<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, 2005

                                       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
21,102,101 as of February 9, 2006.






<PAGE>

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

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

         CONDENSED CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 2005 (UNAUDITED)            1

         CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
         THREE AND NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (UNAUDITED)
         AND FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2005        2

         CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE
         MONTHS ENDED DECEMBER 31, 2005 AND 2004 (UNAUDITED) AND FOR THE
         PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2005                    3

         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                             4

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                       11

ITEM 3.  CONTROLS AND PROCEDURES                                                         15

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS                                                               16

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                     16

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                 16

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                             16

ITEM 5.  OTHER INFORMATION                                                               16

ITEM 6.  EXHIBITS                                                                        17
</TABLE>






<PAGE>

                                     PART I.
                              FINANCIAL INFORMATION

               ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
                      CONDENSED CONSOLIDATED BALANCE SHEET
                                  (Unaudited)

                                                                   December 31,
                                                                       2005
                                                                   ------------

                                     ASSETS
Current assets
     Cash                                                          $    116,095
     Prepaid expenses                                                     6,836
                                                                   ------------
                                                                        122,931

Property and equipment, net                                              17,208
Patents and patents pending, net                                        206,127
Other assets                                                             17,200
                                                                   ------------

                                                                   $    363,466
                                                                   ============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities
     Accounts payable and accrued liabilities                      $  1,289,902
     Due to related parties                                           1,259,355
     Notes payable, net of discount                                     557,500
     Convertible notes payable, net of discount                          95,368
     Warrant obligation                                                 729,875
                                                                   ------------
                                                                      3,932,000
Commitments and Contingencies

Stockholders' Deficit
     Common stock, par value $0.001 per share;
         50,000,000 shares authorized;
         20,203,149 shares issued and outstanding                        20,203
     Additional paid-in capital                                      17,623,225
     Deficit accumulated during
         development stage                                          (21,211,962)
                                                                   ------------
                                                                     (3,568,534)
                                                                   ------------
                                                                   $    363,466
                                                                   ============

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


                                       1





<PAGE>

<TABLE>
                                              AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                                   (A Development Stage Company)
                                               CONDENSED CONSOLIDATED STATEMENTS OF
                                      OPERATIONS For the Three and Nine Months Ended December
                                                     31, 2005 and 2004 and For
                                 the Period January 31, 1984 (Inception) Through December 31, 2005
                                                            (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,
                                           2005               2004               2005               2004                2005
                                       -------------      -------------      -------------      -------------      --------------
<S>                                    <C>                <C>                <C>                <C>                <C>
REVENUES

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

EXPENSES

  Professional Fees                          221,022            208,308            876,038            675,260           5,262,579
  Payroll and related                        164,955            183,643            512,176            568,098           7,083,010
  General and administrative                 108,037            157,951            395,255            326,863           4,340,834
  Impairment                                      --                 --                 --                 --           1,231,531
                                       -------------      -------------      -------------      -------------      --------------
                                             494,014            549,902          1,783,469          1,570,221          17,917,954
                                       -------------      -------------      -------------      -------------      --------------
OPERATING LOSS                              (494,014)          (549,902)        (1,783,469)        (1,570,221)        (16,384,386)
                                       -------------      -------------      -------------      -------------      --------------

OTHER EXPENSE (INCOME)
  Interest and other debt expenses           100,361             53,519            282,479           (136,855)          4,703,634
  Interest income                                 --                 --                 --                 --             (17,415)
  Other                                           --                 --              3,750                 --             141,357
                                       -------------      -------------      -------------      -------------      --------------
                                             100,361             53,519            286,229           (136,855)          4,827,576
                                       -------------      -------------      -------------      -------------      --------------
NET LOSS                               $    (594,375)     $    (603,421)     $  (2,069,698)        (1,433,366)        (21,211,962)
                                       =============      =============      =============      =============      ==============

BASIC AND DILUTED LOSS PER
  COMMON SHARE                         $       (0.03)     $       (0.04)     $       (0.11)     $       (0.11)
                                       =============      =============      =============      =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING                        19,486,094         14,147,932         18,744,309         13,377,226
                                       =============      =============      =============      =============

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


                                                                2
</TABLE>





<PAGE>

<TABLE>
                                              AETHLON MEDICAL, INC. AND SUBSIDIARIES
                                                   (A DEVELOPMENT STAGE COMPANY)
                                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                FOR THE NINE MONTHS ENDED DECEMBER 31, 2005 AND 2004 (Unaudited) AND
                               FOR THE PERIOD JANUARY 31, 1984 (INCEPTION) THROUGH DECEMBER 31, 2005
                                                            (Unaudited)


                                                                                                                 JANUARY 31, 1984
                                                              NINE MONTHS ENDED        NINE MONTHS ENDED            (INCEPTION)
                                                              DECEMBER 31, 2005        DECEMBER 31, 2004              THROUGH
                                                                 (UNAUDITED)              (UNAUDITED)             DECEMBER 31,2005
                                                             --------------------     --------------------     --------------------
<S>                                                          <C>                      <C>                      <C>
Cash flows from operating activities:

      Net loss                                               $         (2,069,698)    $         (1,433,366)    $        (21,211,962)
      Adjustments to reconcile net loss to net cash
        used in operating activities:
          Depreciation and amortization                                    24,597                   28,092                  974,348
          Amortization of deferred consulting fees                         30,000                       --                   60,000
          Gain of sale of property and equipment                               --                       --                  (13,065)
          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                                 476,205                  252,646                2,983,824
          Intrinsic value of stock options issued to
            directors                                                          --                       --                  424,262
          Amortization of debt discount                                   182,419                   17,808                1,365,332

          Impairment of patents and patents pending                            --                       --                  897,227
          Impairment of goodwill                                               --                       --                  217,223
          Changes in operating assets and liabilities:
                Prepaid expenses                                            3,352                  (30,668)                 154,701
                Other assets                                               20,050                  (16,845)                 (17,200)
                Accounts payable and accrued
                liabilities                                               149,735                  142,835                1,715,463
                Due to related parties                                     (8,147)                 (66,470)               1,559,355
                                                             --------------------     --------------------     --------------------

      Net cash used in operating activities                            (1,191,487)              (1,105,968)              (8,174,756)
                                                             --------------------     --------------------     --------------------

Cash flows from investing activities:

      Purchases of property and equipment                                  (3,643)                 (27,349)                (247,879)
      Patents and patents pending                                              --                       --                 (352,833)
      Proceeds from the sale of property and equipment                         --                       --                   17,065
      Cash of acquired company                                                 --                       --                   10,728
                                                             --------------------     --------------------     --------------------

      Net cash used in investing activities                                (3,643)                 (27,349)                (572,919)
                                                             --------------------     --------------------     --------------------

Cash flows from financing activities:

      Proceeds from the issuance of notes payable                         100,000                  130,000                1,710,000
      Principal repayments of notes payable                               (80,000)                 (22,500)                (292,500)
      Proceeds from the issuance of convertible notes
        payable                                                         1,030,000                       --                2,028,000
      Proceeds from the issuance of common stock                          252,600                1,063,417                5,418,270
                                                             --------------------     --------------------     --------------------

      Net cash provided by financing activities                         1,302,600                1,170,917                8,863,770
                                                             --------------------     --------------------     --------------------

Net increase in cash                                                      107,470                   37,600                  116,095

Cash at beginning of period                                                 8,625                    1,619                       --
                                                             --------------------     --------------------     --------------------

Cash at end of period                                        $            116,095     $             39,219     $            116,095
                                                             ====================     ====================     ====================

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


                                                                 3
</TABLE>





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

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 (TM) 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(TM)removed 55% of HIV from human blood in
three hours and in excess of 85% of HIV in twelve hours. Additionally, the
HIV-Hemopurifier(TM) captured 90% of gp120, a toxic protein that depletes human
immune cells, during a one-hour pre-clinical blood study.

The Hemopurifier(TM) 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. Since some of the Company's patents were
issued in the 1980's, they are scheduled to expire in the near future. Thus,
such patents may expire before FDA approval is obtained.

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, 2005 are not
necessarily indicative of the results that may be expected for the year ending
March 31, 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 a loss of approximately $21.2 million for the period from January
31, 1984 (Inception) through December 31, 2005. 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").

No assurance can be given that the Company will receive any additional funds
under its agreement with Fusion Capital. Based on the Company's projections of
working capital required for operations and to complete research, development
and testing associated with its Hemopurifier(TM) products, the Company
anticipates that these funds will satisfy its cash requirement in excess of the
next twelve months. 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.


                                       4





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005


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.

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.

STOCK-BASED COMPENSATION

At December 31, 2005, the Company has two stock-based employee compensation
plans. The Company accounts for those plans under the recognition and
measurement principles of Accounting Principles Board Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES" ("APB 25"), and related
Interpretations.

No stock-based employee compensation cost is reflected in net loss, as all
options granted under those plans had an exercise price equal to or greater than
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net loss and loss per share if the
Company had applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "ACCOUNTING FOR STOCK BASED
COMPENSATION", ("SFAS 123") as Amended, to stock-based employee compensation for
the periods indicated.

          Nine Months Ended December 31,             2005                2004
                                                 -----------        -----------
Net loss:
    As reported                                  $ 2,069,698        $ 1,433,366
    Pro forma compensation expense                     7,917                 --
                                                 -----------        -----------
    Pro forma                                    $ 2,077,615        $ 1,433,366
                                                 ===========        ===========

Basic and diluted net loss per share:
    As reported                                  $     (0.11)       $     (0.11)
                                                 ===========        ===========
    Pro forma                                    $     (0.11)       $     (0.11)
                                                 ===========        ===========


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 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.


                                       5





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

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 $635,235 and $331,225 of research and
development expenses during the nine months ended December 31, 2005 and 2004,
respectively. For the fiscal quarters ended December 31, 2005 and 2004, the
Company incurred research and development expenses of approximately $156,947 and
$174,056, respectively.

EQUITY INSTRUMENTS FOR SERVICES

The Company follows SFAS No. 123 (as amended by EITF 96-18, "ACCOUNTING FOR
EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR ACQUIRING,
OR IN CONJUNCTION WITH SELLING, GOODS OR SERVICES") to account for transactions
involving goods and services provided by third parties where the Company issues
equity instruments as part of the total consideration. Pursuant to
paragraph 8 of SFAS No. 123, the Company accounts for such transactions
using the fair value of the consideration received (i.e. the value
of the goods or services) or the fair value of the equity instruments issued,
whichever is more reliably measurable.


The Company applies EITF 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 ("SFAS 144"), "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF" addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. SFAS 144 requires
that long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amounts may not be recoverable. If
the cost basis of a long-lived asset is greater than the projected future
undiscounted net cash flows from such asset (excluding interest), an impairment
loss is recognized. Impairment losses are calculated as the difference between
the cost basis of an asset and its estimated fair value. SFAS 144 also requires
companies to separately report discontinued operations and extends that
reporting requirement to a component of an entity that either has been disposed
of (by sale, abandonment or in a distribution to owners) or is classified as
held for sale. Assets to be disposed of are reported at the lower of the
carrying amount or the estimated fair value less costs to sell. Management
believes that no impairment existed at or during the nine months ended December
31, 2005.

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.


                                       6





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

CLASSIFICATION OF WARRANT OBLIGATION

In connection with the issuance of its 10% Series A Convertible Promissory
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
(see Note 4). 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", as amended. Under this
transaction, the Company is obligated to register for resale the common shares
underlying the Warrants, and as a result, the embedded derivative associated
with this warrant obligation does not meet the scope exception of paragraph 11
(a) of SFAS No. 133. Specifically, at December 31, 2005, the Company did not
have any uncommitted registered shares to settle the warrant obligation and
accordingly, such obligation has been classified as a liability (outside of
stockholders' equity) in accordance with Emerging Issues Task Force ("EITF") No.
00-19, "ACCOUNTING FOR DERIVATIVE FINANCIAL INSTRUMENTS INDEXED TO, AND
POTENTIALLY SETTLED IN, A COMPANY'S OWN STOCK." The classification of the
warrant obligation will be evaluated at each reporting date and as such, it will
continue to be reported as a liability until a registration statement which
includes the shares underlying the warrants becomes effective.


ACCOUNTING FOR TRANSACTIONS INVOLVING STOCK COMPENSATION

Financial Accounting Standards Board ("FASB") Interpretation No. 44 ("FIN 44"),
"ACCOUNTING FOR CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION, AN
INTERPRETATION OF APB 25" clarifies the application of APB 25 for (a) the
definition of employee for purposes of applying APB 25, (b) the criteria for
determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequence for various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination.

Under APB 25, compensation expense is the excess, if any, of the estimated fair
value of the stock at the grant date or other measurement date over the amount
an employee must pay to acquire the stock. Compensation expense, if any, is
recognized over the applicable service period, which is usually the vesting
period.

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

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

The Company accounts for stock-based compensation to non-employees in accordance
with the fair value recognition requirements of SFAS 123 and Emerging Issues
Task Force 96-18 "ACCOUNTING FOR EQUITY INVESTMENTS THAT ARE ISSUED TO OTHER
THAN EMPLOYEES FOR ACQUIRING, OR IN CONJUNCTION WITH SELLING, GOODS AND
SERVICES."

INCOME TAXES

Under SFAS 109, "ACCOUNTING FOR INCOME TAXES," deferred tax assets and
liabilities are recognized for the future tax consequences attributable to the
difference between the consolidated financial statements and their respective
tax basis. Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts reported for income tax purposes, and (b) tax
credit carryforwards. The Company records a valuation allowance for deferred 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 December 2004, the FASB issued SFAS No. 123(R), "SHARE-BASED PAYMENT", which
is a revision of SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION." SFAS
No. 123(R) will be effective for the Company beginning January 1, 2006, and
supersedes APB Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,"
and amends SFAS No. 95, "STATEMENT OF CASH FLOWS." SFAS No. 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair values.
Pro-forma disclosure is no longer an alternative. The Company is currently
evaluating the effect of the adoption of FAS 123(R) on its future financial
statements.

In December 2004, the FASB issued Statement No. 153, "EXCHANGES OF NONMONETARY
ASSETS, AN AMENDMENT OF APB OPINION NO. 29, ACCOUNTING FOR NONMONETARY
TRANSACTIONS" ("FAS 153"). The amendments made by FAS 153 are based on the
principle that exchanges of nonmonetary assets should be measured based on
the fair value of the assets exchanged. The Company does not believe the
adoption of SFAS No. 153 will have a material impact on the Company's financial
statements.

In June 2005, the FASB issued SFAS No. 154, "ACCOUNTING CHANGES AND ERROR
CORRECTIONS, A REPLACEMENT OF APB OPINION NO. 20 AND SFAS NO. 3." The
statement applies to all voluntary changes in accounting principles, and
changes the requirements for accounting for and reporting of a change
in accounting principle. The Company does not believe the adoption
of SFAS No. 154 will have a material impact on the Company's financial
statements.


                                       7





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

NOTE 4. NOTES PAYABLE

From July 11, 2005 through December 15, 2005 the Company received cash
investments of $760,000 from an accredited investor (Ellen R. Weiner Family
Revocable Trust) based on agreed-upon terms reached on the cash receipt dates.
Such investments were documented on November 2, 2005, November 4, 2005 and
December 15, 2005 in three 10% Series A Convertible Notes ("Weiner Series A
Notes"). The Weiner Series A Notes accrue interest at a rate of ten percent
(10%) per annum and mature on January 2, 2007. The Weiner Series A Notes are
convertible into shares of restricted common stock at any time at the election
of the holder at a conversion price equal to $0.20 per share for any conversion
occurring on or prior to the maturity date. In addition, upon conversion, the
Company is obligated to issue three-year Warrants (the "Weiner Series A
Warrants") to purchase a number of shares equal to the number of shares into
which the Weiner Series A Notes can be converted at an exercise price of $0.20.
The Weiner Series A Warrants have been valued using a Binomial Lattice option
pricing model and an associated discount of $531,875, measured at the commitment
dates, will be expensed as future conversions occur. The convertible feature of
the Weiner Series A Notes provides for a rate of conversion that is below market
value. Pursuant to EITF 98-5 and EITF 00-27, the Company has estimated the fair
value of such BCF to be $228,125 and records such amount as a debt discount.
Such discount is being accreted to interest expense over the term of the Weiner
Series A Notes. Total interest expense on the Weiner Series A Note for
amortization of the above BCF debt discount totaled $42,506 and $56,096 for the
three months and nine months ended December 31, 2005, respectively.


                                       8





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

From August 8, 2005 through December 14, 2005 the Company received cash
investments of $225,000, from an accredited investor (Allan S. Bird) based on
agreed upon terms reached on the cash receipt dates. Such investments were
documented on November 2, 2005, November 7, 2005 and December 14, 2005 in three
10% Series A Convertible Notes ("Bird Series A Notes"). The Bird Series A Notes
accrue interest at a rate of ten percent (10%) per annum and mature on January
2, 2007. The Bird Series A Notes are convertible into shares of restricted
common stock at any time at the election of the holder at a conversion price
equal to $0.20 per share for any conversion occurring on or prior to the
maturity date. In addition, upon conversion, the Company is obligated to issue
three-year Warrants (the "Bird Series A Warrants") to purchase a number of
shares equal to the number of shares into which the Bird Series A Notes can be
converted at an exercise price of $0.20. The Bird Series A Warrants have been
valued using a Binomial Lattice option pricing model and an associated discount
of $183,000, measured at the commitment dates, will be expensed as future
conversions occur. The convertible feature of the Bird Series A Note provides
for a rate of conversion that is below market value. Pursuant to EITF 98-5 and
EITF 00-27, the Company has estimated the fair value of such BCF to be $42,000
and records such amount as a debt discount. Such discount is being accreted to
interest expense over the term of the Bird Series A Note. Total interest expense
on the Bird Series A Note for amortization of the above BCF debt discount
totaled $7,783 and $9,271 for the three months and nine months ended December
31, 2005, repectively.

On December 15, 2005, the Company received total cash investments of $15,000
from two related accredited investors (Christian Hoffmann III and Claypoole
Capital, LLC). Such investments were documented in two 10% Series A Convertible
Notes ("December Notes"). The December Notes accrue interest at a rate of ten
percent (10%) per annum and mature on January 2, 2007. The December Notes are
convertible into shares of restricted common stock at any time at the election
of the holder at a conversion price of $0.20 per share for any conversion
occurring on or before the maturity date. In addition, upon conversion, the
Company is obligated to issue three-year Warrants (the "December Warrants") to
purchase a number of shares equal to the number of shares into which the
December Notes were converted at an exercise p rice of $0.20. The December
Warrants have been valued using a Binomial Lattice option pricing model and an
associated discount of $15,000, measured at the commitment date, will be
expensed as future conversions occur.

The Company is currently in default on approximately $557,500 of amounts owed
under various notes payable and accrued liabilities and is currently seeking
other financing arrangements to retire all past due notes. At December 31, 2005,
the Company had accrued interest in the amount of $233,892 associated with these
notes and accrued liabilities payable.

NOTE 5. EQUITY TRANSACTIONS

In October 2005, the Company issued 21,186 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.236 per share in payment for regulatory affairs consulting
services to the Company.

In October 2005, the Company issued 35,278 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.216 per share in payment for regulatory affairs consulting
services to the Company.

In November 2005, the Company issued 19,948 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.384 per share in payment for regulatory affairs consulting
services to the Company.

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


                                       9





<PAGE>

                     AETHLON MEDICAL, INC. AND SUBSIDIARIES
                          (A Development Stage Company)
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 2005

In November 2005, the Company issued 13,298 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.376 per share in payment for regulatory affairs consulting
services to the Company.

In December 2005, the Company issued 301,744 shares of common stock, at $0.25
per share, to Fusion Capital under its $6,000,000 common stock purchase
agreement for total proceeds of $75,000. These shares are registered pursuant to
a post effective amendment of Form SB-2 effective December 21, 2005.

In December 2005, the Company issued 371,847 shares of common stock to legal
counsel pursuant to the Company's S-8 registration statement covering the
Company's 2003 Consulting Stock Plan at $0.246 per share in payment of general
legal fees valued at $91,509.

In December 2005, the Company issued 73,964 shares of restricted common stock at
$0.246 per share in payment of legal fees related to capital raising
transactions valued at $18,202.

In December 2005, the Company issued 13,333 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.288 per share in payment for regulatory affairs consulting
services to the Company.

In December 2005, the Company issued 15,060 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $0.332 per share in payment for regulatory affairs consulting
services to the Company.

NOTE 6. COMMITMENTS AND CONTINGENCIES

LEGAL MATTERS

From time to time, claims are made against the Company 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 the Company 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 the Company's results of operations for that period or future periods.
The Company is not presently a party to any pending or threatened legal
proceedings.

REGISTRATION RIGHTS

As more fully described in Note 3, the Company is required to register the
common stock for resale underlying the warrants to be issued upon conversion our
Series A Convertible Debt. Upon an event, as defined, including (i) a
registration statement is not filed on or before its respective filing date (ii)
a registration statement is not declared effective (iii) after a registration
statement is filed and declared effective, such registration statement ceases to
be effective at any time prior to the effectiveness period without being
succeeded with an amendment or (iv) the common stock is delisted or suspended
from trading on an exchange, the Company shall pay liquidated damages in cash of
1% of the original principal amount of the Series A notes. For each month that
the event has not been cured, the Company shall pay 1.5 % in cash of the
original principal balance of the Series A notes. If the Company fails to pay
liquidated damages timely within seven days, the Company shall be obligated to
pay interest thereon at 12% per annum, accruing daily. At the option of the
Company, shares may be issued instead of cash for such liquidated damages based
upon the conversion price, then in effect. See Note 4 for additional information
about the Series A notes and Note 3 for more information about the
classification of the warrants. At January 31, 2006, the Company has an
effective registration statement covering these warrant obligations.

NOTE 7. SUBSEQUENT EVENTS

On January 6, 2006 the Company issued 579,813 restricted common shares in full
satisfaction of a legal complaint for Damages for Breach of Written Contracts
with the Regents of the University of California. See Part II. ITEM 1. LEGAL
PROCEEDINGS.

In January 2006, the Company issued 35,715 restricted shares of the Company's
Common stock at $0.28 per share in payment of public relations and
communications Consulting fees valued at $10,000.

In January 2006, the Company issued 30,303 restricted shares of the Company's
Common stock at $0.33 per share in payment of public relations and
communications Consulting fees valued at $10,000.

In January 2006, the Company issued 9,091 shares of common stock pursuant to the
Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $.330 per share in payment for regulatory affairs consulting
services to the Company.

In January 2006, the Company issued 13,889 shares of common stock pursuant to
the Company's S-8 registration statement covering the Company's 2003 Consulting
Stock Plan at $.360 per share in payment for regulatory affairs consulting
services to the Company.

In January 2006, the Company issued 90,940 shares of common stock, at $0.277 per
share, to Fusion Capital under its $6,000,000 common stock purchase agreement,
for proceeds of $25,000. These shares are registered pursuant to a
post-effective amendment of the Company's Form SB-2 effective December 21, 2005.

In February 2006, the Company issued 89,865 shares of common stock, at $0.280
per share, to Fusion Capital under its $6,000,000 common stock purchase
agreement, for proceeds of $25,000. These shares are registered pursuant to a
post-effective amendment of the Company's Form SB-2 effective December 21, 2005.


                                       10





<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 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

The Company is a development stage therapeutic device company that has not yet
engaged in significant commercial activities. The primary focus of the Company's
resources is towards the advancement of its proprietary Hemopurifier(TM)
platform treatment 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 therapeutic devices that treat
HIV/AIDS, Hepatitis-C, and pathogens targeted as potential biological warfare
agents. The Company's emphasis during fiscal 2006 is to prepare its
HIV-Hemopurifier to treat HIV/AIDS and pathogens targeted as potential
biological warfare agents for animal clinical trials, and to complete the
pre-clinical human blood studies of its HCV-Hemopurifier for treating
Hepatitis-C.

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.


                                       11





<PAGE>

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2005 COMPARED TO THE THREE MONTHS ENDED DECEMBER
31, 2004

Operating Expenses

Consolidated operating expenses for the three months ended December 31, 2005
were $494,014, in comparison with $549,902 for the comparable quarter one year
ago. The reduction of $55,888 was comprised of a $18,688 decrease in payroll
expense and a $49,914 decrease in general and administrative expenses offset by
an increase of $12,714 in professional fees. Payroll expense decreased due to
the reduction of research and development employees from 5 to 3. General and
administrative expense decreased due to reductions in rent, insurance,
laboratory supplies and other expenses. Professional fees increased a result of
an approximate $45,000 increase in scientific consulting offset by reduced legal
expense. The decrease in payroll and administrative expenses offset by the
increases in scientific consulting is consistent with the Company's strategic
shift to outsource as much research and development activity as possible.

Net Loss

The Company recorded a consolidated net loss of $594,375 and $603,421 for the
three months ended December 31, 2005 and 2004, respectively. The decreased net
loss was attributable to a $55,888 decrease in operating expense, offset by a
$46,842 increase in interest expense as a result of the amortization of BCF
associated with the issuance of debt.

Basic and diluted loss per common share were ($0.03) for the three month period
ended December 31, 2005 compared to ($0.04) for the same period ended December
31, 2004. 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, 2005,
as compared to the three month period ended December 31, 2004, offset by the
decreased net loss for the three month period ended December 31, 2005, as
compared to the three month period ended December 31, 2004.

NINE MONTHS ENDED DECEMBER 31, 2005 COMPARED TO THE NINE MONTHS ENDED DECEMBER
31, 2004

Operating Expenses

Consolidated operating expenses were $1,783,469 for the nine months ended
December 31, 2005, versus $1,570,221 for the comparable period one year ago.
This increase of $212,250 is comprised of a $200,778 increase in professional
fees and a $68,392 increase in general and administrative expenses, offset by a
$55,922 decrease in payroll expense. Professional fees increase primarily as a
result of a $246,946 increase in scientific consulting expense offset by
decreases of $45,743 in recruiting expense and $426 in all other operating
expenses. The significant increase in scientific consulting expense, and
concomitant decrease in recruiting expense, reflect the Company's shift to
outsourcing scientific work for the human safety trials begun in the second
fiscal quarter of the year. The increase in general and administrative expense
is attributable to a $56,037 increase in lab supplies expense, a $1,238 increase
in other expenses less a $17,778 reduction in contract labor. Finally, the
$55,922 reduction in payroll expense is a result of one-time vacation and bonus
accruals of $100,000 in the prior period one year ago offset by an increase in
payroll expense of $44,078 in the current period primarily a result of the
hiring of a full-time Chief Financial Officer.


                                       12





<PAGE>

Net Loss

We recorded a consolidated net loss of $2,069,698 and $1,433,366 for the
nine-month periods ended December 31, 2005 and 2004, respectively. The increase
in net loss was primarily attributable to increased operating expenses and
increased non-cash interest expense resulting in the amortization of BCF and by
a reversal of approximately $244,500 in over-accrued interest expense in the
quarter ended December 31, 2004.

Basic and diluted loss per common share were ($0.11) for the nine month period
ended December 31, 2005 compared to ($0.11) for the same period ended December
31, 2004.


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, 2005 was $116,095 compared
to $8,625, at March 31, 2005, representing an increase of $107,470. During the
nine months ended December 31, 2005, operating activities used net cash of
$1,191,487. The Company received $252,600 from the issuance of common stock,
$1,030,000 from proceeds for the issuance of convertible notes payable and net
proceeds of $20,000 from the issuance of notes payable.

During the nine month period ended December 31, 2005, net cash used in operating
activities primarily consisted of net loss of $2,069,698. Net loss was offset
principally by depreciation and amortization of $24,597 plus the fair market
value of common stock, options and warrants of $476,205 in payment for services,
$182,419 of amortization of debt discount and an increase in account payable and
other current balance sheet accounts of $164,990.

A decrease in working capital during the nine months in the amount of $460,559
increased the Company's negative working capital position to ($3,809,069) at
December 31, 2005 as compared to a negative working capital of ($3,348,510) at
March 31, 2005.

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(TM) 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.


                                       13





<PAGE>

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.

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, 2005 the Company had received $775,001 and has
$5,224,999 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(TM) products, we anticipate that these funds will satisfy our cash
requirements, including this anticipated increase in operations, in excess of
the next twelve months. However, due to market conditions, and to assure
availability of funding for operations in the long term, we may arrange for
additional funding, subject to acceptable terms, during the next twelve months.

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(TM) 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(TM) 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(TM) platform technology, with particular emphasis on the
advancement of our lead product candidates for the treatment of HIV/AIDS, HCV
and Flu Viruses. The Company also plans to implement a regulatory strategy for
the use of our Hemopurifier(TM) for biodefense treatments in calendar year 2006
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(TM) products that can be rapidly deployed by armed forces as
wearable post-exposure treatments on the battlefield, as well as dialysis-based
treatments for civilian populations. This will entail developing the new
treatment device based on the same proprietary Hemopurifier(TM) filtration
technology that is utilized in advancing our HIV/AIDS, and Hepatitis-C
treatments.

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.


                                       14





<PAGE>

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(TM) 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.

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 relate to stock purchase warrants issued with notes
payable, beneficial conversion feature of convertible notes payable, impairment
of intangible assets and long lived assets, stock compensation, contingencies
and litigation. We believe estimates and assumptions related to these critical
accounting policies are appropriate under the circumstances; however, should
future events or occurrences result in unanticipated consequences, there could
be a material impact on the Company's future financial conditions or results of
operations.

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, 2005.

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, 2005, 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, 2005 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.


                                       15





<PAGE>

                                     PART II

                                OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     On August 26, 2005 the Company received a Complaint for Damages for Breach
of Written Contracts from the Regents of the University of California. The
complaint asked for payment of $139,155.00 inclusive of interest, costs and
attorney's fees. On January 6, 2006, a settlement was reached and the Company
issued 579,813 restricted common shares in full satisfaction of the Complaint.

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

     As of December 15, 2005 (the "Closing Date"), the Company had entered into
eight 10% Series A Convertible Promissory Notes for an aggregate $1,000,000
(individually, a "Promissory Note" and collectively, the "Promissory Notes")
with Allan S. Bird, Ellen R. Weiner Family Revocable Trust, Christian Hoffmann
III and Claypoole Capital, LLC (individually, a "Holder" and collectively the
"Holders"), each qualified as an "accredited investor" as that term is defined
in the Securities Act of 1933, as amended (the "Act").

     The Promissory Notes bear an interest rate of 10 percent (10%) per annum on
the unpaid principal balance and mature on January 2, 2007 (the "Maturity
Date"). The Promissory Notes are convertible into shares of restricted common
stock at any time at the election of the Holders at a conversion price equal to
$0.20 per share for any conversion occurring on or prior to the Maturity Date
(the "Conversion Price"). Additionally, upon conversion the Promissory Notes,
the Company will issue to the Holders three-year warrants to purchase the same
number of shares of common stock into which each Promissory Note is converted at
an exercise price equal to $0.20 per share (each a "Warrant" and collectively,
the "Warrants"). This transaction was exempt from registration under Rule 506
promulgated under Regulation D of the Securities Act of 1933. The conversion
shares underlying the Notes and the shares underlying the Warrants were
registered by the Company on Form SB-2, effective January 25, 2006.

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 $557,500 have reached maturity and
are past due. The Company is continually reviewing other financing arrangements
to retire all past due notes. At December 31, 2005 the Company had accrued
interest in the amount of $233,892 associated with these notes and accrued
liabilities payable.


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

None


ITEM 5. OTHER INFORMATION

None


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<PAGE>

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.



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<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, 2006

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

                              AETHLON MEDICAL, INC.


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