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<SEC-DOCUMENT>0001019687-09-002908.txt : 20090814
<SEC-HEADER>0001019687-09-002908.hdr.sgml : 20090814
<ACCEPTANCE-DATETIME>20090814143432
ACCESSION NUMBER:		0001019687-09-002908
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20090630
FILED AS OF DATE:		20090814
DATE AS OF CHANGE:		20090814

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:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-21846
		FILM NUMBER:		091014771

	BUSINESS ADDRESS:	
		STREET 1:		3030 BUNKER HILL STREET, #4000
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92109
		BUSINESS PHONE:		858-459-7800

	MAIL ADDRESS:	
		STREET 1:		3030 BUNKER HILL STREET, #4000
		CITY:			SAN DIEGO
		STATE:			CA
		ZIP:			92109

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	BISHOP EQUITIES INC
		DATE OF NAME CHANGE:	19930602
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>aethlon_10q-063009.txt
<TEXT>

<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

                                   (Mark One)

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934.

                For the quarterly period ended June 30, 2009

                                       OR

[_]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934.

                   For the transition period from _____to_____

                         COMMISSION FILE NUMBER 0-21846

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

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

              3030 BUNKER HILL ST, SUITE 4000, SAN DIEGO, CA 92109
               ----------------------------------------- ---------
               (Address of principal executive offices) (Zip Code)

                                 (858) 459-7800
                                 ---------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [_]

Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting Company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting Company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer [_]                      Accelerated filer  [_]
Non accelerated filer [_]          (Do not check if a smaller reporting company)
Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). YES [_] NO [X]

As of August 13, 2009, the registrant had outstanding 55,228,096 shares of
common stock, $.001 par value.



<PAGE>

PART I. FINANCIAL INFORMATION


ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         CONDENSED CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2009 (UNAUDITED)
         AND MARCH 31, 2009                                                    3

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
         THREE MONTHS ENDED JUNE 30, 2009 AND 2008 AND FOR THE
         PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH
         JUNE 30, 2009 (UNAUDITED)                                             4

         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE
         MONTHS ENDED JUNE 30, 2009 AND 2008 AND FOR THE PERIOD
         JANUARY 31, 1984 (INCEPTION) THROUGH JUNE 30, 2009 (UNAUDITED)        5

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)      7

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS                                 19

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK           23

ITEM 4T. CONTROLS AND PROCEDURES                                              23

PART II. OTHER INFORMATION                                                    24

ITEM 1.  LEGAL PROCEEDINGS                                                    24

ITEM 1A. RISK FACTORS                                                         24

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS          24

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                      24

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                  25

ITEM 5.  OTHER INFORMATION                                                    25

ITEM 6.  EXHIBITS                                                             26



                                        2


<PAGE>
<TABLE>
<S>                 <C>
PART I.
               FINANCIAL INFORMATION


               ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                      AETHLON MEDICAL, INC.
                                  (A Development Stage Company)
                              CONDENSED CONSOLIDATED BALANCE SHEETS



                                                                     June 30,         March 31,
                                                                       2009             2009
                                                                   ------------     ------------
                                                                    (Unaudited)
ASSETS
Current assets
     Cash                                                          $     90,317     $      6,157
     Prepaid expenses and other current assets                           52,680           37,011
                                                                   ------------     ------------
            Total current assets                                        142,997           43,168

Property and equipment, net                                               1,751            2,603
Patents and patents pending, net                                        136,126          138,417
Deposits                                                                 13,200           13,200
                                                                   ------------     ------------
            Total assets                                           $    294,074     $    197,388
                                                                   ============     ============

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
     Accounts payable                                              $    414,514     $    460,074
     Due to related parties                                             609,438          634,896
     Notes payable, net of discounts                                    322,501          302,500
     Convertible notes payable, net of discounts                      1,652,100        2,069,720
     Derivative liability                                               316,635               --
     Other current liabilities                                          701,013          679,498
                                                                   ------------     ------------
            Total current liabilities                                 4,016,201        4,146,688

Commitments and Contingencies

Stockholders' Deficit
     Common stock, par value $0.001 per share;
         100,000,000 shares authorized;
         54,586,699 and 49,454,131 shares issued
         and outstanding as of June 30, 2009 and
         March 31, 2009, respectively                                    54,587           49,455
     Additional paid-in capital                                      35,589,201       34,312,659
     Deficit accumulated during development stage                   (39,365,915)     (38,311,414)
                                                                   ------------     ------------
                                                                     (3,722,127)      (3,949,300)
                                                                   ------------     ------------
            Total liabilities and stockholders' deficit            $    294,074     $    197,388
                                                                   ============     ============



             The accompanying notes are an integral part of these unaudited condensed
                                consolidated financial statements.

                                                3


<PAGE>

                               AETHLON MEDICAL, INC.
                           (A Development Stage Company)
                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                            For the Three Months Ended
                            June 30, 2009 and 2008 and
         For the Period January 31, 1984 (Inception) Through June 30, 2009
                                    (Unaudited)


                                                                   January 31, 1984
                                     Three Months    Three Months     (Inception)
                                        Ended           Ended           through
                                       June 30,        June 30,        June 30,
                                         2009            2008            2009
                                     ------------    ------------    ------------

REVENUES

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

EXPENSES

  Professional Fees                       235,853         160,275       8,028,312
  Payroll and related                     327,074         352,763      11,452,800
  General and administrative               79,028         110,621       5,977,110
  Impairment                                   --              --       1,313,253
                                     ------------    ------------    ------------
                                          641,955         623,659      26,771,475
                                     ------------    ------------    ------------
OPERATING LOSS                           (641,955)       (623,659)    (25,237,907)
                                     ------------    ------------    ------------

OTHER EXPENSE (INCOME)
  Loss on extinguishment of debt               --              --       3,368,582
  Change in fair value of
      derivative liability                 37,434        (187,692)      1,659,052
  Interest and other debt expenses        316,657         562,848       8,671,427
  Interest income                            (107)              --        (20,293)
  Other                                        --              --         390,678
                                     ------------    ------------    ------------
                                          353,984         375,156      14,069,446
                                     ------------    ------------    ------------
NET LOSS                             $   (995,939)   $   (998,815)   $(39,307,353)
                                     ============    ============    ============

BASIC AND DILUTED LOSS PER
  COMMON SHARE                       $      (0.02)   $      (0.03)
                                     ============    ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                     52,728,612      39,633,952
                                     ============    ============



          The accompanying notes are an integral part of these unaudited
                   condensed consolidated financial statements.

                                         4



<PAGE>

                                           AETHLON MEDICAL, INC.
                                       (A DEVELOPMENT STAGE COMPANY)
                              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                           FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008 AND
                     FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH JUNE 30, 2009
                                                (Unaudited)


                                                             Three Months     Three Months   January 31, 1984
                                                                 Ended           Ended         (Inception)
                                                                June 30,        June 30,         Through
                                                                  2009            2008           June 30,
                                                                                                   2009
                                                              ------------    ------------    ------------
Cash flows from operating activities:

      Net loss                                                $   (995,939)   $   (998,815)   $(39,307,353)
      Adjustments to reconcile net loss to net cash used in
        operating activities:

          Depreciation and amortization                              3,143           4,735       1,048,367
          Amortization of deferred consulting fees                      --              --         109,000
          Loss on issuance of units for accrued
            interest and penalties                                      --              --         627.264
          Gain on sale of property and equipment                        --              --         (13,065)
          Gain on settlement of debt                                    --              --        (131,175)
          Loss on settlement of accrued legal liabilities               --              --         142,245
          Stock based compensation                                 194,223          69,496       1,876,999
          Loss on debt extinguishment                                   --              --       2,741,318
          Fair market value of warrants issued in
            connection with accounts payable and debt                   --              --       2,715,736
          Fair market value of common stock, warrants
            and options issued for services                        129,020          25,250       4,275,963
          Change in fair value of derivative liability              37,434        (187,692)      1,659,052
          Amortization of debt discount and
            deferred financing costs                               233,000         501,437       4,231,782
          Impairment of patents and patents pending                     --              --         416,026
          Impairment of goodwill                                        --              --         897,227
          Deferred compensation forgiven                                --              --         217,223
          Changes in operating assets and liabilities:
                Prepaid expenses                                    28,331              --         182,816
                Other assets                                            --              --         (13,200)
                Accounts payable and other current
                    liabilities                                     30,206          15,802       2,529,372
                Due to related parties                             (25,458)        (28,000)      1,260,249
                                                              ------------    ------------    ------------
      Net cash used in operating activities                       (366,040)       (597,787)    (14,534,154)
                                                              ------------    ------------    ------------

Cash flows from investing activities:
      Purchases of property and equipment                               --              --        (272,850)
      Additions to patents and patents pending                          --              --        (387,343)
      Proceeds from the sale of property and equipment                  --              --          17,065
      Cash of acquired company                                          --              --          10,728
                                                              ------------    ------------    ------------
      Net cash used in investing activities                             --              --        (632,400)
                                                              ------------    ------------    ------------

Cash flows from financing activities:
      Proceeds from the issuance of notes payable                       --              --       2,350,000
      Principal repayments of notes payable                             --              --        (352,500)
      Net proceeds from the issuance of convertible notes
        payable                                                    335,000              --       2,903,000
      Proceeds from the issuance of common stock                   115,200         500,000      10,433,102
      Professional fees related to registration statement               --              --         (76,731)
                                                              ------------    ------------    ------------
      Net cash provided by financing activities                    450,200         500,000      15,256,871
                                                              ------------    ------------    ------------

Net (decrease) increase in cash                                     84,160        (97,787)          90,317

Cash at beginning of period                                          6,157         254,691              --
                                                              ------------    ------------    ------------

Cash at end of period                                         $     90,317    $    156,904    $     90,317
                                                              ============    ============    ============


                       The accompanying notes are an integral part of these unaudited
                                condensed consolidated financial statements.

                                                     5



<PAGE>

                                            AETHLON MEDICAL, INC.
                                        (A DEVELOPMENT STAGE COMPANY)
                         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                            FOR THE THREE MONTHS ENDED JUNE 30, 2009 AND 2008 AND
                      FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH JUNE 30, 2009
                                                 (Unaudited)


                                                             Three Months     Three Months   January 31, 1984
                                                                 Ended           Ended         (Inception)
                                                                June 30,        June 30,         Through
                                                                  2009            2008           June 30,
                                                                                                   2009
                                                              ------------    ------------     ------------

Supplemental disclosures of non-cash investing and financing information:

Reclassification of accounts payable to notes payable          $     24,001              --     $     24,001
                                                               ============    ============     ============

Debt and accrued interest converted to common stock            $    546,246    $     39,325     $  4,065,438
                                                               ============    ============     ============
Stock option exercise by director for accrued expenses                   --              --           95,000
                                                               ============    ============     ============
Debt discount on convertible notes payable associated with
 Beneficial conversion feature                                      233,735              --        1,538,690
                                                               ============    ============     ============
Debt discount on notes payable associated with detachable
  warrants                                                               --              --        1,154,860
                                                               ============    ============     ============
Issuance of common stock, warrants and options in
   settlement of accrued expenses and due to related parties             --              --        1,003,273
                                                               ============    ============     ============
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                         --              --          856,845
                                                               ============    ============     ============
Patent pending acquired for 12,500 shares of common stock                --              --          100,000
                                                               ============    ============     ============
Common stock issued for prepaid expenses                                 --              --          161,537
                                                               ============    ============     ============


                       The accompanying notes are an integral part of these unaudited
                                condensed consolidated financial statements.


                                                      6
</TABLE>


<PAGE>

                              AETHLON MEDICAL, INC.
                          (A Development Stage Company)
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                                  June 30, 2009

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Aethlon Medical, Inc. ("Aethlon", "We" or the "Company") is a development stage
medical device company focused on expanding the applications of our Hemopurifier
(R) platform technology, which is designed to rapidly reduce the presence of
infectious viruses and other toxins from human blood. In this regard, our core
focus is the development of therapeutic devices that treat acute viral
conditions, chronic viral diseases and pathogens targeted as potential
biological warfare agents. The Hemopurifier(R) combines the established
scientific principles of affinity chromatography and hemodialysis as a means to
mimic the immune system's response of clearing viruses and toxins from the blood
before cell and organ infection can occur. The Hemopurifier(R) cannot cure viral
conditions but can prevent virus and toxins from infecting unaffected tissues
and cells. We have completed pre-clinical blood testing of the Hemopurifier(R)
to treat HIV and Hepatitis-C, and have completed human safety trials on
Hepatitis-C infected patients in India and are in the process of obtaining
regulatory approval from the U.S. Food and Drug Administration ("FDA") to
initiate clinical trials in the United States.

The commercialization of the Hemopurifier(R) will require the completion of
human efficacy clinical trials. The approval of any application of the
Hemopurifier(R) in the United States will necessitate the approval of the FDA to
initiate human studies. Such studies could take years to demonstrate safety and
effectiveness in humans and there is no assurance that the Hemopurifier(R) will
be cleared by the FDA as a device we can market to the medical community. We
also expect to face similar regulatory challenges from foreign regulatory
agencies, should we attempt to commercialize and market the Hemopurifier(R)
outside of the United States. As a result, we have not generated revenues from
the sale of any Hemopurifier(R) application. Additionally, there have been no
independent validation studies of our Hemopurifiers(R) to treat infectious
disease. We manufacture our products on a small scale for testing purposes but
have yet to manufacture our products on a large scale for commercial purposes.
All of our pre-clinical human blood studies have been conducted in our
laboratories under the direction of Dr. Richard Tullis, our Chief Science
Officer.

We are classified as a development stage enterprise under accounting principles
generally accepted in the United States of America ("GAAP"), and have not
generated revenues from our principal operations.

Our common stock is quoted on the Over-the-Counter Bulletin Board administered
by the Financial Industry Regulatory Authority ("OTCBB") under the symbol
"AEMD.OB".

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with GAAP for interim financial information. Accordingly,
they do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. We have evaluated subsequent events through
August 13, 2009, the day before our condensed consolidated financial statements
were issued. The condensed consolidated balance sheet as of March 31, 2009 was
derived from our audited financial statements. Operating results for the three
month period ended June 30, 2009 are not necessarily indicative of the results
that may be expected for the year ending March 31, 2010. For further
information, refer to our Annual Report on Form 10-K for the year ended March
31, 2009, which includes audited financial statements and footnotes as of March
31, 2009 and for the years ended March 31, 2009 and 2008 and the period January
31, 1984 (Inception) through March 31, 2009.

NOTE 2. GOING CONCERN AND LIQUIDITY CONSIDERATIONS

The accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates, among other things, the
realization of assets and the satisfaction of liabilities in the ordinary course
of business. We have experienced continuing losses from operations, are in
default on certain debt, have negative working capital of approximately
($3,873,000) recurring losses from operations and a deficit accumulated during
the development stage of approximately ($39,366,000) at June 30, 2009, which
among other matters, raises significant doubt about our ability to continue as a
going concern. We have not generated significant revenue or any profit from
operations since inception. A significant amount of additional capital will be
necessary to advance the development of our products to the point at which they
may become commercially viable. Our current financial resources are insufficient
to fund our 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, 2010. Therefore we will be required to seek additional funds through
debt and/or equity financing arrangements to finance our current and long-term
operations.

                                        7



<PAGE>

We are currently addressing our liquidity issue by exploring investment capital
opportunities through the private placement of common stock or issuance of
additional debt. We believe that our access to additional capital, together with
existing cash resources, will be sufficient to meet our liquidity needs for
fiscal 2010. However, no assurance can be given that we will receive any funds
in connection with our capital raising efforts.

The unaudited consolidated financial statements do not include any adjustments
relating to the recoverability of assets that might be necessary should we be
unable to continue as a going concern.

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of our significant accounting policies presented below is designed
to assist the reader in understanding our consolidated financial statements.
Such financial statements and related notes are the representations of our
management, who are responsible for their integrity and objectivity. These
accounting policies conform to GAAP in all material respects, and have been
consistently applied in preparing the accompanying consolidated financial
statements.

PRINCIPLES OF CONSOLIDATION

The accompanying condensed consolidated financial statements include the
accounts of Aethlon Medical, Inc. and its wholly-owned subsidiaries Aethlon,
Inc., Hemex, Inc. and Cell Activation, Inc. (collectively hereinafter referred
to as the "Company" or "Aethlon"). These subsidiaries are dormant and there
exist no material intercompany transactions or balances.

LOSS PER COMMON SHARE

Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares assumed to be
outstanding during the period of computation. Diluted loss per share is computed
similar to basic loss 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. As the Company had net losses for all periods presented,
basic and diluted loss per share are the same, and additional common stock
equivalents have been excluded as their effect would be antidilutive.

The potentially dilutive common shares outstanding for the quarters ended
June 30, 2009 and 2008, which include shares underlying outstanding stock
options, warrants and convertible debentures were 38,837,862 and 31,575,690,
respectively.

PATENTS

We capitalize the cost of patents, some of which were acquired, and amortize
such costs over the shorter of the remaining legal life or their estimated
economic life, upon issuance of the patent.

RESEARCH AND DEVELOPMENT EXPENSES

We incurred approximately $77,000 and $163,000 of research and development
expenses during the three months ended June 30, 2009 and 2008, respectively,
which are included in various operating expense line items in the accompanying
consolidated statements of operations.

EQUITY INSTRUMENTS FOR SERVICES PROVIDED BY OTHER THAN EMPLOYEES

We follow SFAS No. 123-R (as interpreted by Emerging Issues Task Force ("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") ("EITF No. 96-18") to account for transactions involving goods and
services provided by third parties where we issue equity instruments as part of
the total consideration. Pursuant to paragraph 7 of SFAS No. 123-R, we account
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.

We apply EITF 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, we
      re-measure the consideration at each reporting date based on its then
      current stock value.

                                        8



<PAGE>

IMPAIRMENT OR DISPOSAL OF 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. We believe that
no impairment existed at or during the three months ended June 30, 2009.

BENEFICIAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

The convertible feature of certain notes payable provides for a rate of
conversion that is below the market value of our common stock. 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, when applicable, 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 interest method.

DERIVATIVE LIABILITIES AND CLASSIFICATION

We evaluate free-standing instruments (or embedded derivatives) indexed to its
common stock to properly classify such instruments within equity or as
liabilities in our financial statements, pursuant to the requirements of the
EITF Issue No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED
TO AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," EITF Issue No. 07-5
"DETERMINING WHETHER AN INSTRUMENT (OR EMBEDDED FEATURE) IS INDEXED TO AN
ENTITY'S OWN STOCK," EITF Issue No. 01-06, "THE MEANING OF INDEXED TO A
COMPANY'S OWN STOCK, " FSP EITF Issue No. 00-19-2, "ACCOUNTING FOR REGISTRATION
PAYMENT ARRANGEMENTS," and SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES," as amended. Our policy is to settle instruments indexed
to our common shares on a first-in-first-out basis.

Pursuant to EITF Issue No. 00-19, the classification of an instrument indexed to
our stock, which is carried as a liability, must be reassessed at each balance
sheet date. If the classification required under this Consensus changes as a
result of events during a reporting period, the instrument is reclassified as of
the date of the event that caused the reclassification. There is no limit on the
number of times a contract may be reclassified.

EITF 07-5, "Determining whether an Instrument (or Embedded Feature) is indexed
to an Entity's own Stock" ("EITF 07-5") provides a new two-step model to be
applied in determining whether a financial instrument or an embedded feature is
indexed to an issuer's own stock and thus able to qualify for the SFAS No. 133
paragraph 11(a) scope exception. We have identified one convertible debt
agreement in which the embedded conversion feature contains certain provisions
that may result in an adjustment of the conversion price, which under EITF 07-5
results in the failure of the embedded conversion feature to be considered to be
indexed to our stock. Accordingly, under EITF 07-5 we are required to separate
the embedded feature from the host instrument and to record the estimated fair
value of the embedded feature as a derivative liability As a result, the
estimated fair value of the embedded feature,(See SIGNIFICANT RECENT ACCOUNTING
PRONUNCEMENTS below) was recorded as a derivative liability (at the date of
issuance), and a cumulative effect adjustment to our accumulated deficit, was
recorded based on the difference between amounts recognized at the date of
issuance and April 1, 2009, the initial adoption of EITF 07-5. In addition, we
have re-measured such derivative liability at estimated fair value as of June
30, 2009 and have recorded the change in the estimated fair value in operating
results for the three months ended June 30, 2009.

REGISTRATION PAYMENT ARRANGEMENTS

We account for contingent obligations to make future payments or otherwise
transfer consideration under a registration payment arrangement separately from
any related financing transaction agreements, and any such contingent
obligations are recognized only when it is determined that it is probable that
the Company will become obligated for future payments and the amount, or range
of amounts, of such future payments can be reasonably estimated. On October
2008, the SEC declared effective a registration statement that covered all of
the shares and warrants that had previously been generating liquidated damages
pursuant to registration rights agreements and as a result, we ceased recording
such liquidated damages at that time.

As of June 30, 2009, we did not owe any liquidated damages.


                                        9


<PAGE>

STOCK BASED COMPENSATION

Employee stock options and rights to purchase shares under stock participation
plans are accounted for under the fair value method. 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. 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) on the date of grant. Compensation cost recognized by the Company
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. We use a Binomial Lattice option pricing model for
estimating fair value of options granted.

The following table summarizes the effect of share-based compensation recorded
during the quarters ended June 30, 2009 and 2008:

                                            June 30, 2009        June 30, 2008
                                           --------------       --------------
Stock Option Expense                       $      133,860       $       64,696
Direct Stock Grants                                60,363                4,800
                                           --------------       --------------
Total Stock-Based Compensation Expense     $      194,223       $       69,496
                                           ==============       ==============

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

We account for transactions involving services provided by third parties where
we issue equity instruments as part of the total consideration 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. 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, we use 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.

We review 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 quarter ended June 30, 2009 was
insignificant.

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 our historical grants.

We did not issue any stock option grants in either the June 2009 period or in
the June 2008 period. Direct stock grants in each period were valued based upon
the amount of compensation and the stock price at the time of grant.


                                        10


<PAGE>

Options outstanding that have vested and are expected to vest as of June 30,
2009 are as follows:

                                                      Weighted
                                         Weighted      Average
                                         Average      Remaining
                             Number of   Exercise    Contractual
                              Shares      Price     Term in Years
- -------------------------  -----------   --------   -------------

Vested                      12,289,060    $  0.38        5.11
Expected to vest             2,200,000       0.36        6.50
                           -----------
     Total                  14,489,060
                           ===========

Additional information with respect to stock option activity is as follows:

                                           Outstanding Options
                                       -----------------------------
                                                        Weighted
                                         Number of       Average
                                          Shares      Exercise Price
- ---------------------------               ------      --------------
March 31, 2009                          14,489,060       $ 0.37

Grants                                          --           --
Exercises                                       --           --
Cancellations                                   --           --
                                        ----------       ------
June 30, 2009                           14,489,060       $ 0.37
                                        ==========       ======
Options exercisable at:
June 30, 2009                           12,289,060       $ 0.38
                                        ==========       ======

At June 30, 2009, there was approximately $544,000 of unrecognized compensation
cost related to share-based payments which is expected to be recognized over a
weighted average period of 1.37 years.

On June 30, 2009, our stock options had a negative intrinsic value since the
closing price on that date of $0.36 per share was below the weighted average
exercise price of our stock options.

INCOME TAXES

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

SIGNIFICANT RECENT ACCOUNTING PRONOUNCEMENTS

In December 2006, the FASB issued SFAS No. 157, "FAIR VALUE MEASUREMENTS,"
("SFAS No. 157") 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. SFAS No. 157
applies to certain assets and liabilities that are being measured and reported
on a fair value basis. SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. This Statement
enables the reader of the financial statements to assess the inputs used to
develop those measurements by establishing a hierarchy for ranking the quality
and reliability of the information used to determine fair values. We adopted
SFAS 157 on April 1, 2008 without material impact to our financial statements.

SFAS No. 157 requires that assets and liabilities carried at fair value will be
classified and disclosed in one of the following three categories:

      Level 1: Quoted market prices in active markets for identical assets or
liabilities.

      Level 2: Observable market based inputs or unobservable inputs that are
corroborated by market data.

      Level 3: Unobservable inputs that are not corroborated by market data.

                                       11


<PAGE>

In May 2008, the FASB issued FSP APB 14-1, "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)" ("FSB APB 14-1"). FSP APB 14-1 requires recognition of both the
liability and equity components of convertible debt instruments with cash
settlement features. The debt component is required to be recognized at the fair
value of a similar instrument that does not have an associated equity component.
The equity component is recognized as the difference between the proceeds from
the issuance of the note and the fair value of the liability. FSP APB 14-1 also
requires an accretion of the resulting debt discount over the expected life of
the debt. Retrospective application to all periods presented is required and a
cumulative-effect adjustment is recognized as of the beginning of the first
period presented. This standard is effective for us in the first quarter of
fiscal year 2010. The adoption of FSP APB 14-1 did not have a material impact on
our financial statements.

In June 2008, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 07-5, "Determining whether an Instrument (or Embedded Feature) is indexed to
an Entity's own Stock" ("EITF 07-5"). EITF 07-5 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early application is not permitted.
Paragraph 11(a) of SFAS No. 133 - specifies that a contract that would otherwise
meet the definition of a derivative but is both (a) indexed to our own stock and
(b) classified in stockholders' equity in the statement of financial position
would not be consider a derivative financial instrument. EITF 07-5 provides a
new two-step model to be applied in determining whether a financial instrument
or an embedded feature is indexed to an issuer's own stock and thus able to
qualify for the SFAS No. 133 paragraph 11(a) scope exception.

We adopted EITF 07-5 effective April 1, 2009. The adoption of EITF 07-5's
requirements can affect the accounting for warrants or convertible debt that
contain provisions that protect holders from a decline in the stock price (or
"down-round" protection). For example, warrants with such provisions will no
longer be recorded in equity. Down-round protection provisions reduce the
exercise price of a warrant or convertible instrument if a company either issues
equity shares for a price that is lower than the exercise price of those
instruments or issues new warrants or convertible instruments that have a lower
exercise price. We evaluated whether convertible debt or warrants to acquire
stock of the Company contain provisions that protect holders from declines in
the stock price or otherwise could result in modification of the exercise price
and/or shares to be issued under the respective warrant agreements based on a
variable that is not an input to the fair value of a "fixed-for-fixed" option.
We determined tha t we have one convertible debt agreement in which the terms
provide for a possible adjustment to the conversion price, and as such, the
embedded conversion feature fails to be indexed solely to our stock under this
pronouncement.

As a result, we classified the estimated fair value of the embedded conversion
feature of the convertible debt agreement described above as a derivative
liability on April 1, 2009 and have re-measured at estimated fair value as of
June 30, 2009 with change in the estimated fair value recognized in operating
results. The change in the estimated fair value of the derivative liability from
the date of issuance to initial date of adoption was charged to accumulated
deficit and totaled $279,201. The embedded derivatives were valued using Level 3
inputs because there are significant unobservable inputs associated with them.

The table below sets forth a summary of changes in the fair value of our Level 3
derivative liability for the quarter ended June 30, 2009:

                             Recorded      Change in
                           Initial fair  estimated fair
                            Value on    value recognized
                            April 1,      in results         June 30,
                              2009       of operations         2009
                          -----------    ------------       ---------

Derivative Liability      $   279,201      $   37,434       $ 316,635

In April 2009, the FASB issued FSP FAS 107-1/APB 28-1 ("FSP 107-1"), which is
entitled "Interim Disclosures about Fair Value of Financial Instruments." This
pronouncement amended SFAS No 107, Disclosures about Fair Value of Financial
Instruments, to require disclosure of the carrying amount and the fair value of
all financial instruments for interim reporting periods and annual financial
statements of publicly traded companies (even if the financial instrument is not
recognized in the balance sheet), including the methods and significant
assumptions used to estimate the fair values and any changes in such methods and
assumptions. FSP 107-1 also amended APB Opinion No. 28, Interim Financial
Reporting, to require disclosures in summarized financial information at interim
reporting periods. FSP 107-1 is effective for interim reporting periods ending
after June 15, 2009, with early adoption permitted for periods ended after March
15, 2009 if a company also elects to early adopt FSP FAS 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Indentifying Transactions That Are Not Orderly, and
FSP FAS 115-2/FAS 124-2, Recognition and Presentation of Other-Than-Temporary
Impairments. We adopted this pronouncement without material impact to our
financial statements.


                                        12


<PAGE>

In April 2009, the FASB also issued FSP FAS 157-4, which generally applies to
all assets and liabilities within the scope of any accounting pronouncements
that require or permit fair value measurements. This pronouncement, which does
not change SFAS No. 157's guidance regarding Level 1 inputs, requires the entity
to (i) evaluate certain factors to determine whether there has been a
significant decrease in the volume and level of activity for the asset or
liability when compared with normal market activity, (ii) consider whether the
preceding indicates that transactions or quoted prices are not determinative of
fair value and, if so, whether a significant adjustment thereof is necessary to
estimate fair value in accordance with SFAS No. 157, and (iii) ignore the intent
to hold the asset or liability when estimating fair value. FSP FAS 157-4 also
provides guidance to consider in determining whether a transaction is orderly
(or not orderly) when there has been a significant decrease in the volume and
level of activity for the asset or liability, based on the weight of available
evidence. This pronouncement is effective for interim and annual reporting
periods ending after June 15, 2009, and shall be applied prospectively. Early
adoption of FSP FAS 157-4 also requires early adoption of the pronouncement
described in the following paragraph. However, early adoption for periods ended
before March 15, 2009 is not permitted. We adopted this pronouncement without
material impact to our financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and 124-2 (hereinafter referred to
as "FAS 115-2/124-2"), which amends the other-than-temporary impairment ("OTTI")
recognition guidance in certain existing U.S. GAAP (including SFAS No. 115 and
130, FSP FAS 115-1/FAS 124-1, and EITF Issue 99-20) for debt securities
classified as available-for-sale and held-to-maturity. FAS 115-2/124-2 requires
the entity to consider (i) whether the entire amortized cost basis of the
security will be recovered (based on the present value of expected cash flows),
and (ii) its intent to sell the security. Based on the factors described in the
preceding sentence, this pronouncement also explains the process for determining
the OTTI to be recognized in "other comprehensive income" (generally, the
impairment charge for other than a credit loss) and in earnings. FAS 115-2/124-2
does not change existing recognition or measurement guidance related to OTTI of
equity securities. This pronouncement is effective as described in the preceding
paragraph. Certain transition rules apply to debt securities held at the
beginning of the interim period of adoption when an OTTI was previously
recognized. If an entity early adopts either FSP 107-1 or FSP FAS 157-4, the
entity is also required to early adopt this pronouncement. In addition, if an
entity early adopts FAS 115-2/124-2, it is also required to early adopt FSP FAS
157-4. We adopted this pronouncement without material impact to our financial
statements.

In November 2007, the EITF issued a consensus on EITF 07-1, "Accounting for
Collaborative Arrangements" ("EITF 07-1"). The Task Force reached a consensus on
how to determine whether an arrangement constitutes a collaborative arrangement,
how costs incurred and revenue generated on sales to third parties should be
reported by the partners to a collaborative arrangement in each of their
respective income statements, how payments made to or received by a partner
pursuant to a collaborative arrangement should be presented in the income
statement, and what participants should disclose in the notes to the financial
statements about a collaborative arrangement. This issue shall be effective for
annual periods beginning after December 15, 2008. Entities should report the
effects of applying this Issue as a change in accounting principle through
retrospective application to all periods to the extent practicable. Upon
application of this issue, the following should be disclosed: a) a description
of the prior-period information that has been retrospectively adjusted, if any,
and b) the effect of the change on revenue and operating expenses (or other
appropriate captions of changes in the applicable net assets or performance
indicator) and on any other affected financial statement line item. We adopted
this pronouncement without material impact to our financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141(R)"). This statement requires an acquirer to recognize
the assets acquired, the liabilities assumed, and any noncontrolling interest in
the acquiree at the acquisition date, measured at their fair values as of that
date. SFAS 141(R) replaces the cost-allocation process of SFAS No. 141,
"Business Combinations" ("SFAS 141") which required the cost of an acquisition
to be allocated to the individual assets acquired and liabilities assumed based
on their estimated fair values. This statement applies prospectively and is
effective for annual periods beginning after December 15, 2008. Earlier adoption
is prohibited. We adopted this pronouncement without material impact to our
financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, ("SFAS 165") which
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before the financial statements are
issued or are available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. We adopted SFAS 165 beginning April 1, 2009. The adoption of SFAS 165 did
not have a material impact on our consolidated financial position, results of
operations or cash flows. We have evaluated subsequent events through August 13,
2009, the day before our condensed consolidated financial statements were
issued. See Note 1 and Note 9.

The Sarbanes-Oxley Act of 2002 ("the Act") introduced new requirements regarding
corporate governance and financial reporting. Among the many requirements of the
Act is for management to annually assess and report on the effectiveness of its
internal control over financial reporting under Section 404(a) and for its
registered public accountant to attest to this report under Section 404(b). The
SEC has modified the effective date and adoption requirements of Section 404(a)
and Section 404(b) implementation for non-accelerated filers multiple times,
such that we were required to issue our management report on internal control
over financial reporting in this annual report on Form 10-K for the fiscal year
ended March 31, 2009. Based on current SEC requirements, we will be required to
have our auditor attest the effectiveness of internal controls over financial
reporting for our fiscal year ending March 31, 2010.

                                        13


<PAGE>

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.

NOTE 4. NOTES PAYABLE

Notes payable consist of the following at June 30, 2009:

                               Face Amount of                    Notes Payable,
                                Notes Payable  Note Discounts   Net of Discounts
                                -------------  --------------   ----------------
12% Notes payable, all past due  $   297,500            --         $   297,500
10% Note payable, past due             5,000            --               5,000
Note payable to law firm              20,001            --              20,001
                                 -----------     ---------         -----------

  Total Notes Payable            $   322,501     ($     --)        $   322,501
                                 ===========     =========         ===========

Notes payable consisted of the following at March 31, 2009:

                               Face Amount of                    Notes Payable,
                                Notes Payable  Note Discounts   Net of Discounts
                                -------------  --------------   ----------------
12% Notes payable, all past due  $   297,500            --         $   297,500
10% Note payable, past due             5,000            --               5,000
                                 -----------     ---------         -----------

  Total Notes Payable            $   302,500     ($     --)        $   302,500
                                 ===========     =========         ===========

During the fiscal year ended March 31, 2009, we restructured our 8% and 9% Notes
and for accounting purposes, we recorded an extinguishment loss of approximately
$977,000 (See Note 5 for further description). Our plans to satisfy the
remaining outstanding balance on the 12% and 10% Notes include repayment with
available funds or converting the notes to common stock at market value.

NOTE PAYABLE TO LAW FIRM

On May 20 2009, we entered into a Promissory Note with our intellectual
property law firm for the amount of $24,001, which represented the amount we
owed to that firm. The Promissory Note calls for monthly payments of $4,000 from
June 2009 through November 2009. We made the June payment, which reduced that
balance at June 30, 2009 to $20,001.  The note bears interest at 10% per annum.

12% NOTES

From August 1999 through May 2005, we entered into various borrowing
arrangements for the issuance of notes payable from private placement offerings
(the "12% Notes"). On January 26, 2009, a holder of $50,000 of the 12% Notes
converted his principal balance and $56,723 of accrued interest to common stock
at the then current market price of $0.17 per share. At June 30, 2009, 12%
Notes with a principal balance of $297,500 are outstanding, all which are past
due, in default, and bearing interest at the default rate of 15%. At June 30,
2009, interest payable on the 12% Notes totaled $296,750.

10% NOTES

From time to time, we issued notes payable ("10% Notes") to various investors,
bearing interest at 10% per annum, with principal and interest due six months
from the date of issuance. The 10% Notes required no payment of principal or
interest during the term. The total amount of the original notes issued was
$275,000. One 10% Note in the amount of $5,000, which is past due and in
default, remains outstanding at June 30, 2009. At June 30, 2009, interest
payable on this note totaled $4,000.

Management's plans to satisfy the remaining outstanding balance on these 12% and
10% Notes include converting the notes to common stock at market value or
repayment with available funds.


                                        14


<PAGE>

NOTE 5. CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable consist of the following at June 30, 2009:
<TABLE>
<S>            <C>
                                                                               Net
                                              Principal       Discount       Amount
                                              ---------      ---------     ---------

Amended Series A 10% Convertible Notes        $ 900,000      $      --     $  900,000
2008 10% Convertible Notes                       45,000         (6,449)        38,551
December 2006 10% Convertible Notes              17,000             --         17,000
Restructured December 2008 10% Convertible
  Notes and Related Convertible Notes           570,157             --        570,157
May & June 2009 10% Convertible Notes           350,000       (223,608)       126,392
                                             ----------     -----------    ----------
  Total - Convertible Notes                  $1,882,157    $  (230,057)    $1,652,100
                                             ==========    ============    ==========

Convertible Notes Payable consisted of the following at March 31, 2009:


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

Amended Series A 10% Convertible Notes        $ 900,000      $      --     $  900,000
2008 10% Convertible Notes                       45,000         (8,683)        36,317
December 2006 10% Convertible Notes              17,000             --         17,000
Restructured December 2008 10% Convertible
  Notes and Related Convertible Notes         1,116,403             --      1,116,403
                                             ----------     -----------    ----------
  Total - Convertible Notes                  $2,078,403    $    (8,683)    $2,069,720
                                             ==========    ============    ==========
</TABLE>

AMENDED SERIES A 10% CONVERTIBLE NOTES

At June 30, 2009, $900,000 of the Amended Series A 10% Convertible Notes
remained outstanding and in default. At June 30, 2009, interest payable on those
notes totaled $67,500.

2008 10% CONVERTIBLE NOTES

2008 10% Convertible Notes in the aggregate amount of $45,000 remain outstanding
at June 30, 2009. At June 30, 2009, interest payable on those notes totaled
$4,103.

DECEMBER 2006 10% CONVERTIBLE NOTES

At June 30, 2009, $17,000 of the December 10% Notes remained outstanding and in
default.  At June 30, 2009, interest payable on those notes totaled $6,233.

RESTRUCTURED DECEMBER 2008 10% CONVERTIBLE NOTES AND RELATED CONVERTIBLE NOTES

Restructured December 2008 10% Convertible Notes and Related Convertible Notes
in the aggregate amount of $570,157 remain outstanding at June 30, 2009. No
accrued interest was outstanding at June 30, 2009.

In June 2009, the holders of the Restructured December 2008 10% Convertible
Notes and Related Convertible Notes informally agreed to extend the
expiration date of the notes by three months from July 1, 2009 to October 1,
2009.

MAY & JUNE 2009 10% CONVERTIBLE NOTES

In May and June 2009, we raised an aggregate amount of $350,000 from the sale to
accredited investors of 10% convertible notes ("May & June 10% Convertible
Notes"). The May & June 10% Convertible Notes mature at various dates between
November 2010 through December 2010 and are convertible into our common stock at
a fixed conversion price of $0.20 per share prior to maturity. If the investors
opt to convert their convertible debt to our common stock, then they will
receive a matching three year warrant to purchase unregistered shares of our
common stock at a price of $0.20 per share. We have measured the warrants but
have not recorded them given their contingent terms.

After consideration of the warrants, we recorded a discount associated with the
beneficial conversion feature of $233,735 related to the May & June 10%
Convertible Notes and we are amortizing that discount over the terms of the May
& June 10% Convertible Notes using the effective interest method. The BCF
calculation included valuing the potential issuance of warrants if the investors
choose to convert their debt instruments to our common stock per the guidance of
EITF 00-27.

                                        15


<PAGE>

At June 30, 2009, interest payable on those notes totaled $2,772.

NOTE 6. EQUITY TRANSACTIONS

In April 2009, we issued 71,519 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.17 per
share in payment for financial consulting services and research services valued
at $12,158 based on the value of the services.

In April 2009, we issued 1,688,211 shares of common stock as a result of
conversions of $263,478 of convertible notes payable and related accrued
interest. The shares were issued to accredited investors.

In April 2009, an accredited investor exercised a warrant to purchase 555,556
shares of our common stock at the agreed strike price of $0.18 per share for
cash proceeds of $100,000. We issued that investor a five year warrant to
purchase 555,556 shares at $0.18 per share and a conditional warrant to purchase
a like number of shares at the same strike price if that warrant is exercised.

In April 2009, we issued 490,000 shares of restricted common stock valued at the
closing price in payment for investor relations services.

In April 2009, we issued 25,000 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.22 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In April 2009, we issued 32,935 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.23 per
share in payment for internal controls consulting services valued at $7,575
based on the value of the services provided.

In April 2009, we issued 12,372 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.22 per
share in payment for regulatory affairs consulting services valued at $2,660
based on the value of the services provided.

In April 2009, we issued 80,000 shares of restricted common stock and warrants
to purchase 80,000 shares of common stock in exchange for $15,200. The shares
were issued to an accredited investor.

In April 2009, we issued 43,021 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.17 per
share in payment for financial consulting services valued at $7,744 based on the
value of the services provided.

In April 2009, we issued 70,870 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.20 per
share in payment for legal services valued at $14,500 based on the value of the
services provided.

In April 2009, we issued 22,817 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.24 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In May 2009, holders of certain convertible notes converted $139,256 of
principal and accrued interest into 878,059 shares of our common stock per the
terms of the notes at an average conversion rate of approximately $0.16 per
share.

In May 2009, we issued 13,043 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.23 per
share in payment for regulatory affairs consulting services valued at $3,000
based on the value of the services provided.

In May 2009, we issued 10,714 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.28 per
share in payment for regulatory affairs consulting services valued at $3,000
based on the value of the services provided.

In May 2009, we issued 51,118 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.19 per
share in payment for financial consulting services valued at $9,713 based on the
value of the services provided.


                                        16


<PAGE>

In May 2009, we issued 22,000 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.25 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In May 2009, we issued 34,602 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.22 per
share in payment for financial consulting services valued at $7,613 based on the
value of the services provided.

In May 2009, we issued 40,104 shares of restricted common stock at $0.24 in
payment for financial advisory services valued at $9,625 based on the value of
the services provided.

In May 2009, we issued 22,917 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.24 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In June 2009, we issued 20,500 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.24 per
share in payment for regulatory affairs consulting services valued at $4,920
based on the value of the services provided.

In June 2009, we issued 57,055 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.22 per
share in payment for scientific and financial consulting services valued at
$12,552 based on the value of the services provided.

In June 2009, we issued 22,917 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.24 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In June 2009, we issued 23,000 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.23 per
share in payment for regulatory affairs consulting services valued at $5,290
based on the value of the services provided.

In June 2009, we issued 48,106 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.22 per
share in payment for scientific and financial consulting services valued at
$10,583 based on the value of the services provided.

In June 2009, we issued 779,956 shares of common stock as a result of
conversions of $143,512 of convertible notes payable and related accrued
interest. The shares were issued to accredited investors.

In June 2009, we issued 16,176 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.34 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

On June 29, 2009, Mr. Joyce, our Chief Executive Officer entered into an Option
Suspension Agreement, whereby Mr. Joyce has agreed to not exercise his stock
options pending the filing of amended articles of incorporation of the Company
increasing the Company's authorized capital. Accordingly of Mr. Joyce's total
options, 2,857,143 cannot be exercised until the amended articles of
incorporation are filed, and 6,731,090 cannot be exercised until the later of
June 9, 2010 or the filing of the amended articles of incorporation. The
Agreement also provides Mr. Joyce certain protections in the event the Company
shall undergo a change of control transaction while his options are suspended.
Such protections include the right to receive, in the form of cash payments, the
positive value of his options (which remain subject to suspension) at the time
of such transaction. A copy of the Option Suspension Agreement was filed as an
Exhibit to our Form 10-K for the fiscal year ended March 31, 2009 and is
incorporated by reference as an Exhibit to this Report.

In addition, we committed to issue 4,000,000 shares of restricted common stock,
to Mr. Joyce at a price per share of $0.24, which shall vest in equal
installments over a thirty six month period commencing June 9, 2010; however
such shares will not be issued until the filing of the amended articles of
incorporation.


                                        17


<PAGE>

NOTE 7. OTHER CURRENT LIABILITIES

At June 30, 2009 and March 31, 2009, our other current liabilities were
comprised of the following items:

                                                        June 30,       March 31,
                                                          2009           2009
                                                       ----------     ----------
Accrued interest                                       $  401,870     $  352,204
Accrued legal fees                                        211,865        211,865
Other                                                      87,278        115,429
                                                       ----------     ----------
  Total other current liabilities                      $  701,013     $  679,498
                                                       ==========     ==========

As of the date of this report, various promissory and convertible notes payable
in the aggregate principal amount of $1,219,500 have reached maturity and are
past due. We are continually reviewing other financing arrangements to retire
all past due notes. At June 30, 2009, we had accrued interest in the amount of
$381,983 associated with these notes in accrued liabilities payable.

NOTE 8. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

From time to time, claims are made against us in the ordinary course of
business, which could result in litigation. Claims and associated litigation are
subject to inherent uncertainties and unfavorable outcomes could occur, such as
monetary damages, fines, penalties or injunctions prohibiting us from selling
one or more products or engaging in other activities. The occurrence of an
unfavorable outcome in any specific period could have a material adverse effect
on our results of operations for that period or future periods. We are not
presently a party to any pending or threatened legal proceedings.

OTHER

We have not filed our income tax returns for certain prior periods. Whereas we
are in the process of remediating this matter, we may be subject to penalties;
however, those amounts are not expected to be significant.

NOTE 9. SUBSEQUENT EVENTS

In July 2009, we issued 518,649 shares of common stock as a result of
conversions of $100,566 of convertible notes payable and related accrued
interest. The shares were issued to accredited investors.

In July 2009, we issued 18,333 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.30 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In July 2009, we issued 51,971 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.28 per
share in payment for legal services valued at $14,500 based on the value of the
services provided.

In July 2009, we issued 11,647 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.34 per
share in payment for regulatory affairs consulting services valued at $3,960
based on the value of the services provided.

In July 2009, we issued 19,643 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.28 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.

In July 2009, we issued a convertible promissory note in the principal amount of
$330,000 to an accredited investor. The note is convertible into shares of our
common stock at a price per share that is equal to the lesser of (i) $0.25, or
(ii) the average of the closing bid prices of the common stock for the three
days immediately preceding the conversion date, subject in any case to a floor
of $0.15 per share. The investor also received warrants to purchase 600,000
shares of our common stock at an exercise price of $0.50 per share.

In August 2009, we issued 21,154 shares of common stock pursuant to our S-8
registration statement covering our 2003 Consultant Stock Plan at $0.26 per
share in payment for business development consulting services valued at $5,500
based on the value of the services provided.


                                        18



<PAGE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion of our financial condition and results of operations
should be read in conjunction with, and is qualified in its entirety by the
condensed consolidated financial statements and notes thereto, included in Item
1 in this Quarterly Report on Form 10-Q. This item contains forward-looking
statements that involve risks and uncertainties. Actual results may differ
materially from those indicated in such forward-looking statements.

FORWARD LOOKING STATEMENTS

All statements, other than statements of historical fact, included in this Form
10-Q 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 Exchange Act. 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. ("we", "us" 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-Q. Such potential
risks and uncertainties include, without limitation, completion of our
capital-raising activities, FDA approval of our products, other regulations,
patent protection of 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. The forward-looking statements are made as of the date of
this Form 10-Q, 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.

THE COMPANY

We are a developmental stage medical device company focused on expanding the
applications of our Hemopurifier(R) platform technology which is designed to
rapidly 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 before cell and organ infection can
occur. 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.

WHERE YOU CAN FIND MORE INFORMATION

We are subject to the informational requirements of the Securities Exchange Act
and must file reports, proxy statements and other information with the SEC. The
reports, information statements and other information we file with the
Commission can be inspected and copied at the Commission Public Reference Room,
450 Fifth Street, N.W. Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at (800) SEC-0330. The
Commission also maintains a Web site http://www.sec.gov) that contains reports,
proxy, and information statements and other information regarding registrants,
like us, which file electronically with the Commission. 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 Web site is
http://www.aethlonmedical.com.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2009 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
2008

Operating Expenses

Consolidated operating expenses for the three months ended June 30, 2009 were
$641,955 in comparison with $623,659 for the comparable quarter a year ago. This
increase of $18,296, or 3%, was due to an increase in professional fees of
$75,578, which was partially offset by decreases in payroll & related expenses
of $25,689 and a decrease in general and administrative expenses of $31,593.

The $75,578 increase in our professional fees was primarily due to a $68,446
increase in our fees paid to two investor relations firms. $64,700 of those
expenses were non-cash in nature as we paid those firms in restricted stock.
Additionally, we incurred $33,000 of expenses for business development
consulting in the quarter ended June 30, 2009 and there was no such expense in
the quarter ended June 30, 2008. These increases in professional fees were
offset by a $21,790 decrease in scientific consulting expense and a $15,444
decrease in accounting fees,


                                        19


<PAGE>

The $25,689 decrease in payroll and related expenses was due to a $90,054
decrease in cash-based compensation, which was partially offset by a $64,364
increase in non-cash stock-based compensation expense.

The $31,593 decrease in general and administrative expenses was due primarily to
decreases in insurance expense of $8,901, in licenses and permits of $5,850, in
lab supplies of $5,841, in trade show expense of $3,137 and in travel expense of
$2,971.

Other Expenses (Income)

Other expenses (income) consist primarily of the change in the fair value of our
derivative liability, interest expense and other expense. Other expenses for the
three months ended June 30, 2009 were $353,984 in comparison with $375,156 for
the comparable quarter a year ago. Both periods includes changes in the fair
value of derivative liability. For the three months ended June 30, 2009, the
change in the estimated fair value of derivative liability was an expense of
$(37,434) and for the three months ended June 30, 2008, the change in estimated
fair value was a gain of $187,692.

Interest expense was $316,657 for the three months ended June 30, 2009 compared
to $562,848, a decrease of $246,191. The various components of our interest
expense are shown in the following table:

<TABLE>
<S>            <C>

                                          Quarter Ended Quarter Ended     Change
                                             6/30/09       6/30/08
                                            ---------     ---------      ---------
Actual Interest Expense                     $  79,624     $  62,806      $  16,818
Amortization of Deferred Offering Costs            --        38,250        (38,250)
Amortization of Note Discounts                232,999       463,187       (230,188)
Finance Charges from Vendors                    4,034         4,105            (70)
Other                                              --        (5,500)         5,500
                                            ---------     ---------      ---------
Total Interest Expense                        316,657       562,848       (246,191)
                                            =========     =========      =========
</TABLE>


As noted in the above table, the primary factor in the $246,191 reduction in
interest expense was the $230,188 reduction in amortization of note discounts.
This occurred because most of our note discounts were fully amortized as of
March 31, 2009.

Net Loss

As a result of the increased expenses noted above, we recorded a consolidated
net loss of approximately $996,000 and $999,000 for the quarters ended June
30, 2009 and 2008, respectively.

Basic and diluted loss per common share were ($0.02) for the three month period
ended June 30, 2009 compared to ($0.03) for the period ended June 30, 2008.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have funded our capital requirements for the current operations from
net funds received from the public and private sale of debt and equity
securities, as well as from the issuance of common stock in exchange for
services. Our cash position at June 30, 2009 was approximately $90,000 compared
to approximately $6,000, at March 31, 2009, representing an increase of
approximately $84,000. During the three months ended June 30, 2009, operating
activities used net cash of approximately $366,000, while we received $450,000
from financing activities from the issuance of common stock and convertible
notes.

During the three month period ended June 30, 2009, net cash used in operating
activities was approximately ($366,000) and resulted from the approximate net
loss of $996,000, offset by the change in the estimated fair value of derivative
liability of approximately $37,000, the amortization of note discounts of
$42,000, fair market value of common stock of approximately $129,000 issued in
payment for services and approximately $194,000 in stock-based compensation.

An increase in working capital during the three months ended June 30, 2009 in
the amount of approximately $231,000 changed our negative working capital
position to approximately ($3,873,000) at June 30, 2009 from a negative working
capital of approximately ($4,104,000) at March 31, 2009.


                                        20


<PAGE>

Our current deficit in working capital requires us to obtain funds in the
short-term to be able to continue in business, and in the longer term to fund
research and development on products not yet ready for market. Subsequent to
June 30, 2009, we raised an additional $300,000 through the sale to an
accredited investor of a convertible note and common stock purchase warrants
however, we continue to seek additional financing.

Our operations to date have consumed substantial capital without generating
revenues, and will continue to require substantial capital funds to conduct
necessary research and development and pre-clinical and clinical testing of
Hemopurifier(R) products, and to market any of those products that receive
regulatory approval. We do not expect to generate revenue from operations for
the foreseeable future, and our ability to meet our cash obligations as they
become due and payable is expected to depend for at least the next several years
on our ability to sell securities, borrow funds or a combination thereof. Our
future capital requirements will depend upon many factors, including progress
with pre-clinical testing and clinical trials, the number and breadth of our
programs, the time and costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other proprietary rights, the time
and costs involved in obtaining regulatory approvals, competing technological
and market developments, and our ability to establish collaborative
arrangements, effect successful commercialization strategies, marketing
activities and other arrangements. We expect to continue to incur increasing
negative cash flows and net losses for the foreseeable future, and presently
require a minimum of $150,000 per month to sustain operations.

We do not believe that inflation has had or is likely to have any material
impact on our limited operations.

At the date of this filing, we plan to purchase significant amounts of equipment
and hire significant numbers of employees subject to successfully raising
additional capital.

We are 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.

We plan 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 us to proceed to the 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).

Subject to the availability of working capital, we anticipate continuing to
increase spending on research and development over the next 12 months.
Additionally, associated with our 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. We do not expect to generate revenue from
operations for the foreseeable future, and our ability to meet our cash
obligations as they become due and payable is dependent 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 our ability to establish
collaborative arrangements, effective commercialization, marketing activities
and other arrangements. We expect to continue to incur increasing negative cash
flows and net losses for the foreseeable future.


                                        21


<PAGE>

CRITICAL ACCOUNTING POLICIES

The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires the Company 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, we evaluate estimates and assumptions based upon
historical experience and various other factors and circumstances. We believe
our estimates and assumptions are reasonable in the circumstances; however,
actual results may differ from these estimates under different future
conditions.

We believe that the estimates and assumptions that are most important to the
portrayal of our 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 measurement of stock purchase warrants issued with
notes payable, beneficial conversion feature of convertible notes payable,
impairment of intangible assets and long lived assets, stock compensation, and
the classification of warrant obligations, and evaluation of contingencies. 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 our future financial conditions or results of operations.

There have been no changes to our critical accounting policies as disclosed in
our Form 10-K for the year ended March 31, 2009.

OFF-BALANCE SHEET ARRANGEMENTS

There are no guarantees, commitments, lease and debt agreements or other
agreements that could trigger an adverse change in our credit rating, earnings,
cash flows or stock price, including requirements to perform under standby
agreements.


                                        22



<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES.

DISCLOSURE CONTROLS AND PROCEDURES

         Under the supervision and with the participation of our management,
including our Chief Executive Officer ("CEO"), who is also our acting 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 the end of the period covered
by this Quarterly Report (the "Evaluation Date").

         Based on such evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of such period, our disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, information required to be disclosed by us in the
reports that we file or submit under the Exchange Act and are effective in
ensuring that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure.

INTERNAL CONTROL OVER FINANCIAL REPORTING


         Our management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. The Company's internal control over financial
reporting is designed 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.

         A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the registrant's annual or interim
financial statements will not be prevented or detected on a timely basis.

         The Company's management, with the participation of its Chief Executive
Officer, assessed the effectiveness of the Company's internal control over
financial reporting as of March 31, 2009. In making this assessment, the Company
used the criteria set forth by the Committee of Sponsoring Organizations of The
Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on
that assessment under such criteria, management concluded that the Company's
internal control over financial reporting was not effective as of March 31, 2009
due to control deficiencies that constituted material weaknesses. Such material
weakness continued to exist for the period ended June 30, 2009.

         Management in assessing its internal controls and procedures for the
fiscal period covered by this Report identified a lack of sufficient segregation
of duties, particularly in cash disbursements. Specifically, this material
weakness is such that the design of controls over the area of cash disbursements
relies primarily on detective controls and could be strengthened by adding
preventative controls to properly safeguard company assets.

         Management has identified a lack of sufficient personnel in the
accounting function due to the limited resources of the Company with appropriate
skills, training and experience to perform the review processes to ensure the
complete and proper application of generally accepted accounting principles,
particularly as it relates to taxes. Specifically, this material weakness led to
segregation of duties issues and resulted in audit adjustments to the annual
consolidated financial statements and revisions to related disclosures,
including tax reporting.

         We are in the process of developing and implementing remediation plans
to address the material weaknesses.
         Management has identified specific remedial actions to address the
material weaknesses described above:

         o        Improve the effectiveness of the accounting group by
                  continuing to augment existing Company resources with
                  additional consultants or employees to improve segregation
                  procedures and to assist in the analysis and recording of
                  complex accounting transactions and preparation of tax
                  disclosures. The Company plans to mitigate the segregation of
                  duties issues by hiring additional personnel in the accounting
                  department once the Company has achieved commercialization of
                  its products and is generating revenue, or has raised
                  significant additional working capital.

         o        Improve segregation procedures by strengthening cross approval
                  of various functions including cash disbursements and
                  quarterly internal audit procedures where appropriate.


         Due to its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All internal control
systems, no matter how well designed, have inherent limitations. Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.



CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

         Since our evaluation as of March 31, 2009 we have had no significant
changes in our internal controls.

                                        23



<PAGE>

                          PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, claims are made against us in the ordinary course of
business, which could result in litigation. Claims and associated litigation are
subject to inherent uncertainties and unfavorable outcomes could occur, such as
monetary damages, fines, penalties or injunctions prohibiting us from selling
one or more products or engaging in other activities. The occurrence of an
unfavorable outcome in any specific period could have a material adverse effect
on our results of operations for that period or future periods. We are not
presently a party to any pending or threatened legal proceedings.

ITEM 1A. RISK FACTORS.

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

During the first quarter of 2009, we issued the following securities which were
not registered under the Securities Act of 1933, as amended. We did not employ
any form of general solicitation or advertising in connection with the offer and
sale of the securities described below. In addition, we believe the purchasers
of the securities are "ACCREDITED INVESTORS" for the purpose of Rule 501 of the
Securities Act. For these reasons, among others, the offer and sale of the
following securities were made in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act or Regulation D promulgated by
the SEC under the Securities Act:

In April 2009, we issued 1,688,211 shares of common stock as a result of
conversions of $263,478 of convertible notes payable and related accrued
interest. The shares were issued to accredited investors.

In April 2009, an accredited investor exercised a warrant to purchase 555,556
shares of our common stock at the agreed strike price of $0.18 per share for
cash proceeds of $100,000. We issued that investor a five year warrant to
purchase 555,556 shares at $0.18 per share and a conditional warrant to purchase
a like number of shares at the same strike price if that warrant is exercised.

In April 2009, we issued 490,000 shares of restricted common stock valued at the
closing price in payment for investor relations services. We believe the
recipients of the shares is an accredited investor.

In April 2009, we issued 80,000 shares of restricted common stock and warrants
to purchase 80,000 shares of common stock in exchange for $15,200. The shares
were issued to an accredited investor.

In May 2009, holders of certain convertible notes converted $139,256 of
principal and accrued interest into 878,059 shares of our common stock per the
terms of the notes at an average conversion rate of approximately $0.16 per
share.

In May 2009, we issued 40,104 shares of restricted common stock at $0.24 in
payment for financial advisory services valued at $9,625 based on the value of
the services provided. We believe the recipients of the shares is an accredited
investor.

In June 2009, we issued 779,956 shares of common stock as a result of
conversions of $263,478 of convertible notes payable and related accrued
interest. The shares were issued to accredited investors.

In July 2009, we issued a convertible promissory note in the principal amount of
$330,000 to an accredited investor. The note is convertible into shares of our
common stock at a price per share that is equal to the lesser of (i) $0.25, or
(ii) the average of the closing bid prices of the common stock for the three
days immediately preceding the conversion date, subject in any case to a floor
of $0.15 per share. The investor also received warrants to purchase 600,000
shares of our common stock at an exercise price of $0.50 per share. The proceeds
from the sale of the note and warrants will be used for general working capital
purposes.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

As of the date of this report, various promissory and convertible notes payable
in the aggregate principal amount of $1,219,500 have reached maturity and are
past due. We are continually reviewing other financing arrangements to retire
all past due notes. Additionally, on July 30, 2008, the holders of the Amended
Series A Convertible Notes notified us that we were in default on the notes due
to our failure to register the warrants by March 31, 2008 and for failing to
make required interest payments. At June 30, 2009, we had accrued interest in
the amount of $381,983 associated with these notes and accrued liabilities
payable.


                                        24


<PAGE>

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

None.

ITEM 5. OTHER INFORMATION.

In July 2009, we issued a convertible promissory note in the principal amount of
$330,000 to an accredited investor. The note is convertible into shares of our
common stock at a price per share that is equal to the lesser of (i) $0.25, or
(ii) the average of the closing bid prices of the common stock for the three
days immediately preceding the conversion date, subject in any case to a floor
of $0.15 per share. The investor also received warrants to purchase 600,000
shares of our common stock at an exercise price of $0.50 per share. The proceeds
from the sale of the note and warrants will be used for general working capital
purposes. No fees or commissions were paid in connection with the sale of the
note and warrants.


                                        25




<PAGE>


ITEM 6.      EXHIBITS.

(a) Exhibits. The following documents are filed as part of this report:

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 (4)

10.1     Form of Convertible Promissory Note*

10.2     Form of Common Stock Purchase Warrant*

10.3     Option Suspension Agreement (5)


31.1*    Certification of Principal Executive Officer and Principal Financial
         Officer pursuant to Securities Exchange Act rules 13a- 15 and 15d-15(c)
         as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.

32.1*    Certification of James A. Joyce, Principal Executive Officer and
         Principal Financial Officer pursuant to 18 U.S.C. section 1350, as
         adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

* 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 Current Report on form 8-K dated March 7, 2007
         and incorporated herein by reference.

(5)      Filed with the Company's Annual Report on form 10-K dated July 2, 2009
         and incorporated herein by reference.


                                        26



<PAGE>

                                   SIGNATURES

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


                                        AETHLON MEDICAL, INC.


Date: AUGUST 14, 2009                   BY: /S/ JAMES A. JOYCE
                                            ---------------------------
                                            JAMES A. JOYCE
                                            CHAIRMAN, PRESIDENT, CHIEF
                                            ACCOUNTING OFFICER AND
                                            CHIEF EXECUTIVE OFFICER



                                       27


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>aethlon_10qex10-1.txt
<TEXT>
<PAGE>

EXHIBIT 10.1

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

PRINCIPAL AMOUNT: $                              ISSUE DATE: AS OF JULY 10, 2009
PURCHASE PRICE: $
- -----------------


                                CONVERTIBLE NOTE
                                ----------------

         FOR VALUE RECEIVED, AETHLON MEDICAL, INC., a Nevada corporation
(hereinafter called "Borrower"), hereby promises to pay to
________________________(the "Holder") or order, without demand, the sum of
_________Thousand Dollars ($_________.00), with interest accruing thereon, on
July 10, 2010 (the "Maturity Date"), if not retired sooner.

                                    ARTICLE I

                               GENERAL PROVISIONS

         1.1 INTEREST RATE. Interest payable on this Note shall accrue at the
annual rate of ten percent (10%) and be payable on the last day of each calendar
quarter and on the Maturity Date, accelerated or otherwise, when the principal
and remaining accrued but unpaid interest shall be due and payable, or sooner as
described below.

         1.2 PAYMENT GRACE PERIOD. The Borrower shall have a five (5) day grace
period to pay any monetary amounts due under this Note, after which grace period
a default interest rate of fifteen percent (15%) per annum.

         1.3 CONVERSION PRIVILEGES. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred, the Borrower may not pay
this Note, without the consent of the Holder, until one year after the later of
the date the Event of Default has been cured or one year after the Maturity
Date.

         1.4 WARRANT ISSUANCE. In connection with this Note, the Borrower agrees
to issue the Holder a warrant to purchase ________shares of its Common Stock,
$.001 par value per share ("Common Stock") with a strike price of $0.50 per
share and an expiration date of July 9, 2012.

                                   ARTICLE II

                                CONVERSION RIGHTS

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

                                       1

<PAGE>

         2.1. CONVERSION INTO THE BORROWER'S COMMON STOCK.

                  (a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this Note, and accrued
interest, at the election of the Holder (the date of giving of such notice of
conversion being a "Conversion Date") into fully paid and nonassessable shares
of Common Stock as such stock exists on the date of issuance of this Note, or
any shares of capital stock of Borrower into which such Common Stock shall
hereafter be changed or reclassified, at the conversion price as defined in
Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein.
Upon delivery to the Borrower of a completed Notice of Conversion, a form of
which is annexed hereto as Exhibit A, Borrower shall issue and deliver to the
Holder within three (3) business days after the Conversion Date (such third day
being the "Delivery Date") that number of shares of Common Stock for the portion
of the Note converted in accordance with the foregoing. At the election of the
Holder, the Borrower will deliver accrued but unpaid interest on the Note, if
any, through the Conversion Date directly to the Holder on or before the
Delivery Date. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest, if any, to be converted, by the Conversion
Price.

                  (b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be equal to the lesser of (i) $0.25
("Maximum Conversion Price"), and (ii) eighty percent (80%) of the three day
average of the closing bid prices of the Common Stock as reported by Bloomberg
L.P. on the date preceding a Conversion Date ("Variable Conversion Price"),
subject to a "Floor Price" of $0.15.

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

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

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

                                       2

<PAGE>

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

                           D. Share Issuance. Other than in connection with the
Excepted Issuances (as defined in the Subscription Agreement dated December 5,
2007 ("Subscription Agreement")), if at any time while this Note is outstanding,
the Borrower shall agree to or issue (the "Lower Price Issuance") any shares of
Common Stock or securities convertible into or exercisable directly or
indirectly for shares of Common Stock (or modify any of the foregoing which may
be outstanding) to any person or entity at a price per share or conversion or
exercise price per share which shall be less than the Floor Price, then the
Conversion Price shall automatically be reduced to such other Lower Price
Issuance. For purposes of the adjustment described in this paragraph, the
issuance of any security of the Company carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock (other than Excepted Issuances) shall result in the
adjustment of the Conversion Price where such right to convert is at a price
lower than the Floor Price. The reduction of the Conversion Price described in
this paragraph is in addition to other rights of the Holder described in this
Note. For the avoidance of doubt, if for example, the Lower Price Issuance is
$0.10, then the Conversion Price shall be reduced to $0.10.

                  (d) Whenever the Conversion Price is adjusted pursuant to
Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
statement of the facts requiring such adjustment.

                  (e) During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock not less than an
amount of Common Stock equal to 150% of the amount of shares of Common Stock
issuable upon the full conversion of this Note. Borrower represents that upon
issuance, such shares will be duly and validly issued, fully paid and
non-assessable. Borrower agrees that its issuance of this Note shall constitute
full authority to its officers, agents, and transfer agents who are charged with
the duty of executing and issuing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the conversion of this
Note.

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

         2.3. MAXIMUM CONVERSION. The Holder shall not be entitled to convert on
a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Holder and its affiliates on a
Conversion Date, (ii) any Common Stock issuable in connection with the
unconverted portion of the Note, and (iii) the number of shares of Common Stock
issuable upon the conversion of the Note with respect to which the determination
of this provision is being made on a Conversion Date, which would result in
beneficial ownership by the Holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Borrower on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Holder shall not be limited to aggregate conversions of
4.99%. The Holder shall have the authority and obligation to determine whether
the restriction contained in this Section 2.3 will limit any conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
Notes are convertible shall be the responsibility and obligation of the Holder.

                                       3

<PAGE>

                                   ARTICLE III

                                EVENT OF DEFAULT

         The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:

         3.1 FAILURE TO PAY PRINCIPAL OR INTEREST. The Borrower fails to pay any
installment of principal, interest or other sum due under this Note when due.

         3.2 BREACH OF COVENANT. The Borrower breaches any material covenant or
other term or condition of the Subscription Agreement, Transaction Documents or
this Note in any material respect and such breach, if subject to cure, continues
for a period of ten (10) business days after written notice to the Borrower from
the Holder.

         3.3 BREACH OF REPRESENTATIONS AND WARRANTIES. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, Transaction Documents, or in any agreement, statement or certificate
given in writing pursuant hereto or in connection therewith shall be false or
misleading in any material respect as of the date made and the Closing Date.

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

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

         3.6 BANKRUPTCY. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or any law,
or the issuance of any notice in relation to such event, for the relief of
debtors shall be instituted by or against the Borrower or any Subsidiary of
Borrower and if instituted against them are not dismissed within 45 days of
initiation.

         3.7 DELISTING. Delisting of the Common Stock from any Principal Market;
failure to comply with the requirements for continued listing on a Principal
Market for a period of ten (10) consecutive trading days; or notification from a
Principal Market that the Borrower is not in compliance with the conditions for
such continued listing on such Principal Market.

                                       4

<PAGE>

         3.8 NON-PAYMENT. A default by the Borrower under any one or more
obligations in an aggregate monetary amount in excess of $100,000 for more than
twenty days after the due date, unless the Borrower is contesting the validity
of such obligation in good faith and has segregated cash funds equal to not less
than one-half of the contested amount.

         3.9 STOP TRADE. An SEC or judicial stop trade order or Principal Market
trading suspension that lasts for five or more consecutive trading days.

         3.10 NON-REGISTRATION EVENT. The occurrence of a Non-Registration Event
as described in Section 11.4 of the Subscription Agreement.

         3.11 FAILURE TO DELIVER COMMON STOCK OR REPLACEMENT NOTE. Borrower's
failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.

         3.12 RESERVATION DEFAULT. Failure by the Borrower to have reserved for
issuance upon conversion of the Note the amount of Common stock as set forth in
this Note.

         3.13 FINANCIAL STATEMENT RESTATEMENT. The restatement of any financial
statements filed by the Borrower with the Securities and Exchange Commission for
any date or period from two years prior to the Issue Date of this Note and until
this Note is no longer outstanding, if the result of such restatement would, by
comparison to the unrestated financial statements, have constituted a Material
Adverse Effect.

         3.14 OTHER NOTE DEFAULT. The occurrence of any Event of Default under
any other Note between Borrower and Holder.

         3.15 CROSS DEFAULT. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement to which Borrower and Holder are parties which is not
cured after any required notice and/or cure period.

                                   ARTICLE IV

                                  MISCELLANEOUS

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

         4.2 UNCONDITIONAL OBLIGATION. This Note shall be deemed an
unconditional obligation of Borrower for the payment of money and, without
limitation to any other remedies Holder may have, may be enforced against
Borrower by summary proceeding pursuant to N.Y. Civil Procedure Law and Rules
Section 3213 or any similar rule or statute in the jurisdiction where
enforcement is sought.

         4.3 NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges


                                       5

<PAGE>

prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Aethlon Medical, Inc.,
3030 Bunker Hill Street, Suite 4000, San Diego, CA 92109, Attn: James A. Joyce,
CEO, telecopier: (858) 272-2738, and (ii) if to the Holder, to the name, address
and telecopy (if any) number set forth on the front page of this Note.

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

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

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

         4.7 GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement must be brought only
in the civil or state courts of California or in the federal courts located in
the State and county of San Diego, California. Both parties and the individual
signing this Agreement on behalf of the Borrower agree to submit to the
jurisdiction of such courts. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs. In the event that
any provision of this Note is invalid or unenforceable under any applicable
statute or rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or unenforceability of
any other provision of this Note. Nothing contained herein shall be deemed or
operate to preclude the Holder from bringing suit or taking other legal action
against the Borrower in any other jurisdiction to collect on the Borrower's
obligations to Holder, to realize on any collateral or any other security for
such obligations, or to enforce a judgment or other decision in favor of the
Holder.

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

         4.9 SHAREHOLDER STATUS. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.

                                       6

<PAGE>

         4.10 CONSTRUCTION. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.

         4.11 REDEMPTION. This Note may not be redeemed, called or prepaid
without the consent of the Holder.

         4.12 NON-BUSINESS DAYS. Whenever any payment or any action to be made
shall be due on a Saturday, Sunday or a public holiday under the laws of the
State of California, such payment may be due or action shall be required on the
next succeeding business day and, for such payment, such next succeeding day
shall be included in the calculation of the amount of accrued interest payable
on such date.

         IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer as of the 10th day of July, 2009.

                                           AETHLON MEDICAL, INC.


                                           By:________________________________
                                              Name:  James Joyce
                                              Title: Chief Executive Officer

WITNESS:


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


                                       7

<PAGE>

                              NOTICE OF CONVERSION

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


         The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by Aethlon Medical, Inc.
on July __, 2009 into Shares of Common Stock of Aethlon Medical, Inc. (the
"Borrower") according to the conditions set forth in such Note, as of the date
written below.



Date of Conversion:_____________________________________________________________


Conversion Price:_______________________________________________________________


Shares To Be Delivered:_________________________________________________________


Signature:______________________________________________________________________


Print Name:_____________________________________________________________________


Address:________________________________________________________________________

        ________________________________________________________________________



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>3
<FILENAME>aethlon_10qex10-2.txt
<TEXT>
<PAGE>

Exhibit 10.2

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD IN
RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED UNLESS
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT OR (II) AN EXEMPTION FROM
APPLICABLE SECURITIES LAWS, IN WHICH CASE THE COMPANY MAY REQUIRE AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED.

Right to Purchase ________ of shares of Common Stock of Aethlon Medical, Inc.
(subject to adjustment as provided herein)


                          COMMON STOCK PURCHASE WARRANT

NO.___                                               Issue Date:   JULY__,  2009

         AETHLON MEDICAL, INC., a corporation organized under the laws of the
State of Nevada (the "Company"), hereby certifies that, for value received,
________[insert number here] or its assigns (the "Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company at any time after the
Issue Date until 5:00 p.m., P.S.T. on the third anniversary of the Issue Date
(the "Expiration Date") or such sooner time as this warrant is terminated
pursuant to Section 6 herein, up to ________fully paid and nonassessable shares
of the common stock of the Company (the "Common Stock"), at a per share purchase
price of $0.50. The aforedescribed purchase price per share, as adjusted from
time to time as herein provided, is referred to herein as the "Purchase Price."
The number and character of such shares of Common Stock and the Purchase Price
are subject to adjustment as provided herein. The Company may reduce the
Purchase Price without the consent of the Holder.

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

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

         (b) The term "Common Stock" includes (a) the Company's Common Stock and
(b) any other securities into which or for which any of the securities described
in (a) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.

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

         1. EXERCISE OF WARRANT.

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

                                       1

<PAGE>

                  1.2. FULL EXERCISE. This Warrant may be exercised in full by
the Holder hereof by delivery of an original or facsimile copy of the form of
subscription attached as Exhibit A hereto (the "Subscription Form") duly
executed by such Holder and surrender of the original Warrant within seven (7)
days of exercise to the Company at its principal office or at the office of its
Warrant Agent (as provided hereinafter), accompanied by payment, in cash, wire
transfer or by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of shares of Common
Stock for which this Warrant is then exercisable by the Purchase Price then in
effect.

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

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

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

                  1.6 DELIVERY OF STOCK CERTIFICATES, ETC. ON EXERCISE. The
Company agrees that the shares of Common Stock purchased upon exercise of this
Warrant shall be deemed to be issued to the Holder hereof as the record owner of
such shares as of the close of business on the date on which this Warrant shall
have been surrendered and payment made for such shares as aforesaid. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number of duly
and validly issued, fully paid and nonassessable shares of Common Stock (or
Other Securities) to which such Holder shall be entitled on such exercise, plus,
in lieu of any fractional share to which such Holder would otherwise be
entitled, cash equal to such fraction.

                  1.7 EXERCISE LIMITATIONS. The Company shall not effect any
exercise of this Warrant, and a Holder shall not have the right to exercise any
portion of this Warrant, pursuant to this Section 1 or otherwise, to the extent
that after giving effect to such issuance after exercise as set forth on the
applicable Subscription Form, the Holder (together with the Holder's
"Affiliates" (as that term is defined by Rule 144 promulgated under the
Securities Act), and any other person or entity acting as a group together with
the Holder or any of the Holder's Affiliates), would beneficially own in excess
of the Beneficial Ownership Limitation (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially owned by


                                       2

<PAGE>

the Holder and its Affiliates shall include the number of shares of Common Stock
issuable upon exercise of this Warrant with respect to which such determination
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) exercise of the remaining, unexercised portion of
this Warrant beneficially owned by the Holder or any of its Affiliates and (B)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any other Common Stock
equivalents) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section 1.7, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the rules and regulations promulgated thereunder, it being acknowledged by
the Holder that the Company is not representing to the Holder that such
calculation is in compliance with Section 13(d) of the Exchange Act and the
Holder is solely responsible for any schedules required to be filed in
accordance therewith. To the extent that the limitation contained in this
Section 1.7 applies, the determination of whether this Warrant is exercisable
(in relation to other securities owned by the Holder together with any
Affiliates) and of which portion of this Warrant is exercisable shall be in the
sole discretion of the Holder, and the submission of a Subscription Form shall
be deemed to be the Holder's determination of whether this Warrant is
exercisable (in relation to other securities owned by the Holder together with
any Affiliates) and of which portion of this Warrant is exercisable, in each
case subject to the Beneficial Ownership Limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination. In
addition, a determination as to any group status as contemplated above shall be
determined in accordance with Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder. For purposes of this Section 1.7, in
determining the number of outstanding shares of Common Stock, a Holder may rely
on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent periodic or annual report, as the case may be, (y) a more
recent public announcement by the Company or (z) a more recent notice by the
Company or the Company's transfer agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of a Holder, the
Company shall confirm to the Holder within two business days orally and in
writing the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Warrant, by the Holder or its Affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The "Beneficial
Ownership Limitation" shall be 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61
days' prior notice to the Company, may increase or decrease the Beneficial
Ownership Limitation provisions of this Section 1.7, provided that the
Beneficial Ownership Limitation in no event exceeds 9.99% of the number of
shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock upon exercise of this Warrant held by the
Holder and the provisions of this Section 1.7 shall continue to apply. Any such
increase or decrease will not be effective until the 61st day after such notice
is delivered to the Company and shall only apply to such Holder and no other
Holder. The provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this Section 1.7 to
correct this paragraph (or any portion hereof) to the extent defective or
inconsistent with the intended Beneficial Ownership Limitation herein contained
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Warrant.

         2. PIGGYBACK REGISTRATION RIGHTS. If, at any time while this Warrant is
outstanding, there is not an effective registration statement covering all of
the shares of Common Stock underlying this Warrant (the "Warrant Shares") and
the Company shall determine to prepare and file with the Securities and Exchange
Commission a registration statement relating to an offering of any of its equity
securities for its own account or the account of others under the Securities
Act, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then-equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with the Company's stock option or

                                       3

<PAGE>


other employee benefit plans, then the Company shall deliver to each Holder a
written notice of such determination and, if within 15 days after the date of
the delivery of such notice any such Holder shall so request in writing, the
Company shall include in such registration statement all or any part of the
Warrant Shares such Holder requests to be registered; provided, however, that
the Company shall not be required to register any Warrant Shares pursuant to
this Section 2 that are eligible for resale pursuant to Rule 144 promulgated
under the Securities Act subject only to the holding period requirements thereof
or that are the subject of a then-effective registration statement.

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

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

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

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

         4. EXTRAORDINARY EVENTS REGARDING COMMON STOCK. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock, or (c) combine its outstanding shares of the Common
Stock into a smaller number of shares of the Common Stock, then, in each such
event, the Purchase Price shall be adjusted, simultaneously with the happening

                                       4

<PAGE>


of such event, by multiplying the then Purchase Price by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such event and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event, and the
product so obtained shall thereafter be the Purchase Price then in effect. The
Purchase Price, as so adjusted, shall be readjusted in the same manner upon the
happening of any successive event or events described in this Section 4. The
number of shares of Common Stock that the Holder of this Warrant thereafter
shall be entitled to receive, on the exercise hereof as provided in Section 1,
shall be adjusted to a number determined by multiplying the number of shares of
Common Stock that would otherwise (but for the provisions of this Section 4) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 4)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.

         5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant and any
Warrant Agent of the Company (appointed pursuant to Section 10 hereof).

         6. CALL AT ELECTION OF COMPANY. If, at any time after one year from the
Issue Date, the Company's Common Stock closes at a price of $1.00 or more for 5
consecutive trading days, the Company, at its election, may deliver a notice to
the Holder (a "Call Notice" and the date such notice is deemed delivered
hereunder, the "Call Notice Date") of its election to call for the return of all
or a portion of this Warrant to the Company (for no consideration), no later
than the 30th day following the Call Notice Date (the "Call Date"). Regardless
of whether physical delivery of the Warrant is made to the Company pursuant to
this Section 6, any unexercised portion of this Warrant shall be deemed
terminated as of the Call Date. The Company shall honor all Subscription Forms
tendered from the time of delivery of the Call Notice through the Call Date.

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

         8. ASSIGNMENT; EXCHANGE OF WARRANT. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered holder hereof (a "Transferor"). On the
surrender for exchange of this Warrant, with the Transferor's endorsement in the
form of Exhibit B attached hereto (the "Transferor Endorsement Form") and
together with an opinion of counsel reasonably satisfactory to the Company that
the transfer of this Warrant will be in compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes, will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor. No such transfers shall result
in a public distribution of the Warrant.

                                       5

<PAGE>

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

         10. WARRANT AGENT. The Company may, by written notice to the Holder of
the Warrant, appoint an agent (a "Warrant Agent") for the purpose of issuing
Common Stock (or Other Securities) on the exercise of this Warrant pursuant to
Section 1, exchanging this Warrant pursuant to Section 8, and replacing this
Warrant pursuant to Section 9, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such Warrant Agent.

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

         12. NOTICES. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) personally served, (ii)
deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Company to: Aethlon Medical, Inc.,
3030 Bunker Hill Street, Suite 4000, San Diego, California 92109, FAX (858)
332-1739, with a copy by facsimile only to: Law Office of Jennifer A. Post, 304
North Camden Drvie, Suite 302, Beverly Hills, CA 90210, Attn: Jennifer A. Post,
Esq., telecopier: (800)783-2983, (ii) if to the Holder to: ______________.

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



                    REMAINDER OF PAGE INTENTIALLY LEFT BLANK


                                       6

<PAGE>




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

                                           AETHLON MEDICAL, INC.



                                            By:
                                                ---------------------------
                                                Name:    James A. Joyce
                                                Title:   Chairman and Chief
                                                         Executive Officer



Witness:



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



                                       7

<PAGE>




                                                                       Exhibit A

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

TO:  AETHLON MEDICAL, INC.


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

___      ________ shares of the Common Stock covered by such Warrant.

The undersigned herewith makes payment of the full purchase price for such
shares at the price per share provided for in such Warrant, which is
$___________. Such payment takes the form of $__________ in lawful money of the
United States.

The undersigned requests that the certificates for such shares be issued in the
name of, and delivered to _____________________________________________________
whose address is ______________________________________________________________
______________________________________ .

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

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


                                   _____________________________________________

                                   _____________________________________________
                                                   (Address)


                                       8

<PAGE>



                                    Exhibit B


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


            For value received, the undersigned hereby sells, assigns, and
transfers unto the person(s) named below under the heading "Transferees" the
right represented by the within Warrant to purchase the percentage and number of
shares of Common Stock of AETHLON MEDICAL, INC. to which the within Warrant
relates specified under the headings "Percentage Transferred" and "Number
Transferred," respectively, opposite the name(s) of such person(s) and appoints
each such person Attorney to transfer its respective right on the books of
AETHLON MEDICAL, INC. with full power of substitution in the premises.


- ------------------------------ ----------------------------- -------------------
TRANSFEREES                    PERCENTAGE TRANSFERRED        NUMBER TRANSFERRED
- ------------------------------ ----------------------------- -------------------

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

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

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


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

Signed in the presence of:

________________________________      __________________________________________
         (Name)                       __________________________________________
                                                     (address)

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

________________________________
         (Name)




                                        9



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>4
<FILENAME>aethlon_ex3101.txt
<TEXT>
<PAGE>

EXHIBIT 31.1


          CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, James Joyce, certify that:

1.       I have reviewed this Quarterly Report on Form 10-Q of Aethlon Medical,
         Inc.;

2.       Based on my knowledge, this Quarterly Report does not contain any
         untrue statement of a material fact or omit to state a material fact
         necessary to make the statements made, in light of the circumstances
         under which such statements were made, not misleading with respect to
         the period covered by this Report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this Report, fairly present in all material
         respects the financial condition, results of operations and cash flows
         of the smaller reporting company as of, and for, the periods presented
         in this report;

4.       The smaller reporting company's other certifying officer(s) and I are
         responsible for establishing and maintaining disclosure controls and
         procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
         and internal control over financial reporting (as defined in Exchange
         Act Rules 13a-15(f) and 15d-15(f)) for the smaller reporting company
         and have:

         (a)      Designed such disclosure controls and procedures, or caused
                  such disclosure controls and procedures to be designed under
                  our supervision, to ensure that material information relating
                  to the smaller reporting company, including its consolidated
                  subsidiaries, is made known to us by others within those
                  entities, particularly during the period in which this Report
                  is being prepared;

         (b)      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 smaller reporting company's
                  disclosure controls and procedures and presented in this
                  Report and 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 smaller reporting
                  company's internal control over financial reporting that
                  occurred during the smaller reporting company's most recent
                  fiscal quarter (the smaller reporting company's fourth fiscal
                  quarter in the case of an annual report) that has materially
                  affected, or is reasonably likely to materially affect, the
                  smaller reporting company's internal control over financial
                  reporting; and

5.       The smaller reporting company's other certifying officer(s) and I have
         disclosed, based on our most recent evaluation of internal control over
         financial reporting, to the smaller reporting company's auditors and
         the audit committee of the smaller reporting company's board of
         directors (or persons performing the equivalent functions):

         (a)      All significant deficiencies and material weaknesses in the
                  design or operation of internal control over financial
                  reporting which are reasonably likely to adversely affect the
                  smaller reporting company'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 smaller
                  reporting company's internal control over financial reporting.

Date: August 14, 2009

                                        /S/ JAMES A. JOYCE
                                        -----------------------------
                                        JAMES A. JOYCE
                                        CHIEF EXECUTIVE OFFICER AND
                                        CHIEF ACCOUNTING OFFICER
                                        (PRINCIPAL EXECUTIVE OFFICER AND
                                        PRINCIPAL ACCOUNTING OFFICER)



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32.1
<SEQUENCE>5
<FILENAME>aethlon_ex3201.txt
<TEXT>
<PAGE>

EXHIBIT 32.1


               CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                 SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

         In connection with the Quarterly Report of Aethlon Medical, Inc. on
Form 10-Q for the fiscal quarter ended June 30, 2009 as filed with the
Securities and Exchange Commission on the date hereof, I, James A. Joyce, Chief
Executive Officer and Chief Accounting 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:

         1. Based on my knowledge, the Quarterly Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and

         2. The information contained in such Quarterly Report on Form 10-Q
fairly presents, in all material respects, the financial condition and results
of operations of Aethlon Medical, Inc.

Date: August 14, 2009

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

A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Aethlon Medical, Inc. and will be
retained by Aethlon Medical, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.


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