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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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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 September 30, 2001

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

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

NEVADA(State or other jurisdiction of
incorporation or organization)

13-3632859(I.R.S. Employer Identification No.)7825 FAY AVENUE, SUITE 200,
LA JOLLA, CA(Address of principal executive offices)

92037(Zip Code)


(858) 456-5777(Registrant's telephone number, including area code)

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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 as of September 30, 2001 was 3,738,997.

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|PART I.    |  | FINANCIAL INFORMATION                                                                                                                                                                                               |  |   
|---------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|ITEM 1.    |  | Condensed Consolidated Financial Statements                                                                                                                                                                         |  | 3 
|           |  | Condensed Consolidated Balance Sheets at September 30, 2001 (unaudited) and March 31, 2001                                                                                                                          |  | 4 
|           |  | Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended September 30, 2001 and September 30, 2000 and for the period January 31, 1984 (Inception) through September 30,
2001 |  | 5 
|           |  | Condensed Consolidated Statement of Stockholders' Deficit (unaudited) for the six months ended September 30, 2001                                                                                                   |  | 6 
|           |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended September 30, 2001 and September 30, 2000 and for the period January 31, 1984 (Inception) through September 30, 2001           |  | 7 
|           |  | Notes to Condensed Consolidated Financial Statements                                                                                                                                                                |  | 8 
|ITEM 2.    |  | Management's Discussion and Analysis or Plan of Operation                                                                                                                                                           |  | 11
|PART II.   |  | OTHER INFORMATION                                                                                                                                                                                                   |  |   
|ITEM 1.    |  | Legal Proceedings                                                                                                                                                                                                   |  | 13
|ITEM 2.    |  | Changes in Securities                                                                                                                                                                                               |  | 13
|ITEM 3.    |  | Defaults Upon Senior Securities                                                                                                                                                                                     |  | 13
|ITEM 4.    |  | Submission of Matters to a Vote of Security Holders                                                                                                                                                                 |  | 13
|ITEM 5.    |  | Other Information                                                                                                                                                                                                   |  | 13
|ITEM 6.    |  | Exhibits and Reports on Form 8-K                                                                                                                                                                                    |  | 13
|SIGNATURES |  | 14                                                                                                                                                                                                                 

2

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PART I    FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3

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AETHLON MEDICAL, INC. AND SUBSIDIARIES(A Development Stage Company)CONDENSED CONSOLIDATED BALANCE SHEETS  September 30, 2001 and March 31, 2001

|                                      |                                                                                                                                                                                      | September 30,
2001
(Unaudited) |            | March 31,
2001 |  
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------ | ---------- | -------------- | -
|ASSETS                                |                                                                                                                                                                                      |                                |            |                |  
|Current Assets                        |                                                                                                                                                                                      |                                |            |                |  
|                                      | Cash                                                                                                                                                                                 |                                | $          | 865            |  
|                                      | Accounts receivable                                                                                                                                                                  |                                |            | 1,689          |  
|                                      | Prepaid expenses                                                                                                                                                                     |                                |            | 13,091         |  
|                                      |                                                                                                                                                                                      |                                |            |                |  
|                                      |                                                                                                                                                                                      |                                | 15,645     |                |  
|Furniture and Equipment, net          |                                                                                                                                                                                      |                                | 48,112     |                |  
|Deferred Financing Costs, net         |                                                                                                                                                                                      |                                | 194,516    |                |  
|Patents and Patents Pending, net      |                                                                                                                                                                                      |                                | 555,587    |                |  
|Employment Contract, net              |                                                                                                                                                                                      |                                | 285,628    |                |  
|Other Assets                          |                                                                                                                                                                                      |                                | 1,330      |                |  
|                                      |                                                                                                                                                                                      |                                |            |                |  
|                                      |                                                                                                                                                                                      | $                              | 1,100,818  |                | $
|                                      |                                                                                                                                                                                      |                                |            |                |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT |                                                                                                                                                                                      |                                |            |                |  
|Current Liabilities                   |                                                                                                                                                                                      |                                |            |                |  
|                                      | Accounts payable and accrued liabilities                                                                                                                                             |                                | $          | 1,120,307      |  
|                                      | Due to related parties                                                                                                                                                               |                                |            | 965,481        |  
|                                      | Notes payable, net of discount                                                                                                                                                       |                                |            | 1,365,000      |  
|                                      | Convertible note payable                                                                                                                                                             |                                |            | 25,000         |  
|                                      |                                                                                                                                                                                      |                                |            |                |  
|                                      |                                                                                                                                                                                      |                                | 3,475,788  |                |  
|Convertible Notes Payable             |                                                                                                                                                                                      |                                | 395,000    |                |  
|Commitments and Contingencies         |                                                                                                                                                                                      |                                |            |                |  
|Stockholders' Deficit                 |                                                                                                                                                                                      |                                |            |                |  
|                                      | Common stock, par value $0.001 per share; 25,000,000 shares authorized; 3,738,997 and 2,877,152 shares issued and outstanding at September 30, 2001 and March 31, 2001, respectively |                                |            | 3,739          |  
|                                      | Common stock subscribed                                                                                                                                                              |                                |            |               |  
|                                      | Additional paid-in capital                                                                                                                                                           |                                |            | 5,301,382      |  
|                                      | Stock options and warrants                                                                                                                                                           |                                |            | 2,478,372      |  
|                                      | Stock subscription receivable                                                                                                                                                        |                                |            |               |  
|                                      | Deficit accumulated during development stage                                                                                                                                         |                                |            | (10,553,463    | )
|                                      |                                                                                                                                                                                      |                                |            |                |  
|                                      |                                                                                                                                                                                      |                                | (2,769,970 | )              |  
|                                      |                                                                                                                                                                                      |                                |            |                |  
|                                      |                                                                                                                                                                                      | $                              | 1,100,818  |                | $
|                                      |                                                                                                                                                                                      |                                |            |                |  

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

4

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AETHLON MEDICAL, INC. AND SUBSIDIARIES(A Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  For the Three and Six Months
Ended September 30, 2001 and 2000 and  For the period January 31, 1984 (Inception) Through September 30, 2001

(Unaudited)

|                                                     |                                  | Three Months Ended September 30, 2001 |           | Three Months Ended September 30, 2000 |   | Six Months Ended September 30, 2001 |         | Six Months Ended September 30, 2000 |            | January 31, 1984 (Inception) Through September 30, 2001 |  
|---------------------------------------------------- | -------------------------------- | ------------------------------------- | --------- | ------------------------------------- | - | ----------------------------------- | ------- | ----------------------------------- | ---------- | ------------------------------------------------------- | -
|REVENUES                                             |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     | Grant income                     |                                       | $         |                                      |   | $                                   |        |                                     | $          |                                                        |  
|                                                     | Subcontract income               |                                       |           |                                      |   |                                     |        |                                     |            |                                                        |  
|                                                     | Sale of research and development |                                       |           |                                      |   |                                     |        |                                     |            |                                                        |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     |                                  |                                       |          |                                       |   |                                    |         |                                     |           |                                                         |  
|EXPENSES                                             |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     | Interest and other debt expenses |                                       |           | 194,785                               |   |                                     | 352,949 |                                     |            | 348,172                                                 |  
|                                                     | Professional fees                |                                       |           | 179,674                               |   |                                     | 46,801  |                                     |            | 410,912                                                 |  
|                                                     | Personnel                        |                                       |           | 145,828                               |   |                                     | 184,654 |                                     |            | 264,205                                                 |  
|                                                     | Other amortization               |                                       |           | 33,780                                |   |                                     | 2,043   |                                     |            | 109,199                                                 |  
|                                                     | Rent                             |                                       |           | 17,720                                |   |                                     | 32,206  |                                     |            | 38,342                                                  |  
|                                                     | Depreciation                     |                                       |           | 5,465                                 |   |                                     | 3,788   |                                     |            | 12,395                                                  |  
|                                                     | Amortization of goodwill         |                                       |           |                                      |   |                                     | 43,721  |                                     |            |                                                        |  
|                                                     | Other expenses                   |                                       |           | 49,590                                |   |                                     | 47,934  |                                     |            | 103,199                                                 |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     |                                  |                                       | 626,842   |                                       |   | 714,096                             |         |                                     | 1,286,424  |                                                         |  
|OTHER EXPENSE (INCOME)                               |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     | Impairment of goodwill           |                                       |           |                                      |   |                                     |        |                                     |            |                                                        |  
|                                                     | Other charge                     |                                       |           | 97,550                                |   |                                     |        |                                     |            | 97,550                                                  |  
|                                                     | Other income                     |                                       |           |                                      |   |                                     | (1,158  | )                                   |            |                                                        |  
|                                                     | Interest income                  |                                       |           |                                      |   |                                     |        |                                     |            |                                                        |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|                                                     |                                  |                                       | 97,550    |                                       |   | (1,158                              | )       |                                     | 97,550     |                                                         |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|NET LOSS BEFORE PROVISION FOR INCOME TAXES           |                                  |                                       | (724,392  | )                                     |   | (712,938                            | )       |                                     | (1,383,974 | )                                                       |  
|PROVISION FOR INCOME TAXES                           |                                  |                                       |          |                                       |   | 806                                 |         |                                     |           |                                                         |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|NET LOSS                                             |                                  | $                                     | (724,392  | )                                     | $ | (713,744                            | )       | $                                   | (1,383,974 | )                                                       | $
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|BASIC AND DILUTED LOSS PER COMMON SHARE              |                                  | $                                     | (0.20     | )                                     | $ | (0.26                               | )       | $                                   | (0.39      | )                                                       | $
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING |                                  |                                       | 3,670,162 |                                       |   | 2,771,652                           |         |                                     | 3,543,595  |                                                         |  
|                                                     |                                  |                                       |           |                                       |   |                                     |         |                                     |            |                                                         |  

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

5

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AETHLON MEDICAL, INC. AND SUBSIDIARIES(A Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF STOCHOLDERS' DEFICIT  For the Six Months
Ended September 30, 2001

(Unaudited)

|                                                                                                        |  | Common Stock |  |   |       |  |   |           |  |   |          
|------------------------------------------------------------------------------------------------------- |  | ------------ |  | - | ----- |  | - | --------- |  | - | ---------
|
|
|BALANCE  March 31, 2001                                                                                |  | 2,877,152    |  | $ | 2,877 |  | $ | 4,271,055 |  | $ | 2,429,566
|Common stock, warrants and options issued for accounts payable and accrued liabilities                  |  | 21,750       |  |   | 22    |  |   | 135,353   |  |   | 48,000   
|Common stock issued for services at $2.65 per share                                                     |  | 6,038        |  |   | 6     |  |   | 15,994    |  |   |         
|Common stock issued for cash at $1 per share, net of issuance costs of $41,540, paid to a related party |  | 730,804      |  |   | 731   |  |   | 688,533   |  |   |         
|Common stock issued for services at $2.75 per share                                                     |  | 10,000       |  |   | 10    |  |   | 27,490    |  |   |         
|Common Stock issued in connection with license agreement at $3.00 per share                             |  | 6,000        |  |   | 6     |  |   | 17,994    |  |   |         
|Common stock issued to holder of convertible notes at $1.38 per share                                   |  | 70,586       |  |   | 70    |  |   | 97,480    |  |   |         
|Options issued to Directors for services                                                                |  |             |  |   |      |  |   |          |  |   | 806      
|Common stock issued for cash at $1.50 per share, net of issuance costs of $2,500                        |  | 16,667       |  |   | 17    |  |   | 22,483    |  |   |         
|Beneficial conversion feature of convertible notes payable                                              |  |             |  |   |      |  |   | 25,000    |  |   |         
|Net loss                                                                                                |  |             |  |   |      |  |   |          |  |   |         
|                                                                                                        |  |              |  |   |       |  |   |           |  |   |          
|BALANCE  September 30, 2001                                                                            |  | 3,738,997    |  | $ | 3,739 |  | $ | 5,301,382 |  | $ | 2,478,372
|                                                                                                        |  |              |  |   |       |  |   |           |  |   |          

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

6

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AETHLON MEDICAL, INC. AND SUBSIDIARIES(A Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  For the Six Months Ended
September 30, 2001 and 2000 and  For the Period January 31, 1984 (Inception) Through September 30, 2001

(Unaudited)

|                                                                            |                                                            | Six Months Ended September 30, 2001      |            | Six Months Ended September 30, 2000 |        | January 31, 1984 (Inception) Through September 30, 2001 |        
|--------------------------------------------------------------------------- | ---------------------------------------------------------- | ---------------------------------------- | ---------- | ----------------------------------- | ------ | ------------------------------------------------------- | -------
|CASH FLOWS FROM OPERATING ACTIVITIES                                        |                                                            |                                          |            |                                     |        |                                                         |        
|Net loss                                                                    |                                                            | $                                        | (1,383,974 | )                                   | $      | (1,340,187                                              | )      
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                            |                                          |            |                                     |        |                                                         |        
|                                                                            | Depreciation and amortization                              |                                          |            | 121,594                             |        |                                                         | 96,826 
|                                                                            | Gain on sale of furniture and equipment                    |                                          |            |                                    |        |                                                         |       
|                                                                            | Interest and debt expenses related to warrants             |                                          |            | 182,403                             |        |                                                         | 591,261
|                                                                            | Common stock, warrants and options issued for services     |                                          |            | 227,681                             |        |                                                         | 8,373  
|                                                                            | Beneficial conversion feature of convertible notes payable |                                          |            | 25,000                              |        |                                                         |       
|                                                                            | Common stock issued to holder of convertible note          |                                          |            | 97,550                              |        |                                                         |       
|                                                                            | Impairment of goodwill                                     |                                          |            |                                    |        |                                                         |       
|                                                                            | Deferred compensation forgiven                             |                                          |            |                                    |        |                                                         |       
|                                                                            | Changes in operating assets and liabilities:               |                                          |            |                                     |        |                                                         |        
|                                                                            |                                                            | Accounts receivable                      |            |                                     | 3,000  |                                                         |        
|                                                                            |                                                            | Prepaid expenses                         |            |                                     | 6,934  |                                                         |        
|                                                                            |                                                            | Other assets                             |            |                                     |       |                                                         |        
|                                                                            |                                                            | Accounts payable and accrued liabilities |            |                                     | (2,858 | )                                                       |        
|                                                                            |                                                            | Due to related parties                   |            |                                     | 45,028 |                                                         |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        
|Net cash used in operating activities                                       |                                                            |                                          | (677,642   | )                                   |        | (497,291                                                | )      
|CASH FLOWS FROM INVESTING ACTIVITIES                                        |                                                            |                                          |            |                                     |        |                                                         |        
|Acquisition of furniture and equipment                                      |                                                            |                                          | (30,804    | )                                   |        | (3,085                                                  | )      
|Acquisition of patents and patents pending                                  |                                                            |                                          | (33,511    | )                                   |        |                                                        |        
|Proceeds from sale of furniture and equipment                               |                                                            |                                          |           |                                     |        | 4,000                                                   |        
|Cash of acquired company                                                    |                                                            |                                          |           |                                     |        | 2,286                                                   |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        
|Net cash provided by (used in) investing activities                         |                                                            |                                          | (64,315    | )                                   |        | 3,201                                                   |        
|CASH FLOWS FROM FINANCING ACTIVITIES                                        |                                                            |                                          |            |                                     |        |                                                         |        
|Proceeds from issuance of notes payable                                     |                                                            | $                                        | 25,000     |                                     | $      | 312,500                                                 |        
|Deferred financing costs                                                    |                                                            |                                          |           |                                     |        | (33,750                                                 | )      
|Net proceeds from issuance of common stock                                  |                                                            |                                          | 711,764    |                                     |        |                                                        |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        
|Net cash provided by financing activities                                   |                                                            |                                          | 736,764    |                                     |        | 278,750                                                 |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        
|NET (DECREASE) INCREASE IN CASH                                             |                                                            |                                          | (5,193     | )                                   |        | (215,340                                                | )      
|CASH beginning of period                                                   |                                                            |                                          | 6,058      |                                     |        | 217,017                                                 |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        
|CASH end of period                                                         |                                                            | $                                        | 865        |                                     | $      | 1,677                                                   |        
|                                                                            |                                                            |                                          |            |                                     |        |                                                         |        

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

7

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AETHLON MEDICAL, INC. AND SUBSIDIARIES(A Development Stage Company)NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  September 30, 2001

NOTE 1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Aethlon Medical, Inc. (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended September 30, 2001 are not necessarily
indicative of the results that may be expected for the year ending March 31, 2002. For further information, refer to the Company's Annual Report on Form 10-KSB for the year
ended March 31, 2001, which includes audited financial statements and footnotes as of and for the years ended March 31, 2001 and 2000.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Hemex, Inc.,
Aethlon, Inc., Syngen Research, Inc., and Cell Activation, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

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 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.

Recent Accounting Pronouncements

Effective April 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133"), as amended. Since the Company does not presently engage in activities covered by SFAS 133, there was no significant effect on the Company's
September 30, 2001 financial statements.

In
July 2001, the Financial Accounting Standards Board issued Statements No. 141, "Business Combinations" ("SFAS 141") and No. 142 "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 141 supersedes APB Opinion No. 16, "Business Combinations" and FASB Statement No. 38, "Accounting for Pre-acquisition
Contingencies of Purchased Enterprises". SFAS 141 is effective for fiscal years beginning after June 30, 2001 and requires that all business combinations be accounted for by a single
method, the purchase method. SFAS 142 supersedes APB Opinion No. 17, "Intangible Assets". SFAS 142 is effective for fiscal years beginning after December 15, 2001 and
provides that all existing and newly acquired goodwill and intangible assets will no longer be amortized but will be tested for impairment annually and written down only when impaired. Management has
not determined

8

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whether the requirements of such pronouncements will have a significant impact on the Company's future financial statements.

Reclassifications

Certain amounts in the September 30, 2000 financial statements have been reclassified to conform to their September 30, 2001 presentation.

NOTE 3. NOTES PAYABLE

As of September 30, 2001, all outstanding 12% promissory notes in the aggregate principal amount of $1,365,000 from private placement offerings have
reached their one-year maturity, and interest on such notes for periods after maturity is accruing at the annual rate of 15%. The Company is seeking other financing arrangements to retire
these notes.

NOTE 4. CONVERTIBLE NOTES PAYABLE

In September 2001, the Company issued a convertible note payable ("Convertible Note") in the amount of $25,000 to an investor, bearing interest at 10%
per annum, with principal and accrued interest due April 2002. The Convertible Note requires no payment of principal or interest during the term and may be converted to common stock of the
Company at the conversion price per share of $1.25 at any time at the option of the holder. The value of the beneficial conversion feature for this Convertible Note was estimated to be approximately
$25,000 and was expensed as interest.

NOTE 5. 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 $10.6 million for the period from January 31, 1984 (Inception) through
September 30, 2001. 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. Such factors indicate that the Company may be unable to continue as a going concern for a reasonable
period of time. Management is in discussions with potential investors to pursue additional capital infusions into the Company, which management believes are necessary until such time that revenues
materialize and profitability levels are achieved.

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 generate sufficient revenue and
operating cash flow to meet its obligations on a timely basis.

NOTE 6. COMMITMENTS AND CONTINGENCIES

The Company is obligated under various agreements to register shares of its common stock, including the common stock underlying certain convertible notes,
warrants and options. The Company is subject to penalties for failure to register certain convertible notes, the amount of which could be material to the Company's financial condition, results of
operations and cash flows. The Company filed a registration statement on Form SB-2 with the Securities and Exchange Commission in December 2000 to register the necessary securities.
However, such registration statement was never considered effective and management intends to withdraw the Form SB-2 and file a new registration statement on
Form S-3. Management is currently unaware of other potential claims (see below) related to the lack of registration and plans to file a revised registration statement.

9

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During the quarter ended September 30, 2001, the Company issued 70,586 shares of common stock to the holder of the $395,000 convertible notes in exchange for a waiver of any
penalties through October 15, 2001. Additional shares of common stock may be issued in exchange for an extension of this waiver of penalties by the investor through the date the registration
statement on Form S-3 is filed and has become effective. The Company has recorded an expense of $97,550 in connection with such stock issuance.

NOTE 7. SUBSEQUENT EVENTS

In October 2001, the Company issued additional convertible notes payable ("Convertible Notes") totaling $70,000 to certain investors, under the same
terms described in Note 4. Principal and accrued interest on these Convertible Notes become due April 2002.

10

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

Results of Operations

Aethlon Medical is a development stage therapeutic company and we have not yet engaged in significant commercial activities. We are developing new treatments
for the removal of targeted viruses and other intoxicants from the blood based on our proprietary Hemopurifier platform technology. Our lead product candidates, AEMD-45 and
AEMD-61, are HIV-Hemopurifiers, designed to fill the urgent need for new HIV/AIDS treatments that are effective in reducing viral load, have fewer side effects,
decrease treatment resistance, and protect immune functions.

During
the quarter ended September 30, 2001 we completed pre-clinical studies demonstrating a 55% removal of HIV from whole human blood in three hours and an
85-100% removal of HIV during the equivalent of one overnight treatment.

Consolidated
operating expenses for the quarter ended September 30, 2001 totaled $626,842 compared to $714,096 in the prior-year quarter, representing a decrease of
$87,254 or 12.2%. This decrease is a result of lower interest and debt expense, personnel expenses and rent, partially offset by increased professional fees to complement our internal expertise.

We
recorded a consolidated net loss of $724,392, or $(0.20) per share and $713,744, or $(0.26) per share during the second quarter of fiscal year 2002 and 2001, respectively. Net
income for the quarter was negatively impacted by a non-cash charge of $97,550 related to the issuance of 70,586 shares of common stock to the holder of certain convertible notes. We
issued these shares in exchange for a waiver of penalties resulting from the delay in registering the underlying common stock. We expect to file a registration statement on
Form S-3 during the third quarter of fiscal year 2002 and anticipate additional penalty charges through the date the registration statement is filed and has become effective.

Consolidated
operating expenses were $1,286,424 for the six months ended September 30, 2001, versus $1,361,201 for the comparable period in fiscal year 2001. This decrease in
operating expenses of $74,777 or 5.5% is largely attributable to the decrease in interest and debt expense during the first half of fiscal year 2001. Increased professional fees were partially offset
by lower personnel expenses and rent as a result of the consolidation of our facilities earlier this year.

We
recorded a consolidated net loss of $1,383,974, or $(0.39) per share and $1,340,187, or $(0.48) per share for the six months ended September 30, 2001 and 2000, respectively.

During
the fiscal year 2002, we plan to continue our research and development activities related to our Hemopurifier platform technologies, with particular emphasis on
the advancement of our lead product candidates, AEMD-45 and AEMD-61, and the treatment of other infectious diseases, such as Hepatitis C.

We
continue to carefully align our capital needs with the funding received and are pursuing various funding alternatives to support our business plan going forward.

Liquidity and Capital Resources

During the fiscal year ended March 31, 2001, we financed our research and development activities through the private placement of approximately
$1,365,000 notes bearing interest at 12% per annum and convertible notes in the amount of $395,000 bearing interest at 8% per annum. As of September 30, 2001, all of the 12% notes matured,
increasing the interest to 15% per annum and we are seeking other financing arrangements to retire these notes.

During
the fourth quarter of fiscal year 2001, we entered into a Subscription Agreement under which we received gross proceeds of approximately $856,000, of which $756,000 were
received during the first half of fiscal year 2002. We incurred issuance costs of approximately $44,000. The proceeds

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were used in part to fund operating expenses as well as to reduce existing accounts payable and related party liabilities.

In
September and October 2001, we issued convertible notes totaling $95,000 bearing interest at 10% per annum, to cover short-term capital needs.

We
expect to raise additional capital within the next nine months to fund our research and development activities and anticipated operations.

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

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

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 Securities Exchange Act of 1934 ("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 the Company's other 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.

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PART II    OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

ITEM 2. CHANGES IN SECURITIES

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of September 30, 2001, outstanding 12% promissory notes in the aggregate principal amount of $1,365,000 from private placement offerings have reached
their one-year maturity and are past due. Interest on such notes for periods after maturity is accruing at the annual rate of 15%.

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

None

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)
ExhibitsNone

(b)
Reports on Form 8-K filed during the quarter ended September 30, 2001None

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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: November 13, 2001 |  | By:                 
|Date: November 13, 2001 |  | By:                 

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