data for the device.

         After a device receives a PMA, any modification that could
significantly affect its safety or effectiveness, or that would constitute a
major change in its intended use, will require a new clearance or approval. FDA
requires each manufacturer to make this determination initially, but FDA can
review any such decision and can disagree with a manufacturer's determination.

         The regulations also require that we report to FDA any incident in
which our product may have caused or contributed to a death or serious injury or
in which our product malfunctioned and, if the malfunction were to recur, would
likely cause or contribute to death or serious injury.

         FRAUD AND ABUSE. We may also directly or indirectly be subject to
various federal and state laws pertaining to healthcare fraud and abuse,
including anti-kickback laws. In particular, the federal healthcare program
Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting,
offering, receiving or providing remuneration, directly or indirectly, in
exchange for or to induce either the referral of an individual, or the
furnishing, arranging for or recommending a good or service, for which payment
may be made in whole or part under federal healthcare programs, such as the
Medicare and Medicaid programs. Penalties for violations include criminal
penalties and civil sanctions such as fines, imprisonment and possible exclusion
from Medicare, Medicaid and other federal healthcare programs. The Anti-Kickback
Statute is broad and prohibits many arrangements and practices that are lawful
in businesses outside of the healthcare industry. In implementing the statute,
the Office of Inspector General, or OIG, has issued a series of regulations,
known as the "safe harbors." These safe harbors set forth provisions that, if
met, will assure healthcare providers and other parties that they will not be
prosecuted under the Anti-Kickback Statute. The failure of a transaction or
arrangement to fit precisely within one or more safe harbors does not
necessarily mean that it is illegal or that prosecution will be pursued.
However, conduct and business arrangements that do not fully satisfy each
applicable element of a safe harbor may result in increased scrutiny by
government enforcement authorities, such as the OIG.

        INTERNATIONAL. International sales of medical devices are subject to
foreign governmental regulations, which vary substantially from country to
country. The time required to obtain clearance or approval by a foreign country
may be longer or shorter than that required for FDA clearance or approval, and
the requirements may be different.

         The primary regulatory environment in Europe is that of the European
Union, which has adopted numerous directives and has promulgated voluntary
standards regulating the design, manufacture, clinical trials, labeling and
adverse event reporting for medical devices. Devices that comply with the
requirements of a relevant directive will be entitled to bear CE conformity
marking, indicating that the device conforms with the essential requirements of
the applicable directives and, accordingly, can be commercially distributed
throughout the member states of the European Union, and other countries that
comply with or mirror these directives. The method of assessing conformity
varies depending on the type and class of the product, but normally involves a
combination of self-assessment by the manufacturer and a third-party assessment
by a notified body, an independent and neutral institution appointed by a
country to conduct the conformity assessment. This third-party assessment may
consist of an audit of the manufacturer's quality system and specific testing of
the manufacturer's device. Such an assessment is required in order for a
manufacturer to commercially distribute the product throughout these countries.
ISO 9001 and ISO 13845 certifications are voluntary harmonized standards.
Compliance establishes the presumption of conformity with the essential
requirements for a CE Marking.

                                       7





<PAGE>

         We have completed preclinical studies that demonstrate the removal of
HIV and Hepatitis C virus from infected human blood. We have also completed
initial animal safety studies, limited human safety studies and are presently
engaged in the in-vitro testing and clinical planning required to support our
recent IDE submission.

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 have limited clinical trial liability insurance
coverage. There can be no assurance that future insurance coverage will 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.

SUBSIDIARIES

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

EMPLOYEES

         At March 31, 2007, we had six full-time employees, comprised of our
Chief Executive Officer, our President, our Chief Science Officer, our Chief
Financial Officer, and two research scientists. We utilize, whenever
appropriate, contract and part time professionals in order to conserve cash and
resources. We believe our employee relations are good. None of our employees are
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 $7,744 per month on a lease that expires on July
12, 2007. The Company is presently negotiating a new lease arrangement with its
current landlord and will lease its space on a month to month basis, at the same
terms, until such negotiations are completed.


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.

                                       8





<PAGE>

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

         On March 2, 2007, Aethlon Medical, Inc. (the "Company") held an annual
meeting of stockholders at the Company's executive offices for the following
purposes: (1) to elect a director slate, (2) ratify the appointment of Squar,
Milner, Peterson, Miranda & Williamson, L.L.P ("Squar Milner"), as the Company's
independent auditors for the fiscal year ending March 31, 2007, and (3) to
approve an amendment to the Company's Articles of Incorporation to increase the
number of authorized shares of the Company's Common Stock from 50,000,000 to
100,000,000. Stockholders holding an aggregate minimum of 21,763,109 shares of
Common Stock of the Company voted to elect the Directors, 21,811,789 in favor of
ratifying the appointment of Squar Milner as the Company's independent auditors
and stockholders holding an aggregate of 8,628,045 shares of Common Stock of the
Company, with holders of 12,363,691 non-votes excluded, voting in favor of
approving the amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 50,000,000 to 100,000,000.
The number of shares voting in favor of the three proposals was sufficient for
the approval. The number of shares voting against and/or abstaining from the
vote were as follows: Proposal 1: 170,021 shares (maximum); Proposal 2: 121,341
shares and Proposal 3: 941,394 shares with 12,363,691 non-votes. The entire
proposed slate of Directors was approved by the shareholders.

                                    PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our Common Stock is quoted on the Over-The-Counter Bulletin Board. 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.

                                                              BID PRICE
                                                      -----------------------
PERIOD                                                 HIGH            LOW
- -----------------------------------------------------------------------------

2007:
First Quarter                                         $  0.84       $  0.25

2006:
Fourth Quarter                                           0.34          0.25
Third Quarter                                            0.34          0.19
Second Quarter                                           0.84          0.32
First Quarter                                            0.98          0.26

2005:
Fourth Quarter                                           0.77          0.21
Third Quarter                                            0.25          0.18
Second Quarter                                           0.33          0.22
First Quarter                                            0.52          0.25


         There are approximately 2,100 record holders of our Common Stock at
June 29, 2007. The number of registered shareholders includes any beneficial
owners of common shares held in street name.

         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.

         The transfer agent and registrar for our common stock is ComputerShare
Trust Company, located at 350 Indiana Street, Suite 800, Golden Colorado 80401;
303-262-0600

                                       9





<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

         From July 11, 2005 through December 15, 2005 the Company received cash
investments of $760,000 from an accredited investor (Ellen R. Weiner Family
Revocable Trust) based on agreed-upon terms reached on the cash receipt dates.
Such investments were documented on November 2, 2005, November 4, 2005 and
December 15, 2005 in three 10% Series A Convertible Notes ("Weiner Series A
Notes"). The Weiner Series A Notes accrue interest at a rate of ten percent
(10%) per annum and mature on January 2, 2007. The Weiner Series A Notes are
convertible into shares of restricted common stock at any time at the election
of the holder at a conversion price equal to $0.20 per share for any conversion
occurring on or prior to the maturity date. In addition, upon conversion, the
Company is obligated to issue three-year Warrants (the "Weiner Series A
Warrants") to purchase a number of shares equal to the number of shares into
which the Weiner Series A Notes can be converted at an exercise price of $0.20.
The Weiner Series A Warrants have been valued using a Binomial Lattice option
pricing model and an associated discount of $531,875, measured at the commitment
dates, will be expensed as future conversions occur. The convertible feature of
the Weiner Series A Notes provides for a rate of conversion that is below market
value. Pursuant to EITF 98-5 and EITF 00-27, the Company has estimated the fair
value of such BCF to be $228,125 and records such amount as a debt discount.
Such discount is being accreted to interest expense over the term of the Weiner
Series A Notes. This transaction was exempt from registration pursuant to
Regulation D promulgated under the Securities Act of 1933.

         From August 8, 2005 through December 14, 2005 the Company received cash
investments of $225,000, from an accredited investor (Allan S. Bird) based on
agreed upon terms reached on the cash receipt dates. Such investments were
documented on November 2, 2005, November 7, 2005 and December 14, 2005 in three
10% Series A Convertible Notes ("Bird Series A Notes"). The Bird Series A Notes
accrue interest at a rate of ten percent (10%) per annum and mature on January
2, 2007. The Bird Series A Notes are convertible into shares of restricted
common stock at any time at the election of the holder at a conversion price
equal to $0.20 per share for any conversion occurring on or prior to the
maturity date. In addition, upon conversion, the Company is obligated to issue
three-year Warrants (the "Bird Series A Warrants") to purchase a number of
shares equal to the number of shares into which the Bird Series A Notes can be
converted at an exercise price of $0.20. The Bird Series A Warrants have been
valued using a Binomial Lattice option pricing model and an associated discount
of $183,000, measured at the commitment dates with the warrants being initially
classified as a derivative liability. The derivative liability was reclassified
as additional paid in capital upon obtaining an effective registration statement
in January 2006 and the discount will be expensed when the warrants are issued
when future debt conversions occur. The convertible feature of the Bird Series A
Note provides for a rate of conversion that is below market value (Beneficial
Conversion Feature or "BCF"). Pursuant to EITF 98-5 and EITF 00-27, the Company
has estimated the fair value of such BCF to be $42,000 and records such amount
as a debt discount. Such discount is being accreted to interest expense over the
term of the Bird Series A Note. This transaction was exempt from registration
pursuant to Regulation D promulgated under the Securities Act of 1933.

         On December 15, 2005, the Company received total cash investments of
$15,000 from two related accredited investors (Christian Hoffmann III and
Claypoole Capital, LLC). Such investments were documented in two 10% Series A
Convertible Notes ("December Notes"). The December Notes accrue interest at a
rate of ten percent (10%) per annum and mature on January 2, 2007. The December
Notes are convertible into shares of restricted common stock at any time at the
election of the holder at a conversion price of $0.20 per share for any
conversion occurring on or before the maturity date. In addition, upon
conversion, the Company is obligated to issue three-year Warrants (the "December
Warrants") to purchase a number of shares equal to the number of shares into
which the December Notes were converted at an exercise p rice of $0.20. The
December Warrants have been valued using a Binomial Lattice option pricing model
and an associated discount of $15,000, measured at the commitment date, with the
warrants being initially classified as a derivative liability. The derivative
liability was reclassified as additional paid in capital upon obtaining an
effective registration statement in January 2006 and the discount will be
expensed when the warrants are issued upon the occurance of future debt
conversion. This transaction was exempt from registration pursuant to Regulation
D promulgated under the Securities Act of 1933.

                                       10





<PAGE>

          On December 15, 2006, the Company issued two 10% Convertible Notes
("December 10% Notes") totaling $50,000 to accredited investors. The December
10% Notes accrue interest at a rate of ten percent (10%) per annum and mature on
March 15, 2007. Such notes are convertible into shares of restricted common
stock at any time at the election of the holder at a fixed conversion price of
$0.17 per share for any conversion occurring on or before the maturity date. In
addition, upon issuance, the Company issued five-year Warrants ("December 10%
Note Warrants") to purchase a number of shares equal to the number of shares
into which the December 10% Notes can be converted at a fixed exercise price of
$0.17. Additionally, if the December 10% Note Warrants are exercised prior to
December 15, 2007, the holder will receive an additional warrant on the same
terms as the December 10% Note Warrants on a one to one basis. The warrants can
be settled in unregistered shares of common stock.

         On or about March 13, 2007, the Company determined that the
effectiveness of the registration statement underlying the conversion and
warrant shares associated with the Series A Convertible Promissory Notes
("Notes") had lapsed on October 27, 2006. As a result, the Company reversed the
effect of the prior registration effectiveness and reduced
additional-paid-in-capital by $1,090,000 and recorded a warrant liability of
like amount. Between October 27, 2006 and March 22, 2007 (when the debt was
effectively extinguished), the Company recorded an additional expense related to
the change in the fair value of the associated warrant liability of $1,969,450.

         Effective March 22, 2007, the Company entered into four Allonges (the
"Allonges") to the Notes entered into in December 2005 having an aggregate
principal amount of $1,000,000 (the "Notes") with the Estate of Allan S. Bird,
the Ellen R. Weiner Family Revocable Trust, Claypoole Capital, LLC and Christian
J. Hoffmann III (the "Holders"). Each Holder has qualified as an "accredited
investor" as that term is defined in the Securities Act of 1933, as amended (the
"Act"). Pursuant to the Allonges, the Company amended and restated the Notes to
extend the maturity date of the Notes from January 2, 2007 until January 3,
2008. The Company will also pay all accrued interest, through February 15, 2007
and each calendar quarter thereafter, in the form of units (the "Units")at the
rate of $0.20 per Unit (the "Interest Payment Rate"). The Notes are convertible
into Units at any time prior to the Maturity Date at the conversion price of
$0.20 per Unit (the "Conversion Price"). Each Unit is composed of one share of
the Company's Common Stock and one Class A Common Stock Purchase Warrant (the
"Class A Warrant"). Each Class A Warrant expires on January 2, 2011 and is
exercisable to purchase one share of Common Stock at a price of $0.20 per share
(the "Exercise Price"). If the Holder exercises Class A Warrants on or before
July 3, 2008, the Company will issue the Holder one Class B Common Stock
Purchase Warrant (the "Class B Warrant" and with the Class A Warrant,
collectively, the "Warrants") for every two Class A Warrants exercised. Each
Class B Warrant has a three-year term and is exercisable to purchase one share
of Common Stock at a price equal to the greater of $0.20 per share or 75% of the
average of the closing bid prices of the Common Stock for the five trading days
immediately preceding the date of the notice of conversion. Pursuant to EITF
Issue No. 06-06, and because of the change in the fair value of embedded
conversion options as a result of the issuance of Units under the Allonges on
March 22, 2007, such issuance was determined to be a substantial change in the
Notes resulting in the extinguishment of the Notes as per Accounting Principles
Board ("ABP") Opinion No. 26. Therefore on March 22, 2007, the Company recorded
a net increase of $270,127 of discount on convertible notes payable, an increase
in warrant liability of $1,486,875 and a loss on extinguishment of debt of
$1,216,748 (see Note 6 to the consolidated financial statements). Between March
22, 2007 and March 31, 2007, the Company also recorded an additional other
expense of $143,125 to record the change in fair value of the warrant liability
at March 31, 2007. This transaction was exempt from registration pursuant to
Regulation D promulgated under the Securities Act of 1933.

COMMON STOCK AND WARRANTS

         In April 2006, the Company issued 3,782 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.79 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In April 2006, the Company issued 25,601 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.50 per share in payment for past due rents owed by
the Company valued at $12,801 based on the value of the services.

         In April 2006, the Company issued 6,313 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.79 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

                                       11





<PAGE>

         In April 2006, the Company issued 10,000 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.50 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In April 2006, the Company issued 14,563 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.29 per share in payment for regulatory affairs
consulting services to the Company valued at $4,165 based on the value of the
services.

         In April 2006, the Company issued 3,086 shares of restricted common
stock at $0.81 per share in payment for investor relations valued at $2,500
based on the value of the services.

         During April 2006, the Company issued 209,679 shares of common stock at
prices between $0.57 and $0.74 per share to Fusion Capital under its $6,000,000
common stock purchase agreement for net cash proceeds totaling $140,002. These
shares are registered pursuant to the Company's Form SB-2 registration statement
effective December 7, 2004.

         In April 2006, the Company repaid a $25,000 15% promissory notes,
including accrued interest of $18,750, through the issuance of 107,759
restricted common shares at $0.41 per share to an accredited individual
investor. There was no gain or loss on the extinguishment.

         In May 2006, the Company issued 8,532 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.59 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In May 2006, the Company issued 5,703 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.53 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In May 2006, the Company issued 4,545 shares of restricted common stock
at $0.55 per share in payment for investor relations valued at $2,500 based on
the value of the services.

         In June 2006, the Company issued 8,681 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In June 2006, the Company issued 5,703 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.53 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In June 2006, the Company issued 3,363 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.45 per share in payment for regulatory affairs
consulting services to the Company valued at $1,500 based on the value of the
services.

         In July 2006, the Company issued 8,721 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.53 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In July 2006, the Company issued 10,684 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In July 2006, the Company issued 6,250 shares of restricted common
stock at $0.31 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

         In July 2006, the Company issued 7,813 shares of restricted common
stock at $0.40 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

                                       12





<PAGE>

         In July 2006, the Company issued 8,721 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.30 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In July 2006, the Company issued 132,765 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.37 per share in payment for regulatory affairs
consulting services to the Company valued at $48,858 based on the value of the
services.

         In July 2006, the Company issued 14,535 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.49 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         During August 2006, the Company issued 113,235 shares of common stock
at prices between $0.26 and $0.27 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$30,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In August 2006, the Company issued 9,434 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In August 2006, the Company issued 86,779 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for general legal expenses
to the Company valued at $22,085 based on the value of the services.

         In August 2006, the Company issued 114,130 shares of restricted common
stock at $0.20 per share in payment for accrued accounting consulting services
provided to the Company by a third party valued at $23,111 based upon the value
of the services.

         During September 2006, the Company issued 439,936 shares of common
stock at prices between $0.25 and $0.26 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$110,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In September 2006, the Company issued 4,808 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $1,500 based on the value of the
services.

         In September 2006, the Company issued 15,723 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In September 2006, the Company issued 9,868 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In September 2006, the Company issued 16,447 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In September 2006, the Company issued 9,733 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.30 per share in payment for regulatory affairs
consulting services to the Company valued at $2,550 based on the value of the
services.

                                       13





<PAGE>

         During October 2006, the Company issued 201,165 shares of common stock
at $0.25 per share to Fusion Capital under its $6,000,000 common stock purchase
agreement for net cash proceeds totaling $50,000. These shares are registered
pursuant to the Company's Form SB-2 registration statement effective December 7,
2004.

         In October 2006, the Company issued 16,994 shares of restricted common
stock at $0.31 per share in payment for investor relations services to the
Company valued at $5,000 based on the value of the services.

         In October 2006, the Company issued 18,797 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.27 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In October 2006, the Company issued 11,278 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.27 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In October 2006, the Company issued 7,540 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $1,900 based on the value of the
services.



         In November 2006, the Company issued 555,556 shares of restricted
common stock at $0.18 per share in exchange for an investment of $100,000. As an
inducement the Company also issued five-year warrants to purchase a number of
shares equal to the number of restricted shares issued converted at a fixed
exercise price of $0.18. Additionally, if the warrants are exercised prior to
November 14, 2007, the holder will receive an additional warrant on the same
terms as the warrants.

         In November 2006, the Company issued 11,905 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In November 2006, the Company issued 19,841 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In December 2006, the Company issued 12,397 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.24 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In December 2006, the Company issued 20,661 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.24 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In December 2006, the Company issued 40,000 shares of restricted common
stock at $0.25 per share in exchange for license and development rights related
to certain intellectual property valued at $10,800 based on the fair market
value of the the intellectual property license.

         During December 2006, the Company issued 118,360 shares of common stock
at prices between $0.25 and $0.26 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$30,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In January 2007, the Company issued 15,248 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $4,300 based on the value of the
services.

                                       14





<PAGE>

         In January 2007, the Company issued 10,714 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In January 2007, the Company issued 125,091 shares of restricted common
stock at between $0.24 and $0.31 per share in payment for investor relations
services to the Company valued at $32,500 based on the value of the services.

         In January 2007, the Company issued 17,857 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         During January 2007, the Company issued 782,268 shares of common stock
at prices between $0.25 and $0.273 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$200,001. These shares were registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In February 2007, the Company issued 31,394 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.26 per share in payment for general legal expenses
to the Company valued at $8,005 based on the value of the services.

         In February 2007, the Company issued 9,740 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.31 per share in payment for regulatory affairs
consultant services to the Company valued at $3,000 based on the value of the
services.

         During February 2007, the Company issued 692,751 shares of common stock
at prices between $0.28 and $0.32 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$199,998. These shares were registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In March 2007, the Company issued 15,723 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consultant services to the Company valued at $5,000 based on the value of the
services.

         In March 2007, the Company issued 4,934 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.61 per share in payment for regulatory affairs
consultant services to the Company valued at $3,000 based on the value of the
services.

         In March 2007, the Company issued 21,078 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.51 per share in payment for regulatory affairs
consultant services to the Company valued at $10,750 based on the value of the
services.

         In March 2007, the Company issued 8,651 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         During March 2007, the Company issued 92,379 shares of common stock at
prices between $0.36 and $0.44 per share to Fusion Capital under its $6,000,000
common stock purchase agreement for net cash proceeds totaling $36,745. These
shares were registered pursuant to the Company's Form SB-2 registration
statement effective December 7, 2004.

         In March 2007, the Company issued 1,333,333 shares of common stock at
$0.30 per share to Fusion Capital for net cash proceeds of $400,000. In
addition, associated with a Common Stock Purchase Agreement dated March 21,
2007, the Company issued 1,050,000 commitment shares.

                                       15





<PAGE>

                           EQUITY COMPENSATION PLANS

                   SUMMARY EQUITY COMPENSATION PLAN DATA

         The following table sets forth March 31, 2007 information on our equity
compensation plans (including the potential effect of debt instruments
convertible into common stock) in effect as of that date:

<TABLE>
<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))
Equity compensation
plans approved by
security holders                 32,500                    $2.65                          467,500

Equity compensation
plans not approved by
security holders (1)          9,171,560                    $0.39                            N/A
                             -----------                   ------                         --------
            Totals            9,204,060                    $0.39                          467,500
</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.

2000 STOCK OPTION PLAN

                          Number of
                       securities to be   Weighted average
                         issued upon       exercise price        Number of
                         exercise of       of outstanding        securities
                         outstanding          options,           remaining
                      options, warrants     warrants and       available for
   Plan Category          and rights           rights         future issuance
- --------------------- ------------------- ------------------ -------------------
                             (a)                 (b)                (c)
- --------------------- ------------------- ------------------ -------------------
Equity compensation
plans approved by
security holders            32,500             $ 2.65             467,500
- --------------------- ------------------- ------------------ -------------------
Equity compensation
plans not approved
by security holders           --                 --                  --
- --------------------- ------------------- ------------------ -------------------
Total                       32,500             $ 2.65             467,500
- --------------------- ------------------- ------------------ -------------------

         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, 2007, we had
granted 32,500 options under the 2000 Stock Option Plan, with 467,500 available
for future issuance.

                                       16





<PAGE>



2003 CONSULTANT STOCK PLAN

- --------------------- ------------------- ------------------ -------------------
   Plan Category       Number of shares
                       of common stock    Weighted average    Number of common
                        available for      price of shares    shares remaining
                        issuance under    issued under the     available for
                           the plan             plan          future issuance
- --------------------- ------------------- ------------------ -------------------
                             (a)                 (b)                (c)
- --------------------- ------------------- ------------------ -------------------
Equity compensation
plans approved by
security holders              --                 --                  --
- --------------------- ------------------- ------------------ -------------------
Equity compensation
plans not approved
by security holders       3,000,000            $ 0.31            2,928,935
- --------------------- ------------------- ------------------ -------------------
Total                     3,000,000            $ 0.31            2,928,935
- --------------------- ------------------- ------------------ -------------------

         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. We initially reserved a total of 1,000,000
common shares for issuance under the Stock Plan and increased this to 3,000,000
on August 29, 2005. 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.

         On August 29, 2005, we filed with the SEC a registration statement on
Form S-8 for the purpose of registering 2,000,000 common shares issuable under
The Stock Plan under the Securities Act of 1933.

         At March 31, 2007, 71,065 shares of common stock remain to be issued
under the 2003 Consultant Stock Plan.

2005 DIRECTORS COMPENSATION PROGRAM

         Upon the recommendation of our Compensation Committee, in February
2005, we adopted our 2005 Directors Compensation Program (the "Directors
Compensation Program") which advances our interest by helping us to obtain and
retain the services of outside directors upon whose judgment, initiative,
efforts and/or services we are substantially dependent, by offering to or
providing those persons with incentives or inducements affording them an
opportunity to become owners of our capital stock.

         Under the Directors Compensation Program, a newly elected director will
receive a one time grant of a non-qualified stock option of 1.5% of the common
stock outstanding at the time of election. The options will vest one-third at
the time of election to the board and the remaining two-thirds will vest equally
at year end over three years. Additionally, each director will also receive an
annual $25,000 non-qualified stock option retainer, $15,000 of which is to be
paid at the first of the year to all directors who are on the Board prior to the
first meeting of the year and a $10,000 retainer will be paid if a director
attends 75% of the meetings either in person, via conference call or other
electronic means. The exercise price for the options under the Directors
Compensation Program will equal the average closing of the last ten (10) trading
days prior to the date earned. At March 31, 2007 under the 2005 Directors
Compensation Program we had issued 1,337,825 options to outside directors,
3,965,450 options to employee-directors, 308,725 outside directors options had
been forfeited and 4,994,550 options remained outstanding.

         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.

         To date we have issued 5,828,158 options (of which 1,573,300 have been
exercised or cancelled) outside of both the 2005 Directors Compensation Plan and
2 000 Stock Option Plan.


                                       17





<PAGE>

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.

Operating Expenses

         Consolidated operating expenses were $2,084,254 for the fiscal year
ended March 31, 2007, versus $2,094,939 for the comparable period one year ago.
The net decrease of ($10,685) was comprised of an increase in payroll expense of
$214,021 and general and administrative expense of $8,518, offset by decreases
in professional fees and asset impairment charges of ($151,502) and ($81,722),
respectively.

         Professional fees decreased by ($151,502). This decrease was primarily
a result of a reduction in scientific consulting expense of ($126,736) due to
higher costs in the prior fiscal year related to human and animal safety studies
conducted by the company. Other decreases in expenses included ($70,622) in
legal expense and ($15,109) related to decreases in web development and
accounting fees. The decreases noted above were offset by an increase of $60,965
in investor relations expenses due to our senior director of communications
being retained for the entire year as well as the addition of a senior director
of investor relations both retained on a consulting basis.

         Payroll and related expenses increased by $214,021 as compared to the
prior fiscal year. The increase was principally driven by research and
development payroll which increased $122,114 due to the hiring of our new
president (whose duties are primarily development-related) and a result of
increases in senior management salaries. Administrative payroll increased by
$38,913 because of salary increases for a senior executive and the employment of
our chief financial officer for the entire fiscal year. Stock compensation
expense increased $38,132 due to the recognition of expense related to the
amortization of stock options vesting during the fiscal year ended March 31,
2007. Finally, due to the general increases in payroll expenses, payroll taxes
increased by $14,862.

          General and administrative expenses remained essentially unchanged
from the prior year, increasing by $8,518. This increase is comprised of
reductions in lab supplies of ($64,239) and other expenses of ($4,337), offset
by increases in insurance expense of $44,523 and investor conference expenses of
$32,569. Lab supplies decreased because the company incurred significant
expenses in the prior fiscal year related to animal and human safety studies.
Insurance expense increased primarily due to increases in employee medical
insurance expense and against an approximate $17,000 write-off benefit in the
prior fiscal year.

Interest and Other Expense

         In the fiscal year ended March 31, 2007, the Company recognized a
$1,216,748 non-cash loss on the extinguishment of debt as a result of the
issuance of Allonges to the Company's 10% Series A Convertible Notes. In
addition the Company recognized $2,112,575 in non-cash expense related to
warrant liability revaluation in comparison to the prior fiscal year when
$360,125 of non-cash expense was recognized to reflect the change in fair value
of the warrants issued related to our 10% Series A Convertible Notes.

         Interest expense decreased by ($59,329) as a consequence of the full
amortization of BCF associated with convertible notes outstanding in the prior
fiscal year.

         Other expense increased by $205,178 over the prior fiscal year a result
of the recognition of approximately $220,000 in liquidated damages associated
with the failure to register shares underlying our 10% Series A Convertible
Notes and related warrants (see Note 6 to the consolidated financial
statements).

PLAN OF OPERATION

         The Company's current plan of operation is to fund our anticipated
increased research and development activities and operations for the near future
by effecting a new equity line of credit with Fusion Capital and/or by raising
funds through the sale of private equity or a combination thereof.
Based on our projections of additional resources required for operations and to
complete research, development and testing associated with our Hemopurifier(R)
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 plan to arrange for additional funding,
subject to acceptable terms, during the next twelve months.

                                       18





<PAGE>

         The Company is a development stage medical device company that has not
yet engaged in significant commercial activities. The primary focus of our
resources is the advancement of our proprietary Hemopurifier(R) platform
treatment technology, which is designed to rapidly reduce the presence of
infectious viruses and toxins in human blood. Our focus is to prepare our
Hemopurifier(R) to treat chronic viral conditions, acute viral conditions and
viral-based bioterror threats in human clinical trials.

         The Company plans to continue research and development activities
related to our Hemopurifier(R) platform technology, with particular emphasis on
the advancement of our treatment for "Category A" pathogens as defined by the
Federal Government under Project Bioshield and the All Hazards Preparedness Act
of 2006. The Company has filed an Investigational Device Exemption ("IDE") with
the FDA in order to proceed with Human safety studies of the Hemopurifier(R).
Such studies, complemented by planned in-vivo and appropriate animal in-vitro
studies should allow the Company to proceed to Premarket Approval ("PMA")
process. The PMA process is the last major FDA hurdle in determining the safety
and effectiveness of Class III medical Devices (of which the Hemopurifier(R) is
one).

         Management anticipates continuing to increase spending on research and
development over the next 12 months. Additionally, associated with the Company's
anticipated increase in research and development expenditures, we anticipate
purchasing additional amounts of equipment during this period to support our
laboratory and testing operations. Operations to date have consumed substantial
capital without generating revenues, and will continue to require substantial
and increasing capital funds to conduct necessary research and development and
pre-clinical and clinical testing of our Hemopurifier(R) products, as well as
market any of those products that receive regulatory approval. The Company does
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. Future capital requirements
will depend upon many factors, including progress with pre-clinical testing and
clinical trials, the number and breadth of our clinical 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,
as well as management's ability to establish collaborative arrangements,
effective commercialization, marketing activities and other arrangements. The
Company expects to continue to incur increasing negative cash flows and net
losses for the foreseeable future.

Convertible Notes Payable and Warrants

         Effective March 22, 2007, the Company entered into four Allonges (the
"Allonges") to its 10% Series A Convertible Promissory Notes entered into in
December 2005 having an aggregate principal amount of $1,000,000 (the "Notes")
with the Estate of Allan S. Bird, the Ellen R. Weiner Family Revocable Trust,
Claypoole Capital, LLC and Christian J. Hoffmann III (the "Holders"). Each
Holder has qualified as an "accredited investor" as that term is defined in the
Securities Act of 1933, as amended (the "Act"). Pursuant to the Allonges, the
Company amended and restated the Notes to extend the maturity date of the Notes
from January 2, 2007 until January 3, 2008. The Company will also pay all
accrued interest, through February 15, 2007 and each calendar quarter
thereafter, in the form of units (the "Units")at the rate of $0.20 per Unit (the
"Interest Payment Rate"). The Notes are convertible into Units at any time prior
to the Maturity Date at the conversion price of $0.20 per Unit (the "Conversion
Price"). Each Unit is composed of one share of the Company's Common Stock and on
Class A Common Stock Purchase Warrant (the "Class A Warrant"). Each Class A
Warrant expires on January 2, 2001 and is exercisable to purchase one share of
Common Stock at a price of $0.20 per share (the "Exercise Price"). If the Holder
exercises Class A Warrants on or before July 3, 2008, the Company will issue the
Holder one Class B Common Stock Purchase Warrant (the "Class B Warrant" and with
the Class A Warrant, collectively, the "Warrants") for every two Class A
Warrants exercised. Each Class B Warrant has a three-year term and is
exercisable to purchase one share of Common Stock at a price equal to the
greater of $0.20 per share or 75% of the average of the closing bid prices of
the Common Stock for the five trading days immediately preceding the date of the
notice of conversion. Pursuant to EITF 06-06, and because of the change in the
fair value of embedded conversion options as a result of the issuance of Units
under the Allonges on March 22, 2007, such issuance was determined to be a sub-
stantial change in the Series A Notes resulting in the extinguishment of the
Series A Notes as per ABP 26. Therefore on March 22, 2007, the Company recorded
a loss on extinguishment of $1,216,748, a net increase of $270,127 of discount
on convertible notes payable and an increase in warrant liability of $1,486,875.
Between March 22, 2007 and March 31, 2007, the Company also recorded an
additional other expense of $143,125 to record the change in fair value of the
warrant liability at the end of the fiscal year. This transaction was exempt
from registration pursuant to Regulation D promulgated under the Securities Act
of 1933.

                                       19





<PAGE>

         On March 31, 2007, the Company had $1,000,000 in Notes outstanding,
offset by a ($1,000,000) note discount. The discount is associated with the
unamortized fair value of warrants attached to the Notes. The discount value
will amortize to interest expense over the life of the warrants once they are
issued. These 10% Series A Notes were amended on March 22, 2007 as described
above (the Allonges).

         On December 15, 2006, the Company issued two 10% Convertible Notes
("December 10% Notes") totaling $50,000 to accredited investors. The December
10% Notes accrue interest at a rate of ten percent (10%) per annum and mature on
March 15, 2007. Such notes are convertible into shares of restricted common
stock at any time at the election of the holder at a fixed conversion price of
$0.17 per share for any conversion occurring on or before the maturity date. In
addition, upon issuance, the Company issued five-year Warrants ("December 10%
Note Warrants") to purchase a number of shares equal to the number of shares
into which the December 10% Notes can be converted at a fixed exercise price of
$0.17. Additionally, if the December 10% Note Warrants are exercised prior to
December 15, 2007, the holder will receive an additional warrant on the same
terms as the December 10% Note Warrants on a one to one basis. The warrants can
be settled in unregistered shares of common stock. The December 10% Note
Warrants have been valued using a Binomial Lattice option pricing model and an
associated discount of $15,627, the relative fair value measured at the
commitment date, was recorded and presented net against the face amount of the
December 10% Notes. The convertible feature of the December 10% Notes provides
for an effective conversion rate that is below market value. Pursuant to EITF
No. 98-5 and EITF No. 00-27, the Company estimated the fair value of such BCF to
be $34,373 and recorded such amount as a debt discount. The discounts associated
with the warrants and the BCF are being accreted to interest expense over the
term of the December 10% Notes. Total expense recognized on the December 10%
Notes for amortization of such debt discounts totaled $50,000 for the fiscal
year ended March 31, 2007.

Notes Payable

         In April 2006, the Company repaid a $25,000 15% promissory notes,
including accrued interest of $18,750, through the issuance of 107,759
restricted common shares at $0.406 per share to an accredited individual
investor. There was no gain or loss on the extinguishment.

         The Company is currently in default on approximately $502,500 of
amounts owed under various unsecured notes payable and accrued liabilities and
is currently seeking other financing arrangements to retire all past due notes.
At March 31, 2007 the Company had accrued interest in the amount of $355,410
associated with these notes payable.

Securities Issued for Services

         We have issued securities in payment of services to reduce our
obligations and to avoid using our cash resources. In the year ended March 31,
2007 we issued 821,996 common shares for services of which 163,779 were
unregistered. We issued 1,050,000 restricted common shares as commitment shares
related to equity line financing, 114,130 restricted common shares for payment
of accrued liabilities, 107,759 for the retirement of notes payable, 163,779 for
investor communications services, 40,000 for licensing rights and 30,617 in
exchange for the conversion of Warrants. Included in the 821,996 common shares
issued for services are 658,217 shares, registered under a Form S-8 registration
statement, which were issued as follows:
540,044 for scientific and regulatory consulting and 118,173 for legal expense
The average price discount of common shares issued for these services, weighted
by the number of shares issued for services in this period, was approximately
9.3%.

         We have issued securities in payment of services to reduce our
obligations and to avoid using our cash resources. In the year ended March 31,
2006 we issued 2,737,588 common shares for services of which 1,030,700 were
unregistered. We issued 579,813 restricted common shares in settlement of a
legal dispute, 150,000 restricted common shares for financial consulting
services, 116,883 restricted common shares for corporate communications
services, 110,040 restricted common shares for accrued legal fees and 73,964
restricted common shares for legal fees related to financing activities. In
addition, 1,706,888 shares, registered under a Form S-8 registration statement,
were issued as follows: 1,061,129 for scientific and regulatory consulting,
399,131 for legal expense, 110,040 for payment of accrued legal fees, 103,255
for financial consulting and 33,333 for the right to license intellectual
property assets. The average price discount of common shares issued for these
services, weighted by The number of shares issued for services in this period,
was approximately 9%.

                                       20





<PAGE>

Securities Issued for Debt

         We have also issued securities for debt to reduce our obligations to
avoid using our cash resources. In the fiscal year ended March 31, 2007 we
issued 107,759 restricted common shares for repayment in full of notes,
including accrued interest. The price discount of the common stock issued for
debt was approximately 46.3%

         In the fiscal year ended March 31, 2006 we issued 314,716 restricted
common shares for repayment in full of notes, including accrued interest. The
price discount of the common stock issued for debt in this period weighted by
the number of shares issued for conversion of debt was approximately 70%,
primarily to reflect the fact that these common shares were not freely tradable
when issued.

Prospects for Debt Conversion

         We seek, where possible, to convert our debt and accounts payable to
stock and/or warrants in order to reduce our cash liabilities. Our success at
accomplishing this depends on several factors including market conditions,
investor acceptance and other factors, including our business prospects.

GOING CONCERN

         Our independent registered public accounting firm has stated in their
audit report on our March 31, 2007 consolidated financial statements, that we
have a working capital deficiency and a significant deficiency accumulated
during the development stage. These conditions, among others, raise substantial
doubt about our ability to continue as a going concern.

CRITICAL ACCOUNTING POLICIES

         The preparation of condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires us to make a number of 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. Such estimates
and assumptions affect the reported amounts of expenses during the reporting
period. On an ongoing basis, the Company evaluates estimates and assumptions
based upon historical experience and various other factors and circumstances.
Management believes the Company's estimates and assumptions are reasonable in
the circumstances; however, actual results may differ from these estimates under
different future conditions. The Company believes that the estimates and
assumptions that are most important to the portrayal of the Company's financial
condition and results of operations, in that they require the most difficult,
subjective or complex judgments, form the basis for the accounting policies
deemed to be most critical to us. These critical accounting policies relate to
stock purchase warrants issued with notes payable, beneficial conversion feature
of convertible notes payable, impairment of intangible assets and long lived
assets, stock compensation, contingencies and litigation. We believe estimates
and assumptions related to these critical accounting policies are appropriate
under the circumstances; however, should future events or occurrences result in
unanticipated consequences, there could be a material impact on the Company's
future financial conditions or results of operations.

Long Lived Assets

         SFAS No.144 ("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.
Management noted no indicators requiring review for impairment during the fiscal
year ended March 31, 2007.

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. Such discounts are amortized to interest expense over the
term of the notes.

                                       21





<PAGE>

Derivatives

         In the fiscal year ending March 31, 2006, the Company was obligated to
register for resale the shares underlying warrants in connection with the
issuance of its 10% Series A Convertible Promissory Notes. In accordance with
Emerging Issues Task Force ("EITF") No. 00-19, "Accounting for Derivative
Financial Instruments Indexed To, and Potentially Settled In, a Company's Own
Stock," the value of the warrants were recorded as a liability until the
registration became effective on January 20, 2006. At that time the Company
determined the fair value of these warrants and recorded an additional non-cash
expense of $363,875. Coincident with this valuation, the derivative liability
balance was reclassified to equity.

         On or about March 13, 2007, the Company determined that the
effectiveness of the registration statement underlying the conversion and
warrant shares associated with the 10% Series A Promissory Notes had lapsed on
October 27, 2006. In accordance with EITF No. 00-19, the Company reversed the
accounting effect of the prior registration effectiveness and reduced
additional-paid-in-capital by $1,090,000 and recorded a warrant liability of
like amount. Between October 27, 2006 and March 22, 2007 (when the debt was
effectively extinguished), the Company recorded an additional expense related to
the change in the fair value of the associated warrant liability of $1,969,450.

Extinguishment of Debt

         Effective March 22, 2007, the Company entered into four Allonges (the
"Allonges") to its 10% Series A Convertible Promissory Notes entered into in
December 2005 having an aggregate principal amount of $1,000,000 (the "Notes").
Pursuant to the Allonges, the Company amended and restated the Notes to extend
the maturity date of the Notes from January 2, 2007 until January 3, 2008. The
Notes are convertible into Units at any time prior to the Maturity Date at the
conversion price of $0.20 per Unit (the "Conversion Price"). Each Unit is
composed of one share of the Company's Common Stock and on Class A Common Stock
Purchase Warrant (the "Class A Warrant"). Each Class A Warrant expires on
January 2, 2011 and is exercisable to purchase one share of Common Stock at a
price of $0.20 per share (the "Exercise Price"). If the Holder exercises Class A
Warrants on or before July 3, 2008, the Company will issue the Holder one Class
B Common Stock Purchase Warrant (the "Class B Warrant" and with the Class A
Warrant, collectively, the "Warrants") for every two Class A Warrants exercised.
Each Class B Warrant has a three-year term and is exercisable to purchase one
share of Common Stock at a price equal to the greater of $0.20 per share or 75%
of the average of the closing bid prices of the Common Stock for the five
trading days immediately preceding the date of the notice of conversion.
Pursuant to EITF No. 06-06, "Debtor's Accounting for a Modification (or
Exchange) of Convertible Debt Instruments", such issuance was determined to be a
substantial change in the Notes resulting in the extinguishment of the Notes as
per ABP No. 26, "Accounting for Early Extinguishment of Debt". Therefore on
March 22, 2007, the Company recorded a loss on extinguishment of $1,216,748.
This transaction was exempt from registration pursuant to Regulation D
promulgated under the Securities Act of 1933.

Beneficial Conversion Feature of 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 EITF Issue No. 98-5,
"Accounting for Convertible Securities With Beneficial Conversion Features or
Contingently Adjustable Conversion Ratio" and EITF 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.

Accounting for Transactions involving Stock Compensation

         In December 2004, the FASB issued SFAS No. 123-R, "Share-Based
Payment," which requires that the compensation cost relating to share-based
payment transactions (including the cost of all employee stock options) be
recognized in the financial statements. That cost will be measured based on the
estimated fair value of the equity or liability instruments issued. SFAS No.
123-R covers a wide range of share-based compensation arrangements including
share options, restricted share plans, performance-based awards, share
appreciation rights, and employee share purchase plans. SFAS No.123-R replaces
SFAS No. 123 and supersedes APB 25. As originally issued, SFAS No. 123
established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that pronouncement
permitted entities to continue applying the intrinsic-value model of APB 25,
provided that the financial statements disclosed the pro forma net income or
loss based on the preferable fair-value method.

                                       22





<PAGE>

         Small Business Issuers are required to apply SFAS No. 123-R in the
first interim or annual reporting period of the registrant's first fiscal year
that begins after December 15, 2005. Thus, the Company's consolidated financial
statements reflect an expense for (a) all share-based compensation arrangements
granted on or after January 1, 2006 and for any such arrangements that are
modified, cancelled, or repurchased on or after that date, and (b) the portion
of previous share-based awards for which the requisite service has not been
rendered as of that date, based on the grant-date estimated fair value. The
Company adopted SFAS No. 123-R in the first fiscal quarter of 2007. For the
fiscal year ended March 31, 2007, the Company recognized $38,132 of share-based
compensation.

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

         An investment in our common shares involves a high degree of risk and
is subject to many uncertainties. These risks and uncertainties may adversely
affect our business, operating results and financial condition. In such an
event, the trading price for our common shares could decline substantially, and
you could lose all or part of your investment. In order to attain an
appreciation for these risks and uncertainties, you should read this annual
report in its entirety and consider all of the information and advisements
contained in this annual report, including the following risk factors and
uncertainties.

RISKS RELATING TO OUR BUSINESS

         WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT
LOSSES TO CONTINUE FOR THE FORESEEABLE FUTURE.

 We have yet to establish any history of profitable operations. We have not had
any significant revenues from our principal operations. We have incurred annual
operating losses of $2,084,254, $2,094,939 and $2,183,377, respectively, during
the past three fiscal years of operation. At March 31, 2007, we had an
accumulated deficit of $28,086,992. We have incurred net losses of $6,024,545
and $2,920,183 for the fiscal years ending March 31, 2007 and 2006. Our revenues
have not been sufficient to sustain our operations. We expect that our revenues
will not be sufficient to sustain our operations for the foreseeable future. Our
profitability will require the successful commercialization of our
Hemopurifier(R) technology. No assurances can be given when or if this will
occur or that we will ever generate revenues or be profitable.

         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
consolidated financial statements for our fiscal year ended March 31, 2007 that
we had a significant deficit accumulated during the development stage, 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 described 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 WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND
WITHOUT IT WE WILL NOT BE ABLE TO CONTINUE OPERATIONS.

         At March 31, 2007 and 2006, we had a working capital deficit of
approximately $7,260,352 and $1,920,000, respectively. The independent auditors'
report for the year ended March 31, 2007, includes an explanatory paragraph
stating that, among other conditions, our recurring losses from operations and
working capital deficiency raise substantial doubt about our ability to continue
as a going concern. We had a net operating cash flow deficit of $1,718,904 for
the fiscal year ended March 31, 2007, a net operating cash flow deficit of
$1,584,281 for the year ended March 31, 2006, and for the year ended March 31,
2005 a net operating cash flow deficit of $1,559,366. We do not currently have
sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we will require additional funds to continue these
operations.

                                       23





<PAGE>

         We are presently negotiating with Fusion Capital to effect a new
financing facility and are also reviewing other possible financing options. The
extent to which we might rely upon Fusion Capital, assuming we can complete the
transaction, as a source of funding will depend on a number of factors
including, the prevailing market price of our common stock and the extent to
which we are able to secure working capital from other sources, such as through
the commercialization or licensing of our Hemopurifier(R) technology or the
receipt of grant revenue. If obtaining sufficient financing from Fusion Capital
were to prove prohibitively expensive, if our present grant applications are not
fruitful and if we are unable to commercialize and sell our Hemopurifier(R)
technology, we will need to secure another source of funding in order to satisfy
our working capital needs. Should the financing we require to sustain our
working capital needs be unavailable or prohibitively expensive when we require
it, the consequences would be a material adverse effect on our business,
operating results, financial condition and prospects.

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

         The U.S. Government has undertaken commitments to help secure improved
countermeasures against bioterrorism. To date, we have been unsuccessful in
obtaining grant income. As a result, future attempts to obtain grant income from
the Federal Government will be sought through direct communication to government
health and military agencies, and may include unsolicited proposals to provide
the Hemopurifier(R) as a treatment countermeasure.

         At present, the Hemopurifier(R) has not been approved for use by any
government agency, nor have we received any contracts to purchase the
Hemopurifier(R). Since inception, we have not generated revenues from the sale
of any product based on our Hemopurifier(R) technology platform. The process of
obtaining government contracts is lengthy with the uncertainty that we will be
successful in obtaining announced grants or contracts for therapeutics as a
medical device technology. Accordingly, we cannot be certain that we will be
awarded any future government grants or contracts utilizing our Hemopurifier(R)
platform technology.

         IF THE U.S. GOVERNMENT FAILS TO PURCHASE SUFFICIENT QUANTITIES OF ANY
FUTURE BIODEFENSE CANDIDATE UTILIZING OUR HEMOPURIFIER(R) 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(R)
platform technology that are approved by the U.S. Food and Drug Administration
(the "FDA"), but the U.S. Government does not place sufficient orders for these
products, our future business will be harmed.

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

         Our plan to provide the Hemopurifier(R) as a candidate to treat Certain
infectious disease conditions 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.

                                       24





<PAGE>

         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(R) medical device candidates we are developing. Our
commercial opportunities will be reduced or eliminated if our competitors
develop and market products for any of the diseases we target that:

         o        are more effective;

         o        have fewer or less severe adverse side effects;

         o        are better tolerated;

         o        are more adaptable to various modes of dosing;

         o        are easier to administer; or

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

         Even if we are successful in developing effective Hemopurifier(R)
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 that are either more effective than those that
we may develop, alone or with our collaborators, or that are marketed before any
products we develop are marketed.

         The Congress' passage of the 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 and
biotechnology companies as well as 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 (if any), adversely impact
our margins or lead to a reduction in our market share (if any), any of which
may harm our business.

         WE HAVE LIMITED MANUFACTURING EXPERIENCE.

         To achieve the levels of production necessary to commercialize our
Hemopurifier(R) products, we will need secure manufacturing agreements with
manufacturers which comply with good manufacturing practices standards and other
standards prescribed by various federal, state and local regulatory agencies in
the U.S. and any other country of use.

         We have limited experience manufacturing products for testing purposes
and no experience manufacturing products for large scale commercial purposes. We
will likely outsource the manufacture of our Hemopurifier(R) products to third
parties operating FDA-certified facilities. To date, we have manufactured
devices on a small scale for testing purposes. There can be no assurance that
manufacturing and control problems will not arise as we attempt to commercialize
our products or that such manufacturing can be completed in a timely manner or
at a commercially reasonable cost. Any failure to surmount such problems could
delay or prevent commercialization of our products and would have a material
adverse effect on us.

         OUR HEMOPURIFER(R) TECHNOLOGY MAY BECOME OBSOLETE.

         Our Hemopurifier(R) products may be made unmarketable by new scientific
or technological developments where new treatment modalities are introduced that
are more efficacious and/or more economical than our Hemopurifier(R) 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.

                                       25





<PAGE>

         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(R) cartridges and infected plasma
samples used in preclinical testing of the Hemopurifier(R). 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 carry a limited amount of 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
INABILITY TO RETAIN THOSE OFFICERS WOULD IMPEDE OUR BUSINESS PLAN AND GROWTH
STRATEGIES, WHICH WOULD HAVE A NEGATIVE IMPACT ON OUR BUSINESS AND THE VALUE OF
YOUR INVESTMENT.

         Our success depends to a critical extent on the continued services of
Our Chairman and Chief Executive Officer, James A. Joyce 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 could delay the clinical development of our products due to his unique
experience with the Hemopurifier(R) technology. The loss of Mr. Joyce would be
detrimental to our growth as he possesses unique knowledge of our business model
and infectious disease which would be difficult to replace.

         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 our
company, these agreements will not preclude them from leaving our company. 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.

         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 six full time
employees consisting of our Chief Executive Officer, our President, our Chief
Science Officer, our Chief Financial Officer, a research scientist, a research
associate, 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. Due to the specialized scientific nature of our business, we
are highly dependent upon our ability to attract and retain qualified
scientific, technical and managerial personal. Competition for these
individuals, especially in San Diego where many bio-technology companies are
located, is intense and we may not be able to attract, assimilate or retain
additional highly qualified personnel in the future. 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 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.

                                       26





<PAGE>

         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 carry limited 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 continue or provide
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. We may lose potential independent
board members and management candidates to other companies in the biotechnology
field that have greater directors and officers liability insurance to insure
them from liability or to biotechnology companies that have revenues or have
received greater funding to date which can offer greater compensation packages.
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.

         OUR INABILITY TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, INCLUDING
OUR U.S. AND INTERNATIONAL PATENTS 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 patents, patents pending, copyrights,
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 cannot 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. We believe that certain patent applications filed
and/or other patents issued more recently will help to protect the proprietary
nature of the Hemopurifier(R) treatment technology.

         The Hemopurifier(R) is protected by five issued patents, four of which
we own and one in which we own an exclusive license. Two additional patent
applications deal with treatments for virus infection and cancer treatment, one
of which we own and two of which we own exclusive licenses.

         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.

                                       27





<PAGE>

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

         Our pathogen filtration devices, or Hemopurifier(R) 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. Such regulatory approval (if any) and product development requires
several years. 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(R) 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(R) 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 medical device
                  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.

         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(R) 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.

                                       28





<PAGE>

         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 medical device 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 medical devices 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(R)
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 with an urgent need for new treatment and to take
advantage of the sense of greater sense of urgency surrounding acute and chronic
infectious diseases. Prior to initiating the development of infectious disease
Hemopurifiers(R), we successfully completed an FDA approved Phase I human safety
trial of a Hemopurifier(R) to treat aluminum and iron intoxication. Since
changing the focus to infectious disease research, we have not initiated an FDA
approved human clinical trial as the development of the technology is still
continuing and will require both significant capital and scientific resources.
Our pending products face similar challenges of obtaining successful clinical
trials in route to gaining FDA approval prior to commercialization.
Additionally, our limited financial resources hinder the speed of our product
development.

         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.

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

         The Hemopurifier(R) is protected by four issued patents, three of which
we own and one which we have an exclusive license. Our exclusive license expires
March 2020 and is subject to termination if the inventors have not received a
minimum of $15,000 in any year during the term beginning in the second year
after the Food & Drug Administration approves the Hemopurifier(R). These patents
comprise a majority of our assets. At March 31, 2007, our intellectual property
assets comprised 84.08% of our non-current assets, and 23.12% of all 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 the financial value of our
patents is written down for accounting purposes over the course of their term
until they expire, our assets comprised of patents will continually be written
down until they lose value altogether.

                                       29





<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 our 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 accounting principles generally accepted
in the United States of America, and adversely affect our operating results.

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

         Our Hemopurifier(R) 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
our products are designed inappropriately, we may be subject to lawsuits seeking
significant compensatory and punitive damages. 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
general 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 product recall or lawsuit seeking significant
monetary damages may have a material affect on our business and financial
condition. Any liability for mandatory damages could exceed the amount of our
coverage. Moreover, a product recall could generate substantial negative
publicity about our products and business and inhibit or prevent
commercialization of other future product candidates.

         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 both
in terms of how to approach bioterrorism and the amount of funding the
government should provide for any programs involving homeland protection.
Government funding for products on bioterrorism could be reduced which would
hinder our ability to obtain governmental grants.

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.

                                       30





<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 June 29, 2007, our average trading
volume per day for the past three months was approximately 110,875 shares a day
with a high of 583,500 shares traded and a low of 9,000 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.

         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 June 29, 2007, the high and low
sale prices of a share of our common stock were $0.82 and $0.20, 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 or rejection 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.

                                       31





<PAGE>

         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.

         OUR OFFICERS AND DIRECTORS BENEFICIALLY OWN OR CONTROL APPROXIMATELY
32% OF OUR OUTSTANDING COMMON SHARES AS OF JUNE 15, 2006, WHICH MAY LIMIT THE
ABILITY OF YOURSELF OR OTHER SHAREHOLDERS, WHETHER ACTING INDIVIDUALLY 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 June 29, 2007, our officers and directors beneficially own or
control approximately 32% 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 June 29, 2007, there are outstanding non-variable priced purchase
options and warrants entitling the holders to purchase 24,993,247 common shares
at a weighted average exercise price of $0.33 per share. There are 5,294,118
shares underlying promissory notes convertible into common stock at a weighted
average exercise price of $ 0.20. The exercise price for all of the aforesaid
warrants, may be less than your cost to acquire our common shares. In the event
of the exercise of these 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
100,000,000 shares of common stock. After taking into consideration our
outstanding common stock at June 29, 2007, our convertible notes, outstanding
options and outstanding warrants we will be entitled to issue up to 37,703,960
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 shares of common stock, or options or warrants to purchase those
shares, under circumstances we may deem appropriate at the time.

         OUR ISSUANCE OF ADDITIONAL COMMON SHARES IN EXCHANGE FOR SERVICES OR TO
REPAY DEBT, WOULD DILUTE YOUR PROPORTIONATE OWNERSHIP AND VOTING RIGHTS AND
COULD HAVE A NEGATIVE IMPACT ON THE MARKET PRICE OF OUR COMMON STOCK.

         Our board may generally issue shares of common stock to pay for debt or
services, without further approval by our shareholders based upon such factors
as our board of directors may deem relevant at that time. For the past three
fiscal years ended March 31, 2007, we issued a total of 2,728,578 shares for
debt to reduce our obligations. The average price discount of common stock
issued for debt in this period, weighted by the number of shares issued for debt
in such period was 53.4%, 69.41% and 46.34% for the years ended 2005, 2006 and
2007. For the past three fiscal years we issued a total of 5,808,939 shares in
payment for services. The average price discount of common stock issued for
services during this period, weighted by the number of shares issued was 36.0%,
14.86% and 4.54% for the years ended 2005, 2006 and 2007, respectively. It is
likely that we will issue additional securities to pay for services and reduce
debt in the future. We cannot give you any assurance that we will not issue
additional shares of common stock under circumstances we may deem appropriate at
the time.

                                       32





<PAGE>

         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.

         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.

         SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

         In this document we make a number of statements, referred to as
"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"), which are intended to
convey our expectations or predictions regarding the occurrence of possible
future events or the existence of trends and factors that may impact our future
plans and operating results. 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 these forward-looking statements are derived, in
part, from various assumptions and analyses we have made in the context of our
current business plan and information currently available to us and in light of
our experience and perceptions of historical trends, current conditions and
expected future developments and other factors we believe to be appropriate in
the circumstances. You can generally identify forward-looking statements through
words and phrases such as "SEEK", "ANTICIPATE", "BELIEVE", "ESTIMATE", "EXPECT",
"INTEND", "PLAN", "BUDGET", "PROJECT", "MAY BE", "MAY CONTINUE", "MAY LIKELY
RESULT", and similar expressions. When reading any forward looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, including those
relating to:

         o        whether or not markets for our products develop and, if they
                  do develop, the pace at which they develop;

         o        our ability to attract and retain the qualified personnel to
                  implement our growth strategies,

         o        our ability to obtain approval from the Food and Drug
                  Administration for our products;

         o        our ability to protect the patents on our proprietary
                  technology;

         o        our ability to fund our short-term and long-term financing
                  needs;

         o        changes in our business plan and corporate strategies; and

         o        other risks and uncertainties discussed in greater detail in
                  the sections of this prospectus, including those captioned
                  "RISK FACTORS" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS".

         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 prospectus as well as other pubic reports
filed with the United States Securities and Exchange Commission (the "SEC"). You
should not place undue reliance on any forward-looking statement as a prediction
of actual results or developments. We are not obligated to update or revise any
forward-looking statement contained in this prospectus to reflect new events or
circumstances unless and to the extent required by applicable law.

                                       33





<PAGE>

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, 2007 Form 10-KSB. Based upon that evaluation, our
CEO and CFO concluded that, as of March 31, 2007, 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, 2007 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.

ITEM 8B. OTHER INFORMATION

         On June 13, 2007, upon recommendation of the Compensation Committee,
the Board authorized the issuance of stock options to James A. Joyce to purchase
2,500,000 shares of Common Stock at an exercise price of $0.36 per share. The
options vest 1,000,000 options at the grant date and 500,000 options on each
annual anniversary date ending June 13, 2010. The options expire on June 13,
2017.


                                       34





<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. Based solely on our review of copies of the Section
16(a) reports filed for the fiscal year ended March 31, 2007, we believe that
all filing requirements applicable to its officers, directors, and greater than
10% beneficial owners were complied with.

         DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

         The names, ages and positions of our directors and executive officers
as of June 29, 2007 are listed below:

         NAMES                        TITLE OR POSITION                      AGE
         -----------------------------------------------------------------------
         James A. Joyce (1)           Chairman, President, Chief Executive   45
            Officer and Secretary

         Harold H. Handley, PhD (2)   President                              55

         Richard H. Tullis, PhD (3)   Vice President, Chief Science Officer  62
            and Director

         James W. Dorst (4)           Chief Financial Officer                52

         Franklyn S. Barry, Jr.       Director                               67

         Edward G. Broenniman         Director                               70

         (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.

         (2) Effective July 18, 2006, Dr. Handley was appointed President.

         (3) Effective June 1, 2001, Dr. Tullis was appointed as our Chief
Science Officer.

         (4) Effective August 1, 2005, Mr. Dorst was appointed Chief Financial
Officer.

         Certain additional information concerning the individuals named above
is set forth below. This information is based on information furnished us by
each individual noted.

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 role of CEO. In 1992, Mr.
Joyce founded and was the sole shareholder of James Joyce & Associates, an
organization that provided management consulting and corporate finance advisory
services to CEOs and CFOs of publicly traded companies. Previously, from 1989 to
1991, Mr. Joyce was Chairman and Chief Executive Officer of Mission Labs, Inc.
Prior to that Mr. Joyce was a principal in charge of U.S. operations for London
Zurich Securities, Inc. Mr. Joyce is a graduate of the University of Maryland.

         Harold H. Handley, Ph.D., President

         Mr. Harold H. Handley has been President of the Company since July
2006. Mr. Handley brings over 20 years experience in management and research in
immunology, biotechnology and medical devices. Mr. Handley has authored or
co-authored over 20 publications and helped developed 15 patents. Prior to
joining Aethlon, Mr. Handley was Executive Vice President and Chief Scientific
Officer for Transvivo, Inc., a privately-held company, from 2000 to 2006. From
1996 to 2000, Mr. Handley was Vaccine Program Director for Maxim
Pharmaceuticals, Inc. Mr. Handley was a co-founder of Idec Limited Partners,
Inc., today known as Biogen Idec, Inc., operating with a market value exceeding
$14 billion. (NasdaqGS:BIIB). Mr. Handley holds a Ph.D in Anatomy and Cell
Biology from University of Virginia and a B.A. in Zoology from the University of
California, Los Angeles.

                                       35





<PAGE>

         James W. Dorst, Chief Financial Officer

         Mr. Dorst brings more than 20 years of senior management experience in
finance, operations, planning and business transactions to the Company. Prior to
joining Aethlon, Mr. Dorst was Vice President of Finance and Operations for
VerdiSoft Corporation, a developmental-stage mobile-software developer recently
acquired by Yahoo, Inc. (NASDAQ:YHOO). Previously, Mr. Dorst held executive
positions as SVP of Finance and Administration at SeeCommerce; COO/CFO of Omnis
Technology Corp. (now NASDAQ Small Cap: RDTA); CFO and SVP of Information
Technology at Savoir Technology Group, Inc. (acquired by NYSE:AVT). Mr. Dorst
practiced as a Certified Public Accountant with Coopers & Lybrand
(PricewaterhouseCoopers) and holds an MS in Accounting and BS in finance from
the University of Oregon.

         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 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-hosphorochloridites. 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
University of Hawaii.

         Franklyn S. Barry, Jr.

         Mr. Barry has over 30 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.

         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 the next Annual Meeting
of Shareholders of the Company. Our Board of Directors presently has an Audit
Committee and a Compensation Committee on each of which Messrs. Barry,
Broenniman and Leung serve. Mr. Barry is Chairman of the Audit Committee, and
Mr. Broenniman is Chairman of the Compensation Committee.

                                       36





<PAGE>

         Upon the recommendation of our Compensation Committee, in February
2005, we adopted our 2005 Directors Compensation Program (the "Directors
Compensation Program") which advances our interest by helping us to obtain and
retain the services of outside directors 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. Under the
Directors Compensation Program, a newly elected director will receive a one time
grant of a non-qualified stock option of 1.5% of the common stock outstanding at
the time of election. The options will vest one-third at the time of election to
the board and the remaining two-thirds will vest equally at year end over three
years. Additionally, each director will also receive an annual $25,000
non-qualified stock option retainer, $15,000 of which is to be paid at the first
of the year to all directors who are on the Board prior to the first meeting of
the year and a $10,000 retainer will be paid if a director attends 75% of the
meetings either in person, via conference call or other electronic means. The
exercise price for the options under the Directors Compensation Program will
equal the average closing of the last ten (10) trading days prior to the date
earned. At March 31, 2007 under the 2005 Directors Compensation Program, we had
issued 1,337,825 options to outside directors and 3,965,450 options to
employee-directors for a total of 5,303,275 options, of these 4,994,550 remain
outstanding.

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.

SCIENCE 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(R) 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.

         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.

                                       37





<PAGE>

         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.

         Joseph A. Bellanti, M.D.
         ------------------------

         Dr. Bellanti is the Director of the International Center for Immunology
and Professor of Pediatrics at Georgetown University School of Medicine. He has
authored over 400 scientific articles and 25 books and book chapters in the
areas of Immunology and Virology. Dr. Bellanti's textbook, "Immunology," is used
in medical and graduate schools throughout the country.

         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 ten 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.

                                       38





<PAGE>

         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.

         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.

         Members of the Scientific Advisory Board do not receive any monetary
compensation for service on the Board. However, on occasion, the members may be
awarded stock options.

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.

         On February 23, 2005, the Board of Directors approved a "Code of
Business Conduct and Ethics." Our Code of Business Conduct and Ethics is
available on our company website at www.aethlonmedical.com.


                                       39





<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

                            EXECUTIVE COMPENSATION

         The following executive compensation disclosure reflects all
compensation awarded to, earned by or paid to the executive officers below for
the fiscal year ended March 31, 2007. The following table summarizes all
compensation for fiscal year 2007 received by our Chief Executive Officer, and
the Company's two most highly compensated executive officers who earned more
than $100,000 in fiscal year 2007
<TABLE>
<S>               <C>
                                             SUMMARY COMPENSATION TABLE

                                                                            NON-EQUITY   NONQUALIFIED
                                                                            INCENTIVE    DEFERRED ALL
                                                           STOCK   OPTION     PLAN       COMPENSATION    OTHER
NAMED EXECUTIVE OFFICER                                    AWARDS  AWARDS  COMPENSATION    EARNINGS       COMP.       TOTAL
AND PRINCIPAL POSITION        YEAR  SALARY ($)  BONUS ($)   ($)     ($)        ($)            ($)          ($)         ($)
- ---------------------------   ----  ----------  ---------  ------  ------  ------------  ------------  ----------   ----------


James A. Joyce          (1)   2007  $ 240,000    $   --    $   --  $   --    $       --    $     --     $   --      $  240,000
CHIEF EXECUTIVE OFFICER

Richard H. Tullis, Ph.D (2)   2007  $ 180,000    $   --    $   --  $   --    $       --    $     --     $   --      $  180,000
VICE PRESIDENT AND CHIEF
SCIENCE OFFICER

James W. Dorst          (3)   2007  $ 150,000    $   --    $   --  $   --    $       --    $     --     $   --      $  150,000
CHIEF FINANCIAL OFFICER
</TABLE>


(1) The aggregate number of stock awards and stock option awards issued to Mr.
Joyce and outstanding as of March 31, 2007 is 0 and 5,088,243. On June 13, 2007,
Mr. Joyce was granted a stock option award to purchase 2,500,000 shares of
common stock at an exercise price of $0.36 per share.

(2) The aggregate number of stock awards and stock option awards issued to Dr.
Tullis and outstanding as of March 31, 2007 is 0 and 2,014,350.

(3) The aggregate number of stock awards and stock option awards issued to Mr.
Dorst and outstanding as of March 31, 2007 is 0 and 500,000.

EMPLOYMENT AGREEMENTS

         We entered into an employment agreement with Mr. Joyce effective April
1, 1999. Effective June 1, 2001, Mr. Joyce was appointed President and Chief
Executive Officer and his base annual salary was increased from $120,000 to
$180,000. Effective January 1, 2005, Mr. Joyce's salary was increased from
$180,000 to $205,000 per year. Under the terms of the agreement, his employment
continues at a salary of $205,000 per year for successive one year periods,
unless given notice of termination 60 days prior to the anniversary of his
employment agreement. Effective April 1, 2006. Mr. Joyce's salary was increased
from $205,000 to $240,000.

         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. Effective January 1,
2005 Dr. Tullis' salary was increased from $150,000 to $165,000 per year Under
the terms of the agreement, his employment continues at a salary of $165,000 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. Effective April 1, 2006, Dr. Tullis salary was increased to
$180,000 per year.

         Both Mr. Joyce's 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 the Company, for a period of two years following the
termination of their employment with us.

                                       40





<PAGE>

         OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

         The following table sets forth certain information concerning stock
option Awards granted to our named executive officers.

<TABLE>
<S>               <C>
                           OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
- ---------------------------------------------------------------------------------------------------
                                                       OPTIONS AWARDS
                          -------------------------------------------------------------------------
                                                           EQUITY
                                                          INCENTIVE
                                                         PLAN AWARDS;
                            NUMBER OF      NUMBER OF      NUMBER OF
                           SECURITIES     SECURITIES     SECURITIES
                           UNDERLYING     UNDERLYING     UNDERLYING
                           UNEXERCISED    UNEXERCISED    UNEXERCISED      OPTION         OPTION
                             OPTIONS        OPTIONS       UNEARNED       EXERCISE      EXPIRATION
NAME                       EXERCISABLE   UNEXERCISABLE     OPTIONS         PRICE          DATE
- - ------------------------- -------------- -------------- -------------- -------------- -------------
                               (#)            (#)            (#)            ($)

James A. Joyce            1,115,550(1)        --             --            $0.38        02/23/10
                            557,775(1)        --             --            $0.38        12/31/10
                            557,775(1)        --             --            $0.38        12/31/11
                          2,857,143(1)        --             --            $0.21        09/09/15

Richard H. Tullis            30,000(1)        --             --            $2.56        12/31/10
                            250,000(1)        --             --            $1.90        03/12/12
                            867,175(1)        --             --            $0.38        02/23/10
                            433,588(1)        --             --            $0.38        12/31/10
                            433,587(1)        --             --            $0.38        12/31/11

James W. Dorst              165,000(2)      335,000          --            $0.23        08/01/08

Harold H. Handley              --           500,000(3)       --            $0.27        10/02/16

(1) This option was fully vested as of March 31, 2007. (2) 165,000 options vest
each year on August 1 starting August 1, 2006. (3) 165,000 options vest each
year on July 18 starting July 18, 2007.

                                                           STOCK AWARDS
                               ---------------- ----------------- ---------------- -----------------
                                                                                        EQUITY
                                                                      EQUITY        INCENTIVE PLAN
                                                                  INCENTIVE PLAN    AWARDS: MARKET
                                                                  AWARDS: NUMBER   OR PAYOUT VALUE
                                  NUMBER OF                         OF UNEARNED      OF UNEARNED
                                  SHARES OR     MARKET VALUE OF    SHARES, UNITS    SHARES, UNITS
                               UNITS OF STOCK   SHARES OR UNITS      OR OTHER      OR OTHER RIGHTS
                                THAT HAVE NOT    THAT HAVE NOT      RIGHTS THAT     THAT HAVE NOT
NAME                               VESTED            VESTED       HAVE NOT VESTED       VESTED
- ----------------------------- ---------------- ----------------- ---------------- -----------------
                                     (#)              ($)               (#)              ($)

James A. Joyce                       --               $ --              --               $ --
Richard H. Tullis, Ph.D              --               $ --              --               $ --
James W. Dorst                       --               $ --              --               $ --
Harold H. Handley                    --               $ --              --               $ --


OPTION GRANTS TO EXECUTIVE OFFICERS IN 2007

There were 500,000 stock options granted to our President, Dr. Harold H.
Handley. No options were granted to our Chief Executive Officer, Chief Operating
Officer or Chief Financial Officer in fiscal year 2007.

DIRECTOR COMPENSATION

The following director compensation disclosure reflects all compensation awarded
to, earned by or paid to the directors below for the fiscal year ended March 31,
2007.

                                                                  Change in
                                                                   Pension
                         Fees                                       Value
                         Earned                                      and
                          or                       Non-Equity    Nonqualified
                         Paid                       Incentive      Deferred       All
                          in      Stock   Option      Plan       Compensation    Other
                         Cash    Awards   Awards   Compensation    Earnings    Compensation   Total
Name                      ($)      ($)      ($)        ($)           ($)           ($)         ($)
- -----------------------  ------  -------  -------  ------------  ------------  ------------  --------
James A. Joyce (1)         --      --        --         --            --            --          --
- -----------------------  ------  -------  -------  ------------  ------------  ------------  --------
Richard Tullis (2)         --      --        --         --            --            --          --
- -----------------------  ------  -------  -------  ------------  ------------  ------------  --------
Franklyn Barry (3)         --      --        --         --            --            --          --
- -----------------------  ------  -------  -------  ------------  ------------  ------------  --------
Edward Broenniman (4)      --      --        --         --            --            --          --
- -----------------------  ------  -------  -------  ------------  ------------  ------------  --------
</TABLE>

(1) The aggregate number of stock awards and options awards issued and
outstanding as of March 31, 2007 are 0 and 5,088,243.

(2) The aggregate number of stock awards and options awards issued and
outstanding as of March 31, 2007 are 0 and 2,014,350.

(3) The aggregate number of stock awards and options awards issued and
outstanding as of March 31, 2007 are 0 and 516,417.

(4) The aggregate number of stock awards and options awards issued and
outstanding as of March 31, 2007 are 0 and 520,050.

                                       41





<PAGE>

Directors Compensation Program

Under the Directors Compensation Program, adopted by us in February 2005, a
newly elected director will receive a one time grant of a non-qualified stock
option of 1.5% of the common stock outstanding at the time of election. The
options will vest one-third at the time of election to the board and the
remaining two-thirds will vest equally at year end over three years.
Additionally, each director will also receive an annual $25,000 non-qualified
stock option retainer, $15,000 of which is to be paid at the first of the year
to all directors who are on the Board prior to the first meeting of the year and
a $10,000 retainer will be paid if a director attends 75% of the meetings either
in person, via conference call or other electronic means. The exercise price for
the options under the Directors Compensation Program will equal the average
closing of the last ten (10) trading days prior to the date earned. At March 31,
2007 under the 2005 Directors Compensation Program we had issued 1,337,825
options to outside directors and 3,965,450 options to employee-directors for a
total of 5,303,275 options, of which 4,994,550 remained outstanding. A portion
of the employee-director options were awarded in recognition of prior employment
efforts. Since inception of the Program, the Company has not paid any
non-qualified stock option retainers.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth, as of June 29, 2007, information with
     respect to the shares of Common Stock beneficially owned by (i) each
     director nominee; (ii) each person (other than a person who is also a
     director nominee) who is an executive officer; and (iii) all executive
     officers and directors as a group. The term "executive officer" is defined
     as the President/Chief Executive Officer, Secretary, Chief Financial
     Officer/Treasurer, any vice-president in charge of a principal business
     function (such as administration or finance), or any other person who
     performs similar policy making functions for the Company. We believe that
     each individual or entity named has sole investment and voting power with
     respect to shares of common stock indicated as beneficially owned by them,
     subject to community property laws where applicable, excepted where
     otherwise noted:

<TABLE>
<S>                    <C>
AMOUNT AND NATURE OF                   PERCENT OF
TITLE OF CLASS                             NAME                        BENEFICIAL OWNERSHIP(1)(2)      CLASS
- --------------         --------------------------------------------    --------------------------    ----------

Common Stock           James A. Joyce, Chief Executive Officer and
                       Director                                            6,688,243 shares(3)           21%
                       3030 Bunker Hill Street, Suite 4000,
                       San Diego, CA 92109

Common Stock           Richard H. Tullis, Chief Scientific Officer
                       and Director                                        2,072,350 shares(4)            6%
                       3030 Bunker Hill Street, Suite 4000,
                       San Diego, CA 92109

Common Stock           Franklyn S. Barry, Director
                       3030 Bunker Hill Street, Suite 4000,                523,010 shares(5)              2%
                       San Diego, CA 92109

Common Stock           Edward G. Broenniman, Director
                       3030 Bunker Hill Street, Suite 4000,                655,924 shares(6)              2%
                       San Diego, CA 92109

Common Stock           James W. Dorst, Chief Financial Officer
                       3030 Bunker Hill Street, Suite 4000,                330,000 shares(7)              1%
                       San Diego, CA 92109

Common Stock           Harold H. Handley, President
                       3030 Bunker Hill Street, Suite 4000,                165,000 shares(8)              *
                       San Diego, CA 92109

All Current
Directors and
Executive Officers
as a Group (6                                                              10,434,527 Shares              32%
members)
</TABLE>

*Less than 1%.

1. Based on 32,008,765 shares of Common Stock outstanding on the transfer
records as of June 15, 2007.

                                       42





<PAGE>

2. Calculated pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of
1934. Under Rule 13d-3(d)(1), shares not outstanding which are subject to
options, warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and percentage
owned by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed. The Company believes that each
individual or entity named has sole investment and voting power with respect to
shares of Common Stock indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise noted.

3. Includes 2,231,100 stock options exercisable at $0.38 per-share, 2,857,143
stock options exercisable at $0.21 per share and 1,000,000 stock options
exercisable at $0.36 per share.

4. Includes 250,000 stock options exercisable at $1.90 per share, 30,000 stock
options exercisable at $3.00 per share and 1,734,350 stock options exercisable
at $0.38 per share.

5. Includes 1,867 stock options exercisable at $1.84 per share and 514,550 stock
options exercisable at $0.38 per share.

6. Includes 2,500 stock options exercisable at $3.75 per share, 3,000 stock
options exercisable at $1.78 per share and 514,550 stock options exercisable at
$0.38 per share.

7. Includes 165,000 vested stock options and 165,000 stock options vesting
August 1, 2007, all stock options exercisable at $0.23 per share.

8. Includes 165,000 stock options vesting July 18, 2007, exercisable at $0.27
per share.


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         On September 9, 2005, as previously disclosed on Form 8-K, we issued a
stock option to acquire 2,857,143 stock option to our CEO and Chairman, James A.
Joyce, in satisfaction of $300,000 in previously accrued payroll expense. These
non interest-bearing liabilities have been included as due to related parties in
the accompanying financial statements.

                                       43





<PAGE>

ITEM 13. EXHIBITS

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

1. Consolidated Financial Statements for the periods ended March 31, 2007 and
2006:

                    Report of Independent Registered Public Accounting Firm
                    Consolidated Balance Sheet
                    Consolidated Statements of Operations
                    Consolidated Statements of Cash Flows
                    Consolidated Statements of Stockholders' Deficit
                    Notes to Consolidated Financial Statements
2. Exhibits

         3.1      Articles of Incorporation of Aethlon Medical, Inc. (1)

         3.2      Bylaws of Aethlon Medical, Inc. (1)

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

         3.4      Certificate of Amendment of Articles of Incorporation dated
                  June 13, 2005(3)

         3.5      Certificate of Amendment of Articles of Incorporation dated
                   March 6, 2007 (22)

         10.1     Employment Agreement between Aethlon Medical, Inc. and James
                  A. Joyce dated April 1, 1999 (4)

         10.2     Agreement and Plan of Reorganization Between Aethlon Medical,
                  Inc. and Aethlon, Inc. dated March 10, 1999 (5)

         10.3     Agreement and Plan of Reorganization Between Aethlon Medical,
                  Inc. and Hemex, Inc. dated March 10, 1999 (5)

         10.4     Agreement and Plan of Reorganization Between Aethlon Medical,
                  Inc. and Syngen Research, Inc. (6)

         10.5     Agreement and Plan of Reorganization Between Aethlon Medical,
                  Inc. and Cell Activation, Inc. (7)

         10.6     Common Stock Purchase Agreement between Aethlon Medical, Inc.
                  and Fusion Capital Fund II, LLC. (8)

         10.7     Registration Rights Agreement between Aethlon Medical, Inc.
                  and Fusion Capital Fund II, LLC. (8)

         10.8     Form of Securities Purchase Agreement for Private Placement
                  closing on June 7, 2004 (8)

         10.9     Form of Common Stock Purchase Warrant for Private Placement
                  closing on June 7, 2004 (8)

         10.10    Form of Registration Rights Agreement for Private Placement
                  closing on June 7, 2004 (8)

         10.11    Note Purchase Agreement by and between Aethlon Medical, Inc.
                  and Fusion Capital Fund II, LLC, dated May 16, 2005.(9)

         10.12    Convertible Promissory Note by and between Aethlon Medical,
                  Inc. and Fusion Capital Fund II, LLC, dated May 16, 2005.(9)

         10.13    Form of Common Stock Cashless Purchase Warrant for benefit of
                  Fusion Capital Fund II, LLC, dated May 16, 2005. (9)

         10.14    2003 Consultant Stock Plan (10)

         10.15    Lease by and between Aethlon Medical, Inc. and San Diego
                  Science Center (11)

         10.16    Consulting Agreement by and between Aethlon Medical, Inc. and
                  Jean-Claude Chermann, PhD (11)

         10.17    Consulting Agreement by and between Aethlon Medical, Inc. and
                  Franklyn S. Barry, Jr. (11)

                                       44





<PAGE>

         10.18    Patent License Agreement by and amongst Aethlon Medical, Inc.,
                  Hemex, Inc., Dr. Julian L. Ambrus and Dr. David O. Scamurra
                  (11)

         10.19    Employment Agreement by and between Aethlon Medical, Inc. and
                  Dr.Richard H. Tullis (11)

         10.20    Employment Agreement by and between Aethlon Medical, Inc. and
                  Edward C. Hall (11)

         10.21    Cooperative Agreement by and between Aethlon Medical, Inc. and
                  George Mason University (12)

         10.22    Consulting Agreement by and between Aethlon Medical, Inc. and
                  Dr. Charles Bailey (13)

         10.23    Consulting Agreement by and between Aethlon Medical, Inc. and
                  Dr. Ken Alibek (13)

         10.24    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and James A Joyce (14)

         10.25    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and Richard Tullis (14)

         10.26    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and Franklyn S. Barry (14)

         10.27    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and Ed Broenniman (14)

         10.28    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and Calvin Leung (14)

         10.29    Warrant for the benefit of Richardson and Patel, LLP (14)

         10.30    Stock Option Agreement by and between Aethlon Medical, Inc.
                  and James A. Joyce(15)

         10.31    10% Series A Convertible Note by and between Aethlon Medical,
                  Inc. and Allan S. Bird(16)

         10.32    10% Series A Convertible Note by and between Aethlon Medical,
                  Inc. and Ellen R. Weiner Family Revocable Trust(16)

         10.33    Form of Warrant for Series A Convertible Noteholders(16)

         10.34    Form of Registration Rights Agreement for Series A Convertible
                  Noteholders(16)

         10.35    Employment Agreement by and between Aethlon Medical, Inc. and
                  James Dorst(17)

         10.36    10% Series A Convertible Note by and between Aethlon Medical,
                  Inc. and Christian Hoffmann(18)

         10.37    10% Series A Convertible Note by and between Aethlon Medical,
                  Inc. and Claypoole Capital, LLC(18)

         10.38    Form of Warrant for additional Series A Convertible
                  Noteholders(18)

         10.39    Form of Registration Rights Agreement for additional Series A
                  Convertible Noteholders(18)

         10.40    Option Agreement by and between Aethlon Medical, Inc. and
                  Trustees of Boston University(19)

         10.41    Warrant for the benefit of Fusion Capital Fund II, LLC(20)

         10.42    Common Stock Purchase Agreement by and between Aethlon
                  Medical, Inc. and Fusion Capital Fund II, LLC dated March 21,
                  2007*

         10.43    Registration Rights Agreement by and between Aethlon Medica,
                  Inc. and Fusion Capital Fund II, LLC dated March 21, 2007*

         10.44    Form of Allonge to 10% Series A Convertible Notes dated March
                  5, 2007 by and between Aethlon Medical, Inc. and Christian
                  Hoffman III*

                                       45





<PAGE>

         10.45    Form of Allonge to 10% Series A Convertible Notes dated March
                  5, 2007 by and between Aethlon Medical, Inc. and Joel S.
                  Aronson, Patricia Green, Christina J. Bird, Co-Executor of the
                  Estate of Allan S. Bird*

         10.46    Form of Allonge to 10% Series A Convertible Notes dated March
                  5, 2007 by and between Aethlon Medical, Inc. and Claypoole
                  Capital, LLC*

         10.47    Form of Allonge to 10% Series A Convertible Notes dated March
                  5, 2007 by and between Aethlon Medical, Inc. and Ellen R.
                  Weiner Family Revocable Trust*

         14       Code of Ethics*

         21       List of subsidiaries (21)

         23.1     Consent of Independent Registered Public Accounting Firm
                  (Squar, Milner, Peterson, Miranda & Williamson, LLP) *

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

         99.1     Resignation Letter dated June 28, 2006 from Calvin Leung

* Filed herewith

(1)       December 18, 2000 and incorporated by reference.

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

(3)       Filed with the Company's Current Report on Form 8-K, dated June 10,
          2005 and incorporated by reference.

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

(5)       Filed with the Company's Current Report on Form 8-K dated March 10,
          1999 and incorporated by reference.

(6)       Filed with the Company's Current Report on Form 8-K dated January 10,
          2000 an incorporated by reference.

(7)       Filed with the Company's Current Report on Form 8-K dated April 10,
          2000 and incorporated by reference.

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

(9)      Filed with the Company's Current Report on Form 8-K dated May 16, 2005
         and incorporated by reference.

(10)      Filed with the Company Registration Statement on Form S-8 (File No.
          333-114017) filed on August 29, 2005 and incorporated by reference.

(11)      Filed with the Company's Annual Report on Form 10-KSB/A for the year
          ended March 31, 2004 and incorporated by reference.

(12)      Filed with the Company's Amendment No.2 to Registration Statement on
          Form SB-2 filed on October 28, 2004 and incorporated by reference.

                                       46





<PAGE>

(13)      Filed with the Company's Amendment No. 3 to Registration Statement on
          Form SB-2 (File No. 333-117203) filed on November 24, 2004 and
          incorporated by reference.

(14)      Filed with the Company's Annual Report on Form 10-KSB for the year
          ended March 31, 2005 and and incorporated by reference.

(15)      Filed with the Company's Current Report on Form 8-K filed on September
          12, 2005 and incorporated by reference.

(16)      Filed with the Company's Current Report on Form 8-K filed on November
          7, 2005 and incorporated by reference.

(17)      Filed with the Company's Post-Effective Amendment to Registration
          Statement on Form SB-2 filed on December 8, 2005 and incorporated by
          reference.

(18)      Filed with the Company's Registration Statement on Form SB-2 (File No.
          333-130915) filed on January 9, 2006 and incorporated by reference.

(19)      Filed with the Company's Current Report on Form 8-K filed on February
          23, 2006 and incorporated by reference.

(20)      Filed with the Company's Current Report on Form 8-K filed on April 4,
          2006 and incorporated by reference.

(21)      Filed with the Company's Registration Statement on Form SB-2 filed on
          July 7, 2004 and incorporated by reference.

(22)      Filed with the Company's Current Report on form 8-K dated March 7,
          2007 and incorporated herein by reference.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table presents fees for professional services rendered by Squar,
Milner, Peterson, Miranda & Williamson LLP ("Squar Milner") for the annual audit
of our consolidated financial statements as of and for the fiscal years ended
March 31, 2007, and 2006 and fees billed for other services rendered by Squar
Milner during such years:

                                      Fiscal Years Ended March 31,
                                        2007                2006
                                      -------             -------

         Audit Fees                    $93,000           $86,000
         Audit Related Fees             35,625            47,050
         Tax Fees                         -                  -
         All Other Fees                   -                  -
                                      ---------------------------
                                      $128,625          $123,050
                                      ===========================

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.


                                       47





<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 13th day of July, 2007.


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

         BY: /S/ JAMES W. DORST
             ---------------------------------------------
             JAMES W. DORST
             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        JULY 13, 2007
- -------------------------
    JAMES A. JOYCE

/S/ FRANKLYN S. BARRY, JR.        DIRECTOR                     JULY 13, 2007
- --------------------------
    FRANKLYN S. BARRY, JR.

/S/ EDWARD G. BROENNIMAN          DIRECTOR                     JULY 13, 2007
- --------------------------
    EDWARD G. BROENNIMAN

/S/ RICHARD H. TULLIS             DIRECTOR                     JULY 13, 2007
- -------------------------
    RICHARD H. TULLIS


                                       48





<PAGE>



                               AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                 MARCH 31, 2007



                          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-15

Notes to Consolidated Financial Statements................................. F-17








<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, 2007 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, 2007. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Aethlon Medical,
Inc. and Subsidiaries as of March 31, 2007 and the consolidated results of their
operations and their 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,
2007, in conformity with accounting principles generally accepted in the United
States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
continuing losses from operations, is in default on certain debt, has negative
working capital of approximately $7,260,000 and a deficit accumulated during the
development stage of approximately $28,087,000 at March 31, 2007. 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 discussed in Note 1 to the consolidated financial statements, effective April
1, 2006, the Company changed its method of accounting for stock-based
compensation to conform to Financial Accounting Standards Board No. 123-R, Share
Based Payment.

                  /S/ SQUAR, MILNER, PETERSON, MIRANDA & WILLIAMSON, LLP

                  JULY 12, 2007

                  NEWPORT BEACH, CALIFORNIA


                                       F-1





<PAGE>
<TABLE>
<S>               <C>

- --------------------------------------------------------------------------------------------
                                      AETHLON MEDICAL, INC.
                               (A Development Stage Company)
                           CONSOLIDATED BALANCE SHEET
                                       MARCH 31, 2007
- --------------------------------------------------------------------------------------------

                                           ASSETS

CURRENT ASSETS
                      Cash                                                     $    440,106
                      Prepaid expenses                                                4,570
                                                                               ------------

TOTAL CURRENT ASSETS                                                                444,676

NON-CURRENT ASSETS
                      Property and equipment, net                                    13,662
                      Patents, net                                                  141,820
                      Deposits                                                       13,200
                                                                               ------------

TOTAL ASSETS                                                                   $    613,358
                                                                               ============


                           LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
                      Accounts payable and accrued liabilities                 $  1,374,079
                      Due to related parties                                      1,088,999
                      Notes payable                                                 502,500
                      Convertible notes payable, net of discounts                    50,000
                      Warrant obligation                                          4,689,450
                                                                               ------------

TOTAL CURRENT LIABILITIES                                                         7,705,028
                                                                               ------------

COMMITMENTS AND CONTINGENCIES


STOCKHOLDERS' DEFICIT
                      Common stock, par value of $0.001, 100,000,000 shares
                        authorized; 31,912,153 issued and outstanding                31,912
                      Additional paid-in capital                                 20,963,410
                      Deficit accumulated during the development stage          (28,086,992)
                                                                               ------------

TOTAL STOCKHOLDERS' DEFICIT                                                      (7,091,670)
                                                                               ------------
                      TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT              $    613,358
                                                                               ============

- --------------------------------------------------------------------------------------------
              SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                            F-2





<PAGE>


- ----------------------------------------------------------------------------------------------------------
                                           AETHLON MEDICAL, INC.
                                       (A Development Stage Company)
                                   CONSOLIDATED STATEMENTS OF OPERATIONS
                              FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                     FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- ----------------------------------------------------------------------------------------------------------
                                                                                         JANUARY 31, 1984
                                                                                       (INCEPTION) THROUGH
                                                       2007                2006           MARCH 31, 2007
                                                  --------------------------------------------------------

Grant income                                      $         --         $         --         $  1,424,012
Subcontract income                                          --                   --               73,746
Sale of research and development                            --                   --               35,810
                                                  --------------------------------------------------------
                                                            --                   --            1,533,568

OPERATING EXPENSES
 Professional fees                                     700,092              851,594            5,938,227
 Payroll and related                                   889,192              675,171            8,135,197
 General and administrative                            494,970              486,452            4,927,001
 Impairment                                                 --               81,722            1,313,253
                                                  --------------------------------------------------------
                                                     2,084,254            2,094,939           20,313,678
                                                  --------------------------------------------------------
OPERATING LOSS                                      (2,084,254)          (2,094,939)         (18,780,110)

OTHER (INCOME) EXPENSE
Loss on extinguishment of debt                       1,216,748                   --            1,216,748
Change in fair value of warrant liability            2,112,575              360,125            2,472,700
Interest expense                                       390,968              450,297            5,262,420
Interest income                                             --                   --              (17,415)
Other                                                  220,000               14,822              372,429
                                                  --------------------------------------------------------
                                                     3,940,291              825,244            9,306,882
                                                  --------------------------------------------------------

NET LOSS                                          $ (6,024,545)        $ (2,920,183)        $(28,086,992)
                                                  ========================================================

Basic and diluted net loss per share
  attributable to common stockholders             $      (0.22)        $      (0.15)
                                                  ==================================

Weighted average number of common
  shares outstanding                                26,937,727           19,551,501
                                                  ==================================

- ----------------------------------------------------------------------------------------------------------
                      SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                     F-3






<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

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

Warrants 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

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                              F-4





<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

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)

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

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                              F-5





<PAGE>


- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------
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)


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

Pro-rata 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 market value of options
issued for services                                     --            --       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        99,804             --             --        100,000

Adjustment booked                                       --            --      (100,000)            --        100,000             --

Net loss                                                --            --            --             --     (2,461,116)    (2,461,116)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2003                         6,694,960  $      6,695  $ 11,894,223   $         --   $(15,526,515)  $ (3,625,597)

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                 F-6







<PAGE>



- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2003                         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                                                --            --            --             --     (1,518,798)    (1,518,798)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2004                        10,649,329  $     10,649  $ 13,379,487   $         --   $(17,045,313)  $ (3,655,177)

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........


                                                                F-7





<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2004                        10,649,329  $     10,649  $ 13,379,487   $         --   $(17,045,313)  $ (3,655,177)

Proceeds from the issuance of common stock
at $0.25 per share in connection
with the exercise of warrants                    1,126,564         1,127       280,515             --             --        281,642

Issuance of common stock at $0.44 per
share for cash                                   1,415,909         1,416       621,584             --             --        623,000

Issuance of common stock at $0.25 per
share for cash                                      40,233            40         9,960             --             --         10,000

Issuance of common stock at $0.28 per
share for cash                                      35,947            36         9,964             --             --         10,000

Issuance of common stock at $0.29 per
share for cash                                      69,431            69        19,931             --             --         20,000

Issuance of common stock at $0.32 per
share for cash                                      94,449            94        29,906             --             --         30,000

Issuance of common stock at $0.33 per
share for cash                                      60,620            61        19,939             --             --         20,000

Issuance of common stock at $0.35 per
share for cash                                     172,824           173        59,826             --             --         59,999

Issuance of common stock at $0.36 per
share for cash                                     223,756           224        79,776             --             --         80,000

Issuance of common stock at $0.37 per
share for cash                                     108,079           108        39,892             --             --         40,000

Issuance of common stock at $0.38 per
share for cash                                      26,549            27         9,973             --             --         10,000

Issuance of common stock at $0.39 per
share for cash                                      51,748            52        19,948             --             --         20,000

Issuance of common stock at $0.40 per
share for cash                                      25,233            25         9,975             --             --         10,000

Issuance of common stock at $0.42 per
share for cash                                     143,885           144        59,857             --             --         60,001

Issuance of common stock at $0.43 per
share for cash                                      70,467            70        29,930             --             --         30,001

Issuance of common stock at $0.45 per
share for cash                                      22,455            22         9,978             --             --         10,000

Issuance of common stock at $0.46 per
share for cash                                      43,944            44        19,956             --             --         20,000

Issuance of common stock at $0.47 per
share for cash                                     128,836           129        59,872             --             --         60,001

Issuance of common stock at $0.52 per
share for cash                                      95,502            96        49,904             --             --         49,999

Issuance of common stock with warrants
at $0.36 per unit for cash                          55,556            56        19,944             --             --         20,000

Issuance of common stock at $0.27 per
share for cash                                      90,000            90        24,210             --             --         24,300

Issuance of common stock at $0.50 per
share for cash                                       3,000             3         1,497             --             --          1,500

Issuance of common stock to Fusion
Capital for "commitment" shares                     50,000            50           (50)            --             --             --

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                 F-8





<PAGE>

- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------
Issuance of common stock to Fusion
Capital for fees                                   418,604           419          (419)            --             --             (0)

Issuance of common stock at $0.34 per share
in connection with the conversion of notes
payable, including interest of $38,371             479,513           480       162,891             --             --        163,371

Issuance of common stock at $0.44 per
share in connection with the conversion
of notes payable                                   113,636           114        49,886             --             --         50,000

Issuance of common stock at $0.25 per
share in connection with the conversion
of notes payable                                    80,000            80        19,920             --             --         20,000

Issuance of common stock at $0.49 per
share in connection with the conversion
of notes payable                                   174,606           175        85,382             --             --         85,557

Issuance of common stock at $1.75 per
share for services                                  17,143            17        29,983             --             --         30,000

Issuance of common stock at $0.44 per
share for services                                 265,273           265       116,455             --             --        116,720

Issuance of common stock at $0.70 per
share for services                                  10,715            11         7,489             --             --          7,500

Issuance of common stock at $0.73 per
share for services                                   6,850             7         4,993             --             --          5,000

Issuance of common stock at $0.55 per
share for services                                  46,364            46        25,454             --             --         25,500

Issuance of common stock at $0.25 per
share for services                                 165,492           165        41,208             --             --         41,373

Issuance of common stock at $0.45 per
share for services                                  28,377            28        12,741             --             --         12,769

Issuance of common stock at $0.50 per
share for services for deferred
consulting services                                 60,000            60        29,940        (30,000)            --             --

Issuance of common stock at $0.49 per
share for services                                  25,087            25        12,318             --             --         12,343

Issuance of common stock at $0.45 per
share for services for deferred
consulting services                                 66,666            67        29,933        (30,000)            --             --

Issuance of common stock at $0.37 per
share for services                                  13,369            13         4,987             --             --          5,000

Issuance of common stock at $0.42 per
share for services                                  19,231            19         7,981             --             --          8,000

Issuance of common stock at $0.39 per
share for services                                  18,042            18         6,982             --             --          7,000

Issuance of common stock at $0.32 per
share for services                                 162,678           163        52,382             --             --         52,545

Issuance of common stock at $0.31 per
share for services                                  16,234            16         4,984             --             --          5,000

Issuance of common stock at $0.39 per
share for employee bonus                            22,500            22         8,754             --             --          8,776

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                 F-9





<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

Debt discount on debt issued with
detachable warrants                                     --            --        84,000             --             --         84,000

Amortization of deferred consulting fees                --            --            --         30,000             --         30,000

Intrinsic value of options issued to
directors                                               --            --       424,262             --             --        424,262

Net loss                                                --            --            --             --     (2,096,951)    (2,096,951)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2005                        17,014,696  $     17,015  $ 16,088,278   $    (30,000)  $(19,142,264)  $ (3,066,971)

Issuance of common stock at $0.28 per
share for cash                                      35,947            36         9,964             --             --         10,000

Issuance of common stock at $0.26 per
share for cash                                      38,256            38         9,962             --             --         10,000

Issuance of common stock at $0.26 per
share for cash                                      38,401            38         9,962             --             --         10,000

Issuance of common stock at $0.25 per
share for cash                                     201,165           201        49,799             --             --         50,000

Issuance of common stock at $0.25 per
share for cash                                      80,466            80        19,920             --             --         20,000

Issuance of common stock at $0.25 per
share for cash                                      80,466            80        19,920             --             --         20,000

Issuance of common stock at $0.25 per
share for cash                                      80,466            80        19,920             --             --         20,000

Issuance of common stock at $0.25 per
share for cash                                      80,466            80        19,920             --             --         20,000

Issuance of common stock at $0.18 per
share for cash                                     100,000           100        17,500             --             --         17,600

Issuance of common stock at $0.25 per
Share for cash                                     301,744           302        74,698             --             --         75,000

Issuance of common stock at varied prices
for cash                                         2,485,249         2,485       767,512             --             --        769,997

Issuance of common stock at $0.76 per
share for cash                                     568,181           568       431,249             --             --        431,818

Issuance of common stock at $0.25 per share
in connection with the conversion of notes
payable, including interest of $4,564              140,000           140        34,860             --             --         35,000

Issuance of common stock at $0.20 per share in
connection with the conversion of
convertible notes payable, including
interest of $4,943                                 174,716           175        34,768             --             --         34,943

Issuance of common stock at $0.31 per
share for services                                   9,740            10         2,990             --             --          3,000

Issuance of common stock at $0.30 per
share for services                                  25,134            25         7,475             --             --          7,500

Issuance of common stock at $0.25 per
share for services                                  31,424            31         7,869             --             --          7,900

Issuance of common stock at $0.26 per
share for services                                  19,084            19         4,981             --             --          5,000

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                F-10






<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------
Issuance of common stock at $0.25 per
share for services                                  33,228            33         8,407             --             --          8,440

Issuance of common stock at $0.25 per
share for services                                  24,000            24         5,976             --             --          6,000

Issuance of common stock at $0.26 per
share for services                                  11,450            11         2,989             --             --          3,000

Issuance of common stock at $0.26 per
share for services                                  19,084            19         4,981             --             --          5,000

Issuance of common stock at $0.26 per
share for services                                  34,352            34         8,966             --             --          9,000

Issuance of common stock at $0.26 per
share for services                                  11,450            11         2,989             --             --          3,000

Loss on settlement of accrued legal
liabilities                                             --            --       142,245             --             --        142,245

Issuance of common stock at $0.24 per
share for services                                  12,605            13         2,987             --             --          3,000

Issuance of common stock at $0.24 per
share for services                                  21,008            21         4,979             --             --          5,000

Issuance of common stock at $0.23 per
share for services                                  21,739            22         4,978             --             --          5,000

Issuance of common stock at $0.23 per
share for services                                  21,740            22         4,978             --             --          5,000

Issuance of common stock at $0.23 per
share for services                                   2,155             2           498             --             --            500

Issuance of common stock at $0.23 per
share for services                                  91,739            92        21,008             --             --         21,100

Issuance of common stock at $0.21 per
share for services                                 175,755           176        37,084             --             --         37,260

Issuance of common stock at $0.23 per
share for services                                  37,863            38         8,519             --             --          8,557

Issuance of common stock at $0.23 per
share for services                                  21,368            21         4,979             --             --          5,000

Issuance of common stock at $0.21 per
share for services                                  27,852            28         5,710             --             --          5,738

Issuance of common stock at $0.24 per
share for services                                  21,186            21         4,979             --             --          5,000

Issuance of common stock at $0.22 per
share for services                                  35,278            35         7,585             --             --          7,620

Issuance of common stock at $0.38 per
share for services                                  13,298            13         4,987             --             --          5,000

Issuance of common stock at $0.38 per
share for services                                  19,948            20         7,640             --             --          7,660

Issuance of common stock at $0.37 per
share for services                                  97,662            98        36,037             --             --         36,135

Issuance of common stock at $0.25 per
share for services                                 371,847           372        91,137             --             --         91,509

Issuance of common stock at $0.25 per
share for services                                  73,964            74        18,128             --             --         18,202

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                F-11





<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------
Issuance of common stock at $0.29 per
share for services                                  13,333            13         3,827             --             --          3,840

Issuance of common stock at $0.33 per
share for services                                  15,060            15         4,985             --             --          5,000

Issuance of common stock at $0.24 per
share for services                                 579,813           580       138,575             --             --        139,155

Issuance of common stock at $0.28 and
$0.33 per share for services                        66,017            66        19,934             --             --         20,000

Issuance of common stock at $0.36 per
share for services                                  13,889            14         4,986             --             --          5,000

Issuance of common stock at $0.33 per
share for services                                   9,091             9         2,989             --             --          2,999

Issuance of common stock at $0.28 per
share for services                                  10,563            11         2,991             --             --          3,001

Issuance of common stock at $0.33 per
share for services                                 150,000           150        48,850        (49,000)            --             --

Issuance of common stock at $0.28 per
share for services                                  35,714            36         9,964             --             --         10,000

Issuance of common stock at $0.33 per
share for services                                  15,152            15         4,985             --             --          5,000

Issuance of common stock at $0.28 per
per share for services                              17,730            18         4,982             --             --          5,000

Issuance of common stock at $0.20 and
$0.37 per share for services                        79,255            79        19,894             --             --         19,974

Issuance of common stock at $0.33 per
share for services                                  33,333            33         9,967             --             --         10,000

Issuance of common stock at $0.39 per
share for services                                 220,080           220        85,171             --             --         85,391

Issuance of common stock at $0.49 per
share for services                                   7,275             7         3,543             --             --          3,550

Issuance of common stock at $0.34 per
share for services                                  27,284            27         9,170             --             --          9,197

Issuance of common stock at $0.33 per
share for services                                 158,046           158        51,997             --             --         52,155

Issuance of common stock at $0.20 per
share for services                                 836,730           837       166,509             --             --        167,346

Issuance of cashless warrants                      389,168           389          (389)            --             --             --

Conversion of accrued salaries to
employee stock options                                  --            --       300,000             --             --        300,000

Debt discount on debt issued with
detachable warrants                                     --            --       119,610             --             --        119,610

Interest expense related to beneficial
conversion feature                                      --            --       222,375             --             --        222,375

Professional fees related to registration
statement                                               --            --       (76,732)            --             --        (76,732)

Amortization of deferred consulting
fees                                                    --            --            --         34,083             --         34,083

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                F-12





<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------
Reclassification of derivative liabilities
upon registration of shares underlying
warrants                                                --            --     1,090,000             --             --      1,090,000

Net loss                                                --            --            --             --     (2,920,183)    (2,920,183)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2006                        25,383,705  $     25,384  $ 20,322,494   $    (44,917)  $(22,062,447)  $ (1,759,486)
                                              ------------  ------------  ------------   ------------   ------------   ------------

Issuance of common stock at varied prices
for cash                                         2,649,773         2,650       794,097             --             --        796,747

Issuance of common stock at $0.18 per
share for cash                                     555,556           556        99,444             --             --        100,000

Issuance of common stock at $0.30 per
share for cash                                   1,333,333         1,333       398,667             --             --        400,000

Issuance of common stock at $0.24 per share
in connection with the conversion of notes
payable, including interest of $18,750             107,759           108        43,642             --             --         43,750

Issuance of common stock at $0.24 per
share for services                                  33,058            33         7,967             --             --          8,000

Issuance of common stock at $0.25 per
share for services                                 126,065           127        31,858             --             --         31,965

Issuance of common stock at $0.26 per
share for services                                 156,485           156        40,349             --             --         40,505

Issuance of common stock at $0.27 per
share for services                                  30,075            30         7,970             --             --          8,000

Issuance of common stock at $0.28 per
share for services                                  43,819            44        12,256             --             --         12,300

Issuance of common stock at $0.29 per
share for services                                  14,563            15         4,150             --             --          4,165

Issuance of common stock at $0.30 per
share for services                                  18,454            19         5,531             --             --          5,550

Issuance of common stock at $0.31 per
share for services                                  32,984            33        10,467             --             --         10,500

Issuance of common stock at $0.32 per
share for services                                  52,722            53        17,947             --             --         18,000

Issuance of common stock at $0.34 per
share for services                                  29,965            30         9,470             --             --          9,500

Issuance of common stock at $0.37 per
share for services                                 132,765           133        48,725             --             --         48,858

Issuance of common stock at $0.40 per
share for services                                   7,813             8         2,492             --             --          2,500

Issuance of common stock at $0.45 per
share for services                                   3,363             3         1,497             --             --          1,500

Issuance of common stock at $0.47 per
share for services                                  14,535            15         4,985             --             --          5,000

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                                F-13





<PAGE>
- -----------------------------------------------------------------------------------------------------------------------------------
                                                        AETHLON MEDICAL, INC.
                                                    (A Development Stage Company)
                                    CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (CONTINUED)
                                           FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                                 FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                         DEFICIT
                                                                                                        ACCUMULATED       TOTAL
                                                     COMMON STOCK          ADDITIONAL     DEFERRED        DURING       STOCKHOLDERS'
                                              --------------------------    PAID IN      CONSULTING     DEVELOPMENT       EQUITY
                                                 SHARES        AMOUNT       CAPITAL         FEES           STAGE         (DEFICIT)
                                              ------------  ------------  ------------   ------------   ------------   ------------

Issuance of common stock at $0.50 per
share for services                                  35,601            36        17,765             --             --         17,801

Issuance of common stock at $0.51 per
share for services                                  21,078            21        10,728             --             --         10,749

Issuance of common stock at $0.53 per
share for services                                  20,127            20         8,980             --             --          9,000

Issuance of common stock at $0.55 per
share for services                                   4,545             5         2,495             --             --          2,500

Issuance of common stock at $0.58 per
share for services                                  17,332            17         9,983             --             --         10,000

Issuance of common stock at $0.59 per
share for services                                   8,532             9         4,991             --             --          5,000

Issuance of common stock at $0.61 per
share for services                                   4,934             5         2,995             --             --          3,000

Issuance of common stock at $0.79 per
share for services                                  10,095             9         7,990             --             --          8,000

Issuance of common stock at $0.81 per
share for services                                   3,086             3         2,497             --             --          2,500

Correction for issuance of cashless warrants      (174,716)         (175)          175             --             --             --

Issuance of cashless warrants                       30,617            31           (31)            --             --             --

Issuance of commitment shares                    1,050,000         1,050        (1,050)            --             --             --

Interest expense related to beneficial
conversion feature                                      --            --        50,000             --             --         50,000

Amortization of deferred consulting fees                --            --            --         44,917             --         44,917

Licensing rights to cancer patent                   40,000            40        10,760             --             --         10,800

Stock compensation expense                              --            --        38,132             --             --         38,132

Issuance of common stock at $0.20 per
Share in settlement of accrued liabilities         114,130             114        22,997           --             --         23,111

Reclassification of derivative liabilities
upon registration of shares underlying
warrants                                                --            --    (1,090,000)            --             --     (1,090,000)

Net loss                                                --            --            --             --     (6,024,545)    (6,024,545)
                                              ------------  ------------  ------------   ------------   ------------   ------------

BALANCE - MARCH 31, 2007                        31,912,153  $     31,912  $ 20,963,410  $         --    $(28,086,992)  $ (7,091,670)
                                              ============  ============  ============   ============   ============   ============

- -----------------------------------------------------------------------------------------------------------------------------------
                                  SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                                F-14





<PAGE>

- --------------------------------------------------------------------------------------------------------------------------
                                                   AETHLON MEDICAL, INC.
                                               (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                            FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007
- --------------------------------------------------------------------------------------------------------------------------
                                                                                                          January 31, 1984
                                                                                                         (Inception) Through
                                                                             2007              2006         March 31, 2007
                                                                         -------------------------------------------------

Cash flows from operating activities:
     Net loss                                                            $ (6,024,545)     $ (2,920,183)    $(28,086,992)
     Adjustments to reconcile net loss to net cash used in
       operating activities:
          Depreciation and amortization                                        23,400            34,241        1,007,393
          Amortization of deferred consulting fees                             44,917            34,083          109,000
          Gain on settlement of debt                                               --          (131,175)        (131,175)
          Loss on settlement of accrued legal liabilities                          --           142,245          142,245
          Gain on sale of property and equipment                                   --                --          (13,065)
          Change in estimated fair value of warrant liability               2,112,575           360,125        2,472,700
          Fair market value of warrants issued in connection
            with accounts payable and debt related costs                           --                --        2,715,736
          Fair market value of common stock, warrants and
            options issued for services and interest                          274,914           704,383        3,486,916
          Stock based compensation                                             38,132                --          462,394
          Loss on debt extinguishment                                       1,216,748                --        1,216,748
          Amortization of debt discount                                       177,762           259,416        1,285,787
          Impairment of patents and patents pending                                --            81,722          416,026
          Impairment of goodwill                                                   --                --          897,227
          Deferred compensation forgiven                                           --                --          217,223

          Changes in operating assets and liabilities:
               Prepaid expenses                                                27,652          (22,034)          156,967
               Other assets                                                     4,000           20,050           (13,200)
               Accounts payable and accrued liabilities                       535,166         (118,276)        2,049,116
               Due to related parties                                        (149,625)         (28,878)        1,322,500
                                                                         -------------------------------------------------

     Net cash used in operating activities                                 (1,718,904)       (1,584,281)     (10,286,454)
                                                                         -------------------------------------------------

Cash flows from investing activities:
     Purchases of property and equipment                                      (17,810)           (4,651)        (266,697)
     Patents and patents pending                                               (6,294)          (11,000)        (370,127)
     Proceeds from the sale of property and equipment                              --                --           17,065
     Cash of acquired company                                                      --                --           10,728
                                                                         -------------------------------------------------

     Net cash used in investing activities                                    (24,104)          (15,651)        (609,031)
                                                                         -------------------------------------------------

- --------------------------------------------------------------------------------------------------------------------------
                             SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
continued.........
                                                           F-15






<PAGE>

- --------------------------------------------------------------------------------------------------------------------------
                                                  AETHLON MEDICAL, INC.
                                               (A DEVELOPMENT STAGE COMPANY)
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      FOR THE YEARS ENDED MARCH 31, 2007 AND 2006 AND
                      FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH MARCH 31, 2007 (CONTINUED)
- --------------------------------------------------------------------------------------------------------------------------
                                                                                                          January 31, 1984
                                                                                                         (Inception) Through
                                                                             2007              2006         March 31, 2007
                                                                         -------------------------------------------------

Cash flows from financing activities:
     Net proceeds from the issuance of notes payable                               --           100,000        1,710,000
     Principal repayments of notes payable                                         --           (80,000)        (292,500)
     Proceeds from the issuance of convertible notes payable                   50,000         1,030,000        2,078,000
     Net proceeds from the issuance of common stock                         1,296,737         1,454,415        7,916,822
     Professional fees related to registration statements                          --           (76,731)         (76,731)
                                                                         -------------------------------------------------

     Net cash provided by financing activities                              1,346,737         2,427,684       11,335,591
                                                                         -------------------------------------------------

Net increase (decrease) in cash                                              (396,271)          827,752          440,106

Cash at beginning of period                                                   836,377             8,625               --
                                                                         -------------------------------------------------

Cash at end of period                                                    $    440,106      $    836,377     $    440,106
                                                                         =================================================

Supplemental disclosure of cash flow information -
  Cash paid during the period for:
          Interest                                                       $         --      $      8,000     $    263,258
                                                                         =================================================
          Income taxes                                                   $         --      $         --     $     13,346
                                                                         =================================================

Supplement schedule of noncash investing and financing activities:

Debt and accrued interest converted to common stock                      $      43,750      $     69,942      $2,480,711
                                                                         =================================================
Debt discount on notes payable associated with
  detachable warrants                                                    $      50,000     $   1,070,860      $1,154,860
                                                                         =================================================
Issuance of common stock, warrants and options in
   settlement of accrued expenses and due to related parties             $      23,111     $     467,346      $1,003,273
                                                                         =================================================
Reclassification of derivative liability to (from)
   additional paid-in capital                                            $  (1,090,000)    $   1,090,000      $       --
                                                                         =================================================
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
                                                                         =================================================
Licensing rights acquired with common stock issuance                     $      10,800     $          --      $    10,800
                                                                         =================================================

- --------------------------------------------------------------------------------------------------------------------------
                             SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.

                                                    F-16
</TABLE>






<PAGE>


                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Aethlon Medical, Inc. ("Aethlon" or the "Company") engages in the research and
development of a medical device known as the Hemopurifier(R) that removes
harmful substances from the blood. Aethlon is in the development stage on the
Hemopurifier(R) 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") or the regulatory
agency of any foreign country where it intends to sell its device. Aethlon has
submitted an Investigational Device Excemption ("IDE") to the FDA and plans to
begin FDA sanctioned clinical trials within the next twelve months. Since many
of Aethlon's patents were issued in the 1980's, some have expired and other are
scheduled to expire in the near future. Thus, some patents may expire before FDA
approval or approval in a foreign country, 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(R)
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.OB."

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of
Aethlon Medical, Inc. and its inactive 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 suffered continuing losses from
operations, is in default on certain debt, has negative working capital of
approximately $7,260,000 recurring losses from operations and a deficit
accumulated during the development stage of approximately $28,087,000 at March
31, 2007, which among other matters, raises 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, 2008. 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 pending common stock purchase agreement with
Fusion Capital Fund II, LLC ("Fusion"). The Company believes that its cash on
hand and funds available from Fusion and/or additional private investment will
be sufficient to meet its liquidity needs for fiscal 2008. However, no assurance
can be given that the Company will receive any funds in addition to the funds it
has received to date.


                                      F-17





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

GOING CONCERN (continued)

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.

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 requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and reported
amounts of revenues and expenses during the reporting periods. Significant
estimates made by management include, among others, realization of long-lived
assets, valuation of derivative liabilities, estimating fair value associated
with debt and equity transactions and valuation of deferred tax assets. Actual
results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosure 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. Management has
concluded that it is not practical to determine the estimated fair value of
amounts due to related parties. SFAS No. 107 requires that for instruments for
which it is not practicable to estimate their fair value, information pertinent
to those instruments be disclosed, such as the carrying amount, interest rate,
and maturity, as well as the reasons why it is not practicable to estimate fair
value. Information about these related party instruments is included in Note 8.
Management believes it is not practical to estimate the fair value of such
financial instruments because the transactions cannot be assumed to have been
consummated at arm's length, the terms are not deemed to be market terms, there
are no quoted values available for these instruments, and an independent
valuation would not be practicable due to the lack of data regarding similar
instruments, if any, and the associated potential costs.

CONCENTRATIONS OF CREDIT RISKS

Cash is maintained at a single financial institution. 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 approximately $340,000 exceeding this limit at March 31, 2007.


                                      F-18





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

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.

INCOME TAXES

Under SFAS No. 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 carry-forwards. 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.

LONG-LIVED ASSETS

SFAS No. 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 No. 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 No. 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 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 No. 144 will have
on the Company's financial statements with respect to future disposal decisions,
if any. Management believes no impairment charges were necessary during the
fiscal years ended March 31, 2007 and 2006.

EARNINGS PER SHARE

Under SFAS No. 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, 2007 and
2006, 12,885,453 and 11,086,990 shares would have been considered additional
common stock equivalents, respectively, based on the treasury stock method. As
the Company had net losses for the periods presented, basic and diluted loss per
share are the same, as any additional common stock equivalents would be
antidilutive.


                                      F-19





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

SEGMENTS

SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," requires public companies 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.

STOCK BASED COMPENSATION

Effective April 1, 2006, the Company adopted the provisions of SFAS No. 123-R,
"Share Based Payment." SFAS No. 123-R requires employee stock options and rights
to purchase shares under stock participation plans to be accounted for under the
fair value method and requires the use of an option pricing model for estimating
fair value. Accordingly, share-based compensation is measured when all granting
activities have been completed, generally the grant date, based on the fair
value of the award. Prior to April 1, 2006, the Company accounted for awards
granted under its equity incentive plan under the intrinsic value method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations, and provided the
required pro forma disclosures prescribed by SFAS No. 123, "Accounting for Stock
Based Compensation," as amended. The exercise price of options is generally
equal to the market price of the Company's common stock (defined as the closing
price as quoted on the Over-the-Counter Bulletin Board administered by Nasdaq)
on the date of grant. Under the modified prospective method of adoption for SFAS
No. 123-R, the compensation cost recognized by the Company beginning April 1,
2006 includes (a) compensation cost for all equity incentive awards granted
prior to, but not yet vested as of April 1, 2006, based on the grant-date fair
value estimated in accordance with the original provisions of SFAS No. 123, and
(b) compensation cost for all equity incentive awards granted subsequent to
April 1, 2006, based on the grant-date fair value estimated in accordance with
the provisions of SFAS No. 123-R.

From time to time, the Company's 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 the Company's formal stock plans. The terms
of these grants are individually negotiated and generally expire within five
years from the grant date.

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). At March 31, 2007, the Company had granted 47,500 options under
the 2000 Stock Option Plan of which 15,000 had been forfeited, with 467,500
available for future issuance. All of these options vested prior to the adoption
of FAS 123-R.

The effects of share-based compensation resulting from the application of SFAS
No. 123-R to options granted outside of the Company's Stock Option Plan resulted
in an expense of $38,132 for the fiscal year ended March 31, 2007. This expense
was recorded as stock compensation included in payroll and related expenses in
the accompanying March 31, 2007 condensed consolidated statement of operations.
Share-based compensation recognized as a result of the adoption of SFAS No.
123-R as well as pro forma disclosures according to the original provisions of
SFAS No. 123 for periods prior to the adoption of SFAS No. 123-R use the
Binomial Lattice option pricing model for estimating fair value of options
granted.

The following table summarizes the effect of share-based compensation resulting
from the application of SFAS No. 123-R to options granted:

                                                     Fiscal Year Ended
                                                      March 31, 2007

Payroll and related                                    $   38,132
                                                         ==========
Net share-based compensation effect
   in net loss from operations                         $   38,132
                                                         ==========

Basic and diluted loss per common share               $    (0.00)
                                                         ==========

                                      F-20





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

STOCK BASED COMPENSATION (continued)

In accordance with SFAS No. 123-R, the Company reviews share-based compensation
on a quarterly basis for changes to the estimate of expected award forfeitures
based on actual forfeiture experience. The effect of adjusting the forfeiture
rate for all expense amortization after March 31, 2006 is recognized in the
period the forfeiture estimate is changed. The effect of forfeiture adjustments
for the fiscal year ended March 31, 2007 was insignificant.

Pro forma information required under SFAS No. 123 for periods prior to April 1,
2006 as if the Company had applied the fair value recognition provisions of SFAS
No. 123 to options granted under and outside of the Company's equity incentive
plans was as follows:

                                                            YEAR ENDED MARCH 31,
                                                            -------------------
                                                                    2006
                                                                ------------

Net loss available to common stockholders, as reported          $ 2,920,183
Add back: Recorded intrinsic value                                   --
Pro forma compensation expense                                      361,111
                                                                ------------
Pro forma net loss available to common stockholders             $ 3,281,294
                                                                ============
Loss per common share, as reported
  Basic and diluted                                             $     (0.15)
                                                                ============
Loss per common share, pro forma
  Basic and diluted                                             $     (0.17)
                                                                ============

Pro forma compensation expense reported in the above table is generally based on
the vesting provisions in the related stock option grants.

Share compensation expense for the fiscal year ended March 31, 2007 relates to
the vesting of existing grants (issued subsequent to April 1, 2006), the date
the Company adopted SFAS No. 123-R and of grants issued during the current
fiscal year.

The following weighted average assumptions were used in the valuation of these
instruments.

                                                2007                 2006
                                               ------               ------
Annual dividends                                Zero                 Zero
Expected volatility                             91.9%                  89%
Risk free interest rate                         4.84%                4.82%
Expected life                                10.0 years            5.0 years

The expected volatility is based on the historic volatility. The expected life
of options granted is based on the "simplified method" described in the SEC's
Staff Accounting Bulletin No. 107 due to changes in the vesting terms and
contractual life of current option grants compared to the Company's historical
grants.

Options outstanding that have vested and are expected to vest as of March 31,
2007 are as follows:

                                                       Weighted
                                         Weighted      Average
                                         Average      Remaining       Aggregate
                             Number of   Exercise    Contractual      Intrinsic
                              Shares      Price     Term in Years     Value (1)
- - -------------------------  -----------   --------   -------------   ----------

Vested                       8,369,060   $   0.39        5.33       $  3,396,474
Expected to vest               835,000       0.25        5.67       $    412,550
                           -----------                                ----------
     Total                   9,204,060                              $  3,809,024
                           ===========                                ==========

(1) These amounts represent the difference between the exercise price and $0.74,
the closing market price of the Company's common stock on March 31, 2007 as
quoted on the Over-the-Counter Bulletin Board under the symbol "AEMD.OB" for all
in-the-money options outstanding.

                                    F-21





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

STOCK BASED COMPENSATION (continued)

Options outstanding that are expected to vest are net of estimated future
forfeitures in accordance with the provisions of SFAS No. 123-R, which are
estimated when compensation costs are recognized. The Company estimates that the
fair value of unvested stock options expected to vest and be expensed in future
periods is approximately $134,000. Additional information with respect to stock
option activity is as follows:

                                                   Outstanding Options
                                           -------------------------------------
                               Shares                   Weighted       Aggregate
                             Available     Number of     Average       Intrinsic
                             for Grant     Shares     Exercise Price   Value (1)
- - ---------------------------  ---------   ------     --------------  ----------
March 31, 2006                 467,500   9,012,785       $ 0.38       $3,875,498
                                                                      ==========
Grants                              --     500,000       $ 0.27
Exercises                           --          --           --
Cancellations                       --    (308,725)      $ 0.38
                             ----------  ----------
March 31, 2007                 467,500   9,204,060       $ 0.38       $3,802,324
                             ==========  ==========                   ==========

Options exercisable at:
March 31, 2006                           7,135,518      $ 0.39
                                         =========      ======
March 31, 2007                           8,369,060      $ 0.39
                                         =========      ======

(1) Represents the difference between the exercise price and the March 31, 2006
or March 31, 2007 market price of the Company's common stock, which was $0.81
and $0.74, respectively, for "in the money" options.

The Company follows SFAS No. 123-R (as interpreted by EITF Issue No. 96-18,
"Accounting for Equity Instruments That are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services") to account for
transactions involving services provided by third parties where the Company
issues equity instruments as part of the total consideration.

Pursuant to paragraph 8 of SFAS No. 123, the Company accounts for such
transactions using the fair value of the consideration received (i.e. the value
of the goods or services) or the fair value of the equity instruments issued,
whichever is more reliably measurable. The Company applies EITF Issue No. 96-18,
in transactions, when the value of the goods and/or services are not readily
determinable and (1) the fair value of the equity instruments is more reliably
measurable and (2) the counterparty receives equity instruments in full or
partial settlement of the transactions, using the following methodology:

a)       For transactions where goods have already been delivered or services
         rendered, the equity instruments are issued on or about the date the
         performance is complete (and valued on the date of issuance).

b)       For transactions where the instruments are issued on a fully vested,
         non-forfeitable basis, the equity instruments are valued on or about
         the date of the contract.

c)       For any transactions not meeting the criteria in (a) or (b) above, the
         Company re-measures the consideration at each reporting date based on
         its then current stock value.

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. Under APB Opinion No. 14, "Accounting for Convertible Debt and Debt
Issued With Stock Purchase Warrants", as amended, the relative 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 in those
certain transactions where the warrants qualified for equity classification has
been recorded in the consolidated financial statements as a discount from the
face amount of the notes. The discount is amortized using the effective yield
method over the respective term of the related notes payable.


                                      F-22





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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 6 and 7) 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
accreted to interest expense over the term of the notes using the effective
yield method.

CLASSIFICATION OF WARRANT OBLIGATION

In connection with the issuance of the 10% Series A Convertible Notes (see Note
6), the Company had an obligation to file a registration statement covering the
common shares underlying the convertible notes and related warrants (the
"Registerable Securities", as defined in the Registration Rights Agreement). The
obligation to file the registration statement met the criteria of an embedded
derivative to be bifurcated pursuant to SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended. The classification of the
warrant obligation was evaluated at each reporting date. From the original
issuance date through January 20, 2006 and October 27, 2006, the Company was
required to classify the warrant obligation as a derivative liability, recorded
at its fair value, in accordance with SFAS No. 133 under EITF Issue No. 00-19,
"Accounting for Derivative Financial Instruments Indexed To, and Potentially
Settled In, a Company's Own Stock." Accordingly, the warrants were classified as
derivative liabilities with the change in fair value reported in earnings.,

REGISTRATION PAYMENT ARRANGEMENTS

The Company accounts for its liquidated damages on registration rights
agreements (see Note 6) in accordance with FASB Staff Position EITF 00-19-2,
which specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement should
be separately recognized and measured in accordance with SFAS No. 5, "Accounting
for Contingencies."

RESEARCH AND DEVELOPMENT EXPENSES

The Company incurred approximately $673,614 and $754,000 of research and
development expenses during the years ended March 31, 2007 and 2006,
respectively, which are included in various operating expenses in the
accompanying consolidated statements of operations.

OFF-BALANCE SHEET ARRANGEMENTS

The Company has not entered into any off-balance sheet arrangements that have or
are reasonably likely to have a current or future material effect on the
Company's financial statements.

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the FASB issued FASB Interpretation ("FIN") No. 48, "Accounting
for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109."
This interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with SFAS No.
109,"Accounting for Income Taxes." FIN No. 48 prescribes a more-likely-than-not
recognition threshold and a measurement attribute for the financial statement
recognition and measurement of tax positions taken (or expected to be taken) in
an income tax return. It also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The requirement to assess the need for a valuation
allowance on net deferred tax assets is not affected by FIN No. 48. This
pronouncement is effective for fiscal years beginning after December 31, 2006.
Management is in the process of evaluating this guidance, and therefore has not
yet determined the impact (if any) that FIN No.48 will have on the Company's
financial position or results of operation upon adoption.

In September 2006, the FASB issued SFAS No.157, "Fair Value Measurements," which
defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosures about fair value measurements.
SFAS No. 157 simplifies and codifies related guidance within GAAP, but does not
require any new fair value measurements. The guidance in SFAS No. 157 applies to
derivatives and other financial instruments measured at estimated fair value
under SFAS No. 133 and related pronouncements. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. Management does not expect the
adoption of SFAS No. 157 to have a significant effect on the Company's financial
position or results of operation.


                                    F-23





<PAGE>
                               AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS (continued)

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS No. 159 allows entities to
choose, at specified election dates, to measure eligible financial assets and
liabilities at fair value that are not otherwise required to be measured at fair
value. If the Company elects the fair value option for an eligible item, changes
in that item's fair value in subsequent reporting periods must be recognized in
current earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. Management has not yet evaluated the effects on future
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 Securities and Exchange Commission did not or are not
believed by management to have a material impact on the Company's present or
future consolidated financial statements.

2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at March 31, 2007:

Furniture and office equipment                       $      261,535
Accumulated depreciation                                   (247,873)
                                                     ---------------
                                                     $       13,662
                                                     ===============

Depreciation expense for the years ended March 31, 2007 and 2006 approximated
$16,500 and $23,000, respectively.

3. PATENTS

Patents include both foreign and domestic patents. There was one patent pending
at March 31, 2007 and 2006. 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, 2007 and 2006, patents with net carrying values of $0 and
$81,722, respectively, were written off as impairment expense. At March 31,
2007, the gross carrying amount of patents and patents in process totaled
approximately $175,000and the related accumulated amortization totaled
approximately 33,000. Amortization of patents approximated $7,000 and $12,000
during the years ended March 31, 2007 and 2006, respectively. Amortization
expense on patents is estimated to be approximately $7,000 per year for the next
five fiscal years. Some of the Company's patents have expired and others may
expire before FDA approval, if any, is obtained.

4. DEBT-TO-EQUITY CONVERSION PROGRAM

In March 2002, for a limited time, 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 entailed the
conversion of liabilities at a rate of one share and one-half of a warrant for
every $1.25 converted. The warrants had an exercise price of $2.00 per share and
expired three years from the date of issuance; none are outstanding at March 31,
2006 and 2005.

5. NOTES PAYABLE

12% NOTES

From August 1999 through September 2000, the Company entered into arrangements
for the issuance of notes payable from private placement offerings (the "12%
Notes") in the original aggregate amount of $422,500. The 12% Notes bore annual
interest at 12% (15% after maturity), required interest to be paid quarterly,
matured one year from the date of issuance, and carried detachable warrants.
These notes have no acceleration provisions. In June 2004, one such note in the
principal amount of $12,500 plus accrued interest was repaid. In December 2004,
each of two such notes in the principal amount of $25,000, plus $17,778 accrued
interest, were converted to 87,303 restricted common shares at $0.49 per share.

On May 27, 2005 the Company issued a promissory note to an accredited investor
in an amount of $100,000 with 12% interest maturing on December 1, 2005. In
conjunction with the issuance of the Note, the Company also issued a 12-month
warrant to acquire 400,000 shares of Common Stock at $0.25 per share.
Accordingly, this warrant has been valued using a Black-Scholes option pricing
model and an associated discount of $41,860, was accreted to interest expense
over the term of the Note. This entire amount was included in interest expense
during the fiscal year ended March 31, 2006.

At March 31, 2007, $347,500 of principal balance of the 12% Notes were
outstanding and delinquent, in default, and bore interest at the default rate of
15%.


                                      F-24





<PAGE>
                             AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

5. NOTES PAYABLE (continued)

10% NOTES

From time to time, the Company issued convertible notes payable ("10% Note") to
various investors, bearing interest at 10% per annum, with principal and
interest due six months from the date of issuance. The 10% 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. There were two remaining 10% Notes outstanding at March 31, 2004. As
of such date and through March 31, 2007, these notes were classified as notes
payable since they were no longer convertible.

The remaining 10% Note in the amount of $5,000, was past due and in default at
March 31, 2007. At March 31, 2007, interest payable on this note totaled $2,875.

9% NOTE

In April 2003, the Company issued a convertible note in the amount of $150,000
("9% Note"), bearing interest at 9% per annum, with principal and interest due
in June 2003, which is in default and currently bears penalty interest at 18%
per annum. The 9% 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 noteholder. 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.

Notes payable, which are all in default, consist of the following at March 31,
2006:

         12% Notes payable, all past due                       $347,500
         10% Note payable, past due                               5,000
          9% Note payable, past due                             150,000
                                                               --------
                                                               $502,500
                                                               ========

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.

6. CONVERTIBLE NOTES PAYABLE

10% CONVERTIBLE NOTES

On December 15, 2006, the Company issued two 10% Convertible Notes ("December
10% Notes") totaling $50,000 to accredited investors. The December 10% Notes
accrue interest at a rate of ten percent (10%) per annum and mature on March 15,
2007. Such notes are convertible into shares of restricted common stock at any
time at the election of the holder at a fixed conversion price of $0.17 per
share for any conversion occurring on or before the maturity date. In addition,
upon issuance, the Company issued five-year Warrants ("December 10% Note
Warrants") to purchase a number of shares equal to the number of shares into
which the December 10% Notes can be converted at a fixed exercise price of
$0.17. Additionally, if the December 10% Note Warrants are exercised prior to
December 15, 2007, the holder will receive an additional warrant on the same
terms as the December 10% Note Warrants on a one to one basis. The warrants can
be settled in unregistered shares of common stock. The December 10% Note
Warrants have been valued using a Binomial Lattice option pricing model and an
associated discount of $15,627, the relative fair value measured at the
commitment date, was recorded and presented net against the face amount of the
December 10% Notes. The convertible feature of the December 10% Notes provides
for an effective conversion rate that is below market value. Pursuant to EITF
No. 98-5 and EITF No. 00-27, the Company estimated the fair value of such BCF to
be $34,373 and recorded such amount as a debt discount. The discounts associated
with the warrants and the BCF were accreted to interest expense over the term of
the December 10% Notes. Interest expense on the December 10% Notes for accretion
of such debt discounts totaled approximately $50,000 for the fiscal year ended
March 31, 2007.

15% CONVERTIBLE NOTE

On May 16, 2005 the Company issued Fusion Capital ("Fusion") a $30,000
Convertible Promissory Note (the "Convertible Note") with an interest rate of
fifteen percent (15%) per annum that matured on August 15, 2005 (the "Maturity
Date"). In addition, the Company issued Fusion a five-year warrant to purchase
300,000 shares of the Company's common stock at an exercise price of $0.25 per
share (the "Warrant"). In accordance with EITF Issue No. 98-5, EITF Issue No.
00-27 and APB No. 14, the Company recorded debt discounts associated with
conversion feature and the warrants totaling $30,000 which was entirely


                                      F-25





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

6. CONVERTIBLE NOTES PAYABLE (continued)

accreted to interest expense during the fiscal year ended March 31, 2006. The
Convertible Note and approximately $5,000 in associated accrued interest was
exchanged for 174,716 shares of restricted common stock on March 23, 2006.

10% SERIES A CONVERTIBLE NOTES

From July 11, 2005 through December 15, 2005 the Company received cash
investments totaling $1,000,000 from accredited investors based on agreed-upon
terms reached on the cash receipt dates. Such investments were documented in
November and December 2005 in several 10% Series A Convertible Promissory Notes.
The 10% Series A Convertible Notes accrue interest at a rate of ten percent
(10%) per annum and matured on January 2, 2007. The 10% Series A Convertible
Notes were convertible into shares of common stock at any time at the election
of the holder at a conversion price equal to $0.20 per share for any conversion
occurring on or prior to the maturity date.

Convertible Notes Payable consistes of the following at March 31, 2007:

                                                                          Net
                                       Principal       Discount          Amount
                                       ---------       --------          -------

10% Series A Convertible Notes      $  1,000,000   $ (1,000,000)      $      --
December 10% Convertible Notes            50,000             --          50,000
                                    ============   ============       =========


The Conversion Option

SFAS No. 133 states that a contract issued by an entity that is both (a) indexed
to its own stock and (b) would be classified in stockholders' equity if it were
a freestanding financial instrument is not a derivative for purposes of that
pronouncement. Management has concluded that the conversion option associated
with the 10% Series A Convertible Notes is "indexed to the Company's own stock"
as that term is defined by EITF Issue No. 01-6, "The Meaning of Indexed to
Company's Own Stock". In addition, since such notes have been determined to be
"conventional convertible debt instruments" as defined in EITF Issue No. 05-2,
"The Meaning of Conventional Convertible Debt Instrument" in Issue 00-19", the
requirements of EITF Issue No. 00-19 do not apply. Lastly, the debt host
contract is not a derivative in its entirety and (based on SFAS No. 133) the
conversion option need not be bifurcated from such contract. Therefore, the
conversion option is not a derivative instrument as contemplated by EITF Issue
No. 00-19 or SFAS No. 133. As explained below, the Company has therefore applied
intrinsic value accounting, where applicable, to the BCF embedded in the
conversion option.

Intrinsic Value Accounting for the BCF

The Company accounted for the BCF associated with the issuance of the 10% Series
A Convertible Notes in accordance EITF Issue No. 98-5, EITF Issue No. 00-27, and
APB No. 14. The convertible feature of the 10% Series A Convertible Notes
provides for a rate of conversion that is below market value. The excess of the
proceeds over the estimated fair value of the warrants (see "Accounting for the
Warrants" below) was used to calculate the effective conversion price per share.
Pursuant to EITF 98-5 and EITF 00-27, the Company has estimated the fair value
of such BCF to be $270,125 and recorded such amount as a debt discount against
the face amount of the notes. Such discount was accreted to interest expense
over the original term of the notes. Total interest expense on the 10% Series A
Convertible Notes for amortization of the above BCF debt discount totaled
$142,364 and $127,762 for the fiscal years ended March 31, 2007 and 2006.

                                      F-26





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

10% SERIES A CONVERTIBLE NOTES (continued)

Accounting for the Warrants

Under this transaction, the Company is obligated to register for resale the
common shares underlying the warrants, and as a result, the embedded derivative
associated with this warrant obligation does not meet the scope exception of
paragraph 11(a) of SFAS No. 133. Specifically, at the commitment date, the
Company did not have any uncommitted registered shares to settle the warrant
obligation and accordingly, such obligation was required to be classified as a
liability (outside of stockholders' deficit) in accordance with EITF Issue No.
00-19. The Series A Warrants were valued at $729,875 on the commitment date
using a Binomial Lattice option pricing model. Such amount was recorded as a
derivative liability and an offsetting debt discount against the face amount of
the 10% Series A Convertible Notes. Such debt discount will begin to be expensed
as future conversions occur and the warrants are issued.

On January, 2006, the registration statement which included the shares
underlying the 10% Series A Convertible Notes ("Notes")and related warrants was
deemed effective. At such time, the Company re-evaluated the classification of
the warrant obligation and determined that the warrant obligation me the
criteria for equity classification under EITF No. 00-19. Accordingly, the
Company revalued the warrants at such date, totaling $1,090,000, with the change
in fair value of the warrant liability totaling $360,125 expensed in the
accompanying consolidated statements of operations for the year ended March 31,
2006.

The Allonge Transactions

Effective March 22, 2007, the Company entered into four Allonges (the
"Allonges") to its 10% Series A Convertible Notes entered into in December 2005
having an aggregate principal amount of $1,000,000 (the "Notes") with the Estate
of Allan S. Bird, the Ellen R. Weiner Family Revocable Trust, Claypoole Capital,
LLC and Christian J. Hoffmann III (the "Holders"). Each Holder has qualified as
an "accredited investor" as that term is defined in the

                                      F-27





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

6. CONVERTIBLE NOTES PAYABLE (continued)

Securities Act of 1933, as amended (the "Act"). Pursuant to the Allonges, the
Company amended and restated the Notes to extend the maturity date of the Notes
from January 2, 2007 until January 3, 2008. The Company will also pay all
accrued interest, through February 15, 2007 and each calendar quarter
thereafter, in the form of units (the "Units")at the rate of $0.20 per Unit (the
"Interest Payment Rate"). The Allonges amend the Notes so that they are now
convertible into Units at any time prior to the Maturity Date at the conversion
price of $0.20 per Unit (the "Conversion Price"). Each Unit is composed of one
share of the Company's Common Stock and one Class A Common Stock Purchase
Warrant (the "Class A Warrant"). Each Class A Warrant expires on January 2, 2001
and is exercisable to purchase one share of Common Stock at a price of $0.20 per
share (the "Exercise Price"). If the Holder exercises Class A Warrants on or
before July 3, 2008, the Company will issue the Holder one Class B Common Stock
Purchase Warrant (the "Class B Warrant" and with the Class A Warrant,
collectively, the "Warrants") for every two Class A Warrants exercised. Each
Class B Warrant has a three-year term and is exercisable to purchase one share
of Common Stock at a price equal to the greater of $0.20 per share or 75% of the
average of the closing bid prices of the Common Stock for the five trading days
immediately preceding the date of the notice of conversion. Pursuant to EITF
06-06, and because of the change in the fair value of embedded conversion
options as a result of the issuance of Units under the Allonges on March 22,
2007, such issuance was determined to be a substantial change in the 10% Series
A Notes resulting in the extinguishment of the Notes as per ABP No. 26.
Therefore on March 22, 2007, the Company recorded a net increase of $270,127 of
discount on convertible notes payable, an increase in the warrant liability of
$1,486,875 and a loss on extinguishment of debt of $1,216,748. Between March 22,
2007 and March 31, 2007, the Company also recorded an additional other expense
of $143,125 to record the change in fair value of the warrant liability at the
end of the fiscal year. This transaction was exempt from registration pursuant
to Regulation D promulgated under the Securities Act of 1933.

On or about March 13, 2007, the Company determined that the effectiveness of the
registration statement underlying the warrant shares associated with the 10%
Series A Convertible Notes had lapsed on October 27, 2006. Pursuant to EITF
Issue No. 00-19, the Company believed it could no longer control settlement in
registered shares. Accordingly, the Company reversed the effect of the prior
registration effectiveness and reduced additional-paid-in-capital by $1,090,000
and recorded a warrant liability of like amount. Between October 27, 2006 and
March 22, 2007 (when the debt was effectively extinguished), the Company
recorded an additional non-cash expense related to the change in the fair value
of the associated warrant liability of $1,969,450. Upon extinguishment, the
Company recorded a net increase in warrant liability of $757,002 and a non-cash
loss on extinguishment of $1,216,748. In addition the Company also recorded
estimated liquidated damages in an amount of $220,000, an amount of the
Company's estimate of the damages that are expected to be paid prior to the
effective registration of the shares underlying the warrants.

7. EQUITY TRANSACTIONS

2003 CONSULTANT STOCK PLAN

In August 2003, the Company adopted the 2003 Consultant Stock Plan (the "Stock
Plan"), which provides for grants of common stock through August 2013, to assist
the Company in obtaining and retaining the services of persons providing
consulting services for the Company. A total of 1,000,000 common shares are
reserved for issuance under the Stock Plan. On March 29, 2004, the Company filed
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. On
August 29, 2005, the Company filed a Form S-8 for the purpose of registering an
additional 2,000,000 shares, for a total of 3,000,000 common shares reserved
under the Plan.

2005 DIRECTORS COMPENSATION PROGRAM

In February 2005, the Company adopted the 2005 Directors Compensation Program
(the "Directors Compensation Program") to assist in obtaining and retaining the
services of outside directors. Under the Directors Compensation Program, a newly
elected director will receive a one time grant of a non-qualified stock option
of 1.5% of the common stock outstanding at the time of election. The options
will vest one-third at the time of election to the board and the remaining
two-thirds will vest equally at year end over three years. Additionally, each
director will also receive an annual $25,000 non-qualified stock option
retainer, $15,000 of which is to be paid at the first of the year to all
directors who are on the Board prior to the first meeting of the year and a
$10,000 retainer will be paid if a director attends 75% of the meetings either
in person, via conference call or other electronic means. The exercise price for
the options under the Directors Compensation Program will equal the average
closing of the last ten (10) trading days prior to the date earned.


                                      F-28





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK

In April 2004, the Company issued 500,000 shares of restricted common stock to
an accredited individual investor in connection with the exercise of warrants at
$0.25 per share for cash totaling $125,000. This transaction was exempt from
registration pursuant to Regulation D promulgated under the Securities Act of
1933.

In April 2004, the Company issued 17,143 shares at $1.75 per share to an
accredited individual investor for investor relations services in the amount of
$30,000. This transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.

In April 2004, the Company issued 50,000 shares of restricted common stock to
Fusion Capital Fund II, LLC, an accredited institutional investor, for a
financing commitment to provide $6,000,000 under a registered private placement.
In connection with the $6,000,000 financing the Company paid a fee to Fusion
Capital in the amount of 418,604 shares of common stock. The Company recorded no
expense related to the issuance of these shares since they were related to
equity fund raising activities. This transaction was exempt from registration
pursuant to Regulation D promulgated under the Securities Act of 1933.

In May 2004, the Company issued 225,000 shares of common stock at $0.44 per
share and 225,000 warrants to purchase the Company's common stock at a price of
$0.76 per share to legal counsel for legal services in the amount of $99,000,
which was recorded as expense in the accompanying consolidated financial
statements. This transaction was exempt from registration pursuant to Section
4(2)of the Securities Act of 1933.

In May 2004, a $50,000 10% convertible note was converted at $0.44 per share for
113,636 shares of common stock and 113,636 warrants to purchase the Company's
common stock at a price of $0.76 per share. This transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.

In May 2004, the Company issued a total of 1,415,909 shares of restricted stock
at a price of $0.44 per share for cash totaling $623,000 to fourteen accredited
investors. In connection with the issuance of these shares, the Company granted
the stockholders 1,640,908 warrants to purchase the Company's common stock at a
price of $0.76 per share. The warrants vested immediately and expire on the
fifth anniversary from the date when a registration statement covering the
common stock underlying such warrants is declared effective. This transaction
was exempt from registration pursuant to Regulation D promulgated under the
Securities Act of 1933.

In July 2004, the Company issued 10,715 shares of restricted common stock at
$0.70 per share to an accredited individual for employee placement services in
the amount of $7,500. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.

In July 2004, the Company issued 6,850 shares of restricted common stock at
$0.73 per share to an accredited individual for consulting services on
opportunities for the Company's Hemopurifier(R) within the biodefense
marketplace in the amount of $5,000. This transaction was exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.

In September 2004, the Company issued 479,513 shares of restricted common stock
to an accredited investor, in conjunction with the conversion of $125,000 in
principal amount of notes, plus accrued interest, at $0.34 per share, in
accordance with their convertible note agreement (see Note 7). This transaction
was exempt from registration pursuant to Regulation D promulgated under the
Securities Act of 1933.


                                      F-29





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In November and December 2004, the Company issued 80,000 shares of restricted
common stock to an accredited individual investor in connection with the
exercise of 80,000 warrants at $0.25 per share for consideration of a $20,000
reduction in the principal amount of a 10% one-year promissory note. This
transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.

In December 2004, the Company issued 461,667 shares of restricted common stock
to two accredited individual investors in connection with the exercise of
461,667 warrants at $0.25 per share for cash totaling $115,417. This transaction
was exempt from registration pursuant to Section 4(2) of the Securities Act of
1933.

In December 2004, the Company repaid two $25,000 12% promissory notes, including
accrued interest of $17,778 each, through the issuance of 87,303 restricted
common shares at $0.49 per share to each of two separate accredited individual
investors. These transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.

In December 2004, the Company issued 60,000 shares of restricted common stock at
$0.50 per share under a consulting agreement with an accredited individual
investor, for investor relations consulting services to the Company. The fair
value of the transaction of $30,000 was recorded as deferred compensation and
presented as an offset to additional paid-in capital in the accompanying
consolidated financial statements. Such amount is being amortized to expense
over the six month term of the agreement. At March 31, 2005, $15,000 of such
amount remained unamortized. This transaction was exempt from registration
pursuant to Section 4(2) of the Securities Act of 1933. The remaining $15,000
balance in deferred consulting fees were amortized during the fiscal year ended
March 31, 2006.

In January 2005, the Company issued 55,556 shares of restricted common stock at
$0.36 per share and a warrant to purchase 55,556 shares of common stock at $0.44
per share for cash in the amount of $20,000 to an accredited individual
investor. This transaction was exempt from registration pursuant to Section
4(2)of the Securities Act of 1933.

In January 2005, the Company issued 66,666 shares of restricted common stock at
$0.45 per share to an accredited individual investor under a consulting
agreement for investor relations services to the Company. The fair value of the
transaction of $30,000 was recorded as deferred compensation and presented as an
offset to additional paid-in capital in the accompanying consolidated financial
statements. Such amount is being amortized to expense over the six month term of
the agreement. At March 31, 2005, $15,000 of such amount remained unamortized.
This transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933. The remaining $15,000 balance in deferred consulting
fees were amortized during the fiscal year ended March 31, 2006.

In January 2005, the Company issued 25,834 shares of restricted common stock to
an accredited individual investor in connection with the exercise of a warrant
to purchase 25,834 shares of common stock at $0.25 per share for cash totaling
$6,459. This transaction was exempt from registration pursuant to Section 4(2)
of the Securities Act of 1933.

In February 2005, the Company issued 139,063 shares of restricted common stock
to an accredited individual investor in connection with the exercise of a
warrant to purchase 139,063 shares of common stock at $0.25 per share for cash
totaling $34,766. This transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933.


                                      F-30





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In February 2005, the Company issued 90,000 shares of restricted common stock at
$0.27 per share and a three-year warrant to purchase 90,000 shares of common
stock at $0.34 per share for cash in the amount of $24,300 to an accredited
individual investor. This transaction was exempt from registration pursuant to
Section 4(2)of the Securities Act of 1933.

During the year ended March 31, 2005, the Company issued an additional total of
1,416,958 shares of restricted common stock at prices ranging from $0.25 to
$0.52 for total cash proceeds of approximately $541,000.

During the year ended March 31, 2005, the Company issued an additional 557,647
shares of restricted common stock at prices ranging from $0.25 to $0.55 under
various consulting service agreements for total recorded value of approximately
$196,000. All services on these agreements were completed and expensed during
the year ended March 31, 2005.

In April 2005, the Company issued 9,740 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.31 per share in payment for scientific consulting services to
the Company valued at $3,000.

In April 2005, the Company issued 25,134 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.30 per share in payment for regulatory affairs consulting
services to the Company valued at $7,500.

In April 2005, the Company issued 31,424 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.25 per share in payment for regulatory affairs consulting
services to the Company valued at $7,900.

During the year ended March 31, 2006, the Company issued 3,990,807 shares of
common stock at prices between $0.25 to and $0.76 per share to Fusion Capital
under its $6,000,000 common stock purchase agreement for cash proceeds totaling
$1,436,815. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

During the quarter ended June 30, 2005, the Company issued 95,420 shares of
common stock pursuant to the Company's S-8 registration statement covering the
Company's 2003 Consultant Stock Plan at $0.262 per share in payment for
regulatory affairs consulting services to the Company valued at $25,000.

In May 2005, the Company issued 33,228 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.25 per share in payment for regulatory affairs consulting
services to the Company valued at $8,440.

In May 2005, the Company issued 24,000 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.25 per share in payment for investor relations consulting
services to the Company valued at $6,000.

In May 2005 the Company issued 100,000 shares of common stock and a warrant to
purchase 400,000 shares of common stock at a purchase price of $0.18 per share
to an accredited investor for $17,600. This transaction was exempt from
registration pursuant to Regulation D promulgated under the Securities Act of
1933.


                                      F-31





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In May 2005, the Company issued 11,450 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.26 per share in payment for scientific consulting services to
the Company valued at $3,000.

In June 2005, the Company issued 34,352 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.26 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In June 2005, the Company issued 34,352 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.26 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In June 2005, the Company issued 11,450 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.26 per share in payment for scientific consulting services to
the Company valued at $3,000.

In June 2005, the Company issued 21,008 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.24 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In June 2005, the Company issued 836,730 shares of restricted common stock and a
three-year warrant to purchase 418,365 shares of the Company's restricted common
stock at an exercise price of $0.25 to legal counsel as an inducement to settle
accrued past due legal services payable in the amount of $167,346 which had been
expensed in the prior fiscal year. At the time of the settlement, the shares of
the Company's restricted common stock were valued at $209,183 and, using a
Black-Scholes option pricing model, the warrant was valued at $100,408. The
non-cash additional consideration of $142,245 has been recorded as professional
fees expense during the fiscal year ended March 31, 2006.

In June 2005, the Company issued 12,605 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.24 per share in payment for scientific consulting services to
the Company valued at $3,000.

During the quarter ended June 30, 2005, the Company expensed $30,000 of deferred
consulting fees, which were included in additional paid-in capital at March 31,
2005, as the related consulting services were completed.

In July 2005, the Company issued 43,479 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.23 per share in payment for regulatory affairs consulting
services to the Company valued at $10,000.

In July 2005, the Company issued 2,155 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.23 per share in payment for regulatory affairs consulting
services to the Company valued at $500.

In August 2005, the Company issued 37,863 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.23 per share in payment for regulatory affairs consulting
services to the Company valued at $8,557.


                                      F-32





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In August 2005, the Company issued 91,739 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.23 per share in payment for regulatory affairs consulting
services to the Company valued at $21,100.

In August 2005, the Company issued 21,368 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.23 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In August 2005, the Company issued 175,755 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.21 per share in payment for regulatory affairs consulting
services to the Company valued at $37,260.

In September 2005, the Company issued 27,852 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.21 per share in payment for regulatory affairs consulting
services to the Company valued at $5,738.

In October 2005, the Company issued 21,186 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.24 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In October 2005, the Company issued 35,278 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.22 per share in payment for regulatory affairs consulting
services to the Company valued at $7,620.

In November 2005, the Company issued 19,948 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.38 per share in payment for regulatory affairs consulting
services to the Company valued at $7,660.

In November 2005, the Company issued 97,662 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.37 per share in payment for regulatory affairs consulting
services to the Company valued at $36,135.

In November 2005, the Company issued 13,298 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.38 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In December 2005, the Company issued 371,847 shares of common stock to legal
counsel pursuant to the Company's S-8 registration statement covering the
Company's 2003 Consultant Stock Plan at $0.25 per share in payment of general
legal fees valued at $91,509.

In December 2005, the Company issued 73,964 shares of restricted common stock at
$0.25 per share in payment of legal fees related to capital raising transactions
valued at $18,202.


                                      F-33





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In December 2005, the Company issued 13,333 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.29 per share in payment for regulatory affairs consulting
services to the Company valued at $3,840.

In December 2005, the Company issued 15,060 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.33 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In January 2006, the Company issued 579,813 shares of restricted common stock at
$0.24 per share in payment for patent fees valued at $139,155.

In January 2006, the Company issued 66,017 shares of restricted common stock at
Prices ranging from $0.28 to $0.33 per share in payment for investor relations
valued at $20,000.

In January 2006, the Company issued 9,091 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.33 per share in payment for regulatory affairs consulting
services to the Company valued at $3,000.

In January 2006, the Company issued 13,889 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.36 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In February 2006, the Company issued 10,563 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.28 per share in payment for regulatory affairs consulting
services to the Company valued at $3,000.

In March 2006, the Company issued 17,730 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.28 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000.

In March 2006, the Company issued 79,255 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.28 per share in payment for Corporate communications consulting
services to the Company valued at $19,974.

In March 2006, the Company issued 110,040 shares of common stock to legal
counsel pursuant to the Company's S-8 registration statement covering the
Company's 2003 Consultant Stock Plan and 110,040 shares of restricted stock at
$0.39 per share in payment of general legal fees valued at $85,392.

In March 2006, the Company issued 7,275 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.49 per share in payment for regulatory affairs consulting
services to the Company.

In March 2006, the Company issued 27,284 shares of common stock to legal counsel
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment of general legal fees valued
at $9,197.


                                      F-34





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

In March 2006, the Company issued 158,046 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.33 per share in payment for regulatory affairs consulting
services to the Company valued at $52,155.

In March 2006, the Company converted a $30,000 10% promissory notes held by an
accredited individual investor, including accrued interest of $4,564, through
the issuance of 140,000 restricted common shares at $0.25 per share.

In March 2006, a $30,000 15% convertible note, including accrued interest of
$4,943, was converted at $0.20 per share for 174,716 shares of common stock.
This transaction was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.

In March 2006, the Company issued 150,000 shares of restricted common stock
under a one year investor relations consulting agreement which was valued at
$49,000 and being amortized over a one year period. Approximately $4,000 was
amortized during the year ended March 31, 2006. As a result, the remaining
balance of $44,917 represents that entire balance of deferred consulting fees
(contra equity) in accompanying consolidated balance sheet.

In March 2006, the Company issued 35,714 shares of restricted common stock
payment of professional services related to investor relations valued at
$10,000.

In March 2006, the Company issued 15,152 shares of restricted common stock at
$0.33 per share in payment of professional services related to investor
relations valued at $5,000.

In March 2006, the Company issued 33,333 shares of restricted common stock at
$0.30 per share in payment of an option agreement valued at $10,000.

In April 2006, the Company issued 3,782 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.79 per share in payment for regulatory affairs consulting
services to the Company valued at $3,000 based on the value of the services.

In April 2006, the Company issued 25,601 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.50 per share in payment for past due rents owed by the Company
valued at $12,801 based on the value of the services.

In April 2006, the Company issued 6,313 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.79 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000 based on the value of the services.

In April 2006, the Company issued 10,000 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.50 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000 based on the value of the services.

In April 2006, the Company issued 14,563 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.29 per share in payment for regulatory affairs consulting
services to the Company valued at $4,165 based on the value of the services.

In April 2006, the Company issued 3,086 shares of restricted common stock at
$0.81 per share in payment for investor relations valued at $2,500 based on the
value of the services.

During April 2006, the Company issued 209,679 shares of common stock at prices
between $0.57 and $0.74 per share to Fusion Capital under its $6,000,000 common
stock purchase agreement for net cash proceeds totaling $140,002. These shares
are registered pursuant to the Company's Form SB-2 registration statement
effective December 7, 2004.

In April 2006, the Company repaid a $25,000 15% promissory notes, including
accrued interest of $18,750, through the issuance of 107,759 restricted common
shares at $0.41 per share to an accredited individual investor. There was no
gain or loss on the extinguishment.

In May 2006, the Company issued 8,532 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.59 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000 based on the value of the services.

In May 2006, the Company issued 5,703 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.53 per share in payment for regulatory affairs consulting
services to the Company valued at $3,000 based on the value of the services.

                                       F-35





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

         In May 2006, the Company issued 4,545 shares of restricted common stock
at $0.55 per share in payment for investor relations valued at $2,500 based on
the value of the services.

         In June 2006, the Company issued 8,681 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.58 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In June 2006, the Company issued 5,703 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.53 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In June 2006, the Company issued 3,363 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.45 per share in payment for regulatory affairs
consulting services to the Company valued at $1,500 based on the value of the
services.

         In July 2006, the Company issued 8,721 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In July 2006, the Company issued 10,684 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.47 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In July 2006, the Company issued 6,250 shares of restricted common
stock at $0.40 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

         In July 2006, the Company issued 7,813 shares of restricted common
stock at $0.32 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

         In July 2006, the Company issued 8,721 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In July 2006, the Company issued 132,765 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.37 per share in payment for regulatory affairs
consulting services to the Company valued at $48,858 based on the value of the
services.

         In July 2006, the Company issued 14,535 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.34 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         During August 2006, the Company issued 113,235 shares of common stock
at prices between $0.26 and $0.27 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$30,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In August 2006, the Company issued 9,434 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In August 2006, the Company issued 86,779 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for general legal expenses
to the Company valued at $22,085 based on the value of the services.

         In August 2006, the Company issued 114,132 shares of restricted common
stock at $0.20 per share in payment for accrued accounting consulting services
provided to the Company by a third party valued at $23,111 based upon the value
of the services.

         During September 2006, the Company issued 439,936 shares of common
stock at prices between $0.25 and $0.26 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$110,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.


                                       F-36





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

         In September 2006, the Company issued 4,808 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.31 per share in payment for regulatory affairs
consulting services to the Company valued at $1,500 based on the value of the
services.

         In September 2006, the Company issued 15,723 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In September 2006, the Company issued 9,868 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.30 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In September 2006, the Company issued 16,447 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.32 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In September 2006, the Company issued 9,733 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.30 per share in payment for regulatory affairs
consulting services to the Company valued at $2,550 based on the value of the
services.

         During October 2006, the Company issued 201,165 shares of common stock
at $0.25 per share to Fusion Capital under its $6,000,000 common stock purchase
agreement for net cash proceeds totaling $50,000. These shares are registered
pursuant to the Company's Form SB-2 registration statement effective December 7,
2004.

         In October 2006, the Company issued 16,994 shares of restricted common
stock at $0.31 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

         In October 2006, the Company issued 8,929 shares of restricted common
stock at $0.28 per share in payment for investor relations services to the
Company valued at $2,500 based on the value of the services.

         In October 2006, the Company issued 18,797 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.27 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In October 2006, the Company issued 11,278 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.27 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In October 2006, the Company issued 7,540 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $1,900 based on the value of the
services.

         In November 2006, the Company issued 555,556 shares of restricted
common stock at $0.18 per share in exchange for an investment of $100,000. As an
inducement the Company also issued five-year warrants to purchase a number of
shares equal to the number of restricted shares issued converted at a fixed
exercise price of $0.18. Additionally, if the warrants are exercised prior to
November 14, 2007, the holder will receive an additional warrant on the same
terms as the warrants.

         In November 2006, the Company issued 11,905 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In November 2006, the Company issued 19,841 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.25 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         In December 2006, the Company issued 12,397 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.24 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In December 2006, the Company issued 20,661 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.24 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

                                        F-37





<PAGE>

                             AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)

         In December 2006, the Company issued 40,000 shares of restricted common
stock at $0.25 per share in exchange for license and development rights related
to certain intellectual property valued at $10,800 based on the fair market
value of the intellectual property license.

         During December 2006, the Company issued 118,360 shares of common stock
at prices between $0.25 and $0.26 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$30,000. These shares are registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In January 2007, the Company issued 15,248 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $4,300 based on the value of the
services.

         In January 2007, the Company issued 10,714 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $3,000 based on the value of the
services.

         In January 2007, the Company issued 125,091 shares of restricted common
stock at between $0.24 and $0.31 per share in payment for investor relations
services to the Company valued at $32,500 based on the value of the services.

         In January 2007, the Company issued 17,857 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.28 per share in payment for regulatory affairs
consulting services to the Company valued at $5,000 based on the value of the
services.

         During January 2007, the Company issued 782,268 shares of common stock
at prices between $0.25 and $0.273 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$200,001. These shares were registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In February 2007, the Company issued 31,394 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consultant Stock Plan at $0.255 per share in payment for general legal expenses
to the Company valued at $8,005 based on the value of the services.

         In February 2007, the Company issued 9,740 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.308 per share in payment for regulatory affairs
consultant services to the Company valued at $3,000 based on the value of the
services.

         During February 2007, the Company issued 692,751 shares of common stock
at prices between $0.28 and $0.32 per share to Fusion Capital under its
$6,000,000 common stock purchase agreement for net cash proceeds totaling
$199,998. These shares were registered pursuant to the Company's Form SB-2
registration statement effective December 7, 2004.

         In March 2007, the Company issued 15,723 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.318 per share in payment for regulatory affairs
consultant services to the Company valued at $5,000 based on the value of the
services.

         In March 2007, the Company issued 4,934 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.608 per share in payment for regulatory affairs
consultant services to the Company valued at $3,000 based on the value of the
services.

         In March 2007, the Company issued 21,078 shares of common stock
pursuant to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.51 per share in payment for regulatory affairs
consultant services to the Company valued at $10,750 based on the value of the
services.

         In March 2007, the Company issued 8,651 shares of common stock pursuant
to the Company's S-8 registration statement covering the Company's 2003
Consulting Stock Plan at $0.578 per share in payment for regulatory affairs
consultant services to the Company valued at $5,000 based on the value of the
services.

         During March 2007, the Company issued 92,379 shares of common stock at
prices between $0.36 and $0.44 per share to Fusion Capital under its $6,000,000
common stock purchase agreement for net cash proceeds totaling $36,745. These
shares were registered pursuant to the Company's Form SB-2 registration
statement effective December 7, 2004.


                                      F-38





<PAGE>
                             AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

COMMON STOCK (continued)


In March 2007, the Company issued 1,333,333 shares of common stock at $0.30 per
share to Fusion Capital for net cash proceeds of $400,000. In addition, the
Company issued 1,050,000 of common shares as a commitment fee under a common
stock purchase agreement.

On March 22, 2007 in effecting the Allonges (see "The Allonge Transactions"),
the Company amended its 10% Series A Convertible Notes to extend the maturity
date of the Notes from January 2, 2007 until January 3, 2008. The Company agreed
to pay all accrued interest, through February 15, 2007 in the form of units (the
"Units") at the rate of $0.20 per Unit (the "Interest Payment Rate"). The Notes
are convertible into Units at any time prior to the Maturity Date at the
conversion price of $0.20 per Unit (the "Conversion Price"). Each Unit is
composed of one share of the company's common stock and warrants. At March 31,
2007, the Company is obligated to issue, but has not yet issued, 685,328 "Unit
Shares" of common stock under the Allonges.

WARRANTS

During the year ended March 31, 2005, the Company granted 568,181 warrants to an
investor in connection with a commitment fee for the purchase of common stock.
The warrants have an exercise price of $0.76 per share, vest immediately and are
exercisable through May 2009. 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, 2005, the Company granted 847,727 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.76 per share, vest immediately and are exercisable through
May 2009. 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, 2005, the Company issued 113,636 warrants to
purchase common stock for $0.76 per share, which are exercisable through May
2009 and vested upon grant. The warrants were issued in connection with the
conversion of notes payable (see Notes 7 and 8). 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, 2005, the Company issued 225,000 warrants to
purchase common stock for $0.76 per share, which are exercisable through May
2009 and vested upon grant. The warrants were issued in connection with common
stock issued for legal services expense totaling $99,000 (see "Common Stock"
above).

During the year ended March 31, 2005, the Company issued 260,000 warrants to
purchase common stock for $0.50 per share, which vested upon grant and expire in
October 2007. The warrants were issued in connection with the issuance of notes
payable (see Note 7). These warrants were valued using the Black Scholes option
pricing model; the relative pro-rata estimated fair value is being amortized to
interest expense over the life of the notes.

During the year ended March 31, 2005, the Company issued 144,443 warrants to
purchase common stock for $0.90 per share, which vested upon grant and expire in
October 2007. The warrants were issued in connection with the issuance of notes
payable (see Note 7). These warrants were valued using the Black Scholes option
pricing model; the relative pro-rata estimated fair value was amortized to
interest expense over the life of the notes.

During the year ended March 31, 2005, the Company granted 55,556 warrants to An
investor in connection with the purchase of common stock. The warrants have an
exercise price of $0.44 per share, vest immediately and are exercisable through
January 2008. 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, 2005, the Company granted 90,000 warrants to
investors in connection with the purchase of common stock. The warrants have an
exercise price of $0.34 per share, vest immediately and are exercisable through
February 2008. 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", 1,206,564 warrants with an exercise price of
$0.25 per share, which were granted to investors in connection with the purchase
of common stock, were exercised during the year ended March 31, 2005.


                                      F-39





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

WARRANTS (continued)

On May 16, 2005, the Company granted 100,000 warrants to an accredited investor
in connection with the purchase of 100,000 restricted common shares for $17,600.
the warrants have an exercise price of $0.176 and are exercisable through May
2008.

On May 16, 2005, the Company granted 300,000 warrants to Fusion Capital Fund II,
LLC in connection with the issuance of a 15% Convertible Note. The warrants have
an exercise price of $0.25 per share and are exercisable through May 2010.

On May 27, 2005, the Company granted 400,000 warrants to an accredited investor
in connection with the issuance of a $100,000 12% note payable. The warrants had
an exercise price of $0.25 and expired on May 27, 2006.

On June 27, 2005, the Company granted three-year warrants to purchase 418,365
shares of the Company's restricted common stock at an exercise price of $0.25 to
legal counsel as an inducement to settle accrued past due legal services
payable.

From July 11, 2006 through December 14, 2005, the Company granted three-year
warrants to purchase 5,000,000 shares of common stock to the holders of an
aggregate of $1,000,000 in 10% Series A Convertible Notes. The warrants have an
exercise price of $0.20 and will be issued upon conversion of the underlying 10%
Series A Convertible Notes.

On March 31, 2006, as an inducement to exercise 568,181 warrants at an exercise
price of $0.76 per share, the Company issued five-year replacement warrants in
like amount to Fusion Capital Fund II, LLC. The 568,181 replacement warrants
have an exercise price of $0.76. Such warrants were valued using Binomial Option
Pricing model and such vale was insignificant.

On November 14, 2006, in conjunction with the purchase of 555,556 shares of the
Company's restricted common stock, the Company granted five-year non-cashless
warrants to purchase 555,556 shares of restricted common stock at an exercise
price of $0.18. If such warrants are exercised on or before November 14, 2007,
the warrant holder will receive five-year non-cashless warrants to purchase an
additional 555,556 shares of restricted common stock at an exercise price of
$0.18.

On December 15, 2006, as an inducement to enter into a $100,000 10% convertible
note, the Company granted noteholders five-year non-cashless warrants to
purchase 294,118 shares of restricted common stock at an exercise price of
$0.17. If such warrants are exercised on or before December 15, 2007, the
noteholders will receive five-year non-cashless warrants to purchase an
additional 294,118 shares of restricted common stock at an exercise price of
$0.17.

On March 22, 2007 in effecting the Allonges, the Company amended its 10% Series
A Convertible Notes to extend the maturity date of the Notes from January 2,
2007 until January 3, 2008. The Company will also pay all accrued interest,
through February 15, 2007 and each calendar quarter thereafter, in the form of
units (the "Units")at the rate of $0.20 per Unit (the "Interest Payment Rate").
The Notes are convertible into Units at any time prior to the Maturity Date at
the conversion price of $0.20 per Unit (the "Conversion Price"). Each Unit is
composed of one share of the Company's Common Stock and one Class A Common Stock
Purchase Warrant (the "Class A Warrant"). Each Class A Warrant expires on
January 2, 2011 and is exercisable to purchase one share of Common Stock at a
price of $0.20 per share (the "Exercise Price"). If the Holder exercises Class A
Warrants on or before July 3, 2008, the Company will issue the Holder one Class
B Common Stock Purchase Warrant (the "Class B Warrant" and with the Class A
Warrant, collectively, the "Warrants") for every two Class A Warrants exercised.
Each Class B Warrant has a three-year term and is exercisable to purchase one
share of Common Stock at a price equal to the greater of $0.20 per share or 75%
of the average of the closing bid prices of the Common Stock for the five
trading days immediately preceding the date of the notice of conversion. Class A
Warrants to purchase 685,328 shares of Common Stock and Class B Warrants to
purchase 342,665 shares of Common Stock were granted under the Allonges.




                                      F-40





<PAGE>
                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

WARRANTS (continued)

A summary of the aggregate warrant activity for the years ended March 31, 2007
and 2006 is presented below:

<TABLE>
<S>       <C>
                                                Year Ended March 31,
                                 -----------------------------------------------------
                                          2007                         2006
                                 -------------------------   -------------------------
                                                Weighted                    Weighted
                                            Average Exercise            Average Exercise
                                   Warrants       Price        Warrants       Price
                                 -----------   -----------   -----------   -----------

Outstanding, beginning of year     3,791,908     $   0.61     2,833,834     $   0.91
      Granted                      1,535,002     $   0.19     1,786,546         0.41
      Exercised                     (160,000)    $   0.50      (568,182)        0.76
Cancelled/Forfeited                 (669,000)    $   0.72      (260,290)        3.30
                                  -----------    ---------    ----------    ---------

Outstanding, end of year           4,479,910     $   0.46     3,791,908     $   0.61
                                  ===========    =========    ==========    =========

Exercisable, end of year           4,479,910     $   0.46     3,791,908     $   0.61
                                  ===========    =========    ==========    =========

Weighted average estimated fair
  value of warrants granted                      $   0.29                   $   0.23
                                                 =========                  =========

The following outlines the significant weighted average assumptions used to
estimate the fair value information presented utilizing the Black-Scholes and
Binomial Lattice option pricing models:


                                        Years Ended March 31,
                                         2007          2006
                                      -----------   -----------
Risk free interest rate               4.47%-4.57%    4.18%-4.3%
Average expected life                  4.4 years      3 years
Expected volatility                  90.7% - 93.4%   72% - 97%
Expected dividends                                      None


The detail of the warrants outstanding and exercisable as of March 31, 2007 is
as follows:

                                         Warrants Outstanding                Warrants Exercisable
                               ---------------------------------------   --------------------------
                                                 Weighted     Weighted                     Weighted
                                                 Average       Average                      Average
                                   Number       Remaining     Exercise        Number       Exercise
Range of Exercise Prices        Outstanding   Life (Years)      Price      Outstanding       Price
- ---------------------------   -------------- ------------- ----------   --------------- ----------

     $0.17 - $0.20               1,635,002          4.07      $  0.19       1,635,002      $  0.19
     $0.25 - $0.44                 863,921          1.81      $  0.27         863,921      $  0.27
     $0.50 - $0.90               1,998,987          3.00      $  0.76       1,998,987      $  0.76
                               --------------                            ---------------
                                 4,497,910                                  4,497,910
                               ==============                            ===============
</TABLE>



                                                F-41





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

OPTIONS

At March 31, 2007 the Company had issued 1,337,825 options to outside directors
and 3,965,450 options to employee-directors under the 2005 Directors
Compensation Program.

From time to time, the Company's 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 the Company's formal stock plans. The terms
of these grants are individually negotiated.

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). At March 31, 2007, the Company had granted 47,500 options under
the 2000 Stock Option Plan of which 15,000 had been forfeited, with 467,500
available for future issuance.

In March 2002, the Board of Directors granted the Company's Chief Executive
Officer ("CEO") and Chief Scientific Officer ("CSO") 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 of the underlying common stock at
grant date) and expire March 2012. Awards are earned upon achievement of certain
financial and/or research and development milestones. On July 1, 2005, the
Company's CEO forfeited all of his aforementioned 250,000 options.

In February 2005, the Board of Directors granted the Company's Chief Executive
Officer ("CEO")and Chief Scientific Officer ("CSO") non-qualified stock options
to purchase up to 2,231,100 and 1,734,350 shares of common stock, respectively,
at an exercise price of $0.38 per share and vest fifty percent immediately,
twenty-five percent in December 2005 and twenty-five percent in December 2006.
In addition Mr. Calvin Leung, a board member, was granted non-qualified stock
options to purchase up to 308,725 shares at $0.38 that vest fifty percent
immediately, twenty-five percent in December 2005 and twenty-five percent in
December 2006. Messrs. Franklyn S Barry and Edward G Broenniman, board members,
were each granted non-qualified stock options to purchase up to 514,550 shares
at $0.38 that vest forty percent immediately, twenty-five percent in December
2005 and twenty-five percent in December 2006. All of these options granted
expire in 2010 and 2011 and were granted at a price that was $0.08 below the
estimated fair value of the underlying common stock on the date of grant.
Accordingly, the Company recorded approximately $424,000 of compensation expense
in the accompanying consolidated statement of operations for the year ended
March 31, 2005.

On September 9, 2005, the Company granted 2,857,143 options to James A. Joyce,
its Chief Executive Officer, in exchange for $300,000 of accrued related-party
liabilities. The fair value of such options approximated the value of the
accrued related-party liability.


                                      F-42





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

7. EQUITY TRANSACTIONS (continued)

OPTIONS (continued)

The following is a summary of the stock options outstanding at March 31, 2007
and 2006 and the changes during the two years then ended:

<TABLE>
<S>       <C>
                                               Year Ended March 31,
                                 -----------------------------------------------------
                                            2007                       2006
                                 -------------------------   -------------------------
                                                 Weighted                     Weighted
                                                 Average                      Average
                                                 Exercise                     Exercise
                                   Options        Price         Options        Price
                                 -----------   -----------    -----------   -----------

Outstanding, beginning of year   9,012,785     $    0.38       6,679,390     $    0.80
      Granted                      500,000          0.27       3,357,143          0.21
      Exercised                         --            --              --            --
      Cancelled/Forfeited         (308,725)         2.74      (1,023,748)            --
                                 -----------   -----------    -----------    ----------

Outstanding, end of year         9,204,060     $    0.38       9,012,785     $    0.38
                                 ===========   ===========    ===========    ==========

Exercisable, end of year         8,369,060     $    0.39       7,135,518     $    0.39
                                 ===========   ===========    ===========    ==========

Weighted average estimated fair
  value of options granted                     $    0.23                     $    0.12
                                               ===========                   ==========

The following outlines the significant weighted average assumptions used to
estimate the fair value information presented utilizing the Binomial Lattice
option pricing model for the years ended March 31, 2007 and March 31, 2006:

Years Ended March 31,
                                         2007          2006
                                      -----------   -----------
Risk free interest rate                 4.84%          4.18%
Average expected life                 10 years      4.7 years
Expected volatility                      92%            72%
Expected dividends                      None           None

The detail of the options outstanding and exercisable as of March 31, 2007 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
                                --------------- ------------- ------------ --------------- ---------

    $0.21 - $0.23                3,357,143      7.39 years      $ 0.21       3,022,143        $ 0.21
        $0.38                    5,494,550      4.15 years      $ 0.37       4,994,550        $ 0.38
    $1.78 - $3.75                  352,367      4.57 years      $ 2.02         352,367        $ 2.02
                                -----------                                 ----------
                                 9,204,060                                   8,369,060
                                ===========                                 ==========


                                               F-43
</TABLE>





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

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.

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, 2007 and 2006 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:

                                                        2007            2006
                                                     ----------      ----------
Computed "expected" tax benefit                      $(2,048,000)   $  (993,000)

Reduction in income taxes resulting from:
    Derivative expense                                   718,000        122,000
    Debt extinguishment                                  414,000             --
    Change in deferred tax assets valuation
      allowance                                        1,078,000      1,024,000
    State and local income taxes,
      net of federal benefit                            (162,000)      (153,000)
    Other                                                     --             --
                                                     -----------    -----------
                                                     $        --    $        --
                                                     ===========    ===========

The tax effects of temporary differences that give rise to significant portions
of deferred tax assets at March 31, 2007 are presented below:

Deferred tax assets:
    Net operating loss carryforwards                                $ 5,210,000
    Capitalized research and development                              2,670,000
    Other                                                               136,000
                                                                    -----------
        Total gross deferred tax assets                               8,016,000

        Less valuation allowance                                     (8,016,000)
                                                                    -----------
        Net deferred tax assets                                     $        --
                                                                    ===========

The valuation allowance increased by $1,078,000 and $1,024,000 during the years
ended March 31, 2007 and 2006, respectively. The current provision for income
taxes for the years ended March 31, 2007 and 2006 is not significant and due
primarily to certain state taxes. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during the periods in which temporary differences become
deductible. Management considers projected future taxable income and tax
planning strategies in making this assessment. Based upon the history of
operating losses, management believes it is more likely than not the Company
will not realize the benefits of these deductible differences. A full reduction
allowance has been recorded to offset 100% of the deferred tax asset.

As of March 31, 2007, the Company had tax net operating loss carryforwards of
approximately $13,600,000 and $8,307,000 available to offset future taxable
Federal and state income, respectively. The carryforward amounts expire in
various years through 2026. In the event the Company were to experience a
greater than 50% change in ownership as defined in Section 382 of the Internal
Revenue Code, the utilization of the Company's tax net operating loss
carryforwards could be severely restricted.


                                      F-44





<PAGE>

                              AETHLON MEDICAL, INC.
                          (A DEVELOPMENT STAGE COMPANY)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2007
- --------------------------------------------------------------------------------

10. COMMITMENTS AND CONTINGENCIES

EMPLOYMENT CONTRACTS

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. Effective January 1,
2005, the CEO's salary was increased from $180,000 to $205,000 per year. The CEO
is eligible for an annual bonus at the discretion of the Board of Directors, of
which $0 and $20,000 was earned during each of the years ended March 31, 2007
and 2006, 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. Effective April 1, 2006,the
CEO's salary was increased from $205,000 to $240,000 per year.

The Company entered into an employment agreement with Dr. Tullis effective
January 10, 2000. Effective June 1, 2001, Dr. Tullis was appointed the Company's
Chief Science Officer of the Company. His compensation under the agreement was
modified in June 2001 from $80,000 to $150,000 per year. Effective January 1,
2005 Dr. Tullis' salary was increased from $150,000 to $165,000 per year Under
the terms of the agreement, his employment continues at a salary of $165,000 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 the Company's 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. 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 twelve months base salary. Effective April 1, 2006, the CSO's
salary was increased from $165,000 per year to $185,000 per year.

LEASE COMMITMENTS

The Company leases its office and research and development space under an
operating lease agreement which expires in July 2006. The Company signed an 12
month extension of its existing lease on substantially the same terms as its
present lease. Minimum monthly payments under the new extension approximate
$7,700.

Rent expense approximated $105,000 and $126,000 for the years ended March 31,
2007 and 2006, respectively.



                                      F-45


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.42
<SEQUENCE>2
<FILENAME>aethlon_10kex10-42.txt
<DESCRIPTION>COMMON STOCK PURCHASE AGR
<TEXT>
<PAGE>


                                                                   Exhibit 10.42

                         COMMON STOCK PURCHASE AGREEMENT

         COMMON STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of March
21, 2007, by and between AETHLON MEDICAL, INC., a Nevada corporation (the
"Company"), and FUSION CAPITAL FUND II, LLC, an Illinois limited liability
company (the "Buyer"). Capitalized terms used herein and not otherwise defined
herein are defined in Section 10 hereof.

                                    WHEREAS:

         Subject to the terms and conditions set forth in this Agreement, the
Company wishes to sell to the Buyer, and the Buyer wishes to buy from the
Company, up to Eight Million Four Hundred Thousand Dollars ($8,400,000.00) of
the Company's common stock, par value $0.001 per share (the "Common Stock") The
shares of Common Stock to be purchased hereunder are referred to herein as the
"Purchase Shares."

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

         1.       PURCHASE OF COMMON STOCK.

         Subject to the terms and conditions set forth in this Agreement, the
Company has the right to sell to the Buyer, and the Buyer has the obligation to
purchase from the Company, Purchase Shares as follows:

         (a) INITIAL PURCHASE; COMMENCEMENT OF BASE AND BLOCK PURCHASES OF
COMMON STOCK. On the Filing Date (as defined in Section 4(a) hereof), the Buyer
shall buy from the Company as of such date Four Hundred Thousand Dollars
($400,000.00) of Purchase Shares (the "Initial Purchase" and such Purchase
Shares are referred to herein as the "Initial Purchase Shares") at the lesser of
(i) the Purchase Price as of the Business Day prior to the Filing Date, or (ii)
$0.30. The Initial Purchase Shares shall be issued in certificated form and
(subject to Section 5 hereof) shall bear only the restrictive legend set forth
in Section 4(e) hereof. Thereafter, the purchase and sale of Purchase Shares
hereunder shall occur from time to time upon written notices by the Company to
the Buyer on the terms and conditions as set forth herein following the
satisfaction of the conditions (the "Commencement") as set forth in Sections 6
and 7 below (the date of satisfaction of such conditions, the "Commencement
Date").

         (b) THE COMPANY'S RIGHT TO REQUIRE PURCHASES. Any time on or after the
Commencement Date, the Company shall have the right but not the obligation to
direct the Buyer by its delivery to the Buyer of Base Purchase Notices from time
to time to buy Purchase Shares (each such purchase a "Base Purchase") in any
amount up to Thirty Two Thousand Dollars ($32,000.00) per Base Purchase Notice
(the "Base Purchase Amount") at the Purchase Price on the Purchase Date. The
Company may deliver multiple Base Purchase Notices to the Buyer so long as at
least two (2) Business Days have passed since the most recent Base Purchase was
completed. Notwithstanding the forgoing, any time on or after the Commencement
Date, the Company shall also have the right but not the obligation by its
delivery to the Buyer of Block Purchase Notices from time to time to direct the
Buyer to buy Purchase Shares (each such purchase a "Block Purchase") in any
amount up to One Million Dollars ($1,000,000.00) per Block Purchase Notice at
the Block Purchase Price on the Purchase Date as provided herein. For a Block
Purchase Notice to be valid the following conditions must be met: (1) the Block
Purchase Amount shall not exceed Fifty Thousand Dollars ($50,000.00) per Block
Purchase Notice, (2) the Company must deliver the Purchase Shares before 11:00
a.m. eastern time on the Purchase Date and (3) the Sale Price of the Common
Stock must not be below $0.30 (subject to equitable adjustment for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction) during the Purchase Date, the date of the delivery of the
Block Purchase Notice and during the Business Day prior to the delivery of the
Block Purchase Notice. The Block Purchase Amount may be increased to up to One
Hundred Thousand Dollars ($100,000.00) per Block Purchase Notice if the Sale
Price of the Common Stock is not below $0.40 (subject to equitable adjustment
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction) during the Purchase Date, the date of the delivery of
the Block Purchase Notice and during the Business Day prior to the delivery of
the Block Purchase Notice. The Block Purchase Amount may be increased to up to
Two Hundred Thousand Dollars ($200,000.00) per Block Purchase Notice if the Sale
Price of the Common Stock is not below $0.55 (subject to equitable adjustment
for any reorganization, recapitalization, non-cash dividend, stock split or
other similar transaction) during the Purchase Date, the date of the delivery of
the Block Purchase Notice and during the Business Day prior to the delivery of
the Block Purchase Notice. The Block Purchase Amount may be increased to up to
Four Hundred Thousand Dollars ($400,000.00) per Block Purchase Notice if the
Sale Price of the Common Stock is not below $0.70 (subject to equitable


                                       1
<PAGE>

adjustment for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) during the Purchase Date, the date of the
delivery of the Block Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. The Block Purchase Amount may be
increased to up to One Million Dollars ($1,000,000.00) per Block Purchase Notice
if the Sale Price of the Common Stock is not below $1.50 (subject to equitable
adjustment for any reorganization, recapitalization, non-cash dividend, stock
split or other similar transaction) during the Purchase Date, the date of the
delivery of the Block Purchase Notice and during the Business Day prior to the
delivery of the Block Purchase Notice. As used herein, the term "Block Purchase
Price" shall mean the lesser of (i) the lowest Sale Price of the Common Stock on
the Purchase Date or (ii) the lowest Purchase Price during the previous seven
(7) Business Days prior to the date that the valid Block Purchase Notice was
received by the Buyer. However, if at any time during the Purchase Date, the
date of the delivery of the Block Purchase Notice or during the Business Day
prior to the delivery of the Block Purchase Notice, the Sale Price of the Common
Stock is below the applicable Block Purchase threshold price, such Block
Purchase shall be void and the Buyer's obligations to buy Purchase Shares in
respect of that Block Purchase Notice shall be terminated. Thereafter, the
Company shall again have the right to submit a Block Purchase Notice as set
forth herein by delivery of a new Block Purchase Notice only if the Sale Price
of the Common Stock is above the applicable Block Purchase threshold price
during the date of the delivery of the Block Purchase Notice and during the
Business Day prior to the delivery of the Block Purchase Notice. The Company may
deliver multiple Block Purchase Notices to the Buyer so long as at least two (2)
Business Days have passed since the most recent Block Purchase was completed.

         (c) PAYMENT FOR PURCHASE SHARES. The Buyer shall pay to the Company an
amount equal to the Purchase Amount with respect to such Purchase Shares as full
payment for such Purchase Shares via wire transfer of immediately available
funds on the same Business Day that the Buyer receives such Purchase Shares if
they are received by the Buyer before 11:00 a.m. eastern time or if received by
the Buyer after 11:00 a.m. eastern time, the next Business Day. The Company
shall not issue any fraction of a share of Common Stock upon any purchase. If
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share. All payments made under this Agreement shall be
made in lawful money of the United States of America or wire transfer of
immediately available funds to such account as the Company may from time to time
designate by written notice in accordance with the provisions of this Agreement.
Whenever any amount expressed to be due by the terms of this Agreement is due on
any day that is not a Business Day, the same shall instead be due on the next
succeeding day that is a Business Day.

         (d) PURCHASE PRICE FLOOR. The Company and the Buyer shall not effect
any sales under this Agreement on any Purchase Date where the Purchase Price for
any purchases of Purchase Shares would be less than the Floor Price. "Floor
Price" means $0.25, which shall be appropriately adjusted for any
reorganization, recapitalization, non-cash dividend, stock split or other
similar transaction.

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

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


         2. BUYER'S REPRESENTATIONS AND WARRANTIES.

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

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

                                       2
<PAGE>

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

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

         (d) INFORMATION. The Buyer has been furnished with all materials
relating to the business, finances and operations of the Company and materials
relating to the offer and sale of the Securities that have been reasonably
requested by the Buyer, including, without limitation, the SEC Documents (as
defined in Section 3(f) hereof). The Buyer understands that its investment in
the Securities involves a high degree of risk. The Buyer (i) is able to bear the
economic risk of an investment in the Securities including a total loss, (ii)
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
Securities and (iii) has had an opportunity to ask questions of and receive
answers from the officers of the Company concerning the financial condition and
business of the Company and others matters related to an investment in the
Securities. Neither such inquiries nor any other due diligence investigations
conducted by the Buyer or its representatives shall modify, amend or affect the
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. The Buyer has sought such accounting, legal and tax advice
as it has considered necessary to make an informed investment decision with
respect to its acquisition of the Securities.

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

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

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

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

         (i) NO PRIOR SHORT SELLING. The Buyer represents and warrants to the
Company that at no time prior to the date of this Agreement has any of the
Buyer, its agents, representatives or affiliates engaged in or effected, in any
manner whatsoever, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the Securities Exchange Act of
1934, as amended (the "1934 Act")) of the Common Stock or (ii) hedging
transaction, which establishes a net short position with respect to the Common
Stock.

                                       3
<PAGE>

         3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

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

         (a) ORGANIZATION AND QUALIFICATION. The Company and its "Subsidiaries"
(which for purposes of this Agreement means any entity in which the Company,
directly or indirectly, owns 50% or more of the voting stock or capital stock or
other similar equity interests) are corporations duly organized and validly
existing in good standing under the laws of the jurisdiction in which they are
incorporated, and have the requisite corporate power and authority to own their
properties and to carry on their business as now being conducted. Each of the
Company and its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership of
property or the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing could not reasonably be expected to have a Material Adverse
Effect. As used in this Agreement, "Material Adverse Effect" means any material
adverse effect on any of: (i) the business, properties, assets, operations,
results of operations or financial condition of the Company and its
Subsidiaries, if any, taken as a whole, or (ii) the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
in Section 3(b) hereof). The Company has no Subsidiaries except as set forth on
Schedule 3(a).

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

         (c) CAPITALIZATION. As of the date hereof, the authorized capital stock
of the Company consists of (i) 100,000,000 shares of Common Stock, of which as
of the date hereof, 29,423,874 shares are issued and outstanding, none are held
as treasury shares, 500,000 shares are reserved for issuance pursuant to the
Company's stock option plans of which 467,500 shares remain available for future
grants and 20,021,809 shares are issuable and reserved for issuance pursuant to
securities (other than stock options issued pursuant to the Company's stock
option plans) exercisable or exchangeable for, or convertible into, shares of
Common Stock and (ii) no shares of Preferred Stock are issued and outstanding.
All of such outstanding shares have been, or upon issuance will be, validly
issued and are fully paid and nonassessable. Except as disclosed in Schedule
3(c), (i) no shares of the Company's capital stock are subject to preemptive


                                       4
<PAGE>

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

         (d) ISSUANCE OF SECURITIES. The Commitment Shares and the Initial
Purchase Shares have been duly authorized and, upon issuance (and payment
therefor in the case of the Initial Purchase Shares) in accordance with the
terms hereof, the Commitment Shares and Initial Purchase Shares shall be (i)
validly issued, fully paid and non-assessable and (ii) free from all taxes,
liens and charges with respect to the issue thereof. 6,000,000 shares of Common
Stock have been duly authorized and reserved for issuance as Purchase Shares
under this Agreement after the Commencement. Upon issuance and payment therefor
in accordance with the terms and conditions of this Agreement, the Purchase
Shares shall be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.

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


                                       5
<PAGE>

disclosed in Schedule 3(e), neither the Company nor any of its Subsidiaries is
in violation of any term of or is in default under any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
Subsidiaries, except for possible conflicts, defaults, terminations or
amendments which could not reasonably be expected to have a Material Adverse
Effect. The business of the Company and its Subsidiaries is not being conducted,
and shall not be conducted, in violation of any law, ordinance, regulation of
any governmental entity, except for possible violations, the sanctions for which
either individually or in the aggregate could not reasonably be expected to have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act or applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self-regulatory agency in order for it to execute, deliver or
perform any of its obligations under or contemplated by the Transaction
Documents in accordance with the terms hereof or thereof. Except as disclosed in
Schedule 3(e), all consents, authorizations, orders, filings and registrations
which the Company is required to obtain pursuant to the preceding sentence shall
be obtained or effected on or prior to the Commencement Date. Except as listed
in Schedule 3(e), since January 1, 2006, the Company has not received nor
delivered any notices or correspondence from or to the Principal Market. The
Principal Market has not commenced any delisting proceedings against the
Company.

         (f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Except as disclosed in
Schedule 3(f), since January 1, 2006,, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the 1934 Act (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the "SEC Documents"). As of
their respective dates (except as they have been correctly amended), the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC (except as they may have been properly amended), contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates (except as they have been properly amended), the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto or (ii)
in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as listed in Schedule 3(f), the Company has received no
notices or correspondence from the SEC since January 1, 2006. The SEC has not
commenced any enforcement proceedings against the Company or any of its
subsidiaries.

         (g) ABSENCE OF CERTAIN CHANGES. Except as disclosed in Schedule 3(g),
since January 1, 2007, there has been no material adverse change in the
business, properties, operations, financial condition or results of operations
of the Company or its Subsidiaries. The Company has not taken any steps, and
does not currently expect to take any steps, to seek protection pursuant to any
Bankruptcy Law nor does the Company or any of its Subsidiaries have any
knowledge or reason to believe that its creditors intend to initiate involuntary
bankruptcy or insolvency proceedings. The Company is financially solvent and is
generally able to pay its debts as they become due.

                                       6
<PAGE>

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

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

         (j) NO GENERAL SOLICITATION. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.

          (k) INTELLECTUAL PROPERTY RIGHTS. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all material trademarks, trade
names, service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(k), none of the
Company's material trademarks, trade names, service marks, service mark
registrations, service names, patents, patent rights, copyrights, inventions,
licenses, approvals, government authorizations, trade secrets or other
intellectual property rights have expired or terminated, or, by the terms and
conditions thereof, could expire or terminate within two years from the date of
this Agreement. The Company and its Subsidiaries do not have any knowledge of
any infringement by the Company or its Subsidiaries of any material trademark,
trade name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or other
similar rights of others, or of any such development of similar or identical
trade secrets or technical information by others and, except as set forth on
Schedule 3(k), there is no claim, action or proceeding being made or brought
against, or to the Company's knowledge, being threatened against, the Company or
its Subsidiaries regarding trademark, trade name, patents, patent rights,
invention, copyright, license, service names, service marks, service mark
registrations, trade secret or other infringement, which could reasonably be
expected to have a Material Adverse Effect.

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

                                       7
<PAGE>

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

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

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

         (p) TAX STATUS. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other material tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provision reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount claimed
to be due by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.

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

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

                                       8
<PAGE>

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


         4. COVENANTS.

         (a) FILING OF FORM 8-K AND REGISTRATION STATEMENT. The Company agrees
that it shall, within the time required under the 1934 Act file a Report on Form
8-K disclosing this Agreement and the transaction contemplated hereby. The
Company shall also file within ten (10) Business Days from the date hereof a new
registration statement covering only the sale of the Commitment Shares and
7,333,333 Purchase Shares (which includes the 1,333,333 Initial Purchase Shares)
in accordance with the terms of the Registration Rights Agreement between the
Company and the Buyer, dated as of the date hereof ("Registration Rights
Agreement"). After such registration statement is declared effective by the SEC,
the Company agrees and acknowledges that any sales by the Company to the Buyer
pursuant to this Agreement are sales of the Company's equity securities in a
transaction that is registered under the 1933 Act.

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

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

         (d) LIMITATION ON SHORT SALES AND HEDGING TRANSACTIONS. The Buyer
agrees that beginning on the date of this Agreement and ending on the date of
termination of this Agreement as provided in Section 11(k), the Buyer and its
agents, representatives and affiliates shall not in any manner whatsoever enter
into or effect, directly or indirectly, any (i) "short sale" (as such term is
defined in Section 242.200 of Regulation SHO of the 1934 Act) of the Common
Stock or (ii) hedging transaction, which establishes a net short position with
respect to the Common Stock.

         (e) ISSUANCE OF COMMITMENT SHARES; LIMITATION ON SALES OF COMMITMENT
SHARES. Immediately upon the execution of this Agreement, the Company shall
issue to the Buyer as consideration for the Buyer entering into this Agreement
1,050,000 shares of Common Stock (the "Commitment Shares"). The Commitment
Shares shall be issued in certificated form and (subject to Section 5 hereof)
shall bear the following restrictive legend and no other restrictive legend:

                                       9
<PAGE>

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
         SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
         MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
         LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR (2) AN OPINION OF HOLDER'S COUNSEL, IN A CUSTOMARY
         FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
         STATE SECURITIES LAWS.

         The Buyer agrees that the Buyer shall not transfer or sell the
Commitment Shares until the earlier of 500 Business Days (25 Monthly Periods)
from the date hereof or the date on which this Agreement has been terminated,
provided, however, that such restrictions shall not apply: (i) in connection
with any transfers to or among affiliates (as defined in the 1934 Act), (ii) in
connection with any pledge in connection with a bona fide loan or margin
account, (iii) in the event that the Commencement does not occur on or before
July 1, 2007, due to the failure of the Company to satisfy the conditions set
forth in Section 7 or (iv) if an Event of Default has occurred, or any event
which, after notice and/or lapse of time, would become an Event of Default,
including any failure by the Company to timely issue Purchase Shares under this
Agreement. Notwithstanding the forgoing, the Buyer may transfer Commitment
Shares to a third party in order to settle a sale made by the Buyer where the
Buyer reasonably expects the Company to deliver Purchase Shares to the Buyer
under this Agreement so long as the Buyer maintains ownership of the same
overall number of shares of Common Stock by "replacing" the Commitment Shares so
transferred with Purchase Shares when the Purchase Shares are actually issued by
the Company to the Buyer.

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


         5.       TRANSFER AGENT INSTRUCTIONS.

         Immediately upon the execution of this Agreement, the Company shall
deliver to the Transfer Agent a letter in the form as set forth as EXHIBIT E
attached hereto with respect to the issuance of the Commitment Shares. On the
Commencement Date, the Company shall cause any restrictive legend on the
Commitment Shares and the Initial Purchase Shares to be removed and all of the
remaining Purchase Shares to be issued under this Agreement shall be issued
without any restrictive legend unless the Buyer expressly consents otherwise.
The Company shall issue irrevocable instructions to the Transfer Agent, and any
subsequent transfer agent, to issue Purchase Shares in the name of the Buyer for
the Purchase Shares (the "Irrevocable Transfer Agent Instructions"). The Company
warrants to the Buyer that no instruction other than the Irrevocable Transfer
Agent Instructions expressly referred to in this Agreement, will be given by the
Company to the Transfer Agent with respect to the Purchase Shares and that the
Commitment Shares and the Purchase Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Registration Rights Agreement subject to the provisions of
Section 4(e) in the case of the Commitment Shares.

                                       10
<PAGE>

         6.       CONDITIONS TO THE COMPANY'S RIGHT TO COMMENCE
                  SALES OF SHARES OF COMMON STOCK UNDER THIS AGREEMENT.

         The right of the Company hereunder to commence sales of the Purchase
Shares is subject to the satisfaction of each of the following conditions on or
before the Commencement Date (the date that the Company may begin sales):

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

         (b)      A registration statement covering the sale of all of the
                  Commitment Shares and Purchase Shares shall have been declared
                  effective under the 1933 Act by the SEC and no stop order with
                  respect to the registration statement shall be pending or
                  threatened by the SEC.


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

         The obligation of the Buyer to buy Purchase Shares under this Agreement
is subject to the satisfaction of each of the following conditions on or before
the Commencement Date (the date that the Company may begin sales) and once such
conditions have been initially satisfied, there shall not be any ongoing
obligation to satisfy such conditions after the Commencement has occurred:

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

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

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

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

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

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

         (g) As of the Commencement Date, the Company shall have reserved out of
its authorized and unissued Common Stock, solely for the purpose of effecting
purchases of Purchase Shares hereunder, 7,333,333 shares of Common Stock
including the Initial Purchase Shares;

                                       11
<PAGE>

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

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

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

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

         (l) A registration statement covering the sale of all of the Commitment
Shares and Purchase Shares shall have been declared effective under the 1933 Act
by the SEC and no stop order with respect to the registration statement shall be
pending or threatened by the SEC. The Company shall have prepared and delivered
to the Buyer a final and complete form of prospectus, dated and current as of
the Commencement Date, to be used by the Buyer in connection with any sales of
any Commitment Shares or any Purchase Shares, and to be filed by the Company one
Business Day after the Commencement Date. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Commitment Shares and the Purchase Shares
pursuant to this Agreement in compliance with such laws;

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

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

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


         8. INDEMNIFICATION.

         In consideration of the Buyer's execution and delivery of the
Transaction Documents and acquiring the Securities hereunder and in addition to
all of the Company's other obligations under the Transaction Documents, the
Company shall defend, protect, indemnify and hold harmless the Buyer and all of
its affiliates, shareholders, officers, directors, employees and direct or
indirect investors and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Indemnitees") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,


                                       12
<PAGE>

agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document contemplated hereby or thereby, or
(c) any cause of action, suit or claim brought or made against such Indemnitee
and arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, other than with respect to Indemnified
Liabilities which directly and primarily result from the gross negligence or
willful misconduct of the Indemnitee. To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.


         9.       EVENTS OF DEFAULT.

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

         (a) while any registration statement is required to be maintained
effective pursuant to the terms of the Registration Rights Agreement, the
effectiveness of such registration statement lapses for any reason (including,
without limitation, the issuance of a stop order) or is unavailable to the Buyer
for sale of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of five (5)
consecutive Business Days or for more than an aggregate of twenty (20) Business
Days in any 365-day period;

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

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

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

         (e) the Company breaches any representation, warranty, covenant or
other term or condition under any Transaction Document if such breach could have
a Material Adverse Effect and except, in the case of a breach of a covenant
which is reasonably curable, only if such breach continues for a period of at
least five (5) Business Days;

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

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

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

                                       13
<PAGE>

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


         10.      CERTAIN DEFINED TERMS.

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

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

         (b) "Available Amount" means initially Eight Million Four Hundred
Thousand Dollars ($8,400,000.00) in the aggregate which amount shall be reduced
by the Purchase Amount each time the Buyer purchases shares of Common Stock
pursuant to Section 1 hereof.

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

         (d) "Base Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy up to the Base Purchase
Amount in Purchase Shares as specified by the Company therein at the applicable
Purchase Price on the Purchase Date.

         (e) "Block Purchase Amount" shall mean such Block Purchase Amount as
specified by the Company in a Block Purchase Notice subject to Section 1(b)
hereof.

         (f) "Block Purchase Notice" shall mean an irrevocable written notice
from the Company to the Buyer directing the Buyer to buy the Block Purchase
Amount in Purchase Shares as specified by the Company therein at the Block
Purchase Price as of the Purchase Date subject to Section 1 hereof.

         (d) "Business Day" means any day on which the Principal Market is open
for trading including any day on which the Principal Market is open for trading
for a period of time less than the customary time.

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

                                       14
<PAGE>

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

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

         (h) "Maturity Date" means the date that is 500 Business Days (25
Monthly Periods) from the Commencement Date.

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

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

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

         (l) "Purchase Amount" means, with respect to any particular purchase
made hereunder, the portion of the Available Amount to be purchased by the Buyer
pursuant to Section 1 hereof as set forth in a valid Base Purchase Notice or a
valid Block Purchase Notice which the Company delivers to the Buyer.

         (m) "Purchase Date" means with respect to any particular purchase made
hereunder, the Business Day after receipt by the Buyer of a valid Base Purchase
Notice or a valid Block Purchase Notice that the Buyer is to buy Purchase Shares
pursuant to Section 1 hereof.

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

         (o) "Sale Price" means, any trade price for the shares of Common Stock
on the Principal Market as reported by the Principal Market.

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

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

                                       15
<PAGE>

         11. MISCELLANEOUS.

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

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

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

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

         (e) ENTIRE AGREEMENT. With the exception of the Mutual Nondisclosure
Agreement between the parties dated as of March 13, 2007, this Agreement
supersedes all other prior oral or written agreements between the Buyer, the
Company, their affiliates and persons acting on their behalf with respect to the
matters discussed herein, and this Agreement, the other Transaction Documents
and the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. The Company acknowledges and agrees that is has not relied on, in any
manner whatsoever, any representations or statements, written or oral, other
than as expressly set forth in this Agreement.

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

                                       16
<PAGE>

         If to the Company:
                  Aethlon Medical, Inc.
                  3030 Bunker Hill Street
                  Suite 4000
                  San Diego, CA 92109
                  Telephone:        858-459-7800
                  Facsimile:        858-332-1739
                  Attention:        Chief Executive Officer

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

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

         If to the Transfer Agent:
                  Computershare Trust Company
                  350 Indiana Street, #800
                  Golden, CO 80401
                  Telephone:        (303) 262-0600 ext. 4761
                  Facsimile:        (303) 262-0700
                  Attention:        Sue Barron

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

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

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

         (i) PUBLICITY. The Buyer shall have the right to approve before
issuance any press release, SEC filing or any other public disclosure made by or
on behalf of the Company whatsoever with respect to, in any manner, the Buyer,
its purchases hereunder or any aspect of this Agreement or the transactions
contemplated hereby; provided, however, that the Company shall be entitled,
without the prior approval of the Buyer, to make any press release or other
public disclosure (including any filings with the SEC) with respect to such
transactions as is required by applicable law and regulations so long as the
Company and its counsel consult with the Buyer in connection with any such press
release or other public disclosure at least two (2) Business Days prior to its
release. The Buyer must be provided with a copy thereof at least two (2)
Business Days prior to any release or use by the Company thereof. The Company
agrees and acknowledges that its failure to fully comply with this provision
constitutes a material adverse effect on its ability to perform its obligations
under this Agreement.

                                       17
<PAGE>

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

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

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

                  (ii) In the event that the Commencement shall not have
         occurred, the Company shall have the option to terminate this Agreement
         for any reason or for no reason without liability of any party to any
         other party.

                  (iii) In the event that the Commencement shall not have
         occurred on or before July 1, 2007, due to the failure to satisfy the
         conditions set forth in Sections 6 and 7 above with respect to the
         Commencement, the nonbreaching party shall have the option to terminate
         this Agreement at the close of business on such date or thereafter
         without liability of any party to any other party.

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

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

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

Except as set forth in Sections 11(k)(i) (in respect of an Event of Default
under Sections 9(f), 9(g) and 9(h)) and 11(k)(vi), any termination of this
Agreement pursuant to this Section 11(k) shall be effected by written notice
from the Company to the Buyer, or the Buyer to the Company, as the case may be,
setting forth the basis for the termination hereof. The representations and
warranties of the Company and the Buyer contained in Sections 2, 3 and 5 hereof,
the indemnification provisions set forth in Section 8 hereof and the agreements
and covenants set forth in Section 11, shall survive the Commencement and any
termination of this Agreement. No termination of this Agreement shall affect the
Company's or the Buyer's rights or obligations (i) under the Registration Rights
Agreement which shall survive any such termination or (ii) under this Agreement
with respect to pending purchases and the Company and the Buyer shall complete
their respective obligations with respect to any pending purchases under this
Agreement.

                                       18
<PAGE>

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

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

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

         (0) ENFORCEMENT COSTS. If: (i) this Agreement is placed by the Buyer in
the hands of an attorney for enforcement or is enforced by the Buyer through any
legal proceeding; or (ii) an attorney is retained to represent the Buyer in any
bankruptcy, reorganization, receivership or other proceedings affecting
creditors' rights and involving a claim under this Agreement; or (iii) an
attorney is retained to represent the Buyer in any other proceedings whatsoever
in connection with this Agreement, then the Company shall pay to the Buyer, as
incurred by the Buyer, all reasonable costs and expenses including attorneys'
fees incurred in connection therewith, in addition to all other amounts due
hereunder.

         (p) FAILURE OR INDULGENCE NOT WAIVER. No failure or delay in the
exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right,
power or privilege.



                                    * * * * *

                                       19
<PAGE>


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



                                              THE COMPANY:

                                              AETHLON MEDICAL, INC.


                                              By:______________________
                                              Name: James A. Joyce
                                              Title: Chief Executive Officer


                                              BUYER:

                                              FUSION CAPITAL FUND II, LLC
                                              BY: FUSION CAPITAL PARTNERS, LLC
                                              BY: ROCKLEDGE CAPITAL CORPORATION


                                              By:_______________________
                                              Name: Joshua B. Scheinfeld
                                              Title: President


                                       20
<PAGE>


                                    SCHEDULES
                                    ---------

Schedule 3(a)              Subsidiaries
Schedule 3(c)              Capitalization
Schedule 3(e)              Conflicts
Schedule 3(f)              1934 Act Filings
Schedule 3(g)              Material Changes
Schedule 3(h)              Litigation
Schedule 3(k)              Intellectual Property
Schedule 3(m)              Liens
Schedule 3(q)              Certain Transactions



                                    EXHIBITS
                                    --------

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


                                       21
<PAGE>


                              DISCLOSURE SCHEDULES


SCHEDULE 3(A) - SUBSIDIARIES:
- -----------------------------

The company has four wholly-owned dormant subsidiaries; Aethlon, Inc.; Hemex,
Inc.; Syngen Research, Inc. and Cell Activation, Inc.

SCHEDULE 3(C) - CAPITALIZATION:
- -------------------------------

Outstanding debt:

<TABLE>
<S>     <C>

                        MATURITY                                                                           NOTE
     ORIGINAL           OR EXPIRY                                                                         BALANCE
       DATE               DATE             STATUS       DESCRIPTION          HOLDER                          03/23/07
- ------------------- ------------------ ---------------- -------------------- ------------------------ ----------------
      8/9/99                ?           DEFAULT         Note with Warrant    Coughlin                         $50,000
     11/10/99               ?           DEFAULT         Notes                Smith, W.                        $25,000
     11/11/99               ?           DEFAULT         Notes                Palmiter                         $25,000
     11/15/99               ?           DEFAULT         Note with Warrant    Hayden                           $25,000
     12/1/99                ?           DEFAULT         Notes                Reid                             $12,500
     3/23/00                ?           DEFAULT         Note with Warrant    Deaton                           $50,000
     3/28/00                ?           DEFAULT         Notes                Jenkins                          $25,000
     4/18/00                ?           DEFAULT         Notes                Harris                           $10,000
     5/25/00                ?           DEFAULT         Notes                Rockwell                         $12,500
     6/26/00                ?           DEFAULT         Notes                Weir                             $12,500
     10/16/01            4/17/02        DEFAULT         Notes                Drake                             $5,000
     4/30/03             6/25/03        DEFAULT         Note                 Jill Brodersen                  $150,000
     05/27/05            12/1/05        DEFAULT         Note with Warrant    Tompkins, Rodney                $100,000
- ---------------------------------------------------------------------------------------------------------------------
NOTES PAYABLE                                                                                                $502,500
- ---------------------------------------------------------------------------------------------------------------------


     7/11/05            1/2/07       EFFECTIVE Convertible Note -        Ellen R Weiner Family               $105,000
                                     $0.20 - w/ Warrants                 Revocable Trust
      8/2/05            1/2/07       EFFECTIVE Convertible Note -        Allan S Bird                         $25,000
                                     $0.20 - w/ Warrants
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
      8/2/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $25,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     8/19/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $50,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     8/31/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                     $100,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     9/1 4/05           1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $75,000
                                     EFFECTIVE Convertible Note -
     9114/05            1/2/07       $0.20 - w/ Warrants                 Allan S Bird                         $25,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     9/30/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                     $100,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     1017/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $50,000
                                     EFFECTIVE Convertible Note -
     10(7/05            1/2/07       $0.20 - w/ Warrants                 Allan S Bird                         $50,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     10/14/05           1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $50,000
                                     EFFECTIVE Convertible Note -
     10/14105           1/2/07       $0.20 - w/ Warrants                 Allan S Bird                         $25,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     10/19/05           1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $25,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     11/4/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $50,000
                                     EFFECTIVE Convertible Note -
     11/7/05            1/2/07       $0.20 - w/ Warrants                 Allan S. Bird                        $50,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     12/9/05            1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $50,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     12/13/05           1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $75,000
                                     EFFECTIVE Convertible Note -        Ellen R Weiner Family
     12/14/05           1/2/07       $0.20 - w/ Warrants                 Revocable Trust                      $20,000
                                     EFFECTIVE Convertible Note -
     12/14/05           1/2/07       $0.20 - w/ Warrants                 Allan S. Bird                        $50,000
                                     EFFECTIVE Convertible Note -
     12/15/06           3/15/07      $0.17 - w/ Warrants                 Phillip A Ward Trust                 $33,000
                                     EFFECTIVE Convertible Note -
     12/15/06           3/15/07      $0.17 - w/ Warrants                 Daniel J Ukkestad                    $17,000
- ---------------------------------------------------------------------------------------------------------------------
CONVERTIBLE  NOTES                                                                                         $1,050,000
PAYABLE
- ---------------------------------------------------------------------------------------------------------------------

                                       22
<PAGE>

Warrants:

                                                                  EXPIRATION          EXERCISE          WARRANTS
                                             GRANT DATE              DATE               PRICE
Richardson Patel                              05/31/04             12/07/09               $   0.76            225,000
Mark Abdou                                    05/13/04             12/07/09               $   0.76             45,455
Addison Adams                                 05/31/04             12/07/09               $   0.76             45,455
AS Capital Partners                           05/31/04             12/07/09               $   0.76            113,636
Jud Hogan                                     05/31/04             12/07/09               $   0.76             25,000
Peter Hogan                                   05/31/04             12/07/09               $   0.76             11,364
Ryan Hong                                     05/31/04             12/07/09               $   0.76             11,364
L'Vrocha Equities                             05/31/04             12/07/09               $   0.76            113,636
Marketwise Trading                            05/31/04             12/07/09               $   0.76            272,727
MF Investments, LLC                           05/31/04             12107/09               $   0.76             56,818
Benjamin Padnos                               05/31/04             12/07/09               $   0.76             50,000
Greg Suess                                    05/31/04             12/07/09               $   0.76             22,727
Linda Sharkus                                 05/31/04             12/07/09               $   0.76             22,727
Sima Yakoby                                   05/31/04             12/07/09               $   0.76             56,818
RP Capital                                    05/20/04             12/07/09               $   0.76            113,636
Michael Burchard                              10/06/04             10/06/07               $   0.50             80,000
Michael Burchard                              10/06/04             10/06/07               $   0.90             44,444
Robert Burchard                               10/06/04             10/06/07               $   0.50             80,000
Robert Burchard                               10/06/04             10/06/07               $   0.90             44,444
Phillip A Ward Trust (03/04/96)               11/14/06             11/14/11               $   0.50            100,000
Phillip A Ward Trust (03/04/96)               10/20/04             10/20/07               $   0.90             55,555
Michael Burchard                              1/10/05              10/10/08               $   0.44             55,556
Phillip A Ward Trust (03/04/96)               02/02/05             02/02/08               $   0.34             90,000
Phillip A Ward Trust (03/04/96)               05/16/05             05/16/08              $   0.176            100,000
Fusion Capital                                05/16/05             05/16/10               $   0.25            300,000
Richardson and Patel - Nimish                 06/22/05             05/11/08               $   0.25            418,365
Ellen R Weiner Family Revocable Trust         7/11/05              07/11/08               $   0.20            525,000
Allan S Bird                                   8/2/05              08/02/08               $   0.20            125,000
Ellen R Weiner Family Revocable Trust          8/2/05              08/02/06               $   0.20            125,000
Ellen R Weiner Family Revocable Trust         8/19/05              08/19/08               $   0.20            250,000
Ellen R Weiner Family Revocable Trust         8/31/05              08/31/08               $   0.20            500,000
Ellen R Weiner Family Revocable Trust         9/14/05              09/14/08               $   0.20            375,000
Allan S Bird                                  9/14/05              09/14/08               $   0.20            125,000
Ellen R Weiner Family Revocable Trust         9/30/05              09/30/08               $   0.20            500,000
Ellen R Weiner Family Revocable Trust         10/7/05              10/07/08               $   0.20            250,000
Allan S. Bird                                 10/7/05              10/07/08               $   0.20            250,000
Ellen R Weiner Family Revocable Trust         10/14/05             10/14/08               $   0.20            250,000
Allan S. Bird                                 10/14/05             10/14/08               $   0.20            125,000
Ellen R Weiner Family Revocable Trust         10/19/05             10/19/08               $   0.20            125,000
Ellen R Weiner Family Revocable Trust         11/4/05              11/04/08               $   0.20            250,000
Allan S. Bird                                 11/7/05              11/07/08               $   0.20            250,000
Ellen R Weiner Family Revocable Trust         12/9/05              12/09/08               $   0.20            250,000
Ellen R Weiner Family Revocable Trust         12/13/05             12/13/08               $   0.20            375,000
Ellen R Weiner Family Revocable Trust         12/14/05             12/14/08               $   0.20            100,000
Allan S. Bird                                 12/14/05             12/14/08               $   0.20            250,000
Fusion Capital Fund II, LLC                   03/31/06             03/31/11               $   0.76            568,181
Phillip A. Ward Trust                         11/14/06             11/14/11               $   0.18            555,556
Phillip A. Ward Trust                         11/14/06             11/14/11               $   0.18            555,556
Phillip A. Ward Trust                         12/15/06             12/15/11               $   0.17            194,118
Phillip A. Ward Trust                         12/15/06             12/15/11               $   0.17            194,118
Daniel J Ukkestad                             12/15/06             12/15/11               $   0.17            100,000
Daniel J Ukkestad                             12/15/06             12/15/11               $   0.17            100,000
Ellen R Weiner Family Revocable Trust         03/05/07            0 1/02/1 1              $   0.20            527,577
Ellen R Weiner Family Revocable Trust            NA                   NA                  $   0.20            263,789
Allan Bird Estate                             03/05/07             01/02/11               $   0.20            148,959
Allan Bird Estate                                NA                   NA                  $   0.20             74,480
Hoffmann/Claypoole                            03/05/07             01/02/11               $   0.20              8,792
Hoffmann/Claypoole                               NA                   NA                  $   0.20              4,396

- ---------------------------------------------------------------------------------------------------------------------
                                                                                                           10,850,249
- ---------------------------------------------------------------------------------------------------------------------


                                       23
<PAGE>

Stock Options:

                                  GRANT                EXPIRATION              EXERCISE              OUTSTANDING
                                  DATE                    DATE                   PRICE                 3/23/07
Tullis, Richard H.              Mar. 2001               12-31-10                        $ 2.56                 30,000
Broenniman                      Oct. 2000               9-24-10                         $ 3.75                  2,500
Haglund, Bruce H.              Sept. 2000               7-15-08                         $ 2.00                  7,500
Burkhalter, Alton G.           Sept. 2000               7-15-08                         $ 2.00                  7,500
Barry, Franklyn S. Jr.          Nov. 2001               11-29-11                        $ 1.84                  1,867
Broenniman                      Nov. 2001               11-29-11                        $ 1.78                  3,000
Stefanovich, Robert S.          July 2001               7-15-11                         $ 2.25                 50,000
Tullis, Richard H.              03/12/02               March 2012                       $ 1.90                250,000
Jim Joyce                       02/23/05                2/23/10                         $ 0.38              1,115,550
                                                        12/31/10                        $ 0.38                557,775
                                                        12/31/11                        $ 0.36                557,775
Rick Tullis                     02/23/05                2/23/10                         $ 0.36                867,175
                                                        12/31/10                        $ 0.38                433,588
                                                        12/31/11                        $ 0.38                433,587
Ed Broenniman                   02/23/05                2/23/10                         $ 0.38                205,825
                                                        12/31/10                        $ 0.38                154,362
                                                        12/31/11                        $ 0.38                154,363
Frank Barry                     02/23/05                2/23/10                         $ 0.38                205,825
                                                        12/31/10                        $ 0.38                154,362
                                                        12/31/11                        $ 0.38                154,363
Dorst, James                     8/1/05                 08/01/08                        $ 0.23                500,000
Joyce, James                     9/9/05                 09/09/15                        $ 0.21              2,857,143
Handley, Harold                 10/02/06                10/02/16                        $ 0.27                500,000

- ---------------------------------------------------------------------------------------------------------------------
                                                                                                            9,204,060
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       24
<PAGE>

Agreements to register the sale of securities:

Under the terms of the Company's 10% Series A Convertible Notes, associated
Registration Rights Agreements and Allonges (dated March 5, 2007; signed by the
Company but, yet to be executed by the Noteholders) the Company is obligated to
amend/or file a new registration statement with the SEC for the shares
underlying the original SB-2 filing (January 2006) and Allonge shares by March
31, 2007.

SCHEDULE 3(e) - NO CONFLICTS:
- -----------------------------

None

SCHEDULE 3(f) - 1934 ACT FILINGS:
- ---------------------------------

On August 1, 2006, the Company received a letter from the SEC questioning the
treatment of its accounting for warrants issued with our 10% Series A
Convertible Notes under EITF 00-19 within the Company's Form 10-KSB filed for
the fiscal year ending March 31, 2006. Management and our auditors immediately
responded and on August 29, 2006 we were notified by the Commission that their
review was complete, and that we apparently had properly valued and disclosed
the warrant obligation.

SCHEDULE 3(g) - ABSENCE OF CERTAIN CHANGES:
- -------------------------------------------

None

SCHEDULE 3(h) - LITIGATION:
- ---------------------------

None


SCHEDULE 3(k) - INTELLECTUAL PROPERTY RIGHTS:
- ---------------------------------------------

No material intellectual property rights have expired over the prior two years,
nor are any slated to run to term within the next two years.

SCHEDULE 3(m) - TITLE:
- ----------------------

None

SCHEDULE 3(q) - TRANSACTIONS WITH AFFILIATES:
- ---------------------------------------------

None


                                       25
<PAGE>

                                    EXHIBIT A
                                    ---------

                         FORM OF COMPANY COUNSEL OPINION

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

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


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


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


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


                  5. The issuance of the Purchase Shares and Commitment Shares
pursuant to the terms and conditions of the Transaction Documents has been duly
authorized and the Commitment Shares and the Initial Purchase Shares have been
validly issued, fully paid and non-assessable, to our knowledge, free of all
taxes, liens, charges, restrictions, rights of first refusal and preemptive
rights. 6,000,000 shares of Common Stock have been properly reserved for
issuance under the Common Stock Purchase Agreement. When issued and paid for in
accordance with the Common Stock Purchase Agreement, the Purchase Shares shall
be validly issued, fully paid and non-assessable, to our knowledge, free of all


                                       26
<PAGE>

taxes, liens, charges, restrictions, rights of first refusal and preemptive
rights. To our knowledge, the execution and delivery of the Registration Rights
Agreement do not, and the performance by the Company of its obligations
thereunder shall not, give rise to any rights of any other person for the
registration under the 1933 Act of any shares of Common Stock or other
securities of the Company which have not been waived.


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


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


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


                  9. The Common Stock is registered pursuant to Section 12(g) of
the 1934 Act. To our knowledge, since, January 1, 2006, the Company has been in
compliance with the reporting requirements of the 1934 Act applicable to it To
our knowledge, since January 1, 2006, the Company has not received any written
notice from the Principal Market stating that the Company has not been in
compliance with any of the rules and regulations (including the requirements for
continued listing) of the Principal Market.


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


                                       27
<PAGE>

         In addition, we have participated in the preparation of the
Registration Statement (SEC File #________) covering the sale of the Purchase
Shares, the Commitment Shares including the prospectus dated ____________,
contained therein and in conferences with officers and other representatives of
the Company (including the Company's independent auditors) during which the
contents of the Registration Statement and related matters were discussed and
reviewed and, although we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement, on the basis of the information that
was developed in the course of the performance of the services referred to
above, considered in the light of our understanding of the applicable law,
nothing came to our attention that caused us to believe that the Registration
Statement (other than the financial statements and schedules and the other
financial and statistical data included therein, as to which we express no
belief), as of their dates, contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.


                                       28
<PAGE>

                                    EXHIBIT B
                                    ---------

                          FORM OF OFFICER'S CERTIFICATE

             This Officer's Certificate ("CERTIFICATE") is being delivered
pursuant to Section 7(e) of that certain Common Stock Purchase Agreement dated
as of March 21, 2007, ("COMMON STOCK PURCHASE AGREEMENT"), by and between
AETHLON MEDICAL, INC., a Nevada corporation (the "COMPANY"), and FUSION CAPITAL
FUND II, LLC (the "BUYER"). Terms used herein and not otherwise defined shall
have the meanings ascribed to them in the Common Stock Purchase Agreement.

             The undersigned, James W. Dorst, Chief Financial Officer of the
Company, hereby certifies as follows:

                  1. I am the Chief financial Officer of the Company and make
         the statements contained in this Certificate;

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

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

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

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

                                                  ______________________
                                                  James W. Dorst:
                                                  Chief Financial Officer

         The undersigned as Secretary of AETHLON MEDICAL, INC., a Nevada
corporation, hereby certifies that James A. Joyce is the duly elected,
appointed, qualified and acting Secretary of Aethlon Medical, Inc. and that the
signature appearing above is his genuine signature.

                                             ___________________________________
                                             James A. Joyce

                                       29
<PAGE>

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

                           FORM OF COMPANY RESOLUTIONS
                         FOR SIGNING PURCHASE AGREEMENT

                          UNANIMOUS WRITTEN CONSENT OF
                              AETHLON MEDICAL, INC.

         The undersigned, being all of the members of the Board of Directors of
Aethlon Medical, Inc., a Nevada corporation (the "Corporation"), acting pursuant
to the autority Granted by Section 78.315 of the Nevada General Corporation Law,
do hereby adopt the following resolutions by written consent as of March 21,
2007:

         WHEREAS, there has been presented to the Board of Directors of the
Corporation a draft of the Common Stock Purchase Agreement (the "Purchase
Agreement") by and between the Corporation and Fusion Capital Fund II, LLC
("Fusion"), providing for the purchase by Fusion of up to Eight Million Four
Hundred Thousand Dollars ($8,400,000) of the Corporation's common stock, par
value $0.001 (the "Common Stock"); and

         WHEREAS, after careful consideration of the Purchase Agreement, the
documents incident thereto and other factors deemed relevant by the Board of
Directors, the Board of Directors has determined that it is advisable and in the
best interests of the Corporation to engage in the transactions contemplated by
the Purchase Agreement, including, but not limited to, the issuance of 1,050,000
shares of Common Stock to Fusion as a commitment fee (the "Commitment Shares")
and the sale of shares of Common Stock to Fusion up to the available amount
under the Purchase Agreement (the "Purchase Shares").

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


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


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


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

                                       30
<PAGE>


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


         FURTHER RESOLVED, that the Corporation be and it hereby is authorized
to execute the Purchase Agreement providing for the purchase of common stock of
the Corporation having an aggregate value of up to $8,400,000.00; and


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


         FURTHER RESOLVED, that the Corporation is hereby authorized to issue
1,050,000 shares of Common Stock to Fusion Capital Fund II, LLC as Commitment
Shares and that upon issuance of the Commitment Shares pursuant to the Purchase
Agreement, the Commitment Shares shall be duly authorized, validly issued, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof; and


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


         FURTHER RESOLVED, THAT THE CORPORATION SHALL INITIALLY RESERVE
7,333,333 SHARES OF COMMON STOCK FOR ISSUANCE AS PURCHASE SHARES UNDER THE
PURCHASE AGREEMENT.


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


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


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

                                       31
<PAGE>









         IN WITNESS WHEREOF, the Board of Directors has executed and delivered
this Consent effective as of March __, 2007. This Written Consent may be
executed in counterparts and with facsimile signatures with the effect as if all
parties hereto had executed the same document. All counterparts shall be
construed together and shall constitute a single Written Consent.



         Dated as of March 21, 2007


                           DIRECTORS:



                                                      __________________________
                                                      James A. Joyce



                                                      __________________________
                                                      Franklyn S. Barry, Jr.


                                                      __________________________
                                                      Edward G. Broenniman


                                                     ___________________________
                                                     Richard H. Tullis





being all of the directors of AETHLON MEDICAL, INC., a Nevada corporation.

                                       32
<PAGE>


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

          FORM OF COMPANY RESOLUTIONS APPROVING REGISTRATION STATEMENT

                          UNANIMOUS WRITTEN CONSENT OF
                              AETHLON MEDICAL, INC.



         The undersigned, being all of the members of the Board of Directors of
Aethlon Medical, Inc., a Nevada corporation (the "Corporation"), acting pursuant
to the authority Granted by Section 78.315 of the Nevada General Corporation
Law, do hereby adopt the following resolutions by written consent as of March
21, 2007:

         WHEREAS, there has been presented to the Board of Directors of the
Corporation Common Stock Purchase Agreement (the "Purchase Agreement") by and
among the Corporation and Fusion Capital Fund II, LLC ("Fusion"), providing for
the purchase by Fusion of up to Eight Million Four Hundred Thousand Dollars
($8,400,000) of the Corporation's common stock, par value $0.001 (the "Common
Stock"); and


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


         WHEREAS, the management of the Corporation has prepared an initial
draft of a Registration Statement on Form SB-2 (the "Registration Statement") in
order to register the sale of the Purchase Shares and the Commitment Shares
(collectively, the "Shares"); and


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


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


         FURTHER RESOLVED, that the officers of the Corporation be, and each of
them hereby is, authorized and directed, with the assistance of counsel and
accountants for the Corporation, to prepare, execute and file with the
Commission all amendments, including post-effective amendments, and supplements
to the Registration Statement, and all certificates, exhibits, schedules,
documents and other instruments relating to the Registration Statement, as such
officers shall deem necessary or appropriate (such officer's execution and
filing thereof shall be deemed to evidence conclusively such determination); and


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

                                       33
<PAGE>


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


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


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


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


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


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


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


                                       34
<PAGE>

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


         IN WITNESS WHEREOF, the Board of Directors has executed and delivered
this Consent effective as of March 21, 2007. This Written Consent may be
executed in counterparts and with facsimile signatures with the effect as if all
parties hereto had executed the same document. All counterparts shall be
construed together and shall constitute a single Written Consent.



         Dated as of March 21, 2007


                           DIRECTORS:



                                                      __________________________
                                                      James A. Joyce



                                                      __________________________
                                                      Franklyn S. Barry, Jr.


                                                      __________________________
                                                      Edward G. Broenniman


                                                      __________________________
                                                      Richard H. Tullis





being all of the directors of AETHLON MEDICAL, INC., a Nevada corporation.

                                       35
<PAGE>


                                    EXHIBIT D
                                    ---------

                         FORM OF SECRETARY'S CERTIFICATE

         This Secretary's Certificate ("Certificate") is being delivered
pursuant to Section 7(k) of that certain Common Stock Purchase Agreement dated
as of March 21, 2007, ("Common Stock Purchase Agreement"), by and between
AETHLON MEDICAL, INC., a Nevada corporation (the "Company") and FUSION CAPITAL
FUND II, LLC (the "Buyer"), pursuant to which the Company may sell to the Buyer
up to Eight Million Four Hundred Thousand Dollars ($8,400,000) of the Company's
Common Stock, par value $0.001 per share (the "Common Stock"). Terms used herein
and not otherwise defined shall have the meanings ascribed to them in the Common
Stock Purchase Agreement.

         The undersigned, James A. Joyce, Secretary of the Company, hereby
certifies as follows:

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

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

                  3. Attached hereto as EXHIBIT C are true, correct and complete
         copies of the resolutions duly adopted by the Board of Directors of the
         Company on March 21, 2007, at which a quorum was present and acting
         throughout. Such resolutions have not been amended, modified or
         rescinded and remain in full force and effect and such resolutions are
         the only resolutions adopted by the Company's Board of Directors, or
         any committee thereof, or the shareholders of the Company relating to
         or affecting (i) the entering into and performance of the Common Stock
         Purchase Agreement, or the issuance, offering and sale of the Purchase
         Shares and the Commitment Shares and (ii) and the performance of the
         Company of its obligation under the Transaction Documents as
         contemplated therein.

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

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

                                                       _________________________
                                                       Secretary


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

                                             ___________________________________

                                       36
<PAGE>


                                    EXHIBIT E
                                    ---------

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




                              [COMPANY LETTERHEAD]



[DATE]

[TRANSFER AGENT]
__________________
__________________
__________________

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

Dear ________,

On behalf of AETHLON MEDICAL, INC., a Nevada corporation (the "Company"), you
are hereby instructed to issue AS SOON AS POSSIBLE 1,050,000 shares of our
common stock in the name of FUSION CAPITAL FUND II, LLC. The share certificate
should be dated [DATE OF THE COMMON STOCK PURCHASE AGREEMENT]. I have included a
true and correct copy of a unanimous written consent executed by all of the
members of the Board of Directors of the Company adopting resolutions approving
the issuance of these shares. The shares should be issued subject to the
following restrictive legend and NO OTHER LEGEND WHATSOEVER:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
         UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
         SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
         MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
         ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
         THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
         LAWS, UNLESS SOLD PURSUANT TO: (1) RULE 144 UNDER THE SECURITIES ACT OF
         1933, AS AMENDED, OR (2) AN OPINION OF HOLDER'S COUNSEL, IN A CUSTOMARY
         FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
         STATE SECURITIES LAWS.

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

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

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

AETHLON MEDICAL, INC., a Nevada corporation


BY:_____________________________
         [name]
         [title]

                                       37
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.43
<SEQUENCE>3
<FILENAME>aethlon_10kex10-43.txt
<DESCRIPTION>REGISTRATION RIGHTS AGR
<TEXT>
<PAGE>


                                                                   Exhibit 10.43


                         REGISTRATION RIGHTS AGREEMENT

         REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 21,
2007, by and between AETHLON MEDICAL, INC., a Nevada corporation, (the
"COMPANY"), and FUSION CAPITAL FUND II, LLC (together with it permitted assigns,
the "BUYER"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Common Stock Purchase
Agreement by and between the parties hereto, dated as of the date hereof (as
amended, restated, supplemented or otherwise modified from time to time, the
"PURCHASE AGREEMENT").

                                    WHEREAS:

         A. The Company has agreed, upon the terms and subject to the conditions
of the Purchase Agreement, to issue to the Buyer (i) up to Eight Million Four
Hundred Thousand Dollars ($8,400,000) of the Company's common stock, par value
$0.001 per share (the "COMMON STOCK") (the "PURCHASE SHARES"), and (ii) such
number of shares of Common Stock as is required pursuant to Section 4(e) of the
Purchase Agreement (the "COMMITMENT SHARES"); and

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

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

         1.       DEFINITIONS.
                  ------------

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

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

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

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

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

                                       1
<PAGE>

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

         2.       REGISTRATION.
                  -------------

                  a. MANDATORY REGISTRATION. The Company shall within ten (10)
Business Days from the date hereof file with the SEC the Registration Statement.
The Registration Statement shall register only the Registrable Securities and no
other securities of the Company. The Investor and its counsel shall have a
reasonable opportunity to review and comment upon such registration statement or
amendment to such registration statement and any related prospectus prior to its
filing with the SEC. Investor shall furnish all information reasonably requested
by the Company for inclusion therein. The Company shall use its best efforts to
have the Registration Statement or amendment declared effective by the SEC at
the earliest possible date. The Company shall use reasonable best efforts to
keep the Registration Statement effective pursuant to Rule 415 promulgated under
the 1933 Act and available for sales of all of the Registrable Securities at all
times until the earlier of (i) the date as of which the Investor may sell all of
the Registrable Securities without restriction pursuant to Rule 144(k)
promulgated under the 1933 Act (or successor thereto) or (ii) the date on which
(A) the Investor shall have sold all the Registrable Securities and no Available
Amount remains under the Purchase Agreement (the "REGISTRATION PERIOD"). The
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.

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

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

         3.       RELATED OBLIGATIONS.
                  --------------------

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

                                       2
<PAGE>

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

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

                  c. Upon request of the Investor, the Company shall furnish to
the Investor, (i) promptly after the same is prepared and filed with the SEC, at
least one copy of such registration statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, (ii) upon the effectiveness of any registration
statement, a copy of the prospectus included in such registration statement and
all amendments and supplements thereto (or such other number of copies as the
Investor may reasonably request) and (iii) such other documents, including
copies of any preliminary or final prospectus, as the Investor may reasonably
request from time to time in order to facilitate the disposition of the
Registrable Securities owned by the Investor.

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

                                       3
<PAGE>

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

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

                  g. The Company shall (i) cause all the Registrable Securities
to be listed on each securities exchange on which securities of the same class
or series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities on the
Principal Market. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section.

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

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

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

                                       4
<PAGE>

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

                  l. Within one (1) Business Day after any registration
statement which includes the Registrable Securities is ordered effective by the
SEC, the Company shall deliver, and shall cause legal counsel for the Company to
deliver, to the transfer agent for such Registrable Securities (with copies to
the Investor) confirmation that such registration statement has been declared
effective by the SEC in the form attached hereto as EXHIBIT A. Thereafter, if
requested by the Buyer at any time, the Company shall require its counsel to
deliver to the Buyer a written confirmation whether or not the effectiveness of
such registration statement has lapsed at any time for any reason (including,
without limitation, the issuance of a stop order) and whether or not the
registration statement is current and available to the Buyer for sale of all of
the Registrable Securities.

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

         4.       OBLIGATIONS OF THE INVESTOR.
                  ----------------------------

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

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

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

                                       5
<PAGE>

         5.       EXPENSES OF REGISTRATION.
                  -------------------------

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

         6.       INDEMNIFICATION.
                  ----------------

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


                                       6
<PAGE>

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

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

                                       7
<PAGE>

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

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

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

                                       8
<PAGE>

         7.       CONTRIBUTION.
                  -------------

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

         8.       REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS.
                  -------------------------------------------------

                  With a view to making available to the Investor the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investor to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees, at the Company's sole expense, to:

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

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

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

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

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

         9.       ASSIGNMENT OF REGISTRATION RIGHTS.
                  ----------------------------------

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

                                       9
<PAGE>

         10.      AMENDMENT OF REGISTRATION RIGHTS.
                  ---------------------------------

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

         11.      MISCELLANEOUS.
                  --------------

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

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



         If to the Company:
                  Aethlon Medical, Inc.
                  3030 Bunker Hill Street
                  Suite 4000
                  San Diego, CA 92109
                  Telephone:        858-459-7800
                  Facsimile:        858-332-1739
                  Attention:        Chief Executive Officer

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

                                       10
<PAGE>

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

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

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

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

                                       11
<PAGE>

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

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

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

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

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

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

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



                                   * * * * * *


                                       12
<PAGE>



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



                                              THE COMPANY:

                                              AETHLON MEDICAL, INC.


                                              By:______________________
                                              Name: James A. Joyce
                                              Title: Chief Executive Officer


                                              BUYER:

                                              FUSION CAPITAL FUND II, LLC
                                              BY: FUSION CAPITAL PARTNERS, LLC
                                              BY: ROCKLEDGE CAPITAL CORPORATION


                                              By:_______________________
                                              Name: Joshua B. Scheinfeld
                                              Title: President



                                       13
<PAGE>

                                    EXHIBIT A
                                    ---------

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

                         FORM OF NOTICE OF EFFECTIVENESS
                            OF REGISTRATION STATEMENT

[Date]

[TRANSFER AGENT]
___________________
___________________

Re: AETHLON MEDICAL:, INC.

Ladies and Gentlemen:

          We are counsel to AETHLON MEDICAL, INC., a Nevada corporation (the
"COMPANY"), and have represented the Company in connection with that certain
Common Stock Purchase Agreement, dated as of _________, 2007 (the "PURCHASE
AGREEMENT"), entered into by and between the Company and Fusion Capital Fund II,
LLC (the "BUYER") pursuant to which the Company has agreed to issue to the Buyer
shares of the Company's Common Stock, par value $0.001 per share (the "COMMON
STOCK"), in an amount up to Eight Million Four Hundred Dollars ($8,400,000) (the
"PURCHASE SHARES"), in accordance with the terms of the Purchase Agreement. In
connection with the transactions contemplated by the Purchase Agreement, the
Company has registered with the U.S. Securities & Exchange Commission the
following shares of Common Stock:

         (1)      6,000,000 shares of Common Stock to be issued upon purchase
                  from the Company by the Buyer from time to time (the "PURCHASE
                  SHARES.").

         (2)      1,050,000 shares of Common Stock which have been issued to the
                  Buyer as a commitment fee (the "COMMITMENT SHARES").

         (3)      1,333,333 Purchase Shares of Common Stock previously issued to
                  the Buyer (the "INITIAL PURCHASE SHARES.").


Pursuant to the Purchase Agreement, the Company also has entered into a
Registration Rights Agreement, dated as of ______, with the Buyer (the
"Registration Rights Agreement") pursuant to which the Company agreed, among
other things, to register the Purchase Shares, the Initial Purchase Shares and
the Commitment Shares under the Securities Act of 1933, as amended (the "1933
Act"). In connection with the Company's obligations under the Purchase Agreement
and the Registration Rights Agreement, on _______, the Company filed a
Registration Statement (File No. 333-_________) (the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") relating to the sale of
the Purchase Shares, the Initial Purchase Shares and the Commitment Shares.

In connection with the foregoing, we advise you that: (1) a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at _____ P.M. on
__________, 2007, (2) we have no knowledge, after telephonic inquiry of a member
of the SEC's staff, that any stop order suspending its effectiveness has been
issued or that any proceedings for that purpose are pending before, or
threatened by, the SEC, (3) the Commitment Shares and the Initial Purchase
Shares are available for sale under the 1933 Act pursuant to the Registration
Statement and the restrictive legend on the Commitment Shares and the Initial
Purchase Shares may be removed and (4) the Purchase Shares are available for
sale under the 1933 Act pursuant to the Registration Statement and may be issued
without any restrictive legend.



                                                     Very truly yours,

                                                     [Company Counsel]


                                                     By:____________________



CC:       Fusion Capital Fund II, LLC

                                       14
<PAGE>


                                    EXHIBIT B
                                    ---------


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

     Information About The Investor Furnished To The Company By The Investor
         Expressly For Use In Connection With The Registration Statement


As of the date of the Purchase Agreement, Fusion Capital beneficially owned
767,191 shares of common stock of the Company. Steven G. Martin and Joshua B.
Scheinfeld, the principals of Fusion Capital, are deemed to be beneficial owners
of all of the shares of common stock owned by Fusion Capital. Messrs. Martin and
Scheinfeld have shared voting and investment power over the shares being offered
under the prospectus filed with the SEC in connection with the transactions
contemplated under the Purchase Agreement. Fusion Capital is not a licensed
broker dealer or an affiliate of a licensed broker



                                       15
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.44
<SEQUENCE>4
<FILENAME>aethlon_10kex10-44.txt
<DESCRIPTION>FORM OF ALLONGE
<TEXT>
<PAGE>


                                                                   Exhibit 10.44

                               FORM OF ALLONGE TO
                         10% SERIES A CONVERTIBLE NOTES


This Allonge (the "Allonge"), dated as of March 5, 2007, attached to and forming
a part of certain 10% Series A Convertible Promissory Notes, dated in November
and December, 2005 (collectively, the "NOTE"), made by AETHLON MEDICAL, INC, a
Nevada corporation (the "Company"), payable to the order of Christian J.
Hoffmann III (the "Holder"), in the total principal amount of $10,000.

1. Paragraph 1, "Interest," is hereby amended and restated in its entirety as
follows:

         1. INTEREST

         1.1      This Note shall bear interest ("Interest") equal to ten
                  percent (10%) per annum on the unpaid principal balance,
                  computed on a three hundred sixty (360)-day year, during the
                  term of the Note. Interest will accrue on each Advance
                  commencing on the date of the Advance, as set forth on Exhibit
                  A to this Note. The Company shall pay all accrued Interest
                  after the date of the Allonge on a quarterly basis on the
                  first day of April, July, October and on the Maturity Date. In
                  no event shall the rate of Interest payable on this Note
                  exceed the maximum rate of Interest permitted to be charged
                  under applicable law.


         1.2      Within five (5) business days of the execution date of this
                  Allonge, the Company will pay accrued Interest through
                  February 15, 2007. The Company will pay the Interest in units
                  (the "Units") at the rate of $.20 per Unit (the "Interest
                  Payment Rate"). Each Unit is composed of one share of the
                  Company's Common Stock and one Class A Common Stock Purchase
                  Warrant (the "Class A Warrant"). The Company will pay the
                  accrued Interest through February 15, 2007 by issuing 5,861
                  Units and will pay all accrued Interest thereafter in Units at
                  the Interest Payment Rate. Each Class A Warrant will be
                  exercisable to purchase one share of Common Stock at a price
                  of $.20 per share (the Exercise Price"). If the Holder
                  exercises Class A Warrants on or before July 3, 2008, the
                  Company will issue the Holder one Class B Common Stock
                  Purchase Warrant (the "Class B Warrant") for every two Class A
                  Warrants exercised. Each Class B Warrant will be exercisable
                  to purchase one share of Common Stock at a price equal to the
                  greater of $.20 per share or seventy-five percent (75%) of the
                  average of the closing bid prices of the Common Stock for the
                  five (5) trading days immediately preceding the date of the
                  notice of conversion. The forms of the Class A Warrant and
                  Class B Warrant are set forth as Exhibits B and C,
                  respectively. The Class A Warrants and Class B Warrants are
                  referred to as the "Warrants."


         1.3      All Interest payable under the Note after the date of the
                  Allonge will, at the option of the Holder, be payable in cash
                  or Units, valued at the Interest Payment Rate, as such term is
                  defined in this Note. The Company will pay any Interest that
                  cannot be paid in full Units in cash.

                                       1
<PAGE>


         1.4      Paragraph 3 of the Note is hereby amended and restated in its
                  entirety as follows:

                           3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be
                  due and payable in full, including all accrued Interest
                  thereon, on January 3, 2008 (the "Maturity Date"). At any time
                  prior to the Maturity Date, the Company shall have the right
                  to prepay this Note, in whole or in part, without penalty, on
                  ten (10) days' advance written notice to the Holder, subject
                  to the right of the Holder to convert in advance of such
                  prepayment date and provided that on such prepayment date the
                  Company will pay in respect of the redeemed Note cash equal to
                  the face amount plus accrued Interest on the Note (or portion)
                  redeemed. If the Company plans to pay the Note in full on or
                  after the Maturity Date, it will give the Holder the
                  opportunity to convert at the Conversion Price for a period of
                  ten (10) days after delivery of written notice of the payment
                  to the Holder. The Company may prepay this Note at anytime
                  after issuance without penalty.

         1.5      Paragraph 5.1 of the Note is hereby amended and restated in
                  its entirety as follows:


                           5.1 CONVERSION OF NOTE/CONVERSION PRICE. This Note is
                  convertible, at the option of the Holder, into Units at any
                  time after the Issue Date prior to the close of business on
                  the Business Day preceding the Maturity Date at the rate of
                  $.20 per Unit (the "Conversion Price"), subject to adjustment
                  as hereinafter provided. Each Unit is composed of one share of
                  Common Stock and one Class A Warrant. Each Class A Warrant is
                  exercisable to purchase one share of Common Stock at the
                  Exercise Price. If the Holder exercises Class A Warrants on or
                  before July 3, 2008, the Company will issue the Holder one
                  Class B Warrant for every two Class A Warrants exercised. The
                  Common Stock comprising the Units shall be deemed to have a
                  value of $0.199 per share and the Class A Warrant and Class B
                  Warrant shall each be deemed to have a value of $0.001. No
                  fractional shares will be issued. In lieu thereof, the Company
                  will pay cash for fractional share amounts equal to the fair
                  market value of the Common Stock as quoted as the closing bid
                  price of the Common Stock on the date of conversion.

         1.6      Paragraphs 11.1.2 and 11.1.3 are amended and restated in their
                  entirety as follows:

                           11.1.2 Failure of the Company to pay Interest when
                  due hereunder; or

                                       2
<PAGE>

                           11.1.3 Except for Events of Default set forth in
                  Paragraphs 11.1.1 and 11.1.2, failure of the Company to
                  perform any of the covenants, conditions, provisions or
                  agreements contained herein, or in any other agreement between
                  the Company and Holder, which failure continues for a period
                  of thirty (30) days after notice of default has been given to
                  the Company by the Holders of not less than twenty-five
                  percent (25%) of the principal amount of the Notes then
                  outstanding; provided, however, that if the nature of the
                  Company's obligation is such that more than thirty (30) days
                  are required for performance, then an Event of Default shall
                  not occur if the Company commences performance within such
                  thirty (30) day period and thereafter diligently prosecutes
                  the same to completion; or

2. Paragraph 26, "Covenants of the Company," is hereby added as follows:


         26. COVENANTS OF THE COMPANY. The Company covenants to perform the
following:

         26.1     The Company does not have a sufficient number of authorized
                  shares of its Common Stock to make all of the share issuances
                  pursuant to the Note, the Warrants and this Allonge. The
                  Company will use its best efforts to obtain shareholder
                  approval to increase the number of authorized shares by an
                  amount sufficient to satisfy the requirements of the Note, the
                  Warrants and this Allonge, but not less than five (5) million
                  shares, at its annual meeting of shareholders, which meeting
                  will be held no later than March 31, 2007. The Company will
                  reserve such number of shares of Common Stock as are required
                  for issuance under the Notes, the Warrants and this Allonge;

         26.2     The Class A Warrants will have a term expiring on January 2,
                  2011 and the Class B Warrants will have a term of three years
                  from their respective dates of issuance. All Warrants will be
                  assignable by their holders;

         26.3     The Company will amend its Registration Statement No.
                  333-130915 and/or file a new registration statement with the
                  SEC on or before March 31, 2007 to cover the shares of Common
                  Stock that may be issued under the Notes, the Warrants and
                  this Allonge, but not fewer than 20,000,000 shares. The
                  Company will use its best efforts to have such amendment or
                  new Registration Statement declared effective promptly and
                  will cause such registration statement to remain effective
                  while the Notes and Warrants are outstanding;

         26.4     The Company will collaborate with the Holder to expand its
                  Board of Directors by appointing or electing one additional
                  director who has background in life sciences that the Holder
                  may designate after the date of this Allonge. Such additional
                  director will remain on the Board while the Notes are
                  outstanding. If the Holder elects not to designate such a


                                       3
<PAGE>

                  person for appointment or election to the Board, the Holder
                  will be entitled to an observer at the Board meetings, which
                  observer shall be included in all meetings of the Board;

         26.5     The Company will hold Board of Directors meetings, whether
                  formal or informal, at least once per month; and

         26.6     The Company will give written notice to the Holder within
                  three (3) Business Days of the Company's receipt of any
                  proposed financing and disclose its terms and conditions. The
                  Company will consult with Holder respecting the proposed
                  financing before it concludes such financing.

         26.7     The Company grants the Holder the right, for a period of seven
                  (7) Business Days after the Company gives written notice to
                  the Holder, to purchase any of the Company's securities at the
                  same price and on the same terms and conditions at any time
                  that the Company proposes to sell to a third party in a BONA
                  FIDE transaction or a series of transactions in an amount up
                  to


                           (i) all of the securities proposed to be sold if the
                  Company proposes to sell its Common Stock at a price of $0.20
                  per share or less; and


                           (ii) the principal amount of the Note converted and
                  total purchase price of the Common Stock for the Warrants
                  exercised if the Company proposes to sell its Common Stock at
                  a price above $0.20 per share.


                  This right of first refusal in favor of the Holder will apply
                  to all securities of the Company convertible into Common Stock
                  and will expire upon the later of the payment of the Notes in
                  full or exercise of all of the Warrants. This right of first
                  refusal shall not apply to securities issuable under the
                  Fusion funding facility; and


         26.8     The Company will execute such other documents as may be
                  necessary or appropriate to carry out the provisions of the
                  Notes, the Warrants and this Allonge. The Company will bear
                  all reasonable costs associated with the preparation and
                  implementation of this Allonge.

         2.1      The following definitions in Paragraph 24, "Definitions," are
                  hereby amended and restated as follows:

                                       4
<PAGE>


                           "Maturity Date" means January 3, 2008.

                           "Senior Indebtedness" means any Indebtedness of the
                  Company, outstanding prior to the date of this Allonge, unless
                  such Indebtedness is PARI PASSU with or contractually
                  subordinate or junior in right of payment to the Notes, except
                  Indebtedness to any Affiliate of the Company, which shall be
                  junior and subordinate to the Notes.

                           "Subordinated Indebtedness of the Company" means any
                  Indebtedness of the Company incurred after the date of this
                  Allonge.

         2.2      Paragraph 27, "Senior Subordinated Indebtedness" is hereby
                  added as follows:


27. SENIOR SUBORDINATED INDEBTEDNESS.

         27.1     This Note constitutes Senior Subordinated Indebtedness of the
                  Company and is unsecured.

         27.2     The Indebtedness evidenced by this Note and all of the Notes
                  will be subordinated to the prior payment when due of the
                  principal of, and premium, if any, and accrued and unpaid
                  interest on, all existing Senior Indebtedness. The Notes will
                  be senior to, in right of payment of principal of, premium, if
                  any, and accrued and unpaid interest on, any Subordinated
                  Indebtedness of the Company.

         27.3     Upon any distribution of assets of the Company in any
                  dissolution, winding up, liquidation or reorganization of the
                  Company, all holders of Senior Indebtedness of the Company
                  must be paid in full before any payment or distribution is
                  made with respect to the Notes. The Company shall pay all
                  principal and accrued and unpaid Interest on the Notes before
                  it makes any payment or distribution to the holders of
                  Subordinated Indebtedness.

         2.3      In all other respects, the Note is confirmed, ratified, and
                  approved and, as amended by this Allonge, shall continue in
                  full force and effect.


         IN WITNESS WHEREOF, the Company and Holder have caused this Allonge to
be executed and delivered by their respective duly authorized officer and
trustee on March 5, 2007, to be effective as of the date and year first above
written.


                                                     AETHLON MEDICAL, INC.

                                                              James A. Joyce
                                                     Its:     Chairman and CEO

                                                     Accepted and agreed to:



                                                     By:
                                                       Christian J. Hoffmann III


                                       5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.45
<SEQUENCE>5
<FILENAME>aethlon_10kex10-45.txt
<DESCRIPTION>FORM OF ALLONGE
<TEXT>
<PAGE>


                                                                   Exhibit 10.45

                               FORM OF ALLONGE TO
                         10% SERIES A CONVERTIBLE NOTES


This Allonge (the "Allonge"), dated as of March 5, 2007, attached to and forming
a part of certain 10% Series A Convertible Promissory Notes, dated in November
and December, 2005 (collectively, the "NOTE"), made by AETHLON MEDICAL, INC, a
Nevada corporation (the "Company"), payable to the order of Joel S. Aaronson,
Patricia Green, Christina J. Bird, Co-Executors of the Estate of Allan S. Bird
(the "Holder"), in the total principal amount of $225,000.

         3.       Paragraph 1, "Interest," is hereby amended and restated in its
                  entirety as follows:


1.       INTEREST

                  3.1      This Note shall bear interest ("Interest") equal to
                           ten percent (10%) per annum on the unpaid principal
                           balance, computed on a three hundred sixty (360)-day
                           year, during the term of the Note. Interest will
                           accrue on each Advance commencing on the date of the
                           Advance, as set forth on Exhibit A to this Note. The
                           Company shall pay all accrued Interest after the date
                           of the Allonge on a quarterly basis on the first day
                           of April, July, October and on the Maturity Date In
                           no event shall the rate of Interest payable on this
                           Note exceed the maximum rate of Interest permitted to
                           be charged under applicable law.


                  3.2      Within five (5) business days of the execution date
                           of this Allonge, the Company will pay accrued
                           Interest through February 15, 2007. The Company will
                           pay the Interest in units (the "Units") at the rate
                           of $.20 per Unit (the "Interest Payment Rate"). Each
                           Unit is composed of one share of the Company's Common
                           Stock and one Class A Common Stock Purchase Warrant
                           (the "Class A Warrant"). The Company will pay the
                           accrued Interest through February 15, 2007 by issuing
                           148,959 Units and will pay all accrued Interest
                           thereafter in Units at the Interest Payment Rate.
                           Each Class A Warrant will be exercisable to purchase
                           one share of Common Stock at a price of $.20 per
                           share (the Exercise Price"). If the Holder exercises
                           Class A Warrants on or before July 3, 2008, the
                           Company will issue the Holder one Class B Common


                                       1
<PAGE>

                           Stock Purchase Warrant (the "Class B Warrant") for
                           every two Class A Warrants exercised. Each Class B
                           Warrant will be exercisable to purchase one share of
                           Common Stock at a price equal to the greater of $.20
                           per share or seventy-five percent (75%) of the
                           average of the closing bid prices of the Common Stock
                           for the five (5) trading days immediately preceding
                           the date of the notice of conversion. The forms of
                           the Class A Warrant and Class B Warrant are set forth
                           as Exhibits B and C, respectively. The Class A
                           Warrants and Class B Warrants are referred to as the
                           "Warrants."


                  3.3      All Interest payable under the Note after the date of
                           the Allonge will, at the option of the Holder, be
                           payable in cash or Units, valued at the Interest
                           Payment Rate, as such term is defined in this Note.
                           The Company will pay any Interest that cannot be paid
                           in full Units in cash.


                  3.4      Paragraph 3 of the Note is hereby amended and
                           restated in its entirety as follows:


   3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be due and payable in
full, including all accrued Interest thereon, on January 3, 2008 (the "Maturity
Date"). At any time prior to the Maturity Date, the Company shall have the right
to prepay this Note, in whole or in part, without penalty, on ten (10) days'
advance written notice to the Holder, subject to the right of the Holder to
convert in advance of such prepayment date and provided that on such prepayment
date the Company will pay in respect of the redeemed Note cash equal to the face
amount plus accrued Interest on the Note (or portion) redeemed. If the Company
plans to pay the Note in full on or after the Maturity Date, it will give the
Holder the opportunity to convert at the Conversion Price for a period of ten
(10) days after delivery of written notice of the payment to the Holder. The
Company may prepay this Note at anytime after issuance without penalty.

                  3.5      Paragraph 5.1 of the Note is hereby amended and
                           restated in its entirety as follows:


   5.1 CONVERSION OF NOTE/CONVERSION PRICE. This Note is convertible, at the
option of the Holder, into Units at any time after the Issue Date prior to the
close of business on the Business Day preceding the Maturity Date at the rate of
$.20 per Unit (the "Conversion Price"), subject to adjustment as hereinafter
provided. Each Unit is composed of one share of Common Stock and one Class A
Warrant. Each Class A Warrant is exercisable to purchase one share of Common
Stock at the Exercise Price. If the Holder exercises Class A Warrants on or


                                       2
<PAGE>

before July 3, 2008, the Company will issue the Holder one Class B Warrant for
every two Class A Warrants exercised. The Common Stock comprising the Units
shall be deemed to have a value of $0.199 per share and the Class A Warrant and
Class B Warrant shall each be deemed to have a value of $0.001. No fractional
shares will be issued. In lieu thereof, the Company will pay cash for fractional
share amounts equal to the fair market value of the Common Stock as quoted as
the closing bid price of the Common Stock on the date of conversion.

                  3.6      Paragraphs 11.1.2 and 11.1.3 are amended and restated
                           in their entirety as follows:


   11.1.2   Failure of the Company to pay Interest when due hereunder; or

   11.1.3 Except for Events of Default set forth in Paragraphs 11.1.1 and
11.1.2, failure of the Company to perform any of the covenants, conditions,
provisions or agreements contained herein, or in any other agreement between the
Company and Holder, which failure continues for a period of thirty (30) days
after notice of default has been given to the Company by the Holders of not less
than twenty-five percent (25%) of the principal amount of the Notes then
outstanding; provided, however, that if the nature of the Company's obligation
is such that more than thirty (30) days are required for performance, then an
Event of Default shall not occur if the Company commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion; or

         4.       Paragraph 26, "Covenants of the Company," is hereby added as
                  follows:


   26. COVENANTS OF THE COMPANY. The Company covenants to perform the following:

   26.1 The Company does not have a sufficient number of authorized shares of
its Common Stock to make all of the share issuances pursuant to the Note, the
Warrants and this Allonge. The Company will use its best efforts to obtain
shareholder approval to increase the number of authorized shares by an amount
sufficient to satisfy the requirements of the Note, the Warrants and this
Allonge, but not less than five (5) million shares, at its annual meeting of
shareholders, which meeting will be held no later than March 31, 2007. The
Company will reserve such number of shares of Common Stock as are required for
issuance under the Notes, the Warrants and this Allonge;

   26.2 The Class A Warrants will have a term expiring on January 2, 2011 and
the Class B Warrants will have a term of three years from their respective dates
of issuance. All Warrants will be assignable by their holders;

   26.3 The Company will amend its Registration Statement No. 333-130915 and/or
file a new registration statement with the SEC on or before March 31, 2007 to
cover the shares of Common Stock that may be issued under the Notes, the
Warrants and this Allonge, but not fewer than 20,000,000 shares. The Company
will use its best efforts to have such amendment or new Registration Statement
declared effective promptly and will cause such registration statement to remain
effective while the Notes and Warrants are outstanding;

                                       3
<PAGE>

   26.4 The Company will collaborate with the Holder to expand its Board of
Directors by appointing or electing one additional director who has background
in life sciences that the Holder may designate after the date of this Allonge.
Such additional director will remain on the Board while the Notes are
outstanding. If the Holder elects not to designate such a person for appointment
or election to the Board, the Holder will be entitled to an observer at the
Board meetings, which observer shall be included in all meetings of the Board;
   26.5 The Company will hold Board of Directors meetings, whether formal or
informal, at least once per month; and

   26.6 The Company will give written notice to the Holder within three (3)
Business Days of the Company's receipt of any proposed financing and disclose
its terms and conditions. The Company will consult with Holder respecting the
proposed financing before it concludes such financing.

   26.7 The Company grants the Holder the right, for a period of seven (7)
Business Days after the Company gives written notice to the Holder, to purchase
any of the Company's securities at the same price and on the same terms and
conditions at any time that the Company proposes to sell to a third party in a
BONA FIDE transaction or a series of transactions in an amount up to


                           (i) all of the securities proposed to be sold if the
                  Company proposes to sell its Common Stock at a price of $0.20
                  per share or less; and


                           (ii) the principal amount of the Note converted and
                  total purchase price of the Common Stock for the Warrants
                  exercised if the Company proposes to sell its Common Stock at
                  a price above $0.20 per share.


                   This right of first refusal in favor of the Holder will apply
                  to all securities of the Company convertible into Common Stock
                  and will expire upon the later of the payment of the Notes in
                  full or exercise of all of the Warrants. This right of first
                  refusal shall not apply to securities issuable under the
                  Fusion funding facility; and


   26.8 The Company will execute such other documents as may be necessary or
appropriate to carry out the provisions of the Notes, the Warrants and this
Allonge. The Company will bear all reasonable costs associated with the
preparation and implementation of this Allonge.

                                       4
<PAGE>

         4.1      The following definitions in Paragraph 24, "Definitions," are
                  hereby amended and restated as follows:


   "Maturity Date" means January 3, 2008.

   "Senior Indebtedness" means any Indebtedness of the Company, outstanding
prior to the date of this Allonge, unless such Indebtedness is PARI PASSU with
or contractually subordinate or junior in right of payment to the Notes, except
Indebtedness to any Affiliate of the Company, which shall be junior and
subordinate to the Notes.

   "Subordinated Indebtedness of the Company" means any Indebtedness of the
Company incurred after the date of this Allonge.

         4.2      Paragraph 27, "Senior Subordinated Indebtedness" is hereby
                  added as follows:


   27. SENIOR SUBORDINATED INDEBTEDNESS.

   27.1 This Note constitutes Senior Subordinated Indebtedness of the Company
and is unsecured.

   27.2 The Indebtedness evidenced by this Note and all of the Notes will be
subordinated to the prior payment when due of the principal of, and premium, if
any, and accrued and unpaid interest on, all existing Senior Indebtedness. The
Notes will be senior to, in right of payment of principal of, premium, if any,
and accrued and unpaid interest on, any Subordinated Indebtedness of the
Company.

   27.3 Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company, all holders of Senior
Indebtedness of the Company must be paid in full before any payment or
distribution is made with respect to the Notes. The Company shall pay all
principal and accrued and unpaid Interest on the Notes before it makes any
payment or distribution to the holders of Subordinated Indebtedness.

         4.3      In all other respects, the Note is confirmed, ratified, and
                  approved and, as amended by this Allonge, shall continue in
                  full force and effect.


         IN WITNESS WHEREOF, the Company and Holder have caused this Allonge to
be executed and delivered by their respective duly authorized officer and
trustee on March 5, 2007, to be effective as of the date and year first above
written.


                                                     AETHLON MEDICAL, INC.

                                                              James A. Joyce
                                                     Its:     Chairman and CEO

                                                     Accepted and agreed to:


                                                     By:______________________
                                                              Holder

                                       5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.46
<SEQUENCE>6
<FILENAME>aethlon_10kex10-46.txt
<DESCRIPTION>FORM OF ALLONGE
<TEXT>
<PAGE>


                                                                   Exhibit 10.46

                               FORM OF ALLONGE TO
                         10% SERIES A CONVERTIBLE NOTES


This Allonge (the "Allonge"), dated as of March 5, 2007, attached to and forming
a part of certain 10% Series A Convertible Promissory Notes, dated in November
and December, 2005 (collectively, the "NOTE"), made by AETHLON MEDICAL, INC, a
Nevada corporation (the "Company"), payable to the order of Claypoole Capital,
LLC (the "Holder"), in the total principal amount of $5,000.

         5.       Paragraph 1, "Interest," is hereby amended and restated in its
                  entirety as follows:


1.       INTEREST

                  5.1      This Note shall bear interest ("Interest") equal to
                           ten percent (10%) per annum on the unpaid principal
                           balance, computed on a three hundred sixty (360)-day
                           year, during the term of the Note. Interest will
                           accrue on each Advance commencing on the date of the
                           Advance, as set forth on Exhibit A to this Note. The
                           Company shall pay all accrued Interest after the date
                           of the Allonge on a quarterly basis on the first day
                           of April, July, October and on the Maturity Date In
                           no event shall the rate of Interest payable on this
                           Note exceed the maximum rate of Interest permitted to
                           be charged under applicable law.


                  5.2      Within five (5) business days of the execution date
                           of this Allonge, the Company will pay accrued
                           Interest through February 15, 2007. The Company will
                           pay the Interest in units (the "Units") at the rate
                           of $.20 per Unit (the "Interest Payment Rate"). Each
                           Unit is composed of one share of the Company's Common
                           Stock and one Class A Common Stock Purchase Warrant
                           (the "Class A Warrant"). The Company will pay the
                           accrued Interest through February 15, 2007 by issuing
                           2,938 Units and will pay all accrued Interest
                           thereafter in Units at the Interest Payment Rate.
                           Each Class A Warrant will be exercisable to purchase
                           one share of Common Stock at a price of $.20 per
                           share (the Exercise Price"). If the Holder exercises
                           Class A Warrants on or before July 3, 2008, the
                           Company will issue the Holder one Class B Common
                           Stock Purchase Warrant (the "Class B Warrant") for
                           every two Class A Warrants exercised. Each Class B
                           Warrant will be exercisable to purchase one share of
                           Common Stock at a price equal to the greater of $.20
                           per share or seventy-five percent (75%) of the
                           average of the closing bid prices of the Common Stock
                           for the five (5) trading days immediately preceding
                           the date of the notice of conversion. The forms of
                           the Class A Warrant and Class B Warrant are set forth
                           as Exhibits B and C, respectively. The Class A
                           Warrants and Class B Warrants are referred to as the
                           "Warrants."

                                       1
<PAGE>


                  5.3      All Interest payable under the Note after the date of
                           the Allonge will, at the option of the Holder, be
                           payable in cash or Units, valued at the Interest
                           Payment Rate, as such term is defined in this Note.
                           The Company will pay any Interest that cannot be paid
                           in full Units in cash.


                  5.4      Paragraph 3 of the Note is hereby amended and
                           restated in its entirety as follows:


   3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be due and payable in
full, including all accrued Interest thereon, on January 3, 2008 (the "Maturity
Date"). At any time prior to the Maturity Date, the Company shall have the right
to prepay this Note, in whole or in part, without penalty, on ten (10) days'
advance written notice to the Holder, subject to the right of the Holder to
convert in advance of such prepayment date and provided that on such prepayment
date the Company will pay in respect of the redeemed Note cash equal to the face
amount plus accrued Interest on the Note (or portion) redeemed. If the Company
plans to pay the Note in full on or after the Maturity Date, it will give the
Holder the opportunity to convert at the Conversion Price for a period of ten
(10) days after delivery of written notice of the payment to the Holder. The
Company may prepay this Note at anytime after issuance without penalty.

                  5.5      Paragraph 5.1 of the Note is hereby amended and
                           restated in its entirety as follows:


   5.1 CONVERSION OF NOTE/CONVERSION PRICE. This Note is convertible, at the
option of the Holder, into Units at any time after the Issue Date prior to the
close of business on the Business Day preceding the Maturity Date at the rate of
$.20 per Unit (the "Conversion Price"), subject to adjustment as hereinafter
provided. Each Unit is composed of one share of Common Stock and one Class A
Warrant. Each Class A Warrant is exercisable to purchase one share of Common
Stock at the Exercise Price. If the Holder exercises Class A Warrants on or
before July 3, 2008, the Company will issue the Holder one Class B Warrant for
every two Class A Warrants exercised. The Common Stock comprising the Units
shall be deemed to have a value of $0.199 per share and the Class A Warrant and
Class B Warrant shall each be deemed to have a value of $0.001. No fractional
shares will be issued. In lieu thereof, the Company will pay cash for fractional
share amounts equal to the fair market value of the Common Stock as quoted as
the closing bid price of the Common Stock on the date of conversion.

                  5.6      Paragraphs 11.1.2 and 11.1.3 are amended and restated
                           in their entirety as follows:


   11.1.2   Failure of the Company to pay Interest when due hereunder; or

   11.1.3 Except for Events of Default set forth in Paragraphs 11.1.1 and
11.1.2, failure of the Company to perform any of the covenants, conditions,
provisions or agreements contained herein, or in any other agreement between the
Company and Holder, which failure continues for a period of thirty (30) days
after notice of default has been given to the Company by the Holders of not less
than twenty-five percent (25%) of the principal amount of the Notes then
outstanding; provided, however, that if the nature of the Company's obligation
is such that more than thirty (30) days are required for performance, then an
Event of Default shall not occur if the Company commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion; or

                                       2
<PAGE>

         6.       Paragraph 26, "Covenants of the Company," is hereby added as
                  follows:


   26. COVENANTS OF THE COMPANY. The Company covenants to perform the following:

   26.1 The Company does not have a sufficient number of authorized shares of
its Common Stock to make all of the share issuances pursuant to the Note, the
Warrants and this Allonge. The Company will use its best efforts to obtain
shareholder approval to increase the number of authorized shares by an amount
sufficient to satisfy the requirements of the Note, the Warrants and this
Allonge, but not less than five (5) million shares, at its annual meeting of
shareholders, which meeting will be held no later than March 31, 2007. The
Company will reserve such number of shares of Common Stock as are required for
issuance under the Notes, the Warrants and this Allonge;

   26.2 The Class A Warrants will have a term expiring on January 2, 2011 and
the Class B Warrants will have a term of three years from their respective dates
of issuance. All Warrants will be assignable by their holders;

   26.3 The Company will amend its Registration Statement No. 333-130915 and/or
file a new registration statement with the SEC on or before March 31, 2007 to
cover the shares of Common Stock that may be issued under the Notes, the
Warrants and this Allonge, but not fewer than 20,000,000 shares. The Company
will use its best efforts to have such amendment or new Registration Statement
declared effective promptly and will cause such registration statement to remain
effective while the Notes and Warrants are outstanding;

   26.4 The Company will collaborate with the Holder to expand its Board of
Directors by appointing or electing one additional director who has background
in life sciences that the Holder may designate after the date of this Allonge.
Such additional director will remain on the Board while the Notes are
outstanding. If the Holder elects not to designate such a person for appointment
or election to the Board, the Holder will be entitled to an observer at the
Board meetings, which observer shall be included in all meetings of the Board;

   26.5 The Company will hold Board of Directors meetings, whether formal or
informal, at least once per month; and

   26.6 The Company will give written notice to the Holder within three (3)
Business Days of the Company's receipt of any proposed financing and disclose
its terms and conditions. The Company will consult with Holder respecting the
proposed financing before it concludes such financing.

   26.7 The Company grants the Holder the right, for a period of seven (7)
Business Days after the Company gives written notice to the Holder, to purchase
any of the Company's securities at the same price and on the same terms and
conditions at any time that the Company proposes to sell to a third party in a
BONA FIDE transaction or a series of transactions in an amount up to

                                       3
<PAGE>

                           (i) all of the securities proposed to be sold if the
                  Company proposes to sell its Common Stock at a price of $0.20
                  per share or less; and


                           (ii) the principal amount of the Note converted and
                  total purchase price of the Common Stock for the Warrants
                  exercised if the Company proposes to sell its Common Stock at
                  a price above $0.20 per share.


                   This right of first refusal in favor of the Holder will apply
                  to all securities of the Company convertible into Common Stock
                  and will expire upon the later of the payment of the Notes in
                  full or exercise of all of the Warrants. This right of first
                  refusal shall not apply to securities issuable under the
                  Fusion funding facility; and


   26.8 The Company will execute such other documents as may be necessary or
appropriate to carry out the provisions of the Notes, the Warrants and this
Allonge. The Company will bear all reasonable costs associated with the
preparation and implementation of this Allonge.

                  6.1      The following definitions in Paragraph 24,
                           "Definitions," are hereby amended and restated as
                           follows:


   "Maturity Date" means January 3, 2008.

   "Senior Indebtedness" means any Indebtedness of the Company, outstanding
prior to the date of this Allonge, unless such Indebtedness is PARI PASSU with
or contractually subordinate or junior in right of payment to the Notes, except
Indebtedness to any Affiliate of the Company, which shall be junior and
subordinate to the Notes.

   "Subordinated Indebtedness of the Company" means any Indebtedness of the
Company incurred after the date of this Allonge.

                  6.2      Paragraph 27, "Senior Subordinated Indebtedness" is
                           hereby added as follows:


   27. SENIOR SUBORDINATED INDEBTEDNESS.

   27.1 This Note constitutes Senior Subordinated Indebtedness of the Company
and is unsecured.

   27.2 The Indebtedness evidenced by this Note and all of the Notes will be
subordinated to the prior payment when due of the principal of, and premium, if
any, and accrued and unpaid interest on, all existing Senior Indebtedness. The
Notes will be senior to, in right of payment of principal of, premium, if any,
and accrued and unpaid interest on, any Subordinated Indebtedness of the
Company.

                                       4
<PAGE>

   27.3 Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company, all holders of Senior
Indebtedness of the Company must be paid in full before any payment or
distribution is made with respect to the Notes. The Company shall pay all
principal and accrued and unpaid Interest on the Notes before it makes any
payment or distribution to the holders of Subordinated Indebtedness.

                  6.3      In all other respects, the Note is confirmed,
                           ratified, and approved and, as amended by this
                           Allonge, shall continue in full force and effect.


         IN WITNESS WHEREOF, the Company and Holder have caused this Allonge to
be executed and delivered by their respective duly authorized officer and
trustee on March 5, 2007, to be effective as of the date and year first above
written.


                                                     AETHLON MEDICAL, INC.

                                                              James A. Joyce
                                                     Its:     Chairman and CEO

                                                     Accepted and agreed to:
                                                     Claypoole Capital, LLC.


                                                     By: _______________________
                                                       Christian J. Hoffmann III


                                       5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.47
<SEQUENCE>7
<FILENAME>aethlon_10kex10-47.txt
<DESCRIPTION>FORM OF ALLONGE
<TEXT>
<PAGE>

                                                                   Exhibit 10.47


                               FORM OF ALLONGE TO
                         10% SERIES A CONVERTIBLE NOTES


This Allonge (the "Allonge"), dated as of March 5, 2007, attached to and forming
a part of certain 10% Series A Convertible Promissory Notes, dated in November
and December, 2005 (collectively, the "NOTE"), made by AETHLON MEDICAL, INC, a
Nevada corporation (the "Company"), payable to the order of the Ellen R. Weiner
Family Revocable Trust (the "Holder"), in the total principal amount of
$760,000.

         7.       Paragraph 1, "Interest," is hereby amended and restated in its
                  entirety as follows:


1.       INTEREST

                  7.1      This Note shall bear interest ("Interest") equal to
                           ten percent (10%) per annum on the unpaid principal
                           balance, computed on a three hundred sixty (360)-day
                           year, during the term of the Note. Interest will
                           accrue on each Advance commencing on the date of the
                           Advance, as set forth on Exhibit A to this Note. The
                           Company shall pay all accrued Interest after the date
                           of the Allonge on a quarterly basis on the first day
                           of April, July, October and on the Maturity Date In
                           no event shall the rate of Interest payable on this
                           Note exceed the maximum rate of Interest permitted to
                           be charged under applicable law.


                  7.2      Within five (5) business days of the execution date
                           of this Allonge, the Company will pay accrued
                           Interest through February 15, 2007. The Company will
                           pay the Interest in units (the "Units") at the rate
                           of $.20 per Unit (the "Interest Payment Rate"). Each
                           Unit is composed of one share of the Company's Common
                           Stock and one Class A Common Stock Purchase Warrant
                           (the "Class A Warrant"). The Company will pay the
                           accrued Interest through February 15, 2007 by issuing
                           527,577 Units and will pay all accrued Interest
                           thereafter in Units at the Interest Payment Rate.
                           Each Class A Warrant will be exercisable to purchase
                           one share of Common Stock at a price of $.20 per
                           share (the Exercise Price"). If the Holder exercises
                           Class A Warrants on or before July 3, 2008, the
                           Company will issue the Holder one Class B Common
                           Stock Purchase Warrant (the "Class B Warrant") for
                           every two Class A Warrants exercised. Each Class B
                           Warrant will be exercisable to purchase one share of
                           Common Stock at a price equal to the greater of $.20
                           per share or seventy-five percent (75%) of the
                           average of the closing bid prices of the Common Stock
                           for the five (5) trading days immediately preceding
                           the date of the notice of conversion. The forms of
                           the Class A Warrant and Class B Warrant are set forth
                           as Exhibits B and C, respectively. The Class A
                           Warrants and Class B Warrants are referred to as the
                           "Warrants."

                                       1
<PAGE>


                  7.3      All Interest payable under the Note after the date of
                           the Allonge will, at the option of the Holder, be
                           payable in cash or Units, valued at the Interest
                           Payment Rate, as such term is defined in this Note.
                           The Company will pay any Interest that cannot be paid
                           in full Units in cash.


                  7.4      Paragraph 3 of the Note is hereby amended and
                           restated in its entirety as follows:

   3. PRE-PAYMENTS AND MATURITY DATE. This Note shall be due and payable in
full, including all accrued Interest thereon, on January 3, 2008 (the "Maturity
Date"). At any time prior to the Maturity Date, the Company shall have the right
to prepay this Note, in whole or in part, without penalty, on ten (10) days'
advance written notice to the Holder, subject to the right of the Holder to
convert in advance of such prepayment date and provided that on such prepayment
date the Company will pay in respect of the redeemed Note cash equal to the face
amount plus accrued Interest on the Note (or portion) redeemed. If the Company
plans to pay the Note in full on or after the Maturity Date, it will give the
Holder the opportunity to convert at the Conversion Price for a period of ten
(10) days after delivery of written notice of the payment to the Holder. The
Company may prepay this Note at anytime after issuance without penalty.

                  7.5      Paragraph 5.1 of the Note is hereby amended and
                           restated in its entirety as follows:


   5.1 CONVERSION OF NOTE/CONVERSION PRICE. This Note is convertible, at the
option of the Holder, into Units at any time after the Issue Date prior to the
close of business on the Business Day preceding the Maturity Date at the rate of
$.20 per Unit (the "Conversion Price"), subject to adjustment as hereinafter
provided. Each Unit is composed of one share of Common Stock and one Class A
Warrant. Each Class A Warrant is exercisable to purchase one share of Common
Stock at the Exercise Price. If the Holder exercises Class A Warrants on or
before July 3, 2008, the Company will issue the Holder one Class B Warrant for
every two Class A Warrants exercised. The Common Stock comprising the Units
shall be deemed to have a value of $0.199 per share and the Class A Warrant and
Class B Warrant shall each be deemed to have a value of $0.001. No fractional
shares will be issued. In lieu thereof, the Company will pay cash for fractional
share amounts equal to the fair market value of the Common Stock as quoted as
the closing bid price of the Common Stock on the date of conversion.

                  7.6      Paragraphs 11.1.2 and 11.1.3 are amended and restated
                           in their entirety as follows:


   11.1.2   Failure of the Company to pay Interest when due hereunder; or

   11.1.3 Except for Events of Default set forth in Paragraphs 11.1.1 and
11.1.2, failure of the Company to perform any of the covenants, conditions,
provisions or agreements contained herein, or in any other agreement between the
Company and Holder, which failure continues for a period of thirty (30) days
after notice of default has been given to the Company by the Holders of not less
than twenty-five percent (25%) of the principal amount of the Notes then
outstanding; provided, however, that if the nature of the Company's obligation
is such that more than thirty (30) days are required for performance, then an
Event of Default shall not occur if the Company commences performance within
such thirty (30) day period and thereafter diligently prosecutes the same to
completion; or

                                       2
<PAGE>

         8.       Paragraph 26, "Covenants of the Company," is hereby added as
                  follows:


   26. COVENANTS OF THE COMPANY. The Company covenants to perform the following:

   26.1 The Company does not have a sufficient number of authorized shares of
its Common Stock to make all of the share issuances pursuant to the Note, the
Warrants and this Allonge. The Company will use its best efforts to obtain
shareholder approval to increase the number of authorized shares by an amount
sufficient to satisfy the requirements of the Note, the Warrants and this
Allonge, but not less than five (5) million shares, at its annual meeting of
shareholders, which meeting will be held no later than March 31, 2007. The
Company will reserve such number of shares of Common Stock as are required for
issuance under the Notes, the Warrants and this Allonge;

   26.2 The Class A Warrants will have a term expiring on January 2, 2011 and
the Class B Warrants will have a term of three years from their respective dates
of issuance. All Warrants will be assignable by their holders;

   26.3 The Company will amend its Registration Statement No. 333-130915 and/or
file a new registration statement with the SEC on or before March 31, 2007 to
cover the shares of Common Stock that may be issued under the Notes, the
Warrants and this Allonge, but not fewer than 20,000,000 shares. The Company
will use its best efforts to have such amendment or new Registration Statement
declared effective promptly and will cause such registration statement to remain
effective while the Notes and Warrants are outstanding;

   26.4 The Company will collaborate with the Holder to expand its Board of
Directors by appointing or electing one additional director who has background
in life sciences that the Holder may designate after the date of this Allonge.
Such additional director will remain on the Board while the Notes are
outstanding. If the Holder elects not to designate such a person for appointment
or election to the Board, the Holder will be entitled to an observer at the
Board meetings, which observer shall be included in all meetings of the Board;

   26.5 The Company will hold Board of Directors meetings, whether formal or
informal, at least once per month; and

   26.6 The Company will give written notice to the Holder within three (3)
Business Days of the Company's receipt of any proposed financing and disclose
its terms and conditions. The Company will consult with Holder respecting the
proposed financing before it concludes such financing.

                                       3
<PAGE>

   26.7 The Company grants the Holder the right, for a period of seven (7)
Business Days after the Company gives written notice to the Holder, to purchase
any of the Company's securities at the same price and on the same terms and
conditions at any time that the Company proposes to sell to a third party in a
BONA FIDE transaction or a series of transactions in an amount up to


                           (i) all of the securities proposed to be sold if the
                  Company proposes to sell its Common Stock at a price of $0.20
                  per share or less; and


                           (ii) the principal amount of the Note converted and
                  total purchase price of the Common Stock for the Warrants
                  exercised if the Company proposes to sell its Common Stock at
                  a price above $0.20 per share.


                   This right of first refusal in favor of the Holder will apply
                  to all securities of the Company convertible into Common Stock
                  and will expire upon the later of the payment of the Notes in
                  full or exercise of all of the Warrants. This right of first
                  refusal shall not apply to securities issuable under the
                  Fusion funding facility; and


   26.8 The Company will execute such other documents as may be necessary or
appropriate to carry out the provisions of the Notes, the Warrants and this
Allonge. The Company will bear all reasonable costs associated with the
preparation and implementation of this Allonge.

                  8.1      The following definitions in Paragraph 24,
                           "Definitions," are hereby amended and restated as
                           follows:


   "Maturity Date" means January 3, 2008.

   "Senior Indebtedness" means any Indebtedness of the Company, outstanding
prior to the date of this Allonge, unless such Indebtedness is PARI PASSU with
or contractually subordinate or junior in right of payment to the Notes, except
Indebtedness to any Affiliate of the Company, which shall be junior and
subordinate to the Notes.

   "Subordinated Indebtedness of the Company" means any Indebtedness of the
Company incurred after the date of this Allonge.

                  8.2      Paragraph 27, "Senior Subordinated Indebtedness" is
                           hereby added as follows:


                                       4
<PAGE>

   27. SENIOR SUBORDINATED INDEBTEDNESS.

   27.1 This Note constitutes Senior Subordinated Indebtedness of the Company
and is unsecured.

   27.2 The Indebtedness evidenced by this Note and all of the Notes will be
subordinated to the prior payment when due of the principal of, and premium, if
any, and accrued and unpaid interest on, all existing Senior Indebtedness. The
Notes will be senior to, in right of payment of principal of, premium, if any,
and accrued and unpaid interest on, any Subordinated Indebtedness of the
Company.

   27.3 Upon any distribution of assets of the Company in any dissolution,
winding up, liquidation or reorganization of the Company, all holders of Senior
Indebtedness of the Company must be paid in full before any payment or
distribution is made with respect to the Notes. The Company shall pay all
principal and accrued and unpaid Interest on the Notes before it makes any
payment or distribution to the holders of Subordinated Indebtedness.

                  8.3      In all other respects, the Note is confirmed,
                           ratified, and approved and, as amended by this
                           Allonge, shall continue in full force and effect.


         IN WITNESS WHEREOF, the Company and Holder have caused this Allonge to
be executed and delivered by their respective duly authorized officer and
trustee on March 5, 2007, to be effective as of the date and year first above
written.


                                       AETHLON MEDICAL, INC.


                                                James A. Joyce
                                       Its:     Chairman and CEO

                                       Accepted and agreed to:
                                       Ellen R. Weiner Family Revocable Trust


                                       By:______________________
                                          Ellen R. Weiner


                                       5
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-14
<SEQUENCE>8
<FILENAME>aethlon_10kex-14.txt
<DESCRIPTION>CODE OF ETHICS
<TEXT>

<PAGE>

                                                                      Exhibit 14



                       CODE OF BUSINESS CONDUCT AND ETHICS
       (AS APPROVED BY THE BOARD OF DIRECTORS ON __________________, 2005)


THIS CODE APPLIES TO EVERY DIRECTOR, OFFICER (INCLUDING THE CHIEF EXECUTIVE
OFFICER, PRESIDENT AND CHIEF FINANCIAL OFFICER), AND EMPLOYEE OF AETHLON
MEDICAL, INC., (THE "COMPANY").

To further the Company's fundamental principles of honesty, loyalty, fairness
and forthrightness, the Board of Directors of the Company (the "BOARD:") has
established and adopted this Code of Business Conduct and Ethics (this "CODE").
This Code strives to deter wrongdoing and promote the following six objectives:

o        honest and ethical conduct;

o        avoidance of conflicts of interest;

o        full, fair, accurate, timely and transparent disclosure;

o        compliance with applicable government and self-regulatory organization
         laws, rules and regulations;

o        prompt internal reporting of Code violations; and

o        accountability for compliance with the Code.

Below, we discuss situations that require application of our fundamental
principles and promotion of our objectives. If you believe there is a conflict
between this Code and a specific procedure, please consult the Company's Board
of Directors for guidance.

Each of our directors, officers and employees is expected to:

o        understand the requirements of your position, including Company
         expectations and governmental rules and regulations that apply to your
         position;

o        comply with this Code and all applicable laws, rules and regulations;

o        report any violation of this Code of which you become aware; and

o        be accountable for complying with this Code.


                                       -1-


<PAGE>


TABLE OF CONTENTS
================================================================================
ETHICS ADMINISTRATOR..........................................................3
ACCOUNTING POLICIES...........................................................3
AMENDMENTS AND MODIFICATIONS OF THIS CODE.....................................3
ANTI-BOYCOTT AND U.S. SANCTIONS LAWS..........................................3
ANTITRUST AND FAIR COMPETITION LAWS...........................................4
BRIBERY........................................................................5
COMPLIANCE WITH LAWS, RULES AND REGULATIONS...................................5
COMPUTER AND INFORMATION SYSTEMS..............................................5
CONFIDENTIAL INFORMATION BELONGING TO OTHERS..................................5
CONFIDENTIAL AND PROPRIETARY INFORMATION......................................6
CONFLICTS OF INTEREST.........................................................7
CORPORATE OPPORTUNITIES AND USE AND PROTECTION OF COMPANY ASSETS..............8
DISCIPLINE FOR NONCOMPLIANCE WITH THIS CODE...................................8
DISCLOSURE POLICIES AND CONTROLS..............................................8
ENVIRONMENT, HEALTH AND SAFETY................................................9
FILING OF GOVERNMENT REPORTS..................................................9
FOREIGN CORRUPT PRACTICES ACT.................................................9
INSIDER TRADING OR TIPPING...................................................10
INTELLECTUAL PROPERTY: PATENTS, COPYRIGHTS AND TRADEMARKS....................11
INVESTOR RELATIONS AND PUBLIC AFFAIRS........................................11
POLITICAL CONTRIBUTIONS......................................................11
PROHIBITED SUBSTANCES........................................................12
RECORD RETENTION.............................................................12
REPORTING VIOLATIONS OF THIS CODE............................................12
WAIVERS.......................................................................13
CONCLUSION....................................................................13

                                       -2-


<PAGE>




ETHICS ADMINISTRATOR
================================================================================
All matters concerning this Code shall be heard by the Board of Directors.
ACCOUNTING POLICIES
================================================================================
The Company will make and keep books, records and accounts, which in reasonable
detail accurately and fairly present the Company's transactions. All directors,
officers, employees and other persons are prohibited from directly or indirectly
falsifying or causing to be false or misleading any financial or accounting
book, record or account. You and others are expressly prohibited from directly
or indirectly manipulating an audit, and from destroying or tampering with any
record, document or tangible object with the intent to obstruct a pending or
contemplated audit, review or federal investigation. The commission of, or
participation in, one of these prohibited activities or other illegal conduct
will subject you to federal penalties, as well as to punishment, up to and
including termination of employment.
No director, officer or employee of the Company may directly or indirectly make
or cause to be made a materially false or misleading statement, or omit to
state, or cause another person to omit to state, any material fact necessary to
make statements made not misleading, in connection with the audit of financial
statements by independent accountants, the preparation of any required reports
whether by independent or internal accountants, or any other work which involves
or relates to the filing of a document with the Securities and Exchange
Commission ("SEC").

AMENDMENTS AND MODIFICATIONS OF THIS CODE
================================================================================
There shall be no amendment or modification to this Code except upon approval by
the Board of Directors.

In case of any amendment or modification of this Code that applies to an officer
or director of the Company, the amendment or modification shall be posted on the
Company's website within two days of the board vote or shall be otherwise
disclosed as required by applicable law or the rules of any stock exchange or
market on which the Company's securities are listed for trading. Notice posted
on the website shall remain there for a period of twelve months and shall be
retained in the Company's files as required by law.

ANTI-BOYCOTT AND U.S. SANCTIONS LAWS
================================================================================
The Company must comply with anti-boycott laws of the United States, which
prohibit it from participating in, and require us to report to the authorities
any request to participate in, a boycott of a country or businesses within a
country. If you receive such a request, report it to your immediate superior,
our CEO, or to the chairman of the Board of Directors. We will also not engage
in business with any government, entity, organization or individual where doing
so is prohibited by applicable laws.

                                       -3-


<PAGE>




ANTITRUST AND FAIR COMPETITION LAWS
================================================================================
The purpose of antitrust laws of the United States and most other countries is
to provide a level playing field to economic competitors and to promote fair
competition. No director, officer or employee, under any circumstances or in any
context, may enter into any understanding or agreement, whether express or
implied, formal or informal, written or oral, with an actual or potential
competitor, which would illegally limit or restrict in any way either party's
actions, including the offers of either party to any third party. This
prohibition includes any action relating to prices, costs, profits, products,
services, terms or conditions of sale, market share or customer or supplier
classification or selection.

It is our policy to comply with all U.S. antitrust laws. This policy is not to
be compromised or qualified by anyone acting for or on behalf of our Company.
You must understand and comply with the antitrust laws as they may bear upon
your activities and decisions. Anti-competitive behavior in violation of
antitrust laws can result in criminal penalties, both for you and for the
Company. Accordingly, any question regarding compliance with antitrust laws or
your responsibilities under this policy should be directed to our CEO or the
chairman of the Board of Directors, who may then direct you to our legal
counsel. Any director, officer or employee found to have knowingly participated
in violating the antitrust laws will be subject to disciplinary action, up to
and including termination of employment.

Below are some scenarios that are prohibited and scenarios that could be
prohibited for antitrust reasons. These scenarios are not an exhaustive list of
all prohibited and possibly prohibited antitrust conduct.

    o    Proposals or agreements or understanding, express or implied, formal or
         informal, written or oral, with any competitor regarding any aspect of
         competition between the Company and the competitor for sales to third
         parties;

    o    Proposals or agreements or understandings with customers which restrict
         the price or other terms at which the customer may resell or lease any
         product to a third party; or

    o    Proposals or agreements or understandings with suppliers which restrict
         the price or other terms at which the Company may resell or lease any
         product or service to a third party.

The following business arrangements could raise anti-competition or antitrust
law issues. Before entering into them, you must consult with our CEO or the
chairman of the Board of Directors, who may then direct you to our legal
counsel:

    o    Exclusive arrangements for the purchase or sale of products or
         services;

    o    Bundling of goods and services; or

    o    Agreements to add an employee of the Company to another entity's board
         of Directors.

                                       -4-


<PAGE>




BRIBERY
================================================================================
You are strictly forbidden from offering, promising or giving money, gifts,
loans, rewards, favors or anything of value to any governmental official,
employee, agent or other intermediary (either inside or outside the United
States) which is prohibited by law. Those paying a bribe may subject the Company
and themselves to civil and criminal penalties. When dealing with government
customers or officials, no improper payments will be tolerated. If you receive
any offer of money or gifts that is intended to influence a business decision,
it should be reported to your supervisor our CEO or the chairman of the Board of
Directors immediately.

The Company prohibits improper payments in all of its activities, whether these
activities are with governments or in the private sector.

COMPLIANCE WITH LAWS, RULES AND REGULATIONS
================================================================================
The Company's goal and intention is to comply with the laws, rules and
regulations by which we are governed. In fact, we strive to comply not only with
requirements of the law but also with recognized compliance practices. All
illegal activities or illegal conduct are prohibited whether or not they are
specifically set forth in this Code.

Where law does not govern a situation or where the law is unclear or
conflicting, you should discuss the situation with your supervisor, our CEO or
the chairman of the Board of Directors, who may then direct you to our legal
counsel. Business should always be conducted in a fair and forthright manner.
Directors, officers and employees are expected to act according to high ethical
standards.

COMPUTER AND INFORMATION SYSTEMS
================================================================================
For business purposes, officers and employees are provided telephones and
computer workstations and software, including network access to computing
systems such as the Internet and e-mail, to improve personal productivity and to
efficiently manage proprietary information in a secure and reliable manner. You
must obtain the permission from your supervisor or our CEO to install any
software on any Company computer or connect any personal laptop to the Company
network. As with other equipment and assets of the Company, we are each
responsible for the appropriate use of these assets. Except for limited personal
use of the Company's telephones and computer/e-mail, such equipment may be used
only for business purposes. Officers and employees should not expect a right to
privacy of their e-mail or Internet use. All e-mails or Internet use on Company
equipment is subject to monitoring by the Company.

CONFIDENTIAL INFORMATION BELONGING TO OTHERS
================================================================================
You must respect the confidentiality of information, including, but not limited
to, trade secrets and other information given in confidence by others, just as
we protect our own confidential information. This includes, but is not limited
to partners, suppliers, contractors, competitors or customers. However, certain
restrictions about the information of others may place an unfair burden on the
Company's future business. For that reason, directors, officers and employees
should coordinate with your supervisor or the CEO to ensure appropriate

                                       -5-


<PAGE>




agreements are in place prior to receiving any confidential third-party
information. In addition, any confidential information that you may possess from
an outside source, such as a previous employer, must not, so long as such
information remains confidential, be disclosed to or used by the Company.
Unsolicited confidential information submitted to the Company should be refused,
returned to the sender where possible and deleted, if received via the Internet.

CONFIDENTIAL AND PROPRIETARY INFORMATION
================================================================================
It is the Company's policy to ensure that all operations, activities and
business affairs of the Company and our business associates are kept
confidential to the greatest extent possible. Confidential information includes
all non-public information that might be of use to competitors, or that might be
harmful to the Company or its customers if disclosed. Confidential and
proprietary information about the Company or its business associates belongs to
the Company, must be treated with strictest confidence and is not to be
disclosed or discussed with others.

Unless otherwise agreed to in writing, confidential and proprietary information
includes any and all information from which the Company may derive an economic
benefit, including, but not limited to, methods, inventions, improvements or
discoveries, whether or not patentable or copyrightable, and any other
information of a similar nature disclosed to the directors, officers or
employees of the Company or otherwise made known to the Company as a consequence
of or through employment or association with the Company (including information
originated by the director, officer or employee). This can include, but is not
limited to, information regarding the Company's business, products, processes,
and services. It also can include information relating to research, development,
inventions, trade secrets, intellectual property of any type or description,
data, business plans, marketing strategies, engineering, contract negotiations,
contents of the Company intranet and business methods or practices.
The following are examples of information that is not considered confidential:
    o    information that is in the public domain to the extent it is readily
         available;
    o    information that becomes generally known to the public other than by
         disclosure by the Company or a director, officer or employee; or
    o    information you receive from a party that is under no legal obligation
         of confidentiality with the Company with respect to such information.
We have exclusive property rights to all confidential and proprietary
information regarding the Company or our business associates. The unauthorized
disclosure of this information could destroy its value to the Company and give
others an unfair advantage. You are responsible for safeguarding Company
information and complying with established security controls and procedures All
documents, records, notebooks, notes, memoranda and similar repositories of
information containing information of a secret, proprietary, confidential or
generally undisclosed nature relating to the Company or our operations and
activities, including any copies thereof, unless otherwise agreed to in writing,
belong to the Company and shall be held by you in trust solely for the benefit
of the Company. Confidential or proprietary information must be delivered to the
Company by you on the termination of your association with us or at any other
time we request.


                                       -6-


<PAGE>




CONFLICTS OF INTEREST
================================================================================
Conflicts of interest can arise in virtually every area of our operations. A
"conflict of interest" exists whenever an individual's private interests
interfere or conflict in any way (or even appear to interfere or conflict) with
the interests of the Company. We must strive to avoid conflicts of interest We
must each make decisions solely in the best interest of the Company. Any
business, financial or other relationship with suppliers, customers or
competitors that might impair or appear to impair the exercise of our judgment
solely for the benefit of the Company is prohibited.

Here are some examples of conflicts of interest:

    o    FAMILY MEMBERS--Actions of family members may create a conflict of
         interest. For example, gifts to family members by a supplier of the
         Company are considered gifts to you and must be reported. Doing
         business for the Company with organizations where your family members
         are employed or that are partially or fully owned by your family
         members or close friends may create a conflict or the appearance of a
         conflict of interest. For purposes of this Code "family members"
         includes any child, stepchild, grandchild, parent, stepparent,
         grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law,
         daughter-in-law, brother-in-law or sister-in-law, and adoptive
         relationships.

    o    GIFTS, ENTERTAINMENT, LOANS, OR OTHER FAVORS--Directors, officers and
         employees shall not seek or accept personal gain, directly or
         indirectly, from anyone soliciting business from, or doing business
         with, the Company, or from any person or entity in competition with us.
         Examples of such personal gains are gifts, non-business-related trips,
         gratuities, favors, loans, and guarantees of loans, excessive
         entertainment or rewards. However, you may accept gifts of a nominal
         value. Other than common business courtesies, directors, officers,
         employees and independent contractors must not offer or provide
         anything to any person or organization for the purpose of influencing
         the person or organization in their business relationship with us.
         Directors, officers and employees are expected to deal with advisors
         or suppliers who best serve the needs of the Company as to price,
         quality and service in making decisions concerning the use or purchase
         of materials, equipment, property or services. Directors, officers and
         employees who use the Company's advisors, suppliers or contractors in
         a personal capacity are expected to pay market value for materials and
         services provided.

    o    OUTSIDE EMPLOYMENT--Officers and employees may not participate in
         outside employment, self-employment, or serve as officers, directors,
         partners or consultants for outside organizations, if such activity: o
         reduces work efficiency;

         o    interferes with your ability to act conscientiously in our best
              interest; or

                                       -7-


<PAGE>




         o    requires you to utilize our proprietary or confidential
              procedures, plans or techniques.

You must inform your supervisor or the CEO of any outside employment, including
the employer's name and expected work hours.

You should report any actual or potential conflict of interest involving
yourself or others of which you become aware to your supervisor or our CEO.
Officers and directors should report any actual or potential conflict of
interest involving yourself or others of which you become aware to the chairman
of the Board of Directors.

CORPORATE OPPORTUNITIES AND USE AND PROTECTION OF COMPANY ASSETS
================================================================================
You are prohibited from:

     o    taking for yourself, personally, opportunities that are discovered
          through the use of Company property, information or position;
     o    using Company property, information or position for personal gain; or
     o    competing with the Company.

You have a duty to the Company to advance its legitimate interests when the
opportunity to do so arises.

You are personally responsible and accountable for the proper expenditure of
Company funds, including money spent for travel expenses or for customer
entertainment. You are also responsible for the proper use of property over
which you have control, including both Company property and funds and property
that customers or others have entrusted to your custody. Company assets must be
used only for proper purposes.

Company property should not be misused. Company property may not be sold, loaned
or given away regardless of condition or value, without proper authorization.
Each director, officer and employee should protect our assets and ensure their
efficient use. Theft, carelessness and waste have a direct impact on the
Company's profitability. Company assets should be used only for legitimate
business purposes.

DISCIPLINE FOR NONCOMPLIANCE WITH THIS CODE
================================================================================
Disciplinary actions for violations of this Code can include oral or written
reprimands, suspension or termination of employment or a potential civil lawsuit
against you. The violation of laws, rules or regulations, which can subject the
Company to fines and other penalties, may result in your criminal prosecution.

DISCLOSURE POLICIES AND CONTROLS
================================================================================
The continuing excellence of the Company's reputation depends upon our full and
complete disclosure of important information about the Company that is used in
the securities marketplace. Our financial and non-financial disclosures and
filings with the SEC must be transparent, accurate and timely. We must all work
together to insure that reliable, truthful and accurate information is disclosed
to the public.

                                      -8-


<PAGE>




The Company must disclose to the SEC, current security holders and the investing
public information that is required, and any additional information that may be
necessary to ensure the required disclosures are not misleading or inaccurate.
The Company requires you to participate in the disclosure process, which is
overseen by our CEO and CFO. The disclosure process is designed to record,
process, summarize and report material information as required by all applicable
laws, rules and regulations. Participation in the disclosure process is a
requirement of a public company, and full cooperation and participation by our
CEO, CFO and, upon request, other employees in the disclosure process is a
requirement of this Code.

Officers and employees must fully comply with their disclosure responsibilities
in an accurate and timely manner or be subject to discipline of up to and
including termination of employment.

ENVIRONMENT, HEALTH AND SAFETY
================================================================================
The Company is committed to managing and operating our assets in a manner that
is protective of human health and safety and the environment. It is our policy
to comply, in all material respects, with applicable health, safety and
environmental laws and regulations. Each employee is also expected to comply
with our policies, programs, standards and procedures.

FILING OF GOVERNMENT REPORTS
================================================================================
Any reports or information provided, on our behalf, to federal, state, local or
foreign governments should be true, complete and accurate. Any omission,
misstatement or lack of attention to detail could result in a violation of the
reporting laws, rules and regulations.

FOREIGN CORRUPT PRACTICES ACT
================================================================================
The United States Foreign Corrupt Practices Act prohibits giving anything of
value, directly or indirectly, to foreign government officials or foreign
political candidates in order to obtain, retain or direct business. Accordingly,
corporate funds, property or anything of value may not be, directly or
indirectly, offered or given by you or an agent acting on our behalf, to a
foreign official, foreign political party or official thereof or any candidate
for a foreign political office for the purpose of influencing any act or
decision of such foreign person or inducing such person to use his influence or
in order to assist in obtaining or retaining business for, or directing business
to, any person.

You are also prohibited from offering or paying anything of value to any foreign
person if it is known or there is a reason to know that all or part of such
payment will be used for the above-described prohibited actions. This provision
includes situations when intermediaries, such as affiliates, or agents, are used
to channel payoffs to foreign officials.

                                      -9-


<PAGE>




INSIDER TRADING OR TIPPING
================================================================================
Directors, officers and employees who are aware of material, non-public
information from or about the Company (an "INSIDER"), are not permitted,
directly or through family members or other persons or entities, to:
    o    buy or sell securities (or derivatives relating to such securities) of
         the Company, or

    o    pass on, tip or disclose material, nonpublic information to others
         outside the Company including family and friends.

Such buying, selling or trading of securities may be punished by discipline, up
to and including termination of employment; civil actions, resulting in
penalties of up to three times the amount of profit gained or loss avoided by
the inside trade or stock tip, or criminal actions, resulting in fines and jail
time.

Examples of information that may be considered material, non-public information
in some circumstances are:

    o    undisclosed annual, quarterly or monthly financial results, a change in
         earnings or earnings projections, or unexpected or unusual gains or
         losses in major operations;

    o    undisclosed negotiations and agreements regarding mergers, concessions,
         joint ventures, acquisitions, divestitures, business combinations or
         tender offers;

    o    undisclosed major management changes;

    o    a substantial contract award or termination that has not been publicly
         disclosed;

    o    a major lawsuit or claim that has not been publicly disclosed;

    o    the gain or loss of a significant customer or supplier that has not
         been publicly disclosed;

    o    an undisclosed filing of a bankruptcy petition by the Company;

    o    information that is considered confidential; and

    o    any other undisclosed information that could affect our stock price.

The same policy also applies to securities issued by another company if you have
acquired material, nonpublic information relating to such company in the course
of your employment or affiliation with the Company.

When material information has been publicly disclosed, each insider must
continue to refrain from buying or selling the securities in question until the
third business day after the information has been publicly released to allow the
markets time to absorb the information.

                                      -10-


<PAGE>




INTELLECTUAL PROPERTY: PATENTS, COPYRIGHTS AND TRADEMARKS
================================================================================
Except as otherwise agreed to in writing between the Company and an officer or
employee, all intellectual property you conceive or develop during the course of
your employment shall be the sole property of the Company. The term intellectual
property includes any invention, discovery, concept, idea, or writing whether
protectable or not by any United States or foreign copyright, trademark, patent,
or common law including, but not limited to, designs, materials, compositions of
matter, machines, processes, improvements, data, computer software, writings,
formula, techniques, know-how, methods, as well as improvements thereof or
know-how related thereto concerning any past, present, or prospective activities
of the Company. Officers and employees must promptly disclose in writing to the
Company any intellectual property developed or conceived either solely or with
others during the course of your employment and must render any and all aid and
assistance, at our expense, to secure the appropriate patent, copyright, or
trademark protection for such intellectual property.

Copyright laws may protect items posted on a website. Unless a website grants
permission to download the Internet content you generally only have the legal
right to view the content. If you do not have permission to download and
distribute specific website content you should contact your supervisor or our
CEO, who may refer you to our legal counsel.

If you are unclear as to the application of this Intellectual Property Policy or
if questions arise, please consult with your supervisor or our CEO, who may
refer you to our legal counsel.

INVESTOR RELATIONS AND PUBLIC AFFAIRS
================================================================================
It is very important that the information disseminated about the Company be both
accurate and consistent. For this reason, all matters relating to the Company's
internal and external communications are handled by our CEO (or, if retained for
such purpose, a public relations consultant). Our CEO (or a public relations
consultant retained by the Company) is solely responsible for public
communications with stockholders, analysts and other interested members of the
financial community. Our CEO (or a public relations consultant retained by the
Company) is also solely responsible for our marketing and advertising activities
and communication with employees, the media, local communities and government
officials. Our CEO serves as the Company's spokesperson in both routine and
crisis situations.

POLITICAL CONTRIBUTIONS
================================================================================
You must refrain from making any use of Company, personal or other funds or
resources on behalf of the Company for political or other purposes which are
improper or prohibited by the applicable federal, state, local or foreign laws,
rules or regulations. Company contributions or expenditures in connection with
election campaigns will be permitted only to the extent allowed by federal,
state, local or foreign election laws, rules and regulations. You are encouraged
to participate actively in the political process. We believe that individual
participation is a continuing responsibility of those who live in a free
country.

                                      -11-


<PAGE>




PROHIBITED SUBSTANCES
================================================================================
The use of alcohol, illegal drugs or other prohibited items, including legal
drugs which affect the ability to perform one's work duties, are prohibited
while on Company premises. We also prohibit the possession or use of alcoholic
beverages, firearms, weapons or explosives on our property, unless authorized by
our CEO. You are also prohibited from reporting to work while under the
influence of alcohol or illegal drugs. We reserve the right to perform
pre-employment and random drug testing on employees, as permitted by law.
RECORD RETENTION
================================================================================
The alteration, destruction or falsification of corporate documents or records
may constitute a criminal act. Destroying or altering documents with the intent
to obstruct a pending or anticipated official government proceeding is a
criminal act and could result in large fines and a prison sentence of up to 20
years. Document destruction or falsification in other contexts can result in a
violation of the federal securities laws or the obstruction of justice laws.
REPORTING VIOLATIONS OF THIS CODE
================================================================================
You should be alert and sensitive to situations that could result in actions
that might violate federal, state, or local laws or the standards of conduct set
forth in this Code. If you believe your own conduct or that of a fellow employee
may have violated any such laws or this Code, you have an obligation to report
the matter.

Generally, you should raise such matters first with an immediate supervisor.
However, if you are not comfortable bringing the matter up with your immediate
supervisor, or do not believe the supervisor has dealt with the matter properly,
then you should raise the matter with our CEO who may, if a law, rule or
regulation is in question, then refer you to our legal counsel. The most
important point is that possible violations should be reported and we support
all means of reporting them.

Directors and officers should report any potential violations of this Code to
the chairman of the Board of Directors or to our legal counsel. We will not
allow retaliation against an employee for reporting a possible violation of this
Code in good faith. Retaliation for reporting a federal offense is illegal under
federal law and prohibited under this Code. Retaliation for reporting any
violation of a law, rule or regulation or a provision of this Code is
prohibited. Retaliation will result in discipline, up to and including
termination of employment, and may also result in criminal prosecution. However,
if a reporting individual was involved in improper activity the individual may
be appropriately disciplined even if he or she was the one who disclosed the
matter to the Company. In these circumstances, we may consider the conduct of
the reporting individual in reporting the information as a mitigating factor in
any disciplinary decision.

                                      -12-


<PAGE>




WAIVERS
================================================================================
There shall be no waiver of any part of this Code for any director or officer
except by a vote of the Board of Directors. In case a waiver of this Code is
granted to a director or officer, the notice of such waiver shall be posted on
our website within five days of the Board's vote or shall be otherwise disclosed
as required by applicable law or the rules of any stock exchange or market on
which the Company's securities are listed for trading. Notices posted on our
website shall remain there for a period of 12 months and shall be retained in
our files as required by law.

CONCLUSION
================================================================================
This Code is an attempt to point all of us at the Company in the right
direction, but no document can achieve the level of principled compliance that
we are seeking. In reality, each of us must strive every day to maintain our
awareness of these issues and to comply with the Code's principles to the best
of our abilities. Before we take an action, we must always ask ourselves:
    o Does it feel right?

    o Is this action ethical in every way?

    o Is this action in compliance with the law?

    o Could my action create an appearance of impropriety?

    o Am I trying to fool anyone, including myself, about the propriety of
         this action?

If an action would elicit the wrong answer to any of these questions, do not
take it. We cannot expect perfection, but we do expect good faith. If you act in
bad faith or fail to report illegal or unethical behavior, then you will be
subject to disciplinary procedures. We hope that you agree that the best course
of action is to be honest, forthright and loyal at all times.

                                      -13-



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>9
<FILENAME>aethlon_10ksb-ex2301.txt
<DESCRIPTION>CONSENT
<TEXT>
<PAGE>




                                                                    Exhibit 23.1


            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




We hereby consent to the incorporation by reference in the previously filed
Registration Statements of Aethlon Medical, Inc. on Form S-8 (File No.
333-127911 and 333-114017 and 333-49896) of our report, dated July 12, 2007
appearing in this Annual Report on Form 10-KSB of Aethlon Medical, Inc. for the
year ended March 31, 2007.


                          /s/ Squar, Milner, Peterson, Miranda & Williamson, LLP
                          ------------------------------------------------------
                          Squar, Milner, Peterson, Miranda & Williamson, LLP


Newport Beach, California
July, 12, 2007

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>10
<FILENAME>aethlon_10ksb-ex3101.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>

                                                                    Exhibit 31.1


                                  CERTIFICATION

Certification of 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.

I, James A. Joyce, certify that:

1. I have reviewed this annual report on Form 10-KSB of Aethlon Medical, Inc.;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this annual
report;

4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
small business issuer and have:

         a) designed such disclosure controls and procedures or cause such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is
being prepared;

         b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

         c) evaluated the effectiveness of the small business issuer'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

         d) disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's fourth fiscal quarter that has materially affected, or its
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and

5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
small business issuer's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies and material weakness in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer'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 small business issuer's
internal controls over financial reporting; and


Date: July 13, 2007


/s/ James A. Joyce
- -------------------------------------
James A. Joyce
Chief Executive Officer and President


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>11
<FILENAME>aethlon_10ksb-ex3102.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>


                                                                    Exhibit 31.2


                                  CERTIFICATION

Certification of 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.

I, James W. Dorst, certify that:

1. I have reviewed this annual report on Form 10-KSB of Aethlon Medical, Inc.;

2. Based on my knowledge, this annual 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 annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
small business issuer as of, and for, the periods presented in this annual
report;

4. The small business issuer's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
small business issuer and have:

         a) designed such disclosure controls and procedures or cause such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual report is
being prepared;

         b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;

         c) evaluated the effectiveness of the small business issuer'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

         d) disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's fourth fiscal quarter that has materially affected, or its
reasonably likely to materially affect, the small business issuer's internal
control over financial reporting; and

5. The small business issuer's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the small business issuer's auditors and the audit committee of
small business issuer's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies and material weakness in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the small business issuer'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 small business issuer's
internal controls over financial reporting; and


Date: July 13, 2007


/s/ James W. Dorst
- -----------------------
James W. Dorst
Chief Financial Officer


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>12
<FILENAME>aethlon_10ksb-ex3200.txt
<DESCRIPTION>CERTIFICATION
<TEXT>
<PAGE>




                                                                      Exhibit 32


               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 for
the year ended March 31, 2007 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, James A. Joyce, Chief Executive
Officer and President, and I, James W. Dorst, 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 our
knowledge:

(1) 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 fairly
presents in all material respects the financial condition and results of
operations of the Company.

A signed original of this written statement required by Section 906, another
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 Manhattan Scientifics, Inc. and furnished to the Securities and
Exchange Commission or its staff upon request.


                                          /s/ James A. Joyce
                                          -------------------------------------
                                          James A. Joyce
                                          Chief Executive Officer and President


                                          /s/ James W. Dorst
                                          -------------------------------------
                                          James W. Dorst
                                          Chief Financial Officer


July 13, 2007









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