<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

                                   (Mark One)

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

                For the quarterly period ended December 31, 2006

                                       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 [ ].

The number of shares of common stock of the registrant outstanding was
28,382,529 as of February 8, 2007.


<PAGE>

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

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

         CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2006                        3

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
         THREE AND NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005
         AND FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2006        4

         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
         MONTHS ENDED DECEMBER 31, 2006 AND 2005 AND FOR THE
         PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2006                    5

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                             6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                       15

ITEM 3.  CONTROLS AND PROCEDURES                                                         19

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                               20

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                     20

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                 20

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                             21

ITEM 5.  OTHER INFORMATION                                                               21

ITEM 6.  EXHIBITS                                                                        21


                                       2


<PAGE>

                                     PART I.
                              FINANCIAL INFORMATION

               ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                             AETHLON MEDICAL, INC.
                          (A Development Stage Company)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                December 31, 2006
                                  (Unaudited)


                                     ASSETS
Current assets
     Cash                                                          $     44,315
     Prepaid expenses                                                    17,431
                                                                   ------------
                                                                         61,746

Property and equipment, net                                              12,449
Patents and patents pending, net                                        138,778
Other assets                                                             13,200
                                                                   ------------

                                                                   $    226,173
                                                                   ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
     Accounts payable and accrued liabilities                      $  1,040,611
     Due to related parties                                           1,107,513
     Notes payable, net of discount                                     502,500
     Convertible notes payable, net of discount                         279,016
                                                                   ------------
                                                                      2,929,640
Commitments and Contingencies

Stockholders' Deficit
     Common stock, par value $0.001 per share;
         50,000,000 shares authorized;
         27,670,375 shares issued and outstanding                        27,670
     Additional paid-in capital                                      21,127,046
     Deferred consulting fees                                            (8,167)
     Deficit accumulated during
         development stage                                          (23,850,016)
                                                                   ------------
                                                                     (2,703,467)
                                                                   ------------
                                                                   $    226,173
                                                                   ============

         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 and Nine Months Ended December 31, 2006 and 2005 and For
                                 the Period January 31, 1984 (Inception) Through December 31, 2006
                                                            (Unaudited)


                                                                                                                 January 31, 1984
                                       Three Months       Three Months       Nine Months        Nine Months          (Inception)
                                           Ended              Ended             Ended               Ended              through
                                       December 31,        December 31,      December 31,       December 31,         December 31,
                                           2006               2005               2006               2005                2006
                                       -------------      -------------      -------------      -------------      --------------
REVENUES

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

EXPENSES

  Professional Fees                          133,316            221,022            499,964            876,038           5,738,099
  Payroll and related                        220,539            164,955            611,816            512,176           7,857,821
  General and administrative                 111,139            108,037            392,647            395,255           4,824,678
  Impairment                                      --                 --                 --                 --           1,313,253
                                       -------------      -------------      -------------      -------------      --------------
                                             464,994            494,014          1,504,427          1,783,469          19,733,851
                                       -------------      -------------      -------------      -------------      --------------
OPERATING LOSS                              (464,994)          (494,014)        (1,504,427)        (1,783,469)        (18,200,283)
                                       -------------      -------------      -------------      -------------      --------------

OTHER EXPENSE (INCOME)
  Change in fair value of
       warrant liability                          --                 --                 --                 --             360,125
  Interest and other debt expenses            75,765            100,361            283,142            282,479           5,154,594
  Interest income                                 --                 --                 --                 --             (17,415)
  Other                                           --                 --                 --              3,750             152,429
                                       -------------      -------------      -------------      -------------      --------------
                                              75,765            100,361            283,142            286,229           5,649,733
                                       -------------      -------------      -------------      -------------      --------------
NET LOSS                               $    (540,759)     $    (594,375)     $  (1,787,569)     $  (2,069,698)     $  (23,850,016)
                                       =============      =============      =============      =============      ==============

BASIC AND DILUTED LOSS PER
  COMMON SHARE                         $       (0.02)     $       (0.03)     $       (0.07)     $       (0.11)
                                       =============      =============      =============      =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                        27,174,574         19,486,094         27,174,574         18,744,309
                                       =============      =============      =============      =============

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 NINE MONTHS ENDED DECEMBER 31, 2006 AND 2005 (Unaudited) AND
                               FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2006
                                                            (Unaudited)


                                                                                                                 JANUARY 31, 1984
                                                              NINE MONTHS ENDED        NINE MONTHS ENDED            (INCEPTION)
                                                              DECEMBER 31, 2006        DECEMBER 31, 2005              THROUGH
                                                                 (UNAUDITED)              (UNAUDITED)             DECEMBER 31,2006
                                                             --------------------     --------------------     --------------------

Cash flows from operating activities:

      Net loss                                               $         (1,787,569)    $         (2,069,698)    $        (23,850,016)
      Adjustments to reconcile net loss to net cash
        used in operating activities:
          Depreciation and amortization                                    21,256                   24,597                1,005,249
          Amortization of deferred consulting fees                         36,750                   30,000                  100,833
          Gain of 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                                         23,816                       --                  448,078
          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 and interest                    195,358                  476,205                3,407,360
          Change in fair value of warrant liability                            --                       --                  360,125
          Amortization of debt discount                                   136,651                  182,419                1,244,676
          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                                           14,791                    3,352                  144,106
                Other assets                                                4,000                   20,050                  (13,200)
                Accounts payable and accrued
                liabilities                                               178,588                  149,735                1,692,538
                Due to related parties                                   (108,000)                  (8,147)               1,364,125
                                                             --------------------     --------------------     --------------------

      Net cash used in operating activities                            (1,284,359)              (1,191,487)              (9,851,909)
                                                             --------------------     --------------------     --------------------

Cash flows from investing activities:

      Purchases of property and equipment                                 (14,454)                  (3,643)                (263,341)
      Patents and patents pending                                          (3,252)                      --                 (367,085)
      Proceeds from the sale of property and equipment                         --                       --                   17,065
      Cash of acquired company                                                 --                       --                   10,728
                                                             --------------------     --------------------     --------------------

      Net cash used in investing activities                               (17,706)                  (3,643)                (602,633)
                                                             --------------------     --------------------     --------------------

Cash flows from financing activities:

      Proceeds from the issuance of notes payable                              --                  100,000                1,710,000
      Principal repayments of notes payable                                    --                  (80,000)                (292,500)
      Proceeds from the issuance of convertible notes
        payable                                                            50,000                1,030,000                2,078,000
      Proceeds from the issuance of common stock                          460,003                  252,600                7,080,088
      Professional fees related to registration statement                      --                       --                  (76,731)
                                                             --------------------     --------------------     --------------------

      Net cash provided by financing activities                           510,003                1,302,600               10,498,857
                                                             --------------------     --------------------     --------------------

Net (decrease)increase in cash                                           (792,062)                 107,470                   44,315

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

Cash at end of period                                        $             44,315     $            116,095     $             44,315
                                                             ====================     ====================     ====================

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


                                                                5
</TABLE>

<PAGE>

                               AETHLON MEDICAL, INC.
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2006

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Aethlon Medical, Inc. (the "Company") is a development stage therapeutic device
company focused on expanding the applications of its Hemopurifier (R) platform
technology, which is designed to rapidly reduce the presence of infectious
viruses and other toxins from human blood. In this regard, the Company's core
focus is the development of pathogens targeted as potential biological warfare
agents, HIV/AIDS, and Hepatitis C. In pre-clinical testing, the Company has
published that its HIV-Hemopurifier(R)removed 55% of HIV from human blood in
three hours and in excess of 85% of HIV in twelve hours. Additionally, the
HIV-Hemopurifier(R) captured 90% of gp120, a toxic protein that depletes human
immune cells, during a one-hour pre-clinical blood study.

The Hemopurifier(R) is in the development stage and significant research and
testing are still needed to reach commercial viability. Any resulting medical
device or process will require approval by the U.S. Food and Drug Administration
("FDA"), and the Company has not yet begun efforts to obtain FDA approval and
such approval may take several years.

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

The Company's common stock is quoted on the Over-the-Counter Bulletin Board of
the National Association of Securities Dealers under the symbol "AEMD.OB".

The accompanying unaudited condensed consolidated financial statements of the
Company 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. Operating
results for the three and nine month periods ended December 31, 2006 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2007. For further information, refer to the Company's Annual Report
on Form 10-KSB for the year ended March 31, 2006, which includes audited
financial statements and footnotes as of March 31, 2006 and for the years ended
March 31, 2005 and 2006.

NOTE 2. GOING CONCERN AND LIQUIDITY CONSIDERATIONS

The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the ordinary course of business. The Company has
experienced cumulative losses of $23,850,016 for the period from January 31,
1984 (Inception) through December 31, 2006. The Company has not generated
significant revenue or any profit from operations since inception. A substantial
amount of additional capital will be necessary to advance the development of the
Company's products to the point at which they may become commercially viable.
The Company's current plan of operation is to fund the Company's research and
development activities and operations for the near future utilizing its existing
financial agreement with Fusion Capital Fund II, LLC ("Fusion Capital"). Through
December 31, 2006 the Company had received $1,905,001 and has $4,094,999
remaining available from this agreement. However, no assurance can be given that
we will receive any additional funds under our agreement with Fusion Capital.
Based on our projections of additional resources required to complete research,
development and testing associated with our Hemopurifier(R) products, we
anticipate that these funds will satisfy our cash requirements, including this
anticipated increase in operations, in excess of the next twelve months.

Based on the Company's projections of working capital required for operations
and to complete research, development and testing associated with its
Hemopurifier(R) products, the Company anticipates that these funds will satisfy
its cash requirement in excess of the next twelve months. No assurance can be
given that the Company will receive any additional funds under its agreement
with Fusion Capital. However, due to market conditions, and to assure
availability of funding for operations in the long term, the Company may arrange
for additional funding, subject to acceptable terms, during the next twelve
months.

The condensed consolidated financial statements do not include any adjustments
relating to the recoverability of assets that might be necessary should the
Company be unable to continue as a going concern. The Company's continuation as
a going concern is dependent upon its ability to obtain additional financing as
may be required, and to generate sufficient revenue and operating cash flow to
meet its obligations on a timely basis.


NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The summary of significant accounting policies of the Company presented below is
designed to assist the reader in understanding the Company's condensed
consolidated financial statements. Such financial statements and related notes
are the representations of Company management, who is 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 condensed consolidated financial statements.

                                       6

<PAGE>

PRINCIPLES OF CONSOLIDATION

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

LOSS PER COMMON SHARE

Loss per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"EARNINGS PER SHARE."

Securities that could potentially dilute basic loss per share (prior to their
conversion, exercise or redemption) were not included in the
diluted-loss-per-share computation because their effect is anti-dilutive. There
were 7,450,773 and 10,306,406 potentially dilutive common shares outstanding for
the three and nine months ended December 31, 2006, respectively. There were
8,515,903 and 4,812,924 potentially dilutive common shares outstanding for the
three and nine months ended December 31, 2005, respectively.

PATENTS

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

RESEARCH AND DEVELOPMENT EXPENSES

The Company incurred approximately $308,120 and $635,235 of research and
development expenses during the nine months ended December 31, 2006 and 2005,
respectively. For the fiscal quarters ended December 31, 2006 and 2005, the
Company incurred research and development expenses of approximately $144,301 and
$156,947, respectively.

EQUITY INSTRUMENTS FOR SERVICES

The Company follows 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 the Company issues equity instruments
as part of the total consideration. Pursuant to paragraph 7 of SFAS No. 123-R,
the Company accounts for such transactions using the fair value of the
consideration received (i.e. the value of the goods or services) or the fair
value of the equity instruments issued, whichever is more reliably measurable.

The Company applies EITF No. 96-18, in transactions, when the value of the goods
and/or services are not readily determinable and (1) the fair value of the
equity instruments is more reliably measurable and (2) the counterparty receives
equity instruments in full or partial settlement of the transactions, using the
following methodology:

(a)  For transactions where goods have already been delivered or services
     rendered, the equity instruments are issued on or about the date the
     performance is complete (and valued on the date of issuance).
(b)  For transactions where the instruments are issued on a fully vested,
     non-forfeitable basis, the equity instruments are valued on or about the
     date of the contract.
(c)  For any transactions not meeting the criteria in (a) or (b) above, the
     Company re-measures the consideration at each reporting date based on its
     then current stock value.

IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

SFAS No. 144, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF" addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS No. 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that their carrying amounts may not be
recoverable. If the cost basis of a long-lived asset is greater than the
projected future undiscounted net cash flows from such asset (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 No. 144 also requires companies to separately report discontinued
operations and extends that reporting requirement to a component of an entity
that either has been disposed of (by sale, abandonment or in a distribution to
owners) or is classified as held for sale. Assets to be disposed of are reported
at the lower of the carrying amount or the estimated fair value less costs to
sell. Management believes that no impairment existed at or during the nine
months ended December 31, 2006.

                                       7

<PAGE>

BENEFICAL CONVERSION FEATURE OF CONVERTIBLE NOTES PAYABLE

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

DERIVATIVE LIABILITIES

The Company evaluates free-standing instruments (or embedded derivatives)
indexed to its common stock to properly classify such instruments within equity
or as liabilities in its financial statements, pursuant to the requirements of
the EITF No. 00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO
AND POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK," EITF No. 01-06, "THE MEANING
OF INDEXED TO A COMPANY'S OWN STOCK," EITF No. 05-04, "THE EFFECT OF A
LIQUIDATED DAMAGES CLAUSE ON A FREESTANDING FINANCIAL INSTRUMENT SUBJECT TO EITF
No. 00-19," and Statement of Financial Accounting Standards ("SFAS") No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES," as amended. The
Company's policy is to settle instruments indexed to its common shares on a
first-in-first-out basis. Based on the Company's evaluation, no derivative
liabilities existed at or during the nine months ended December 31, 2006.

CLASSIFICATION OF WARRANT ISSUANCE

In connection with certain convertible notes, the Company has an obligation to
issue warrants upon conversion of the notes, which are convertible at any time
at the discretion of the noteholders. The obligation to issue the warrants meets
the criteria of an embedded derivative to be bifurcated pursuant to SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS No.
133"), as amended. Under this transaction, the Company is obligated to and has
registered for resale the common shares underlying the related warrants. At
December 31, 2006, the Company has sufficient registered shares to settle the
exercise of the related warrants. As a result, at December 31, 2006, the
embedded derivative associated with this warrant obligation meets the scope
exception of paragraph 11 (a) of SFAS No. 133. If such were not the case, these
warrants would need to be classified as a liability. The classification of these
warrants is evaluated at each reporting date.

STOCK BASED COMPENSATION

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

From time to time, the Company's Board of Directors grants common share purchase
options or warrants to selected directors, officers, employees, consultants and
advisors in payment of goods or services provided by such persons on a
stand-alone basis outside of any of the Company's formal stock plans. The terms
of these grants are individually negotiated and generally expire within five
years from the grant date.

                                       8

<PAGE>

In August 2000, the Company adopted the 2000 Stock Option Plan ("Stock Option
Plan"), which was approved by its stockholders in September 2000. The Stock
Option Plan provides for the issuance of up to 500,000 options to purchase
shares of common stock. Such options can be incentive options or nonstatutory
options, and may be granted to employees, directors and consultants. The Stock
Option Plan has limits as to the eligibility of those stockholders who own more
than 10% of Company stock, as defined. The options granted pursuant to the Stock
Option Plan may have exercise prices of no less than 100% of fair market value
of the Company's common stock at the date of grant (incentive options), or no
less than 75% of fair market value of such stock at the date of grant
(nonstatutory). At December 31, 2006, the Company had granted 47,500 options
under the 2000 Stock Option Plan of which 15,000 had been forfeited, with
467,500 available for future issuance. All of these options vested prior to the
adoption of FAS 123-R.

The effects of share-based compensation resulting from the application of SFAS
No. 123-R to options granted outside of the Company's Stock Option Plan resulted
in an expense of $14,316 for the quarter ended December 31, 2006 and $23,816 for
the nine month period ended December 31, 2006. This expense was recorded as
stock compensation included in payroll and related expenses in the accompanying
December 31, 2006 condensed consolidated statement of operations. Share-based
compensation recognized as a result of the adoption of SFAS No. 123-R as well as
pro forma disclosures according to the original provisions of SFAS No. 123 for
periods prior to the adoption of SFAS No. 123-R use the Binomial Lattice option
pricing model for estimating fair value of options granted.

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

                                         Three Months Ended    Nine Months Ended
                                         December 31, 2006     December 31, 2006

Payroll and related                         $   14,316             $  23,816
                                            ==========             =========
Net share-based compensation effect
   in net loss from operations              $   14,316             $  23,816
                                            ==========             =========

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


In accordance with SFAS No. 123-R, the Company adjusts 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 nine month period ended December 31, 2006 was insignificant.

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

<TABLE>
                                                       Three Months Ended     Nine Months Ended
                                                           December 31,          December 31,
                                                               2005                   2005
                                                          --------------          -----------
<S>                                                       <C>                     <C>
Net loss as reported                                      $   594,375             $ 2,069,698
   Less: Total stock-based employee compensation
    expense determined under the Binomial Lattice
    option pricing model                                           --                  57,000
                                                          -----------             -----------
Pro forma net loss                                        $   594,375             $ 2,126,698
                                                          ===========             ===========

Basic and diluted loss per common share:
   As reported                                            $     (0.03)            $     (0.11)
                                                          ===========             ============
   Pro forma                                              $     (0.03)            $     (0.11)
                                                          ===========             ============
</TABLE>

                                       9

<PAGE>

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

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

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

                                                2006                 2005
                                               ------               ------
Annual dividends                                Zero                 Zero
Expected volatility                              89%                  72%
Risk free interest rate                         4.82%                4.18%
Expected life                                 5.0 years            5.0 years


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

Options outstanding that have vested and are expected to vest as of December
31, 2006 are as follows:

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

Vested                       8,369,060   $   0.39        5.58       $  178,029
Expected to vest               835,000       0.25        5.92       $   13,400
                           -----------                              ----------
     Total                   9,204,060                              $  191,429
                           ===========                              ==========

(1) These amounts represent the difference between the exercise price and $0.27,
the closing market price of the Company's common stock on December 31, 2006 as
quoted on the Over-the-Counter Bulletin Board under the symbol "AEMD.OB" for all
in-the-money options outstanding.

Options outstanding that are expected to vest are net of estimated future
forfeitures in accordance with the provisions of SFAS No. 123-R, which are
estimated when compensation costs are recognized. Additional information with
respect to stock option activity is as follows:

                                                   Outstanding Options
                                           -------------------------------------
                               Shares                   Weighted       Aggregate
                             Available     Number of     Average       Intrinsic
                             for Grant     Shares     Exercise Price   Value (1)
---------------------------  ---------     ------     --------------  ----------
March 31, 2006                 467,500   9,012,785       $ 0.38       $3,875,498
                                                                      ==========
Grants                              --     500,000       $ 0.27
Exercises                           --          --           --
Cancellations                       --    (308,725)      $ 0.38
                             ----------  ----------
December 31, 2006              467,500   9,204,060       $ 0.38       $  191,429
                             ==========  ==========                   ==========

Options exerciseable at:
March 31, 2006                           7,135,518      $ 0.39
December 31, 2006                        8,369,060      $ 0.39

(1) Represents the difference between the exercise price and the March 31, 2006
or December 31, 2006 market price of the Company's common stock, which was
$0.81 and $0.27, respectively, for "in the money" options.

                                       10

<PAGE>

INCOME TAXES

Under SFAS No. 109, "ACCOUNTING FOR INCOME TAXES," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference between the consolidated financial statements and their respective
tax basis. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes, and (b) tax
credit carryforwards. The Company records a valuation allowance for deferred tax
assets when, based on management's 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.


RECENT ACCOUNTING PRONOUNCEMENTS

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

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


NOTE 4. NOTES PAYABLE

At December 31, 2006, the Company had $502,500 in principal amount of notes
payable outstanding with twelve noteholders.The Company is in default on these
notes which are unsecured notes payable and is currently seeking other financing
arrangements to retire all past due notes. At December 31, 2006 the Company had
accrued interest in the amount of $333,629 associated with these defaulted notes
payable.

On December 15, 2006, the Company issued two 10% Convertible Notes ("December
10% Notes") totaling $50,000 to accredited investors. The December 10% Notes
accrue interest at a rate of ten percent (10%) per annum and mature on March 15,
2007. Such notes are convertible into shares of restricted common stock at any
time at the election of the holder at a fixed conversion price of $0.17 per
share for any conversion occurring on or before the maturity date. In addition,
upon issuance, the Company issued five-year Warrants ("December 10% Note
Warrants") to purchase a number of shares equal to the number of shares into
which the December 10% Notes can be converted at a fixed exercise price of
$0.17. Additionally, if the December 10% Note Warrants are exercised prior to
December 15, 2007, the holder will receive an additional warrant on the same
terms as the December 10% Note Warrants on a one to one basis. The warrants can
be settled in unregistered shares of common stock. The December 10% Note
Warrants have been valued using a Binomial Lattice option pricing model and an
associated discount of $15,627, the relative fair value measured at the
commitment date, was recorded and presented net against the face amount of the
December 10% Notes. The convertible feature of the December 10% Notes provides
for an effective conversion rate that is below market value. Pursuant to EITF
No. 98-5 and EITF No. 00-27, the Company estimated the fair value of such BCF to
be $34,373 and recorded such amount as a debt discount. The discounts associated
with the warrants and the BCF are being accreted to interest expense over the
term of the December 10% Notes. Total interest expense on the December 10% Notes
for amortization of such debt discounts totaled approximately $9,000 for the
three month period ended December 31, 2006.

At December 31, 2006, the Company had $1,050,000 in principal amount of
convertible notes payable outstanding, net of $770,984 discount, held by six
noteholders (four holding 10% Series A Convertible Notes and two holding 10%
Convertible Notes). The $770,984 discount is comprised of $28,260 in unamortized
BCF discount and $742,724 in unamortized discount attributable to the valuation
of warrant rights associated with the issuance of the convertible notes. The
common shares underlying these warrants were registered by the Company in
January 2006.

NOTE 5. EQUITY TRANSACTIONS

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

                                       11

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                       12

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

In September 2006, the Company issued 16,447 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.30 per share in payment for regulatory affairs consulting
services to the Company valued at $5,000 based on the value of the services.

In September 2006, the Company issued 9,733 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consultant
Stock Plan at $0.26 per share in payment for regulatory affairs consulting
services to the Company valued at $2,550 based on the value of the services.

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

In October 2006, the Company issued 8,065 shares of restricted common stock at
$0.31 per share in payment for investor relations services to the Company valued
at $2,500 based on the value of the services.

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

                                       13

<PAGE>

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

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

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

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

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

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

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

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

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

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

NOTE 6. SUBSEQUENT EVENTS

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

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

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

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

During January 2007, the Company issued 471,936 shares of common stock at prices
between $0.25 and $0.26 per share to Fusion Capital under its $6,000,000 common
stock purchase agreement for net cash proceeds totaling $120,000. These shares
are registered pursuant to the Company's Form SB-2 registration statement
effective December 7, 2004.

During February 2007, the Company issued 110,974 shares of common stock at
prices between $0.263 and $0.28 per share to Fusion Capital under its $6,000,000
common stock purchase agreement for net cash proceeds totaling $30,000. These
shares are registered pursuant to the Company's Form SB-2 registration statement
effective December 7, 2004.

                                       14

<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion of Aethlon Medical's financial condition and results of
operations should be read in conjunction with, and is qualified in its entirety
by the condensed consolidated (unaudited) financial statements and notes
thereto, included in Item 1 in this Quarterly Report on Form 10-QSB. 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-QSB 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. ("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-QSB. Such potential risks and
uncertainties include, without limitation, completion of the Company's
capital-raising activities, FDA approval of the Company's products, other
regulations, patent protection of the Company's proprietary technology, product
liability exposure, uncertainty of market acceptance, competition, technological
change, and other risk factors detailed herein and in other of the Company's
filings with the Securities and Exchange Commission. The forward-looking
statements are made as of the date of this Form 10-QSB, and the Company assumes
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. the Company's
headquarters are located at 3030 Bunker Hill Street, Suite 4000, San Diego, CA
92109. Our phone number at that address is (858) 459-7800. Its Web site is
maintained at http://www.aethlonmedical.com.


RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 2005

Operating Expenses

Consolidated operating expenses for the three months ended December 31, 2006
were $464,994 in comparison with $494,014 for the comparable quarter a year ago.
The reduction of $29,020, or 5.9% was comprised of an increase in Payroll &
Related expenses of $55,584 and an increase in general and administrative
expenses of $3,102 offset by a decrease in professional fees of $87,706

                                       15

<PAGE>

Payroll & Related expenses increased by $55,584 or approximately 34% from the
prior period one year ago. The primary reasons for this include the hiring of a
new President in July 2006 combined with increases in the salaries of our Chief
Executive and Chief Scientific Officers. General & Administrative expenses
increased by $3,102 or approximately 3% due to small decreases in all general
expenses offset by a $6,443 increase in employee health insurance premiums.
Professional fees decreased $87,706 or approximately 40%, as compared to the
prior quarter one year ago a result of a $39,404 reduction in scientific
consulting fees, a $75,423 decrease in legal expense, a $22,689 reduction in
other professional expenses offset by an increase of $49,812 related to investor
relations.


Interest Expense

Interest expense decreased $24,596 or approximately 25% a result of a reduction
in the amortization of BCF related to convertible notes in the current quarter
as compared to the same quarter one year ago.

Net Loss

The Company recorded a consolidated net loss of $540,759 and $594,375 for the
three months ended December 31, 2006 and 2005, respectively. The decreased net
loss was primarily attributable to a $29,020 decrease in operating expense
combined with a $24,595 decrease in interest expense as noted immediately above.

Basic and diluted loss per common share was ($0.02) for the three month period
ended December 31, 2006 compared to ($0.03) for the same period ended December
31, 2005. This reduction in loss per share was a result of the greater number of
common shares outstanding during the three month period ended December 31, 2006,
as compared to the three month period ended December 31, 2005, combined with the
decreased net loss for the three month period ended December 31, 2006, as
compared to the three month period ended December 31, 2005.


NINE MONTHS ENDED DECEMBER 31, 2006 COMPARED TO THE NINE MONTHS ENDED DECEMBER
31, 2005

Operating Expenses

Consolidated operating expenses were $1,504,427 for the nine months ended
December 31, 2006, versus $1,783,469 for the comparable period ended December
31, 2005. The reduction of $279,042, or approximately 16%, is a result of
reductions in professional fees and general & administrative expenses of
$376,074 and $2,608, respectively, offset by a $99,640 increase in payroll and
related expenses.

For the comparable nine-month periods, professional fees decreased $376,074 or
approximately 43%, while general and administrative expenses decreased $2,608 or
approximately 1%. These decreases were offset by an increase in payroll and
related expenses of $99,640 or approximately 19%.

The professional fee expense decrease is comprised of a reduction in legal fees
of $288,556, a reduction in scientific consulting expense of $124,846 and an
increase in all other professional expenses of $37,330. Legal fee expense was
higher in the prior period due to the issuance of warrants in settlement of a
legal fee obligation. There was no similar issuance in the current fiscal year.
Scientific consulting expense decreased because in the prior period the Company
was conducting its Human Safety Trials in India and had no comparable study in
progress for the current nine-month period.

The general and administrative expense decrease is comprised of a $72,844
reduction in laboratory supplies offset by increases in investor conference
expenses of $36,958, insurance expense of $11,551 and other expense decreases of
$4,758. The reduced laboratory supplies expense is explained by the higher
expenses recognized during the prior nine-month period one year ago during the
company's Human Safety Trial in India. Investor conference expense increased due
to our increased participation in various investor related conferences and
programs.

Payroll and related expense increases are a result of having a full-time Chief
Financial Officer for the full nine-month period, of the addition of a new
President in July 2006 and of salary increases given to our Chief Executive and
Chief Scientific Officers beginning in the first quarter of fiscal 2007.

Interest Expense

Interest expense remained essentially unchanged in comparison with the
comparable nine-month period one year ago.

                                       16


<PAGE>

Net Loss

We recorded a consolidated net loss of $1,787,569 and $2,069,698 for the
nine-month periods ended December 31, 2006 and 2005, respectively. The decrease
in net loss was primarily attributable to a net decrease in operating expenses.
Basic and diluted loss per common share were ($0.07) for the nine-month period
ended December 31, 2006 compared to ($0.11) for the same period ended December
31, 2005. This reduction in loss per share was attributable to both the greater
number of common shares outstanding during the nine-month period ended December
31, 2006, as compared to the nine-month period ended December 31, 2005, and by
the decreased net loss for the nine-month period ended December 31, 2006, as
compared to the equivalent period one year ago.

LIQUIDITY AND CAPITAL RESOURCES

To date, the Company has funded its 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. The Company's cash position at December 31, 2006 was $44,315 compared
to $836,377, at March 31, 2006, representing a decrease of $792,062. During the
nine-months ended December 31, 2006, operating activities used net cash of
$1,284,359 while the Company received $460,003 from the issuance of common stock
and $50,000 from the issuance of convertible notes, purchased $14,454 of new
equipment and spent $3,252 on patents pending.

During the nine-month period ended December 31, 2006, net cash used in operating
activities primarily consisted of net loss of $1,787,569. Net loss was offset
principally by depreciation and amortization of $21,256 plus the fair market
value of common stock of $195,358 in payment for services, $136,651 of
amortization of debt discount, $23,816 in stock-based compensation and a net
increase in accounts payable and other current balance sheet accounts of
$89,379.

A decrease in working capital during the nine months ended Decmber 31, 2006 in
the amount of $947,231 increased the Company's negative working capital position
to ($2,867,894) at December 31, 2006 as compared to a negative working capital
of ($1,920,663) at March 31, 2006.

The Company's current deficit in working capital required 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.
The Company's 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 Hemopurifier(R) products, and to market any of those
products that receive regulatory approval. The Company does not expect to
generate revenue from operations for the foreseeable future, and its ability to
meet its cash obligations as they become due and payable is expected to depend
for at least the next several years on its ability to sell securities, borrow
funds or a combination thereof. The Company's 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
management's ability to establish collaborative arrangements, effect successful
commercialization strategies, marketing activities and other arrangements. The
Company expects to continue to incur increasing negative cash flows and net
losses for the foreseeable future, and presently requires a minimum of $150,000
per month to sustain operations.

Management does not believe that inflation has had or is likely to have any
material impact on the Company's limited operations.

At the date of this filing, we do not have plans to purchase significant amounts
of equipment or hire significant numbers of employees prior to successfully
raising additional capital.

                                       17

<PAGE>

PLAN OF OPERATION

The Company's current plan of operation is to fund our anticipated increased
research and development activities and operations through the common stock
purchase agreement in place with Fusion Capital, whereby Fusion Capital has
committed to buy up to an additional $6,000,000 of our common stock over a
30-month period, that commenced, at our election, after the SEC declared
effective a registration statement under Form SB-2 on December 7, 2004 covering
such shares. Through December 31, 2006 the Company had received $1,905,001 and
has $4,094,999 remaining available from this agreement. However, no assurance
can be given that we will receive any additional funds under our agreement with
Fusion Capital. Based on our projections of additional employees and equipment
for operations and to complete research, development and testing associated with

our Hemopurifier(R) products, we anticipate that these funds will satisfy our
cash requirements, including this anticipated increase in operations, in excess
of the next twelve months. However, due to market conditions, and to assure
availability of funding for operations in the long term, we may arrange for
additional funding, subject to acceptable terms, during the next twelve months.

The Company is a development stage medical device company that has not yet
engaged in significant commercial activities. The primary focus of our resources
is the advancement of our proprietary Hemopurifier(R) platform treatment
technology, which is designed to rapidly reduce the presence of infectious
viruses and toxins in human blood. Our main focus is to prepare our
Hemopurifier(R) to treat HIV/AIDS, Hepatitis-C and Flu Viruses in human
clinical trials. The Company is also working to advance pathogen filtration
devices to treat infectious agents that may be used in biological warfare and
terrorism.

The Company plans to continue our research and development activities related to
our Hemopurifier(R) platform technology, with particular emphasis on the
advancement of our lead product candidates for the treatment of potential
bioterror agents. The Company is in the process of implementing a regulatory
strategy for the use of our Hemopurifier(R) for biodefense treatments pursuant
to a recent rule implemented by the FDA for medical countermeasures to weapons
of mass destruction. Under this rule, in situations where it is deemed unethical
to conduct efficacy studies in humans, a treatment can be reviewed for approval
on the basis of efficacy in the most relevant animal species and safety data in
humans.

The Company expects to outsource research and development in the next twelve
months, as required to support our increased research and development effort
that will include expanding our goal beyond treating infectious diseases
HIV/AIDS and Hepatitis-C and new applications to combat infectious agents that
may be used in biological warfare and terrorism. This will involve designing
Hemopurifier(R) products that can be rapidly deployed by armed forces as
wearable post-exposure treatments on the battlefield, as well as dialysis-based
treatments for civilian populations. This will entail developing the new
treatment device based on the same proprietary Hemopurifier(R) filtration
technology that is utilized in advancing our HIV/AIDS, and Hepatitis-C
treatments.

Accordingly, due to this increase in activity during the next twelve months,
management anticipates continuing to increase spending on outsourced research
and development during this period.

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

                                       18

<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, the Company evaluates estimates and assumptions
based upon historical experience and various other factors and circumstances.
Management believes the Company's estimates and assumptions are reasonable in
the circumstances; however, actual results may differ from these estimates under
different future conditions.

The Company believes that the estimates and assumptions that are most important
to the portrayal of the Company's financial condition and results of operations,
in that they require the most difficult, subjective or complex judgments, form
the basis for the accounting policies deemed to be most critical to us. These
critical accounting policies include our estimates associated with stock
purchase warrants issued withnotes payable, beneficial conversion feature of
convertible notes payable, impairment of our intangible assets and long lived
assets, stock compensation, contingencies and litigation. We believe estimates
and assumptions related to these critical accounting policies are appropriate
under the circumstances; however, should future events or occurrences result in
unanticipated consequences, there could be a material impact on the Company's
future financial conditions or results of operations.

There have been no changes to the Company's critical accounting policies as
disclosed in its Form 10-KSB for the year ended March 31, 2006.


OFF-BALANCE SHEET ARRANGEMENTS

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


ITEM 3. CONTROLS AND PROCEDURES

Under the supervision and with the participation of Management, including our
Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), we
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934) as of the end of the period covered by this
report (the "Evaluation Date"). Based upon that evaluation, the CEO and CFO
concluded that, as of December 31, 2006, our disclosure controls and procedures
were effective in timely alerting them to the material information relating to
us (or our consolidated subsidiaries) required to be included in our periodic
filings with the SEC.

Changes in Controls and Procedures

There were no significant changes made in our internal controls over financial
reporting during the quarter ended December 31, 2006 that have materially
affected or are reasonably likely to materially affect these controls. Thus, no
corrective actions with regard to significant deficiencies or material
weaknesses were necessary. On August 1, 2005 the Company hired a new full-time
Chief Financial Officer.

Limitations on the Effectiveness of Internal Control

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

                                       19

<PAGE>


                                     PART II

                                OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     None

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


In October 2006, the Company issued 8,065 shares of restricted common stock at
$0.31 per share in payment for investor relations services. The shares were
issued without registration under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2).

In October 2006, the Company issued 8,929 shares of restricted common stock at
$0.28 per share in payment for investor relations services. The shares were
issued without registration under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2).

In November 2006, the Company issued 555,556 shares of restricted common stock
at $0.18 per share in exchange for an investment of $100,000. As an inducement
the Company also issued five-year warrants to purchase a number of shares equal
to the number of restricted shares issued converted at a fixed exercise price of
$0.18. Additionally, if the warrants are exercised prior to November 14, 2007,
the holder will receive an additional warrant on the same terms as the warrants.
The shares and warrants wereissued without registration under the Securities Act
in reliance upon the exemption from registration set forth in Section 4(2).

In December 2006, the Company issued 40,000 shares of restricted common stock
At $0.25 per share in exchange for license and development rights related to
certain intellectual property valued at $10,000. The shares were
issued without registration under the Securities Act in reliance upon the
exemption from registration set forth in Section 4(2).

In January 2007, the Company issued 125,091 shares of restricted common stock at
between $0.24 and $0.31 per share in payment for investor relations services to
the Company valued at $32,500. The shares were issued without registration under
the Securities Act in reliance upon the exemption from registration set forth in
Section 4(2).


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 $502,500 have reached maturity and
are past due. The Company is continually reviewing other financing arrangements
to retire all past due notes. At December 31, 2006 the Company had accrued
interest in the amount of $333,629 associated with these notes and accrued
liabilities payable.

                                       20

<PAGE>

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

None


ITEM 5. OTHER INFORMATION

None


ITEM 6. EXHIBITS

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

31.1     Certification of CEO 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.

31.2     Certification of CFO 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, Chief Executive Officer pursuant to 18
         U.S.C. section 1350, as adopted pursuant to section 906 of the
         Sarbanes-Oxley Act of 2002.

32.2     Certification of James W. Dorst, Chief Financial Officer (Principal
         Accounting Officer) pursuant to 18 U.S.C. section 1350, as adopted
         pursuant to section 906 of the Sarbanes-Oxley Act of 2002.

                                       21




<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: February 13, 2007

BY: /S/ JAMES A. JOYCE                  BY: /S/ JAMES W. DORST
    ---------------------------             ---------------------------
    JAMES A. JOYCE                          JAMES W. DORST
    CHAIRMAN, PRESIDENT AND                 CHIEF FINANCIAL OFFICER
    CHIEF EXECUTIVE OFFICER