Form: 10-Q

Quarterly report pursuant to Section 13 or 15(d)

August 14, 2009

Published on August 14, 2009



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



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

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

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

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



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



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

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

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

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

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


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

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

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

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

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

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




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

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

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

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

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

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

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

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


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

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

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

failure to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Sections 7 and 11 of the Subscription Agreement, or,
if required, a replacement Note.

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

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

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

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



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

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

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


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

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

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

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

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

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

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


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

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

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

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


Name: James Joyce
Title: Chief Executive Officer


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

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

Date of Conversion:_____________________________________________________________

Conversion Price:_______________________________________________________________

Shares To Be Delivered:_________________________________________________________


Print Name:_____________________________________________________________________