UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-K




(Mark
      One)x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2009 ORo
            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: 000-33039




INTERNATIONAL
AEROSPACE ENTERPRISES, INC.


(Exact
name of Company as specified in its charter)




Nevada
            86-0932112(State
      of incorporation)
            (I.R.S.
      Employer)
              Identification
      No.)




123 West
Nye Lane. Suite 129, Carson City, Nevada 89706


(Address
of principal executive offices) (Zip Code)




Company’s
telephone number: (909) 271-1098




Securities
registered pursuant to Section 12(b) of the Act: None




Securities
registered pursuant to Section 12(g) of the Act: Common


Stock,
$0.001 Par Value




Securities
registered pursuant to Section 12(g) of the Act:


None




Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes oNo x




Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes oNo x




Indicate by check mark
whether the issuer: (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
o




Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of issuer’s knowledge,
in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form
10-K.     o




Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
website, if any, every interactive data file required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes  oNo o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated file, a non-accelerated file, or a smaller reporting
company. See the definitions of  “large accelerated
filer,  “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.  (Check one):




Large
      accelerated filer
            o
            Accelerated
      filer
            oNon-accelerated
      filer
            o
            Smaller
      reporting company
            x(Do
      not check if a smallerreporting company)




Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).   Yes  o     No x





The
aggregate market value of the voting stock held by non-affiliates of the Company
as of June 30, 2009: Common Stock, par value $0.001 per share --
$2,714,969.   As of April 1, 2010, the Company
had 224,384,660 shares of common stock issued and outstanding, of
which 163,384,660 were held by non-affiliates.




There are
no documents incorporated by reference in this Form 10-K.












TABLE OF
CONTENTS




PAGEPART
      IITEM
      1.
            
            Description
      of Business
            
            3ITEM
      1A.
            
            Risk
      Factors
            
            6ITEM
      1B.
            
            Unresolved
      Staff Comments
            
            15ITEM
      2.
            
            Description
      of Properties
            
            15ITEM
      3.
            
            Legal
      Proceedings
            
            15ITEM
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            15PART
      IIITEM
      5.
            
            Market
      for Common Equity and Other Shareholder Matters
            
            16ITEM
      6
            
            Selected
      Financial Data
            
            21ITEM
      7.
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            21ITEM
      7A.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            
            29ITEM
      8.
            
            Financial
      Statements and Supplementary Data
            
            F-1ITEM
      9.
            
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            
            30ITEM
      9A(T).
            
            Controls
      and Procedures
            
            30ITEM
      9B.
            
            Other
      Information
            
            32PART
      IIIITEM
      10.
            
            Directors,
      Executive Officers, and Corporate Governance
            
            32ITEM
      11.
            
            Executive
      Compensation
            
            35ITEM
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management
            
            37ITEM
      13.
            
            Certain
      Relationships and Related Transactions And Director
      Independence
            
            39ITEM
      14.
            
            Principal
      Accountant Fees and Services
            
            39PART
      IVITEM
      15.
            
            Exhibits
      and Financial Statements
            
            39Signatures
            
            
            
            40










PART
I.




CAUTIONARY
NOTE CONCERNING FORWARD-LOOKING STATEMENTS:




Certain
statements in this Form 10-K constitute forward-looking statements within the
meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward-looking statements include all
statements that do not relate solely to the historical or current facts, and can
be identified by the use of forward looking words such as “may”, “believe”,
“will”, “expect”, “expected”, “project”, “anticipate”, “anticipated”,
“estimates”, “plans”, “strategy”, “target”, “prospects” or “continue”. These
forward looking statements are based on the current plans and expectations of
our management and are subject to a number of uncertainties and risks that could
significantly affect our current plans and expectations, as well as future
results of operations and financial condition and may cause our actual results,
performances or achievements to be materially different from any future results,
performances or achievements expressed or implied by such forward-looking
statements. This Form 10-K contains important information as to risk factors
under Item 1A. In making these forward-looking statements, we claim the
protection of the safe-harbor for forward-looking statements contained in the
Private Securities Reform Act of 1995. Although we believe that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to have been correct. We do not
assume any obligation to update these forward-looking statements to reflect
actual results, changes in assumptions, or changes in other factors affecting
such forward-looking statements.





ITEM 1.
BUSINESS.




International
Aerospace Enterprises, Inc., (formerly Traffic Technology Inc., CalbaTech, Inc.,
and LifeStem International, Inc.) (“Company”) was organized on in January, 2007,
and incorporated in Nevada on October 6, 2008.




International
Aerospace Enterprises, Inc. (“IAE”, “we”, “us”, or the “ company”), specializes
in the sale and marketing of military aircraft spare parts on a worldwide
basis.  IAE is an aviation support specialist company with
headquarters in Carson City,  Nevada and a military aircraft spare
parts warehouse outside of the Los Angeles California.  International
Aerospace Enterprises, Inc. serves the needs of both the commercial and military
side of the aerospace industry in the United States and
internationally.




IAE was
formed in January 2007, and incorporated in Nevada on October 6,
2008.  IAE is an innovative and aggressive provider of military spare
parts who provides discounted  aircraft spare parts which meet quality
manufacturing standards that are required by the worldwide military/industrial
complex establishment.  IAE addresses customer satisfaction through
its solid foundation of product knowledge and aggressive research by our
management team and consultants.  This includes proactive marketing
and sales and reactive research in the critical area of maintaining military
aircraft support.




IAE’s
established goal of selling discounted military aircraft spare parts is
facilitatedthrough procurement of inventories and maintaining of its established
business relationships while simultaneously developing new business contacts
throughout the world.  IAE is continually researching and expanding
its ability to meet the ever changing needs of an expanding worldwide military
aviation market.




IAE
currently manages electronically over $300,000,000 (retail price) in accessible
inventory advertised through Internet parts listings throughout the country and
by interfacing with over 1800 of smaller military parts manufacturers and repair
station companies who have spare parts inventories or who are currently holding
excess inventory that can be purchased at discounted prices.  The
reason that many of these companies have excess inventories is that during the
manufacturing run of military parts they typically overproduce parts in
anticipation of further sales.  IAE’s  international
marketing and sales structure utilizes their established International Brokers
and IAE’s management experience and worldwide contacts provide a sales outlet
that is not available to others.




3




One of
the foundational factors of IAE’s success is its Strategic Alliance Program
(SAP).  Management’s established ongoing relationships with companies
has enabled IAE to extend its foundational US Governmental certifications and
requirements to meet our domestic and international customer
base.  Through this program we have established cooperative
certifications use including, but not limited to ISO9001, MIL-1-459825A, EASA
(European Aviation Safety Agency) certificate, and FAA certificate for our
network of Repair Stations.  The Strategic Alliance Program has
positioned us to access OEM Tier 1 manufacturing companies.  IAE
customers can have confidence that the replacement spare parts or equipment
purchased from us will meet all OEM and Government specifications needed. IAE ‘s
Strategic Alliance Program has also given us access and interface  a
number of certifications and declarations, such as, U.S./Canada
Joints Certification Military Critical Technical Data Agreement, DD Form 2345,
certification number 004 3178, approved access and use of technical drawings
specifications data through the Federal Technical Data Solutions secure website,
FEDTEDS.  The program also allows for unrestricted shipping after
approval by several different carriers and methods of shipment each authorized
by the U.S. Government Trade Control Department.




International
Aerospace Enterprises Inc. also interfaces with the military aircraft spare
parts brokers who frequently have specific certifications and declarations that
are needed while working in foreign jurisdictions.  The Strategic
Alliance Marketing and Sales Program also provides the necessary platform needed
for IAE to meet varying and diversified requirements established foreign
Governments and Military Agencies.




IAE
quality control procedures involve the inspection of  all inventory
upon receipt  of parts that are being considered for purchase,
consignment and reconditioned parts in order to ensure compliance to our
purchase order terms and conditions.  IAE’s  parts database
is continuously updated to reflect an accurate availability of inventories in
all stages of the procurement process.  IAE guarantees the appropriate
traceability of all of their parts deliveries to its various customers
groups.




The
Company’s available inventories are ready for sale to military aircraft spare
parts customers throughout the world. IAE believes that the sales of their
inventories will result in revenue and profitability. The sales are expected to
be accomplished through IAE’s strategic Marketing, Sales and Distribution
Consignment relationships with several national and internationally recognized
companies as well as the company’s experienced management and
personnel.




IAE’s
management has conducted primary and secondary research in the military aircraft
spare parts industry for aftermarket sales opportunities. The research clearly
points to unmet demands of military aircraft spare parts in the worldwide
marketplace. IAE has identified a significant number of opportunities within
this arena of the worldwide market which are not currently being met. The sheer
size of the worldwide military/industrial complex market and the demand for
products and services to meet the needs of both the United States Military and
its Allies is significant - exceeding $439.3 billion for the fiscal year 2006.
Acting on this research data, IAE has purchased in excess of $1,247,500 USD in
new surplus military aircraft spare parts and is in negotiations for additional
military aircraft spare parts available for purchase, consignment, or option
purchasing




The goal
of IAE  is to coordinate all functions necessary for the
identification, procurement, scheduling,  handling and shipping of
military aircraft parts in order to provide timely delivery according to our
customer requirements and the U.S. Government requirements and
specifications.  In order to accomplish our goals the company
continually updates its ILS database and other inventory databases available to
a select number of licensed  qualified purchasers.




4




The
“Branding Transition” was accomplished in 2009 and we believe the mindset has
been established for our customers that beginning in 2010, IAE is the
International marketing and sales company that they will be doing business with
on an on-going basis.  They also are beginning to understand that IAE
is  a publicly traded company with different documentation and
reporting requirements than typical requirements for  private
companies.   IAE’s internationally recognized management is now
identified as a reliable source for discounted military aircraft spare parts in
the industry.  We believe that the “Branding Period” has now
effectively erased management’s previous private identities with companies and
affiliations in the past such as Sunshine Industries USA and other companies
that provided IAE’s management with its outstanding professional experience,
credentials and industry knowledge that will provide the company’s foundation
for its future growth and expansion.




Another
asset that we expect to play an important part of the Company’s anticipated
growth and expansion is that we are an Over-The-Counter NASDAQ Bulletin Board
trading public company and our stock trades under the symbol
IARO.   The company has market support both nationally and
internationally trading over (6) six million shares per day.  our
business strategy embraces and focuses on building and operating our primary
mission of marketing and selling military aircraft spare parts at a discount
primarily in the international market due to the age of aircraft being used by
U.S. Allies.




5




On
December 26, 2008, the entered into an agreement pursuant to which the
stockholders of International Aerospace Enterprises, Inc. exchanged all of the
issued and outstanding capital stock of International Aerospace Enterprises,
Inc. for 49,000,000 shares of common stock and 5,000,000 shares of preferred
stock held by two officers and majority shareholders.  In conjunction
with the exchange, the two majority shareholders received one hundred percent
(100%) of the issued and outstanding shares of its subsidiaries KD Medical,
Inc., Molecula, Inc., Molecularware, Inc., LifeStem, Inc. and an obligation of
payment of $150,000.   On April 29, 2009, the Company affected a
one-for-fifty (1 to 50) reverse stock split of its outstanding shares of common
stock, $0.001 par value. All references in the consolidated financial statements
and the notes to consolidated financial statements, number of shares, and share
amounts have been retroactively restated to reflect the reverse
split




Number of
Employees




As of
April 15,  2010, the Company has two employees. The Company continues
to operate utilizing consultants and part-time individuals on an as needed
basis.  Our high level of customer satisfaction is testimony to the
effectiveness of an efficient “lean and mean”
organization.  Management recognizes that maintaining tight cost
controls and avoiding excess expenses is a model that produces the best results
for our management and shareholders.  Management continues to be
actively engaged in identifying key personnel who would be available for full
time employment when the cost is justified by the changing work load that will
surely come from growth and expansion.  The Company’s first personnel
priority is to hire a chief financial officer with a background
and  experience in operating a publicly traded company.




ITEM 1A.
RISK FACTORS.




An
investment in our common stock involves risks and uncertainties. While we
attempt to identify and mitigate risks to our business to the extent practical
under the circumstances, some level of risk and uncertainty will always be
present. You should consider the following factors carefully in addition to the
other information contained in this form 10-K before deciding to purchase our
securities.




Limited
operating history; anticipated losses; uncertainly of future
results




The
Company has only a limited operating history upon which an evaluation of the
Company and its prospects can be based. The Company’s prospects must be
evaluated with a view to the risks encountered by a company in an early stage of
development, particularly in light of the uncertainties relating to the business
model that the Company intends to market and the potential acceptance of the
Company’s business model. The Company will be incurring costs to develop,
introduce and enhance its products, to establish marketing relationships, to
acquire and develop products that will complement each other, and to build an
administrative organization. To the extent that such expenses are not
subsequently followed by commensurate revenues, the Company’s business, results
of operations and financial condition will be materially adversely affected.
There can be no assurance that the Company will be able to generate sufficient
revenues from the sale of its products and services. The Company expects that
negative cash flow from operations may exist for the next 12 months as it
continues to develop and market its products and services. If cash generated by
operations is insufficient to satisfy the Company’s liquidity requirements, the
Company may be required to sell additional equity or debt securities. The sale
of additional equity or convertible debt securities would result in additional
dilution to the Company’s shareholders.




6




Potential
fluctuations in quarterly operating results may fluctuate significantly in the
future as a result of a variety of factors, most of which are outside the
Company’s control, including: the demand for the Company’s products and
services; seasonal trends in demand and pricing of products and services; the
amount and timing of capital expenditures and other costs relating to the
expansion of the Company’s operations; the introduction of new services and
products by the Company or its competitors; price competition or pricing changes
in the industry; political risks and uncertainties involving the world’s
markets; technical difficulties and general economic conditions. The Company’s
quarterly results may also be significantly affected by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Due to the foregoing factors, among others, it is possible that the Company’s
operating results may fall below the expectations of the Company and/or
investors in some future quarter.




We
may not be profitable.




For the
year ending December 31, 2009, our revenue was $238,518 and selling
and administrative expenses of $3,663,586.  Our loss from operations
was $3,527,148 and our net loss was $26,680,423.  We expect to
continue to incur expenses.  In order to establish our business, we
will need to rely on the sales of the products.  We therefore expect
to incur substantial operating losses for the foreseeable future.  Our
ability to become profitable depends on our ability to have successful
operations and sustain sales, while maintaining reasonable expense levels, all
of which are uncertain in light of our absence of any prior operating
history.




Our
independent auditors have expressed concern regarding our ability to continue as
a going concern




For the
year ended December 31, 2009 and 2008, we have incurred operating losses of
$26,680,423 and $1,535,322, respectively. In addition, the Company has a
deficiency in stockholder’s equity of $15,768,408 and $3,462,694 at December 31,
2009 and 2008, respectively.  The opinion of our independent
registered accounting firm for our fiscal years ended December 31, 2008 and
December 31, 2009 is qualified subject to substantial doubt as to our ability to
continue as a going concern.   See “Report of Independent
Registered Public Accounting Firm” and the notes to our Financial
Statements.




We
do not have sufficient funds to pay our current obligations, some of which are
in default.  If we cannot extend the maturity date of the notes or
raise additional capital to pay these notes, we may need to suspend operations
or the note holders may foreclose upon our assets.




At
December 31, 2009, our cash on hand was $928, our accounts payable and accrued
expenses were $1,207,707, our current notes payable were $962,944 and our
current convertible notes payable were $720,822. We currently do not have the
funds necessary to pay the accounts payable and accrued expenses and amounts
owed under our notes nor do we have a commitment for the provision of any
financing for such purposes. Certain of the notes  are secured by all
of the assets of the Company. If the Company does not repay the notes when due,
the note holders could declare the notes in default and may seize the assets of
the Company, and we would be forced to suspend all operations.




7




There
are a large number of shares underlying our convertible debentures that may be
available for future sale and the sale of these shares may depress the market
price of our common stock.




At
December 31, 2009, we owed notes payable of  $962,944 to a related
party and  convertible notes payable of $873,104.   In
connection with the convertible note payable we have a derivative liability of
$1,155,842.




As of
April 1, 2010 we had 163,384,660 shares of Common Stock issued and
outstanding and various convertible debentures outstanding or an obligation to
issue convertible notes that may be converted into an estimated 176,656,157
shares of Common Stock at current market prices, and outstanding warrants and
options or an obligation to issue options and warrants to purchase 148 shares of
Common Stock. In addition, the number of shares of Common Stock issuable upon
conversion of the outstanding convertible debentures may increase if the market
price of our stock declines. All of the shares, including all of the shares
issuable upon conversion of the convertible debentures and upon exercise of our
warrants and options, may be sold without restriction. The sale of these shares
may adversely affect the market price of our Common Stock.




The
continuously adjustable conversion price feature of our convertible debentures
may encourage investors to make short sales in our common stock, which could
have a depressive effect on the price of our common stock.




The
convertible debentures are convertible into shares of our Common Stock at
discounts to the trading price of the Common Stock prior to the conversion
ranging from 50% to 70%. The significant downward pressure on the price of the
Common Stock as the note holder converts and sells material amounts of Common
Stock could encourage short sales by third party investors.




These
sales could place further downward pressure on the price of the Common Stock.
The note holder could sell Common Stock into the market in anticipation of
covering the short sale by converting their securities, which could cause
further downward pressure on the stock price. In addition, not only the sale of
shares issued upon conversion or exercise of notes, warrants and options, but
also the mere perception that these sales could occur, may adversely affect the
market price of the Common Stock




The
issuance of shares upon conversion of the convertible debentures may cause
immediate and substantial dilution to our existing stockholders.




The
issuance of shares of Common Stock upon conversion of the convertible debentures
and exercise of warrants may result in substantial dilution to the interests of
other stockholders since the selling stockholders may ultimately convert and
sell the full amount issuable on conversion. Although the convertible debentures
and/or exercise their warrants if such conversion or exercise would cause them
to own more than 4.99% of our outstanding Common Stock, this restriction does
not prevent the note holder from converting and/or exercising some of their
holdings, selling those shares and then converting the rest of their holdings.
In this way, the selling stockholders could convert and sell their holdings
while never owning more than 4.99% of our Common Stock at any one time. There is
no upper limit on the number of shares that may be issued which will have the
effect of further diluting the proportionate equity interest and voting power of
holders of our Common Stock.




8




If
we are required for any reason to repay our outstanding convertible debentures,
we would be required to deplete our working capital, if available, or raise
additional funds. our failure to repay the callable secured convertible notes,
if required, could result in legal action against us, which could require the
sale of substantial assets.




The
convertible debentures are due and payable, with interest, unless sooner
converted into shares of our Common Stock. In addition, any event of default
such as our failure to repay the principal or interest when due, our failure to
issue shares of Common Stock upon conversion by the holder, could require the
early repayment of the convertible debentures, including a default interest rate
of 15% on the outstanding principal balance of the notes if the default is not
cured within the specified grace period and as of the end of the last fiscal
quarter the amount to repay the convertible debentures would cost an aggregate
of approximately $ 1.1 million. We anticipate that the full amount of the
convertible debentures will be converted into shares of our Common Stock in
accordance with the terms of the convertible debentures. If we are required to
repay the convertible debentures, we would be required to use our limited
working capital and raise additional funds. If we were unable to repay the notes
when required, the note holders could commence legal action against us and
foreclose on all of our assets to recover the amounts due. Any such action would
require us to curtail or cease operations.





Our
current sales orders remain subject to significant uncertainty.




A
substantial portion of our sales revenue is earned upon final delivery of
products.  Customer purchase orders are subject to cancellation or
rescheduling by the customer, generally with limited or no penalties. Although
we have recently received sales orders for a significant amount of revenue, we
have not yet received payment on these orders. In addition, we incur expenses in
our purchase of the parts prior to delivery to our customers which are generally
not recouped upon cancellation.      With the current
economic downturn, we may experience an increased occurrence of cancellations
and/or reschedulings.




We record
a provision for excess and obsolete inventory based on historical and future
usage trends and other factors including the consideration of the amount of
backlog we have on hand at any particular point in time. If our backlog is
canceled or modified, our estimates of future product demand may prove to be
inaccurate, in which case we may have understated the provision required for
excess and obsolete inventory. In the future, if we determine that our inventory
is overvalued, we will be required to recognize such costs in our financial
statements at the time of such determination. Any such charges could be material
to our results of operations and financial condition.




If
we obtain additional financing or issue securities as payment for services in
lieu of cash payment, you may suffer significant dilution.Update




Because
we have generated only minimal revenues since commencing operations, we are
dependent on raising additional financing through private financing sources As a
result, we likely will be required to issue securities to obtain such funds,
which issuances would dilute the percentage ownership of our stockholders. In
addition, we have recently as well as in the past issued securities in lieu of
cash as payment for services and we anticipate that we will continue to do so.
This dilution could also have an adverse impact on our earnings per share and
reduce the price of our common stock. In addition, any new securities may have
rights, preferences or privileges senior to those of our common stock. For
example, in May 2009, we issued 10,133,330 shares of common stock for
services rendered.  In June 2009 we issued an aggregate of 4,293,346
shares of common stock in exchange for convertible notes payable.




9




We
are substantially dependent upon brokers for sales of our products, whom we do
not control and currently without whom we cannot conduct our
business.





Since we
do not have the governmental approvals required to make direct sales of our
products to customers, all of our sales are made through brokers upon whom we
have little control and we are substantially dependent. The sale of military
spare parts is highly regulated by the U.S. government.  We are not
required to obtain any permits to continue conducting our business in accordance
with our past practices because the brokers that we engage have the permits
needed  in order to sell the parts supplied to them by
us.  The fee charged by the brokers to sell the parts can be
substantial and our margins will be effected by such fees.  The loss
of the services of our brokers would adversely effect our business. Although we
could apply for the permits necessary to sell our products, the obtainment of
such permits is costly and time consuming and there is no guarantee that we
would be approved to receive such permits.




You have
to be an experienced person and have specific affiliations in order to become a
qualified buyer.




Changes
in global security strategy and planning may affect future procurement
priorities.




We cannot
predict whether potential changes in security defense and maintenance schedules
on military aircraft will afford sales opportunities for our business in terms
of replacement parts for F-16, F-5 and other replacement parts held in our
existing inventories.




As
a U.S. government contractor serving U.S. Allied Countries, we are subject to a
number of repairman rules and regulations.




We must
comply with and are affected by laws and regulations relating to the award
administration and performance of U.S. Government contracts including those
Allied Countries flying U.S. military aircraft. Government contract laws and
regulations affect how we do business with our customers and, in some instances,
impose added costs on our business. A violation of specific laws and regulations
could result in the imposition of fines and penalties, which would be
detrimental for bidding on contracts.




10




International
sales and suppliers may pose potentially greater risks.




Our
international business may pose greater risk than our domestic business due to
the potential for greater volatility in foreign economic and political
environments. In return, those greater risks are often accompanied by the
potential to earn a higher profit from our domestic businesses. Our
international business also is highly sensitive to changes in foreign national
priorities and government budgets which may be further impacted by global
economic conditions. Sales of military products are affected by defense budgets
(both in the United States and abroad) and U.S. foreign policy.




In
international sales, we face substantial competition from both the domestic
military aircraft parts suppliers and foreign manufacturers of governments
sometimes provide marketing subsidies and other assistances for their
product.




Fluctuations
in foreign currency exchange rates may adversely affect our results of
operations and financial condition.




A
substantial portion of our revenue is denominated in currencies other than the
U.S. dollar because certain of our foreign subsidiaries operate in their local
currencies.  Our results of operations and financial condition may
therefore be adversely affected by fluctuations in the exchange rate between
foreign currencies and the U.S. dollar.




The
uncertain U.S. economy and changing lending conditions and policies may affect
the company’s ability to purchase additional manufactured spare parts
inventories available on the open market.




In order
to be able to satisfy our customers’ needs in a timely manner, we are required
to maintain inventory of parts.  Our financial condition will
determine the amount of inventory that we can maintain.  In order to
maintain such inventory, we need to require funding in order to have the ability
to purchase products.  We operate in highly competitive markets with
competitors who may have greater resources than we possess which could reduce
the volume of products we can sell and our operating margins. Not only do we
compete for customers, but we also compete for the supply of
products.  Many of our products are sold in highly competitive
markets. Some of our competitors are larger, more diversified corporations and
have greater financial and marketing resources. As a result they may be better
able to withstand the affects of periodic economic turn down as our operations
and financial performance will be negatively impacted if we do not aggressively
approach growth through acquisitions of products and possibly private
manufacturing companies available for purchase.





Our
future growth and continued success is dependent on key personnel.




Our
future success depends to a significant degree upon the continued contribution
of our management team. The loss of Mr. Peck would have a material adverse
affect on our business and the loss of other members of our management team
could have a material and adverse affect on the business.  Mr. Peck,
with over 30 years of experience in military aircraft spare parts sales in both
the domestic and international markets, has relationships with many of our
customers, suppliers and brokers. There can be no assurance that we will be able
to retain the services of Mr. Peck in the future.  If we were to lose
his services due to termination of his agreement, his
retirement,  death or  disability, our business
relationships would suffer.  In addition to top executive personnel
the competition for qualified technical personnel in our industry is intense and
we believe our future growth and success will depend on our ability to attract,
train and retrain such personnel.  If we are unable to attract and
retain personnel, we may not be successful in implementing our business
plan.




11




Our
future success will be highly dependent upon our ability to successfully manage
the expansion of our operations.




The
Company expects to experience growth in the number of employees relative to its
current levels of employment and the scope of its operations. In particular, the
Company may need to hire sales, marketing and administrative personnel.
Additionally, acquisitions could result in an increase in employee headcount and
business activity. Such activities could result in increased responsibilities
for management. The Company believes that its ability to attract, train, and
retain qualified technical, sales, marketing, and management personnel, will be
a critical factor to its future success. During strong business cycles, the
Company may experience difficulty in filling its needs for qualified
personnel.




The
Company’s future success will be highly dependent upon its ability to
successfully manage the expansion of its operations. The Company’s ability to
manage and support its growth effectively will be substantially dependent on its
ability to implement adequate financial and management controls, reporting
systems, and other procedures and hire sufficient numbers of financial,
accounting, administrative, and management personnel. The Company is in the
process of establishing and upgrading its financial accounting and procedures.
There can be no assurance that the Company will be able to identify, attract,
and retain experienced accounting and financial personnel. The Company’s future
operating results will depend on the ability of its management and other key
employees to implement and improve its systems for operations, financial
control, and information management, and to recruit, train, and manage its
employee base. There can be no assurance that the Company will be able to
achieve or manage any such growth successfully or to implement and maintain
adequate financial and management controls and procedures, and any inability to
do so would have a material adverse effect on the Company’s business, results of
operations, and financial condition.




The
Company’s future success depends upon its ability to address potential market
opportunities while managing its expenses to match its ability to finance its
operations. This need to manage its expenses will place a significant strain on
the Company’s management and operational resources. If the Company is unable to
manage its expenses effectively, the Company’s business, results of operations,
and financial condition may be materially adversely affected.




We
may expand by acquiring other companies, which might consume resources that are
necessary to operate and sustain the business.




As a
major component of its business strategy, the Company expects to acquire assets
and businesses relating to or complementary to its operations. Any acquisitions
by the Company would involve risks commonly encountered in acquisitions of
companies. These risks would include, among other things, the following: the
Company could be exposed to unknown liabilities of the acquired companies; the
Company could incur acquisition costs and expenses higher than it anticipated;
fluctuations in the Company’s quarterly and annual operating results could occur
due to the costs and expenses of acquiring and integrating new businesses or
technologies; the Company could experience difficulties and expenses in
assimilating the operations and personnel of the acquired businesses; the
Company’s ongoing business could be disrupted and its management’s time and
attention diverted; the Company could be unable to integrate
successfully.




12




Our
working capital may not be adequate and therefore we may need to raise
additional capital to finance our growth and capital requirements.




We have
had limited working capital and we may rely upon notes (borrowed funds) to
operate. At December 31, 2009, we had a negative working capital of
$1,757,939.  We  may seek to raise capital from public or private
equity or debt sources to provide working capital to meet our general and
administrative costs until net revenues make the business self-sustaining. We
cannot guarantee that we will be able to raise any such capital on terms
acceptable to us or at all. Such financing may be upon terms that are dilutive
or potentially dilutive to our stockholders. If alternative sources of financing
are required, but are insufficient or unavailable, we will be required to modify
our growth and operating plans in accordance with the extent of available
funding.




We
may experience fluctuations in quarterly operating results that may adversely
effect our stock price.




Our
quarterly operating results may fluctuate significantly in the future as a
result of a variety of factors, most of which are outside our control,
including: the demand for our products; seasonal trends in purchasing, the
amount and timing of capital expenditures and other costs relating to the
development of our products; price competition or pricing changes in the
industry; technical difficulties or system downtime; general economic
conditions, and economic conditions specific to the healthcare industry. Our
quarterly results may also be significantly impacted by the impact of the
accounting treatment of acquisitions, financing transactions or other matters.
Particularly at our early stage of development, such accounting treatment can
have a material impact on the results for any quarter. Due to the foregoing
factors, among others, it is likely that our operating results will fall below
our expectations or those of investors in some future quarter.




Our
board of directors is not comprised of independent directors and therefore we
could experience conflicts of interest between our stockholders and our officers
and directors.




We cannot
guarantee that our Board of Directors will have a majority of independent
directors in the future. In the absence of a majority of independent directors,
our executive officers, who are also principal stockholders and directors, could
establish policies and enter into transactions without independent review and
approval thereof. This could present the potential for a conflict of interest
between the Company and its stockholders generally and the controlling officers,
stockholders or directors.




We
provide indemnification of our officers and directors and we may have limited
recourse against these individuals.




Our
officers and directors are required to exercise good faith and high integrity in
our Management affairs. Our Articles of Incorporation provide, however, that our
officers and directors shall have no liability to our shareholders for losses
sustained or liabilities incurred which arise from any transaction in their
respective managerial capacities unless they violated their duty of loyalty, did
not act in good faith, engaged in intentional misconduct or knowingly violated
the law, approved an improper dividend or stock repurchase, or derived an
improper benefit from the transaction. Our Articles and By-Laws also provide for
the indemnification by us of the officers and directors against any losses or
liabilities they may incur as a result of the manner in which they operate our
business or conduct the internal affairs, provided that in connection with these
activities they act in good faith and in a manner that they reasonably believe
to be in, or not opposed to, the best interests of the Company, and their
conduct does not constitute gross negligence, misconduct or breach of fiduciary
obligations. To further implement the permitted indemnification, we have entered
into Indemnity Agreements with our officers and directors.




13




Mr.
Peck, during the term of his employment agreement, as well as coalitions of
a few of our officers and directors have sufficient voting power to make
corporate governance decisions that effect our other stockholders.




As
of April 15, 2010 , the present officers and directors own approximately
38%   of the outstanding shares of Common Stock, and therefore are in
a strong position to elect Directors and otherwise control the Company,
including, without limitation, authorizing the sale of equity or debt securities
of the Company, the appointment of officers, and the determination of officers’
salaries. Mr. Peck’s employment agreement provides that he will receive
1,000,000 shares of our series B Preferred Stock that votes with the Common
Stock on an as converted basis on a one hundred votes per share basis. The
Company can redeem the shares upon Mr. Peck’s termination.
Shareholders have no cumulative voting rights.  In addition, the
concentration of ownership may delay or prevent change in control and might
affect the market price of our common stock, even when a change in control may
be in the best interests of our stockholders.  The interest of our
officers and directors may not always coincide with the interest of our
stockholders.  Accordingly, these stockholders could cause us to enter
into transaction and agreements that we would not otherwise
consider.




Our
common stock will be considered a “Penny Stock,” and thereby be subject to
additional sale and trading regulations that may make it more difficult to
sell.




The
Company’s stock differs from many stocks, in that it is a “penny stock.” The
Securities and Exchange Commission has adopted a number of rules to regulate
“penny stocks.” These rules include, but are not limited to, Rules 3a5l-l,
15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6 and 15g-7 under the Securities and
Exchange Act of 1934, as amended. Because our securities probably constitute
“penny stock” within the meaning of the rules, the rules would apply to us and
our securities. The rules may further affect the ability of owners of our stock
to sell their securities in any market that may develop for them. There may be a
limited market for penny stocks, due to the regulatory burdens on
broker-dealers. The market among dealers may not be active. Investors in penny
stock often are unable to sell stock back to the dealer that sold them the
stock. The mark-ups or commissions charged by the broker-dealers may be greater
than any profit a seller may make. Because of large dealer spreads, investors
may be unable to sell the stock immediately back to the dealer at the same price
the dealer sold the stock to the investor. In some cases, the stock may fall
quickly in value. Investors may be unable to reap any profit from any sale of
the stock, if they can sell it at all. Stockholders should be aware that,
according to the Securities and Exchange Commission Release No. 34- 29093, the
market for penny stocks has suffered in recent years from patterns of fraud and
abuse. These patterns include:- - Control of the market for the security by one
or a few broker-dealers that are often related to the promoter or issuer;
-Manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; - “Boiler room” practices involving high
pressure sales tactics and unrealistic price projections by inexperienced sales
persons; - Excessive and undisclosed bid-ask differentials and markups by
selling broker- dealers; and - The wholesale dumping of the same securities by
promoters and broker- dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with consequent
investor losses. Furthermore, the “penny stock” designation may adversely affect
the development of any public market for the Company’s shares of common stock
or, if such a market develops, its continuation. Broker-dealers are required to
personally determine whether an investment in “penny stock” is suitable for
customers. Penny stocks are securities (i) with a price of less than five
dollars per share; (ii) that are not traded on a “recognized” national exchange;
(iii) whose prices are not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stocks must still meet requirement (i) above); or (iv) of an
issuer with net tangible assets less than $2,000,000 (if the issuer has been in
continuous operation for at least three years) or $5,000,000 (if in continuous
operation for less than three years), or with average annual revenues of less
than $6,000,000 for the last three years. Section 15(g) of the Exchange Act, and
Rule 15g-2 of the Commission require broker-dealers dealing in penny stocks to
provide potential investors with a document disclosing the risks of penny stocks
and to obtain a manually signed and dated written receipt of the document before
effecting any transaction in a penny stock for the investor’s account. Potential
investors in the Company’s common stock are urged to obtain and read such
disclosure carefully before purchasing any shares that are deemed to be “penny
stock.” Rule 15g-9 of the Commission requires broker- dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker-dealer to (i) obtain from the investor information concerning his or her
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor’s financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for the Company’s stockholders to
resell their shares to third parties or to otherwise dispose of
them.




14





ITEM 1B.
UNRESOLVED STAFF COMMENTS




There are
no unresolved staff comments for this filer.





ITEM 2.
PROPERTIES.




Corporate




The
Company’s temporary office location is at 123 West Nye Lane, Suite 129, Carson
City, Nevada, 89706.  The Company will relocate and consolidate its
administrative offices, spare parts inventory and shipping in fiscal
2010.  It was determined by management that the sales of our existing
inventory in 2009 and pending contracts of $16,000,000 + altered the number of
square feet needed to operate in 2009 and emphasized the requirements that would
be most likely needed in 2010.




The
changing military aircraft spare parts market has enabled management to modify
their inventory strategy that now emphasizes inspecting parts, packaging parts
and shipping parts as required by the customer rather than storing and
maintaining thousands of parts on site.





ITEM 3.
LEGAL PROCEEDINGS.




The
Company is not a party to any material pending legal proceedings and, to the
best of its knowledge, no such action by or against the Company has been
threatened. The Company is subject to legal proceedings and claims that arise in
the ordinary course of its business. Although occasional adverse decisions or
settlements may occur, the Company believes that the final disposition of such
matters will not have material adverse effect on its financial position, results
of operations or liquidity.





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




Removed
and reserved




15





PART
II.





ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES.




Market
Information




The
Company’s Common Stock has been and is currently traded on the over-the-counter
market and quotations are published on the OTC Bulletin Board under the symbol
“IARO”. The following table sets forth the range of high and low bid prices of
the Common Stock for each fiscal quarterly period. Prices reported represent
prices between dealers, do not include retail markups, markdowns or commissions
and do not represent actual transactions.





Per Share
Common Stock Bid Prices by Quarter


For the
Fiscal Year Ended on December 31, 2009




High
              
              
              
              LowQuarter
      Ended December 31, 2009
              
              
              .10
              
              
              
              .01Quarter
      Ended September 30, 2009
              
              
              .11
              
              
              
              .02Quarter
      Ended June 30, 2009
              
              
              1.70
              
              
              
              .01Quarter
      Ended March 31, 2009
              
              
              1.75
              
              
              
              .12





Per Share Common Stock Bid
Prices by Quarter


For the
Fiscal Year Ended on December 31, 2008


High
              
              
              
              LowQuarter
      Ended December 31, 2008
              
              
              .011
              
              
              
              .0013Quarter
      Ended September 30, 2008
              
              
              .038
              
              
              
              .0018Quarter
      Ended June 30, 2008
              
              
              11.40
              
              
              
              .025Quarter
      Ended March 31, 2008
              
              
              12.60
              
              
              
              2.10




The
ability of individual stockholders to trade their shares in a particular state
may be subject to various rules and regulations of that state. A number of
states require that an issuer’s securities be registered in their state or
appropriately exempted from registration before the securities are permitted to
trade in that state. Presently, the Company has no plans to register its
securities in any particular state. Further, most likely the Company’s shares
will be subject to the provisions of Section 15(g) and Rule 15g-9 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), commonly
referred to as the “penny stock” rule. Section 15(g) sets forth certain
requirements for transactions in penny stocks and Rule 15g-9(d)(1) incorporates
the definition of penny stock as that used in Rule 3a51-1 of the Exchange
Act.




The
Commission generally defines penny stock to be any equity security that has a
market price less than $5.00 per share, subject to certain exceptions. Rule
3a51-1 provides that any equity security is considered to be a penny stock
unless that security is: registered and traded on a national securities exchange
meeting specified criteria set by the Commission; authorized for quotation on
The NASDAQ Stock Market; issued by a registered investment company; excluded
from the definition on the basis of price (at least $5.00 per share) or the
issuer’s net tangible assets (at least $2 million); or exempted from the
definition by the Commission. If the Company’s shares are deemed to be a penny
stock, trading in the shares will be subject to additional sales practice
requirements of broker-dealers who sell penny stocks to persons other than
established customers and accredited investors.




16




For transactions covered
by these rules, broker-dealers must make a special suitability determination for
the purchase of such securities and must have received the purchaser’s written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the first transaction, of a risk disclosure document relating
to the penny stock market. A broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative, and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information for the penny stocks held in the account and
information on the limited market in penny stocks. Consequently, these rules may
restrict the ability of broker-dealers to trade and/or maintain a market in the
Company’s Common Stock and may affect the ability of stockholders to sell their
shares.




Holders
of Common Equity




As of
December 31, 2009, the Company’s transfer agent shows
253  shareholders of record of the Company’s common
stock.




Dividend
Information




The
Company has not declared or paid cash dividends on its Common Stock or made
distributions in the past, and the Company does not anticipate that it will pay
cash dividends or make cash distributions in the foreseeable future, other than
non cash dividends described below. The Company currently intends to retain and
invest future earnings, if any, to finance its operations.




Transfer
Agent




The
Company has designated Transfer Online as its transfer agent for the common
stock.




Recent
Sales of Unregistered Securities




In January 2009, we issued
an aggregate of 128,116 shares of common stock in exchange for convertible notes
payable of $3,201. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In February 2009, we
issued 64,058 shares of common stock in exchange for convertible notes payable
of $1,602. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In March 2009, we issued
an aggregate of 192,174 shares of common stock in exchange for convertible notes
payable of $4,803. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




17




In April 2009, we issued
an aggregate of 161,604 shares of common stock in exchange for convertible notes
payable of $15,352. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In May 2009 the Company
issued an aggregate of 10,133,330 shares of common stock for services
rendered which represents the value of the services received and which did not
differ materially from the value of the stock issued. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.





In May 2009, the
shareholders of 1,000,000 shares of Preferred Stock converted to 10,000,000 of
the Company’s common stock. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In June 2009, the Company
issued an aggregate of 4,293,346 shares of common stock in exchange for
convertible notes payable of $177,504. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




18




In July 2009, the Company
issued an aggregate of 1,500,000 shares of common stock in exchange for
convertible notes payable of $7,800. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In August 2009, the
Company issued an aggregate of 3,293,380 shares of common stock in exchange for
convertible notes payable of $50,000. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In September 2009, the
Company issued an aggregate of 11,740,566 shares of common stock in exchange for
convertible notes payable of $119,650. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In October 2009, the
Company issued an aggregate of 17,290,137 shares of common stock in exchange for
convertible notes payable of $188,930. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.








19




In November 2009, the
Company issued an aggregate of 18,085,060 shares of common stock in exchange for
convertible notes payable of $195,600. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In December 2009, the
Company issued an aggregate of 11,526,716 shares of common stock in exchange for
convertible notes payable of $89,500. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




In
January 2010, the Company issued an aggregate of 18,943,199 shares of its common
stock in exchange for convertible notes of
$97,108.Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.





In
February 2010, the Company issued an aggregate of 19,264,884 shares of its
common stock in exchange for convertible notes of $58,452. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.




20




In March
2010, the Company issued an aggregate of 13,841,400 shares of its common stock
in exchange for convertible notes of $20,765. Theissuance
of the securities qualified for exemption under Section 4(2) of the Securities
Act of 1933 (the “Act”) since the issuances by us did not involve a public
offering. The offering was not  public offerings as defined in Section
4(2) because the offer and sale was made to an insubstantial number of persons
and because of the manner of the offering. In addition, the investor had the
necessary investment intent as required by Section 4(2) since they agreed to,
and received, securities bearing a legend stating that such securities are
restricted. This restriction ensured that these securities will not be
immediately redistributed into the market and therefore be part of a public
offering. These offerings were done with no general solicitation or advertising
by us. Based on an analysis of the above factors, we have met the requirements
to qualify for exemption under Section 4(2) of the Act for these transactions.





ITEM 6.SELECTED FINANCIAL
DATA.




Not
applicable





ITEM
7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS




The
following discussion of our financial condition and results of operations should
be read in conjunction with the audited financial statements and notes thereto
for the fiscal year ended December 31, 2009, found in this report. In addition
to historical information, the following discussion contains forward-looking
statements that involve risks, uncertainties and assumptions. Where possible, we
have tried to identify these forward looking statements by using words such as
“anticipate,” “believe,” “intends,” or similar expressions. Our actual results
could differ materially from those anticipated by the forward-looking statements
due to important factors and risks including, but not limited to, those set
forth under “Risk Factors” in Part I, Item 1A of this Report.




General
Overview




International
Aerospace Enterprises Inc. (“IAE”, “we”, “us”, or the “company”), specializes in
the sales and marketing of military aircraft spare parts on a worldwide basis.
The company has directly purchased approximately $11 million USD of finished
military goods/manufactured aircraft parts and has either taken on consignment,
developed option purchase agreements, or other business procedures and means and
arranged for the marketing, sales and processing of bids amassed nearly
$100,000,000.00 USD of military aircraft spare parts that meet the quality
standards necessary to be sold to the military industrial complex serving the
U.S. government and or its U.S. Allies. The company’s management intends to
directly sell and market these military aircraft spare parts in concert with
international marketing and sales companies already existing with a worldwide
network of sales and marketing personnel.





Results
of Operations




The
Company’s revenues are difficult to forecast and may vary significantly from
quarter to quarter and year to year. In addition, the Company’s expense levels
for each quarter are, to a significant extent, fixed in advance based upon the
Company’s expectation as to the net revenues to be generated during that
quarter. The Company therefore is generally unable to adjust spending in a
timely manner to compensate for any unexpected shortfall in net revenues.
Further as a result of these factors any delay in product introductions, whether
due to internal delays or delays caused by third party difficulties, or any
significant shortfall in demand in relation to the Company’s expectations, would
have an almost immediate adverse impact on the Company’s operating results and
on its ability to maintain profitability in a quarter.




21




SUMMARY
OF ACCOUNTING POLICIES





Revenue
Recognition




The
Company recognizes revenue in accordance with Accounting Standards Codification
subtopic 605-10, Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that
four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and
(4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on management’s judgments regarding the fixed
nature of the selling prices of the products delivered and the collectability of
those amounts. Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.




ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25,
Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting
for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. The effect of implementing ASC
605-25 on the Company’s financial position and results of operations was not
significant.





Use
of Estimates




The
preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.




Cash
Equivalents




For the
purpose of the accompanying financial statements, all highly liquid investments
with a maturity of three months or less are considered to be cash
equivalents.





22




Long-Lived
Assets




The
Company has adopted Accounting Standards Codification subtopic 360-10, Property,
plant and equipment (“ASC 360-10”). The Statement requires that long-lived
assets and certain identifiable intangibles held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted undiscounted cash
flows. Should impairment in value be indicated, the carrying value of intangible
assets will be adjusted, based on estimates of future discounted cash flows
resulting from the use and ultimate disposition of the asset. ASC 360-10 also
requires assets to be disposed of be reported at the lower of the carrying
amount or the fair value less costs to sell.




Income
Taxes




The
Company follows Accounting Standards Codification subtopic 740-10, Income Taxes
(“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.





Accounts
Receivable




The
Company assesses the realization of its receivables by performing ongoing credit
evaluations of its customers’ financial condition. Through these evaluations,
the Company may become aware of a situation where a customer may not be able to
meet its financial obligations due to deterioration of its financial viability,
credit ratings or bankruptcy. The Company’s reserve requirements are based on
the best facts available to the Company and are reevaluated and adjusted as
additional information is received. The Company’s reserves are also based on
amounts determined by using percentages applied to certain aged receivable
categories. These percentages are determined by a variety of factors including,
but not limited to, current economic trends, historical payment and bad debt
write-off experience. Allowance for doubtful accounts for accounts and notes
receivable was $-0- as of December 31, 2009 and 2008.




Research
and Development




The
Company accounts for research and development costs in accordance with the
Accounting Standards Codification subtopic 730-10, Research and Development
(“ASC 730-10”). Under ASC 730-10, all research and development costs must be
charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and developments costs are
expensed when the contracted work has been performed or as milestone results
have been achieved. Company-sponsored research and development costs related to
both present and future products are expensed in the period incurred. The
Company did not incur expenditures on research and product development for the
year ended December 31, 2009 and 2008.




23




Comprehensive
Income




The
Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive
Income (“ASC 220-10”) which establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. ASC 220-10 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities. The Company does not have any
items of comprehensive income in any of the periods presented.




Advertising




The
Company follows the policy of charging the costs of advertising to expenses as
incurred. The Company did not incur advertising costs in continuing operations
for the years ended December 31, 2009 and 2008, respectively.




Segment
information




Accounting
Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) which
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to
stockholders.  ASC 280-10 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. The Company applies the management approach to
the identification of our reportable operating segment as provided in accordance
with ASC 280-10. The information disclosed herein materially represents all of
the financial information related to the Company’s principal operating
segment.




Stock
Based Compensation




Effective
for the year beginning January 1, 2006, the Company has adopted Accounting
Standards Codification subtopic 718-10, Compensation (“ASC 718-10”). The Company
made no employee stock-based compensation grants before December 31, 2005 and
therefore has no unrecognized stock compensation related liabilities or expense
unvested or vested prior to 2006. Stock-based compensation expense recognized
under ASC 718-10 for the years ended December 31, 2009 and 2008 was $15,649,333
and $728,489, respectively.




Concentration
of Credit Risk




Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with high credit quality institutions. At times, such investments may be in
excess of the FDIC insurance limit. At December 31, 2009 and 2008, the Company’s
outstanding accounts receivable from continuing operations was $10,662 and $-0-,
respectively.




24




Net
Loss per Share




The
Company has adopted Accounting Standards Codification subtopic 260-10, Earnings
Per Share (“ASC 260-10”) which specifies the computation, presentation and
disclosure requirements of earnings per share information. Basic earnings per
share have been calculated based upon the weighted average number of common
shares outstanding. Conversions of convertible debt, stock options and warrants
have been excluded as common stock equivalents in the diluted losses per share
because they are either anti-dilutive, or their effect is not material. However,
for diluted earnings per share, if such conversions, stock options and warrants
had been included in the determination, the outstanding fully diluted shares
would have been 201,328,937 and 25,311,026 for the year ended December 31, 2009
and 2008, respectively.




Derivative
Financial Instruments




The
Company’s derivative financial instruments consist of embedded derivatives
related to the convertible debentures (see Note E). These embedded derivatives
include certain conversion features, variable interest features, call options
and default provisions. The accounting treatment of derivative financial
instruments requires that the Company record the derivatives and related
warrants at their fair values as of the inception date of the Note Agreement and
at fair value as of each subsequent balance sheet date. In addition, under the
provisions of Accounting Standards Codification subtopic 815-40, Derivatives and
Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”),” as a result of
entering into the Notes, the Company is required to classify all other
non-employee stock options and warrants as derivative liabilities and mark them
to market at each reporting date. Any change in fair value inclusive of
modifications of terms will be recorded as non-operating, non-cash income or
expense at each reporting date. If the fair value of the derivatives is higher
at the subsequent balance sheet date, the Company will record a non-operating,
non-cash charge. If the fair value of the derivatives is lower at the subsequent
balance sheet date, the Company will record non-operating, non-cash income.
Conversion-related derivatives were valued using the intrinsic method and the
warrants using the Black Scholes Option Pricing Model with the following
assumptions: dividend yield of 0%; annual volatility of 527%; and risk free
interest rate from 0.20% to 1.47%. The derivatives are classified as long-term
liabilities.




Registration
rights




In with
raising capital through the issuance of Convertible Notes, the Company has
issued convertible debentures and warrants that have registration rights
with liquidated damages for the underlying shares. As the contract must be
settled by the delivery of registered shares and the delivery of the registered
shares is not controlled by the Company, pursuant to ASC 815-40, the net value
of the of the underlying embedded derivative and warrants at the date of
issuance was recorded as liabilities on the balance sheet. Liquidated damages
are estimated and accrued as a liability at each reporting date.




Fair
Values




In the
first quarter of fiscal year 2008, the Company adopted Accounting Standards
Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC
820-10”).  ASC 820-10 defines fair value, establishes a framework for
measuring fair value, and enhances fair value measurement disclosure. ASC 820-10
delays, until the first quarter of fiscal year 2009, the effective date for ASC
820-10 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption of ASC 820-10 did not have a
material impact on the Company’s financial position or operations. Refer to
Footnote M for further discussion regarding fair valuation.




25




Reclassifications




Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.




Recent
accounting pronouncements




Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally
Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10
establishes the FASB
Accounting Standards Codification(the “Codification”) as the source of
authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
conformity with U.S. GAAP. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative U.S. GAAP
for SEC registrants. All guidance contained in the Codification carries an equal
level of authority. The Codification superseded all existing non-SEC accounting
and reporting standards. All other non-grandfathered, non-SEC accounting
literature not included in the Codification is non-authoritative. The FASB will
not issue new standards in the form of Statements, FASB Staff Positions or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in
their own right. ASUs will serve only to update the Codification, provide
background information about the guidance and provide the bases for conclusions
on the change(s) in the Codification. References made to FASB guidance
throughout this document have been updated for the Codification.




Effective
January 1, 2008, the Company adopted FASB ASC 820-10, Fair
Value Measurements and Disclosures – Overall(“ASC 820-10”) with respect
to its financial assets and liabilities. In February 2008, the FASB issued
updated guidance related to fair value measurements, which is included in the
Codification in ASC 820-10-55, Fair
Value Measurements and Disclosures – Overall – Implementation Guidance and
Illustrations. The updated guidance provided a one year deferral of the
effective date of ASC 820-10 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. Therefore, the Company adopted the
provisions of ASC 820-10 for non-financial assets and non-financial liabilities
effective January 1, 2009, and such adoption did not have a material impact
on the Company’s consolidated results of operations or financial
condition.




Effective
April 1, 2009, the Company adopted FASB ASC 820-10-65, Fair
Value Measurements and Disclosures – Overall – Transition and Open Effective
Date Information (“ASC 820-10-65”). ASC 820-10-65 provides additional
guidance for estimating fair value in accordance with ASC 820-10 when the volume
and level of activity for an asset or liability have significantly decreased.
ASC 820-10-65 also includes guidance on identifying circumstances that indicate
a transaction is not orderly. The adoption of ASC 820-10-65 did not have an
impact on the Company’s consolidated results of operations or financial
condition.




Effective
April 1, 2009, the Company adopted FASB ASC 825-10-65, Financial
Instruments – Overall – Transition and Open Effective Date Information
(“ASC 825-10-65”). ASC 825-10-65 amends ASC 825-10 to require disclosures about
fair value of financial instruments in interim financial statements as well as
in annual financial statements and also amends ASC 270-10 to require those
disclosures in all interim financial statements. The adoption of ASC 825-10-65
did not have a material impact on the Company’s consolidated results of
operations or financial condition.




26




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in
ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and
requirements for evaluating and reporting subsequent events and distinguishes
which subsequent events should be recognized in the financial statements versus
which subsequent events should be disclosed in the financial statements. ASC
Topic 855 also required disclosure of the date through which subsequent events
are evaluated by management.  ASC Topic 855 was effective for interim
periods ending after June 15, 2009 and applies
prospectively.  Because ASC Topic 855 impacted the disclosure
requirements, and not the accounting treatment for subsequent events, the
adoption of ASC Topic 855 did not impact our results of operations or financial
condition.  See Note 14 for disclosures regarding our subsequent
events.




Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair
Value Measurements and Disclosures (Topic 820) (“ASU 2009-05”). ASU
2009-05 provided amendments to ASC 820-10, Fair
Value Measurements and Disclosures – Overall, for the fair value
measurement of liabilities. ASU 2009-05 provides clarification that in
circumstances in which a quoted price in an active market for the identical
liability is not available, a reporting entity is required to measure fair value
using certain techniques. ASU 2009-05 also clarifies that when estimating the
fair value of a liability, a reporting entity is not required to include a
separate input or adjustment to other inputs relating to the existence of a
restriction that prevents the transfer of a liability. ASU 2009-05 also
clarifies that both a quoted price in an active market for the identical
liability at the measurement date and the quoted price for the identical
liability when traded as an asset in an active market when no adjustments to the
quoted price of the asset are required are Level 1 fair value measurements.
Adoption of ASU 2009-05 did not have a material impact on the Company’s
consolidated results of operations or financial condition.




In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable
Revenue Arrangements, (amendments to FASB ASC Topic 605, Revenue
Recognition) (“ASU 2009-13”) and ASU 2009-14, Certain
Arrangements That Include Software Elements, (amendments to FASB ASC
Topic 985, Software)
(“ASU 2009-14”). ASU 2009-13 requires entities to allocate revenue in an
arrangement using estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative
selling price method. ASU 2009-14 removes tangible products from the scope
of software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that includes a tangible product are
covered by the scope of the software revenue guidance. ASU 2009-13 and ASU
2009-14 should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The Company does not expect
adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the
Company’s consolidated results of operations or financial
condition.




27




Forward
Looking Statements.
  The
foregoing Management Discussion and Analysis of Financial Condition and Results
of Operations “forward looking statements” within the meaning of Rule 175 under
the Securities Act of 1933, as amended, and Rule 3b-6 under the Securities Act
of 1934, as amended, including statements regarding, among other items, the
Company’s business strategies, continued growth in the Company’s markets,
projections, and anticipated trends in the Company’s business and the industry
in which it operates. The words “believe,” “expect,” “anticipate,” “intends,”
“forecast,” “project,” and similar expressions identify forward-looking
statements. These forward-looking statements are based largely on the Company’s
expectations and are subject to a number of risks and uncertainties, including
but not limited to, those risks associated with economic conditions generally
and the economy in those areas where the Company has or expects to have assets
and operations; competitive and other factors affecting the Company’s
operations, markets, products and services; those risks associated with the
Company’s ability to successfully negotiate with certain customers, risks
relating to estimated contract costs, estimated losses on uncompleted contracts
and estimates regarding the percentage of completion of contracts, associated
costs arising out of the Company’s activities and the matters discussed in this
report; risks relating to changes in interest rates and in the availability,
cost and terms of financing; risks related to the performance of financial
markets; risks related to changes in domestic laws, regulations and taxes; risks
related to changes in business strategy or development plans; risks associated
with future profitability; and other factors discussed elsewhere in this report
and in documents filed by the Company with the Securities and Exchange
Commission. Many of these factors are beyond the Company’s control. Actual
results could differ materially from these forward-looking statements. In light
of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Form 10-K will, in fact, occur.
The Company does not undertake any obligation to revise these forward-looking
statements to reflect future events or circumstances and other factors discussed
elsewhere in this report and the documents filed or to be filed by the Company
with the Securities and Exchange Commission.
 
 Comparison
of the Year Ended December 31, 2009 with the Year Ended December 31,
2008
  During
the year ended December 31, 2009 we had revenue of $238,518, as compared to no
revenue for the year ended December 31, 2008.  The increase in revenue
was attributable to us entering the used aircraft parts market in January
2009. Our gross profit for the year ended December 31, 2009 was
approximately 57% of our gross revenue.
  Operating
expenses for the year ended December 31,2009 were 3,663,586 as compared to
$1,151,842 for the year ended December 31, 2008. The operating expenses both
years were primarily comprised of selling and administrative expenses,
attributable to stock based compensation issued to key employees and
consultants.
  The
Company produced an operating loss of $3,527,148 for the year ended December 31,
2009 as compared to an operating loss of $1,151,842 for the year ended December
13, 2008. Interest expense was $914,325 for the year ended December 31, 2009 as
compared to $551,942 for the prior year.  The increase in interest
expense is attributable to additional short term borrowing in 2009 with debt
discounts associated with the debt instruments.
  Net
Income (Loss)
  The Company produced a net
loss of $2,680,423 in the year ended December 31, 2009 as compared to net loss
of $1,535,322 for the same period in 2008.
  Liquidity
and Capital Resources
  Cash and
cash equivalents at December 31, 2009 were $928.   Our working
capital deficit at December 31, 2009 was $1,757,939.  Net cash used in
operating activities for the year ended December 31, 2009 was primarily the
result of our net loss adjusted for common stock issued for services rendered,
income from debt settlement, unrealized gains of adjustment of derivative
securities and an increase in accounts payable.  For the year ended
December 31, 2009 we had no cash from investing activities. Net cash provided by
financing activities for the year ended December 31, 2009 was $483,490
consisting primarily of $460,014 of proceeds of convertible debt and $23,476 and
resulted from an advance from a shareholder.
  28
  The
Company’s success and ongoing financial viability is contingent upon its selling
of its products and the related generation of cash flows. The Company evaluates
its liquidity and capital needs on a continuous basis, and based on the
Company’s requirements and capital market conditions, the Company may, from time
to time, raise working capital through additional debt or equity financing.
There is no assurance that such financing will be available in the future to
meet additional capital needs of the Company, or that any such terms or
conditions of any such financing would be favorable to the Company. Both the
management of the Company’s current growth and the expansion of the Company’s
current business involve significant financial risk and require significant
capital investment. Management believes that it will meet is capital needs
through debt and equity financing.
 
 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
  Not
Applicable
  29
  ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  SECURITIES
AND EXCHANGE COMMISSION
 
 WASHINGTON,
D.C. 20549
 
 FINANCIAL
STATEMENTS AND SCHEDULES
 
 DECEMBER
31, 2009 AND 2008
 
 FORMING A
PART OF ANNUAL REPORT
 PURSUANT
TO THE SECURITIES EXCHANGE ACT OF 1934
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 
 F-1
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 Index
      to Financial Statements
                
                
                PAGEReports
      of Independent Registered Certified Public Accountants
                
                F-3Balance
      Sheets at December 31, 2009 and 2008
                
                F-4Statements
      of Losses for the year ended December 31, 2009 and December 31,
      2008
                
                F-5Statements
      of Deficiency in Stockholders’ Equity for the years ended December 31,
      2009 and December 31, 2008
                
                F-6Statements
      of Cash Flows for the year ended December 31, 2009 and December 31,
      2008
                
                F-10Notes
      to Financial Statements
                
                F-11
 
 
 F-2
 
  Turner,
Jones & Associates, P.L.L.C.
 Certified
Public Accountants
 108
Center Street, North, 2nd
Floor
 Vienna,
Virginia 22180-5712
 (703)
242-6500
 FAX (703)
242-1600
 
 
   REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
 
 To
the Board of Directors and Stockholders of:
 
 International
Aerospace Enterprises, Inc.
 123 West
Nye Lane, Suite 129
 Carson
City, NV 89706
 Tucson,
AZ 85715
  
 We have audited the accompanying
consolidated balance sheets of International Aerospace Enterprises, Inc. (a
Nevada Incorporation) as of December 31, 2009 and 2008, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the two years in the period ended December 31, 2009.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
  We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
 
 In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of International Aerospace Enterprises, Inc. as of
December 31, 2009 and 2008, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the United States of
America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in the footnotes,
conditions exist that raise substantial doubt about the Company’s ability to
continue as a going concern. The accompanying consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty
 
 /s/ Turner, Jones &
Associates, PLLC
 Vienna,
Virginia
 April
13, 2010
 
  
 
 
 F-3
  INTERNATIONAL
      AEROSPACE ENTERPRISES, INCCONSOLIDATED
      BALANCE SHEETSDECEMBER
      31, 2009 AND 20082009
                
                
                2008ASSETSCURRENT
      ASSETS:Cash
                
                $
                928
                
                
                $
                -Accounts
      receivable
                
                
                10,662
                
                
                
                -Inventory
                
                
                1,145,420
                
                
                
                1,247,500Total
      current assets
                
                
                1,157,010
                
                
                
                1,247,500Other
      assets:Unamortized
      financing costs, net of accumulated amortization and write off of $283,775
      and $272,108, respectively
                
                
                6,225
                
                
                
                17,892$
                1,163,235
                
                
                $
                1,265,392LIABILITIES
      AND DEFICIENCY IN STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Cash
      overdraft
                
                $
                -
                
                
                $
                559Accounts
      payable and accrued  expenses
                
                
                1,207,707
                
                
                
                346,411Advances
      from related parties
                
                
                23,476
                
                
                
                -Notes
      payable, related parties
                
                
                962,944
                
                
                
                189,948Convertible
      notes payable
                
                
                720,822
                
                
                
                585,712Total
      current liabilities
                
                
                2,914,949
                
                
                
                1,122,630Long
      term debt, less current maturities:Derivative
      liability related to convertible debentures
                
                
                1,155,842
                
                
                
                2,266,930Warrant
      liability related to convertible debentures
                
                
                1
                
                
                
                15Convertible
      notes payable
                
                
                152,282
                
                
                
                338,511Long
      term debt
                
                
                -
                
                
                
                1,000,000Total
      long term liabilities
                
                
                1,308,125
                
                
                
                3,605,456Total
      liabilities
                
                
                4,223,074
                
                
                
                4,728,086Commitments
      and contingenciesDEFICIENCY
      IN STOCKHOLDERS' EQUITYPreferred
      stock, par value $0.001 per share; 25,000,000 shares authorized; 6,430,000
      and 7,430,000 shares issued and outstanding as of December 31, 2009 and
      2008, respectively
                
                
                6,430
                
                
                
                7,430Common
      stock, par value $0.001 per share;  300,000,000 shares
      authorized, 100,984,063 and 1,574,424 shares issued and outstanding as of
      December 31, 2009 and 2008, respectively (See note F)
                
                
                100,984
                
                
                
                1,574Additional
      paid in capital
                
                
                12,601,155
                
                
                
                9,616,287Accumulated
      deficit
                
                
                (15,768,408
                )
                
                
                (13,087,985
                )Total
      deficiency in stockholders' equity
                
                
                (3,059,839
                )
                
                
                (3,462,694
                )$
                1,163,235
                
                
                $
                1,265,392See
      the accompanying notes to the consolidated financial
      statements
  F-4
  INTERNATIONAL
      AEROSPACE ENTERPRISES, INC.CONSOLIDATED
      STATEMENTS OF OPERATIONSYEARS
      ENDED DECEMBER 31, 2009 AND 20082009
                
                
                2008REVENUE
                
                $
                238,518
                
                
                $
                -Cost
      of sales
                
                
                102,080
                
                
                
                -Gross
      profit
                
                
                136,438
                
                
                
                -OPERATING
      EXPENSES:Selling
      and administrative
                
                
                3,663,586
                
                
                
                1,151,144Depreciation
      and amortization
                
                
                -
                
                
                
                698Total
      operating expenses
                
                
                3,663,586
                
                
                
                1,151,842LOSS
      FROM OPERATIONS
                
                
                (3,527,148
                )
                
                
                (1,151,842
                )Unrealized
      gain on adjustment of derivative and warrant liability to fair value of
      underlying securities
                
                
                1,721,102
                
                
                
                134,954Gain
      on extinguishment of debt
                
                
                39,948
                
                
                
                -Interest
      expense, net
                
                
                (914,325
                )
                
                
                (551,942
                )Net
      income (loss) from continuing operations before income taxes and
      discontinued operations
                
                
                (2,680,423
                )
                
                
                (1,568,830
                )Income
      taxes
                
                
                -
                
                
                
                -Net
      income (loss) from continuing operations before discontinued
      operations
                
                
                (2,680,423
                )
                
                
                (1,568,830
                )Income  from
      discontinued operations, net of income tax provision of
    $-0-
                
                
                -
                
                
                
                33,508NET
      INCOME (LOSS)
                
                $
                (2,680,423
                )
                
                $
                (1,535,322
                )Basic
      income (loss) per share:Continuing
      operations
                
                $
                (0.12
                )
                
                $
                (1.00
                )Discontinued
      operations
                
                
                -
                
                
                
                0.02Basic
      income (loss) per share:
                
                $
                (0.12
                )
                
                $
                (0.99
                )Diluted
      income (loss) per share:Continuing
      operations
                
                $
                (0.12
                )
                
                $
                (1.06
                )Discontinued
      operations
                
                
                -
                
                
                
                0.02Diluted
      loss per share:
                
                $
                (0.12
                )
                
                $
                (1.05
                )Weighted
      average number of common shares outstanding-basic
                
                
                35,898,206
                
                
                
                1,574,424Weighted
      average number of common shares outstanding-fully diluted
                
                
                35,898,206
                
                
                
                1,574,424See
      the accompanying notes to the consolidated financial
      statements
 
 F-5
 
 LIFESTEM
      INTERNATIONAL, INCSTATEMENT
      OF DEFICIENCY IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008Additional
                
                
                
                
                
                TreasuryPreferred
                
                
                Stock
                
                
                Common
                
                
                Stock
                
                
                Paid
      in
                
                
                Treasury
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                Deficit
                
                
                TotalBalance
      as of December 31, 2007
                
                
                1,250,000
                
                
                $
                1,250
                
                
                
                1,312
                
                
                $
                1
                
                
                $
                7,570,446
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (11,552,663
                )
                
                $
                (3,980,966
                )Fractional
      shares issued in connection with reverse split
                
                
                
                
                
                
                
                
                
                
                10
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Preferred
      stock issued in March 2008 for services rendered
                
                
                10,000,000
                
                
                
                10,000
                
                
                
                -
                
                
                
                -
                
                
                
                242,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                252,000Preferred
      stock issued in April 2008 for services rendered
                
                
                1,180,000
                
                
                
                1,180
                
                
                
                -
                
                
                
                -
                
                
                
                14,160
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                15,340Preferred
      stock converted to common shares
                
                
                (5,000,000
                )
                
                
                (5,000
                )
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                4,000
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Common
      stock issued in May 2008 for services rendered
                
                
                -
                
                
                
                -
                
                
                
                4,607
                
                
                
                5
                
                
                
                461,144
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                461,149Common
      stock issued on May 12, 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                41
                
                
                
                -
                
                
                
                1,815
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,815Common
      stock issued on June 12, 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                
                
                
                
                20,000
                
                
                
                20
                
                
                
                244,980
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                245,000Common
      stock issued on July 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                30,000
                
                
                
                30
                
                
                
                8,970
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                9,000Common
      stock issued on August 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                98,334
                
                
                
                98
                
                
                
                22,918
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                23,016Subtotal
                
                
                7,430,000
                
                
                $
                7,430
                
                
                
                1,154,304
                
                
                $
                1,154
                
                
                $
                8,570,433
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (11,552,663
                )
                
                $
                (2,973,646
                )
 
 
 See the
accompanying notes to the consolidated financial statements
 F-6
 
 LIFESTEM
      INTERNATIONAL, INCSTATEMENT
      OF DEFICIENCY IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008Additional
                
                
                
                
                
                TreasuryPreferred
                
                
                Stock
                
                
                Common
                
                
                Stock
                
                
                Paid
      in
                
                
                Treasury
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                Deficit
                
                
                TotalBalance
      forward
                
                
                7,430,000
                
                
                $
                7,430
                
                
                
                1,154,304
                
                
                $
                1,154
                
                
                $
                8,570,433
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (11,552,663
                )
                
                $
                (2,973,646
                )Common
      stock issued on September 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                132,002
                
                
                
                132
                
                
                
                26,869
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                27,001Common
      stock issued in October 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                106,668
                
                
                
                107
                
                
                
                3,093
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,200Common
      stock issued in November 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                117,392
                
                
                
                117
                
                
                
                3,833
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,950Common
      stock issued in December 2008 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                64,058
                
                
                
                64
                
                
                
                2,818
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                2,882Treasury
      shares received in exchange for sale of subsidiaries
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (247,500
                )
                
                
                -
                
                
                
                (247,500
                )Treasury
      shares issued in connection with acquisition of International Aerospace
      Enterprises, Inc,
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                247,500
                
                
                
                -
                
                
                
                247,500Gain
      on disposal of discontinued operations to related party
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,009,241
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,009,241Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (1,535,322
                )
                
                
                (1,535,322
                )Balance,
      December 31, 2008
                
                
                7,430,000
                
                
                $
                7,430
                
                
                
                1,574,424
                
                
                $
                1,574
                
                
                $
                9,616,287
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (13,087,985
                )
                
                $
                (3,462,694
                )
 
  See the
accompanying notes to the consolidated financial statements
 F-7
  LIFESTEM
      INTERNATIONAL, INCSTATEMENT
      OF DEFICIENCY IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008Additional
                
                
                
                
                
                TreasuryPreferred
                
                
                Stock
                
                
                Common
                
                
                Stock
                
                
                Paid
      in
                
                
                Treasury
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                Deficit
                
                
                TotalBalance
      forward
                
                
                7,430,000
                
                
                $
                7,430
                
                
                
                1,574,424
                
                
                $
                1,574
                
                
                $
                9,616,287
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (13,087,985
                )
                
                $
                (3,462,694
                )Common
      stock issued in January 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                128,116
                
                
                
                128
                
                
                
                3,075
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                3,203Common
      stock issued in February  2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                64,058
                
                
                
                64
                
                
                
                1,537
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,601Common
      stock issued in March 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                192,174
                
                
                
                192
                
                
                
                4,613
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                4,805Common
      stock issued in April 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                161,604
                
                
                
                162
                
                
                
                15,190
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                15,352Fractional
      shares issued in connection with reverse split
                
                
                
                
                
                
                
                
                
                
                1,152
                
                
                
                1
                
                
                
                (1
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Common
      stock issued in May 2009 for services rendered
                
                
                -
                
                
                
                -
                
                
                
                10,133,330
                
                
                
                10,133
                
                
                
                2,219,200
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,229,333Common
      stock issued as collateral in connection with note payable
                
                
                -
                
                
                
                -
                
                
                
                11,000,000
                
                
                
                11,000
                
                
                
                (11,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Preferred
      stock converted to common shares
                
                
                (1,000,000
                )
                
                $
                (1,000
                )
                
                
                10,000,000
                
                
                $
                10,000
                
                
                $
                (9,000
                )
                
                $
                -
                
                
                $
                -
                
                
                $
                -
                
                
                $
                -Subtotal
                
                
                6,430,000
                
                
                $
                6,430
                
                
                
                33,254,858
                
                
                $
                33,254
                
                
                $
                11,839,901
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (13,087,985
                )
                
                $
                (1,208,400
                )
 
 
 See the
accompanying notes to the consolidated financial statements
 F-8
  LIFESTEM INTERNATIONAL,
      INCSTATEMENT
      OF DEFICIENCY IN STOCKHOLDERS' EQUITYFOR
      THE YEARS ENDED DECEMBER 31, 2009 AND 2008Additional
                
                
                
                
                
                TreasuryPreferred
                
                
                Stock
                
                
                Common
                
                
                Stock
                
                
                Paid
      in
                
                
                Treasury
                
                
                Stock
                
                
                AccumulatedShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Shares
                
                
                Amount
                
                
                Deficit
                
                
                TotalBalance
      forward
                
                
                6,430,000
                
                
                $
                6,430
                
                
                
                33,,254,858
                
                
                $
                33,254
                
                
                $
                11,839,901
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (13,087,985
                )
                
                $
                (1,208,400
                )Common
      stock issued in June 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                4,293,346
                
                
                
                4,294
                
                
                
                173,210
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                177,504Common
      stock issued in July 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                1,500,000
                
                
                
                1,500
                
                
                
                6,300
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                7,800Common
      stock issued in August 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                3,293,380
                
                
                
                3,293
                
                
                
                46,707
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                50,000Common
      stock issued in September 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                11,740,566
                
                
                
                11,741
                
                
                
                107,909
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                119,650Common
      stock issued in October 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                17,290,137
                
                
                
                17,290
                
                
                
                171,640
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                188,930Common
      stock issued in November 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                18,085,060
                
                
                
                18,085
                
                
                
                177,515
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                195,600Common
      stock issued in December 2009 as payment towards convertible
      debentures
                
                
                -
                
                
                
                -
                
                
                
                11,526,716
                
                
                
                11,527
                
                
                
                77,973
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                89,500Net
      loss
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (2,680,423
                ))
                
                
                (2,680,423
                )6,430,000
                
                
                $
                6,430
                
                
                
                100,984,063
                
                
                $
                100,984
                
                
                $
                12,601,155
                
                
                $
                -
                
                
                $
                -
                
                
                $
                (15,768,408
                )
                
                $
                (3,059,839
                )
 
 See the
accompanying notes to the consolidated financial statements
 F-9
 INTERNATIONAL
      AEROSPACE ENTERPRISES, INC.CONSOLIDATED
      STATEMENTS OF CASH FLOWSYEARS
      ENDED DECEMBER 31, 2009 AND 20082009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss from continuing operations
                
                $
                (2,680,423
                )
                
                $
                (1,568,830
                )Net
      income from discontinued operations
                
                
                -
                
                
                
                33,508Adjustments
      to reconcile net loss to net cash used in operating
      activities:Adjustments
      for depreciation and amortization
                
                
                -
                
                
                
                698Common
      stock issued for services rendered
                
                
                2,229,333
                
                
                
                461,149Preferred
      stock issued for compensation
                
                
                -
                
                
                
                267,340Income
      derived from settlement of debt
                
                
                853,945
                
                
                
                315,863Accretion
      of convertible notes payable
                
                
                (51,119
                )
                
                
                96,747Unrealized
      gains on adjustment of derivative and warrant liability to fair value of
      underlying securities
                
                
                (1,721,116
                )
                
                
                (134,953
                )Gain
      on extingishment of debt
                
                
                (39,948
                )
                
                
                -Amortization
      and write off of financing costs
                
                
                11,667
                
                
                
                20,355(Increase)
      decrease in:Accounts
      receivable
                
                
                (47,718
                )Inventory
                
                
                102,080
                
                
                
                (50,000
                )Prepaid
      expenses
                
                
                
                
                
                
                5,000Increase
      (decrease) in:Cash
      overdraft
                
                
                (559
                )
                
                
                559Accounts
      payable and accrued expenses
                
                
                861,296
                
                
                
                697,371Net
      cash provided by (used in) operating activities, discontinued
      operations
                
                
                -
                
                
                
                (173,891
                )Net
      cash used in operating activities
                
                
                (482,562
                )
                
                
                (29,084
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Cash
      disposed with discontinued operations
                
                
                -
                
                
                
                (3,854
                )Net
      cash used in Investing activities
                
                
                -
                
                
                
                --
                
                
                
                (3,854
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from convertible debentures
                
                
                460,014
                
                
                
                -Advances
      from (to) shareholders
                
                
                23,476
                
                
                
                -Cash
      used in financing activities, discontinued operations
                
                
                -
                
                
                
                (101,685
                )Net
      cash provided by financing activities
                
                
                483,490
                
                
                
                (101,685
                )Net
      increase (decrease) in cash and cash equivalents
                
                
                928
                
                
                
                (134,623
                )Cash
      and cash equivalents at beginning of period, continuing
      operations
                
                
                -
                
                
                
                111,150Cash
      and cash equivalents at beginning of period, discontinued
      operations
                
                
                -
                
                
                
                23,473Total
      cash and cash equivalents at beginning of period
                
                
                -
                
                
                
                134,623Cash
      and cash equivalents at end of period
                
                $
                928
                
                
                $
                -SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
                
                $
                -
                
                
                $
                2,388Cash
      paid during the period for taxes
                
                $
                -
                
                
                $
                -Unrealized
      (gain) loss on adjustment of derivative and warrant liability to fair
      value of underlying securities
                
                $
                (1,721,116
                )
                
                $
                (134,953
                )NON
      - CASH FINANCING ACTIVITIES:Preferred
      stock issued in exchange for services
                
                $
                -
                
                
                $
                267,340Common
      stock issued for services rendered
                
                $
                2,229,333
                
                
                $
                461,149Reduction
      of  note payable, related party by assignment of sales
      proceeds
                
                $
                27,856
                
                
                $
                -Fair
      value of common stock issued as collateral of note payable, related
      party
                
                $
                2,200,000
                
                
                $
                -Common
      stock issued in exchange for convertible debentures
                
                $
                853,945
                
                
                $
                315,864See
      the accompanying notes to the consolidated financial
      statements
  F-10
  INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES
 
 A summary
of the significant accounting policies applied in the preparation of the
accompanying financial statements follows.
 
 Business and Basis of
Presentation
 
 International
Aerospace Enterprises, Inc., (formerly Traffic Technology Inc.) (“Company”) was
organized on April 29, 2002 under the laws of the state of Nevada. The Company
is provider of military aircraft spare parts.
 
 From its
inception through the date of these financial statements the Company has
incurred significant operating expenses. Consequently, its operations are
subject to all risks inherent in the establishment of a new business enterprise.
As of December 31, 2009, the Company has accumulated losses of
$15,768,408.
 
 The
consolidated financial statements include the accounts of the Company. All
significant inter-company transactions and balances have been eliminated in
consolidation.
 
 Acquisition
 
 On
December 26, 2008, the Company consummated an acquisition by entering into an
Acquisition Agreement (“Acquisition”) with the stockholders of International
Aerospace Enterprises, Inc, pursuant to which the stockholders of International
Aerospace Enterprises, Inc. exchanged all of the issued and outstanding capital
stock of International Aerospace Enterprises, Inc. for 49,000,000 shares of
common stock and 5,000,000 shares of preferred stock held by two officers and
majority shareholders.
 
 In
conjunction with the exchange, the two majority shareholders received one
hundred percent (100%) of the issued and outstanding shares of its subsidiaries
KD Medical, Inc., Molecula, Inc., Molecularware, Inc., LifeStem, Inc. and an
obligation of payment of $150,000.
 
 Total
consideration paid was comprised of the following:
 
 Net
      assets received:Inventory
                
                $
                1,247,500Consideration:Fair
      value of common stock
                
                $
                122,500Fair
      value of preferred stock
                
                
                125,000Liabilities
      assumed
                
                
                1,000,000Total
      consideration:
                
                $
                1,247,500
 
 F-11
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Revenue
Recognition
 
 The
Company recognizes revenue in accordance with Accounting Standards Codification
subtopic 605-10, Revenue Recognition (“ASC 605-10”). ASC 605-10 requires that
four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) delivery has
occurred; (3) the selling price is fixed and determinable; and
(4) collectability is reasonably assured. Determination of criteria
(3) and (4) are based on management’s judgments regarding the fixed
nature of the selling prices of the products delivered and the collectability of
those amounts. Provisions for discounts to customersare provided for in the same
period the related sales are recorded. The Company defers any revenue for which
the product has not been delivered or is subject to refund until such time that
the Company and the customer jointly determine that the product has been
delivered or no refund will be required.
 
 ASC
605-10 incorporates Accounting Standards Codification subtopic 605-25,
Multiple-Element Arraignments (“ASC 605-25”). ASC 605-25 addresses accounting
for arrangements that may involve the delivery or performance of multiple
products, services and/or rights to use assets. The effect of implementing ASC
605-25 on the Company’s financial position and results of operations was not
significant.
 
 Use of
Estimates
 
 The
preparation of the financial statement in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
 
 Cash
Equivalents
 
 For the
purpose of the accompanying financial statements, all highly liquid investments
with a maturity of three months or less are considered to be cash
equivalents.
 
 Long-Lived
Assets
 
 The
Company has adopted Accounting Standards Codification subtopic 360-10, Property,
plant and equipment (“ASC 360-10”). The Statement requires that long-lived
assets and certain identifiable intangibles held and used by the Company be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Events relating to
recoverability may include significant unfavorable changes in business
conditions, recurring losses, or a forecasted inability to achieve break-even
operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted undiscounted cash
flows. Should impairment in value be indicated, the carrying value of intangible
assets will be adjusted, based on estimates of future discounted cash flows
resulting from the use and ultimate disposition of the asset. ASC 360-10 also
requires assets to be disposed of be reported at the lower of the carrying
amount or the fair value less costs to sell.
 
 F-12
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Income
Taxes
 
 The
Company follows Accounting Standards Codification subtopic 740-10, Income Taxes
(“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.
 
 Accounts
Receivable
 
 The
Company assesses the realization of its receivables by performing ongoing credit
evaluations of its customers' financial condition. Through these evaluations,
the Company may become aware of a situation where a customer may not be able to
meet its financial obligations due to deterioration of its financial viability,
credit ratings or bankruptcy. The Company’s reserve requirements are based on
the best facts available to the Company and are reevaluated and adjusted as
additional information is received. The Company’s reserves are also based on
amounts determined by using percentages applied to certain aged receivable
categories. These percentages are determined by a variety of factors including,
but not limited to, current economic trends, historical payment and bad debt
write-off experience. Allowance for doubtful accounts for accounts and notes
receivable was $-0- as of December 31, 2009 and 2008.
 
 Research and
Development
 
 The
Company accounts for research and development costs in accordance with the
Accounting Standards Codification subtopic 730-10, Research and Development
(“ASC 730-10”). Under ASC 730-10, all research and development costs must be
charged to expense as incurred. Accordingly, internal research and development
costs are expensed as incurred. Third-party research and developments costs are
expensed when the contracted work has been performed or as milestone results
have been achieved. Company-sponsored research and development costs related to
both present and future products are expensed in the period incurred. The
Company did not incur expenditures on research and product development for the
year ended December 31, 2009 and 2008.
 
 Comprehensive
Income
 
 The
Company adopted Accounting Standards Codification subtopic 220-10, Comprehensive
Income (“ASC 220-10”) which establishes standards for the reporting and
displaying of comprehensive income and its components. Comprehensive income is
defined as the change in equity of a business during a period from transactions
and other events and circumstances from non-owners sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. ASC 220-10 requires other comprehensive
income (loss) to include foreign currency translation adjustments and unrealized
gains and losses on available for sale securities. The Company does not have any
items of comprehensive income in any of the periods presented.
 
 F-13
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Advertising
 
 The
Company follows the policy of charging the costs of advertising to expenses as
incurred. The Company did not incur advertising costs in continuing operations
for the years ended December 31, 2009 and 2008, respectively.
 
 Segment
information
 
 Accounting
Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) which
establishes standards for reporting information regarding operating segments in
annual financial statements and requires selected information for those segments
to be presented in interim financial reports issued to
stockholders.  ASC 280-10 also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. The Company applies the management approach to
the identification of our reportable operating segment as provided in accordance
with ASC 280-10. The information disclosed herein materially represents all of
the financial information related to the Company’s principal operating
segment.
 
 Stock Based
Compensation
 
 Effective
for the year beginning January 1, 2006, the Company has adopted Accounting
Standards Codification subtopic 718-10, Compensation (“ASC 718-10”). The Company
made no employee stock-based compensation grants before December 31, 2005 and
therefore has no unrecognized stock compensation related liabilities or expense
unvested or vested prior to 2006. Stock-based compensation expense recognized
under ASC 718-10 for the years ended December 31, 2009 and 2008 was $2,229,333
and $728,489, respectively.
 
 Concentration of Credit
Risk
 
 Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables. The Company places its cash and temporary cash investments
with high credit quality institutions. At times, such investments may be in
excess of the FDIC insurance limit. At December 31, 2009 and 2008, the Company’s
outstanding accounts receivable from continuing operations was $10,662 and $-0-,
respectively.
 
 Net Loss per
Share
 
 The
Company has adopted Accounting Standards Codification subtopic 260-10, Earnings
Per Share (“ASC 260-10”) which specifies the computation, presentation and
disclosure requirements of earnings per share information. Basic earnings per
share have been calculated based upon the weighted average number of common
shares outstanding. Conversions of convertible debt, stock options and warrants
have been excluded as common stock equivalents in the diluted losses per share
because they are either anti-dilutive, or their effect is not material. However,
for diluted earnings per share, if such conversions, stock options and warrants
had been included in the determination, the outstanding fully diluted shares
would have been 201,328,937 and 25,311,026 for the year ended December 31, 2009
and 2008, respectively.
 
 F-14
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Derivative Financial
Instruments
 
 The
Company’s derivative financial instruments consist of embedded derivatives
related to the convertible debentures (see Note E). These embedded derivatives
include certain conversion features, variable interest features, call options
and default provisions. The accounting treatment of derivative financial
instruments requires that the Company record the derivatives and related
warrants at their fair values as of the inception date of the Note Agreement and
at fair value as of each subsequent balance sheet date. In addition, under the
provisions of Accounting Standards Codification subtopic 815-40, Derivatives and
Hedging; Contracts in Entity’s Own Equity (“ASC 815-40”),” as a result of
entering into the Notes, the Company is required to classify all other
non-employee stock options and warrants as derivative liabilities and mark them
to market at each reporting date. Any change in fair value inclusive of
modifications of terms will be recorded as non-operating, non-cash income or
expense at each reporting date. If the fair value of the derivatives is higher
at the subsequent balance sheet date, the Company will record a non-operating,
non-cash charge. If the fair value of the derivatives is lower at the subsequent
balance sheet date, the Company will record non-operating, non-cash income.
Conversion-related derivatives were valued using the intrinsic method and the
warrants using the Black Scholes Option Pricing Model with the following
assumptions: dividend yield of 0%; annual volatility of 527%; and risk free
interest rate from 0.20% to 1.47%. The derivatives are classified as long-term
liabilities.
 
 Registration
rights
 
 In with
raising capital through the issuance of Convertible Notes, the Company has
issued convertible debentures and warrants that have registration rights
with liquidated damages for the underlying shares. As the contract must be
settled by the delivery of registered shares and the delivery of the registered
shares is not controlled by the Company, pursuant to ASC 815-40, the net value
of the of the underlying embedded derivative and warrants at the date of
issuance was recorded as liabilities on the balance sheet. Liquidated damages
are estimated and accrued as a liability at each reporting date.
 
 Fair
Values
 
 In the
first quarter of fiscal year 2008, the Company adopted Accounting Standards
Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC
820-10”).  ASC 820-10 defines fair value, establishes a framework for
measuring fair value, and enhances fair value measurement disclosure. ASC 820-10
delays, until the first quarter of fiscal year 2009, the effective date for ASC
820-10 for all non-financial assets and non-financial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption of ASC 820-10 did not have a
material impact on the Company’s financial position or operations. Refer to
Footnote M for further discussion regarding fair valuation.
 
 Reclassifications
 
 Certain
reclassifications have been made in prior year’s financial statements to conform
to classifications used in the current year.
 
 F-15
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Recent accounting
pronouncements
 
 Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification(the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
 
 Effective
January 1, 2008, the Company adopted FASB ASC 820-10, Fair Value Measurements and
Disclosures – Overall(“ASC 820-10”) with respect to its financial assets
and liabilities. In February 2008, the FASB issued updated guidance related to
fair value measurements, which is included in the Codification in ASC 820-10-55,
Fair Value Measurements and
Disclosures – Overall – Implementation Guidance and Illustrations. The
updated guidance provided a one year deferral of the effective date of ASC
820-10 for non-financial assets and non-financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value at least
annually. Therefore, the Company adopted the provisions of ASC 820-10 for
non-financial assets and non-financial liabilities effective January 1,
2009, and such adoption did not have a material impact on the Company’s
consolidated results of operations or financial condition.
 
 Effective
April 1, 2009, the Company adopted FASB ASC 820-10-65, Fair Value Measurements and
Disclosures – Overall – Transition and Open Effective Date Information
(“ASC 820-10-65”). ASC 820-10-65 provides additional guidance for estimating
fair value in accordance with ASC 820-10 when the volume and level of activity
for an asset or liability have significantly decreased. ASC 820-10-65 also
includes guidance on identifying circumstances that indicate a transaction is
not orderly. The adoption of ASC 820-10-65 did not have an impact on the
Company’s consolidated results of operations or financial
condition.
 
 Effective
April 1, 2009, the Company adopted FASB ASC 825-10-65, Financial Instruments – Overall –
Transition and Open Effective Date Information (“ASC 825-10-65”). ASC
825-10-65 amends ASC 825-10 to require disclosures about fair value of financial
instruments in interim financial statements as well as in annual financial
statements and also amends ASC 270-10 to require those disclosures in all
interim financial statements. The adoption of ASC 825-10-65 did not have a
material impact on the Company’s consolidated results of operations or financial
condition.
  F-16
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
A - SUMMARY OF ACCOUNTING POLICIES (continued)
 
 Recent accounting
pronouncements
 
 In May
2009, the FASB issued SFAS No. 165, “Subsequent Events”, which is included in
ASC Topic 855, Subsequent Events. ASC Topic 855 established principles and
requirements for evaluating and reporting subsequent events and distinguishes
which subsequent events should be recognized in the financial statements versus
which subsequent events should be disclosed in the financial statements. ASC
Topic 855 also required disclosure of the date through which subsequent events
are evaluated by management.  ASC Topic 855 was effective for interim
periods ending after June 15, 2009 and applies
prospectively.  Because ASC Topic 855 impacted the disclosure
requirements, and not the accounting treatment for subsequent events, the
adoption of ASC Topic 855 did not impact our results of operations or financial
condition.  See Note 14 for disclosures regarding our subsequent
events.
 
 Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
 
 In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition) (“ASU
2009-13”) and ASU 2009-14, Certain Arrangements That Include
Software Elements, (amendments to FASB ASC Topic 985, Software) (“ASU
2009-14”). ASU 2009-13 requires entities to allocate revenue in an
arrangement using estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative
selling price method. ASU 2009-14 removes tangible products from the scope
of software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that includes a tangible product are
covered by the scope of the software revenue guidance. ASU 2009-13 and ASU
2009-14 should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The Company does not expect
adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the
Company’s consolidated results of operations or financial
condition.
 
 NOTE
B - INVENTORIES
  Inventory
is stated at the lower of cost or market. The cost is determined using the
first-in first-out method. Costs of inventory include costs associated with the
procurement and transportation of products and other related inventory
costs.
  F-17
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 
 NOTE
C – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
  At
December 31, 2009 and 2008, accounts payable and other accrued liabilities are
comprised of the following:
  2009
                
                
                2008Accrued
      expenses
                
                $
                333,797
                
                
                $
                -Payroll
      taxes payable
                
                
                178,430
                
                
                
                178,430Accrued
      interest payable
                
                
                279,480
                
                
                
                167,981Accrued
      consulting fees
                
                
                416,000
                
                
                
                -Total
                
                $
                1,207,707
                
                
                $
                346,411
 
 NOTE
D – RELATED PARTY TRANSACTIONS
  On
December 26, 2008, the Company sold subsidiaries KD Medical, Inc., Molecula,
Inc., Molecularware, Inc. and LifeStem, Inc. to two officers and majority
shareholders in exchange for 49,000,000 shares of the Company’s common stock,
5,000,000 shares of the Company’s preferred stock and promissory notes payables
of $150,000.
 
 The
Company’s current officers and shareholders have advanced funds to the Company
for travel related and working capital purposes.  No formal repayment
terms or arrangements existed. There were $23,476 and $-0- advances due at
December 31, 2009 and 2008. See Note E below relating to outstanding related
party notes.
 
 During
the year ended December 31, 2009; related parties provided services and other
related costs towards the Company’s operations in exchange for notes totally an
aggregate of $190,800.
 
 During
the year ended December 31, 2009; the Company issued an aggregate of 1,166,666
shares of the Company’s common stock for services to officers and
directors.  The shares were recorded at the prevailing market price at
the time of issuance of $245,667.
 
 During
the year ended December 31, 2008, the Company issued a non interest bearing note
to Sunshine Industries (“Sunshine”), a company owned by the President, to
acquire inventory.  Invoicing and subsequent collections are processed
through Sunshine with the proceeds from collections applied against the
outstanding related party note.  For the year ended December 31, 2009,
approximately $227,856, or 100% of the Company’s sales were invoiced and,
collected and applied against the outstanding related party note.
 
 Consulting
services are provided by Global Business Development, a company owned and
controlled by shareholders.  During the year ended December 31, 2009;
the Company incurred at an aggregate of $525,892 in service fees
provided.
 
 During
the year ended December 31, 2009; a former shareholder and officer forgave
$39,948 in outstanding notes payable and accrued outstanding payable obligations
in conjunction with the final payoff of other existing notes.
 
 F-18
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
E – NOTES PAYABLE
 
 Notes
payable at December 31, 2009 and 2008 consists of the following:
 
 2009
                
                
                2008Note
      payable, related party, due June 11, 2010;  noninterest bearing,
      unsecured
                
                $
                772,144
                
                
                $
                1,000,000Notes
      payable, total monthly payments of $25,440 per month including interest at
      6% per annum, due June 2008; unsecured
                
                
                -
                
                
                
                150,000Notes
      payables-shareholders, accrues interest at 0% per annum,
      unsecured
                
                
                -
                
                
                
                39,948Notes
      payable, related party, due October 2010, interest rate of 6% per annum
      due at maturity, unsecured
                
                
                60,800
                
                
                
                -Note
      payable, related party, due January 28, 2010, noninterest bearing,
      unsecured
                
                
                100,000
                
                
                
                -Note
      payable, related party, due December 7, 2010, interest rate of 6% per
      annum due at maturity, unsecured
                
                
                30,000962,944
                
                
                
                1,189,948Less:
      current maturities:
                
                
                (962,944
                )
                
                
                (,189,948
                )Long
      term portion
                
                $
                -
                
                
                $
                1,000,000
 
 
 On
December 11, 2008, the Company issued a promissory note payable due June 11,
2010 in connection with the acquisition of inventory. The note is non interest
bearing and unsecured. See Note D above.
 
 On
December 26, 2008, the Company issued two $75,000 notes payable to former
officers and shareholders in connection with the sale of certain operating
subsidiaries. The notes bear interest of 6% per annum, payable in monthly
installments of $12,720 including interest and are unsecured.  In
connection with the final payment of these notes, the former officers and
shareholders relinquished their rights and demands for the outstanding $39,948
remaining note.  The Company recorded a gain of $39,948 on
extinguishment of debt.
 
 During
the year ended December 31, 2009; related parties provided services and other
related costs towards the Company’s operations in exchange for notes totally an
aggregate of $190,800.
 
 F-19
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
F - CONVERTIBLE NOTES PAYABLE
 
 A summary
of convertible promissory notes payable at December 31, 2009 and 2008 are as
follows:
 
 2009
                
                200810%
      convertible debenture, with related party, is payable on demand, unpaid
      principal together with accrued and unpaid interest is, at the option of
      the holder, convertible into shares of the Company’s common stock at a
      time or conversion price equal to fifty percent of the closing price of
      the Company’s common stock on the date of conversion. The Company has
      recorded $100,000 as a beneficial conversion discount-interest expense
      during the year ended December 31, 2003. In 2005, the note was converted
      to a non-interest bearing debenture.
                
                53,577
                
                53,57710%
      convertible debenture with interest due quarterly subject to certain
      conditions, due three years from the date of the note. The holder has the
      option to convert unpaid principal to the Company’s common stock at the
      lower of (i) $0.14 or (ii) 50% of the average of the three lowest intraday
      trading prices for the common stock on a principal market for the twenty
      days before, but not including, conversion date. The Company granted the
      note holder a security interest in substantially all of the Company’s
      assets and intellectual property and registration rights. (see
      below)1
                
                215,857
                
                532,1358%
      convertible debenture with interest due quarterly subject to certain
      conditions, due three years from the date of the note. The holder has the
      option to convert unpaid principal to the Company’s common stock at the
      lower of (i $0.14 or (ii 40% of the average of the three lowest intraday
      trading prices for the common stock on a principal market for the twenty
      days before, but not including, conversion date. The Company granted the
      note holder a security interest in substantially all of the Company’s
      assets and intellectual property and registration rights. (see
      below)2
                
                440,703
                
                262,370
 
 F-20
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE F - CONVERTIBLE NOTES PAYABLE
(continued)
 
 2009
                
                200810%
      convertible debenture with interest due quarterly subject to certain
      conditions, due three years from the date of the note. The holder has the
      option to convert unpaid principal to the Company’s common stock at the
      lower of (i $0.14 or (ii 40% of the average of the three lowest intraday
      trading prices for the common stock on a principal market for the twenty
      days before, but not including, conversion date. The Company granted the
      note holder a security interest in substantially all of the Company’s
      assets and intellectual property and registration rights. (see
      below)3
                
                152,282
                
                76,1418%
      convertible debentures with interest due at maturity subject to certain
      conditions, due one year from the date of the note. The holder has the
      option to convert unpaid principal to the Company’s common stock
      at 50% of the average of the five lowest intraday trading prices for
      the common stock on a principal market before, but not including,
      conversion date. The convertible notes are unsecured.4
                
                7,808
                
                -8%
      convertible debentures with interest due at maturity subject to certain
      conditions, due one year from the date of the note. The holder has the
      option to convert unpaid principal to the Company’s common stock
      at 50% of the average of the five lowest intraday trading prices for
      the common stock on a principal market before, but not including,
      conversion date. The convertible notes are unsecured.5
                
                2,877
                
                -Total
                
                873,104
                
                924,223Less
      current maturities
                
                (720,822)
                
                (585,712)Long
      term portion
                
                $152,282
                
                $338,511
 
 1.  The
Company entered into a Securities Purchase Agreement with four accredited
investors on May 23, 2005 for the issuance of an aggregate of $2,000,000 of
convertible notes (“Convertible Notes”), and attached to the Convertible Notes
were warrants to purchase 12,143,290 shares of the Company’s common stock. The
Convertible Notes accrue interest at 10% per annum, payable quarterly, and are
due three years from the date of the note. The note holder has the option to
convert any unpaid note principal to the Company’s common stock at a rate of the
lower of (i) $0.14 or (ii) 50% of the average of the three lowest intraday
trading prices for the common stock on a principal market for the 20 trading
days before but not including conversion date. The effective interest rate at
the date of inception was 23.47% per annum.
 
 As
of December 31, 2009, the Company issued to the investors Convertible Notes in a
total amount of $2,000,000 in exchange for net proceeds of $1,635,667. The
proceeds that the Company received were net of prepaid interest of $133,333
representing the first eight month’s interest calculated at 10% per annum for
the aggregate of $2,000,000 of convertible notes, and related fees and costs of
$255,000. Prepaid interest is amortized over the first eight months of the note
and capitalized financing costs were amortized over the maturity period (three
years) of the convertible notes.
 
 F-21
  INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE F - CONVERTIBLE NOTES PAYABLE
(continued)
 
 The
Company’s identified embedded derivatives related to the Securities Purchase
Agreement entered into on May 23, 2005. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement, the
Company allocated $1,147,698 and $852,302 to the embedded derivatives and
related warrants, respectively.
 
 For the
year ended December 31, 2009 and 2008, the Company amortized the debt discount
and charged to interest expense $-0- and $99,726, respectively
 
 2.  The
previous Company (Lifestem International, Inc.) entered into a Securities
Purchase Agreement with four accredited investors on July 13, 2007 for the
issuance of an aggregate of $535,000 of convertible notes (“Convertible Notes”),
and attached to the Convertible Notes were warrants to purchase 10,000,000
shares of the Company’s common stock. The Convertible Notes accrue interest at
8% per annum, payable quarterly, and are due three years from the date of the
note. The note holder has the option to convert any unpaid note principal to the
Company’s common stock at a rate of the lower of (i) $0.14 or (ii) 40% of the
average of the three lowest intraday trading prices for the common stock on a
principal market for the 20 trading days before but not including conversion
date. The effective interest rate at the date of inception was 63.23% per
annum.  International Aerospace Enterprises, Inc. in the merger
inherited this liablity.
 
 As of
December 31, 2009, the Company issued to the investors Convertible Notes in a
total amount of $535,000 in exchange for net proceeds of $500,000. The proceeds
that the Company received were net of related fees and costs of $35,000.
Capitalized financing costs are amortized over the maturity period (three years)
of the convertible notes.
 
 3.  The
Company’s identified embedded derivatives related to the Securities Purchase
Agreement entered into on July 13, 2007. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the relative fair values of the derivatives
and related warrants as of the inception date of the Securities Purchase
Agreement up to the proceeds amount and to fair value as of each subsequent
balance sheet date. At the inception of the Securities Purchase Agreement, the
Company allocated $467,310 and $67,690 to the embedded derivatives and related
warrants, respectively.
 
 For the
year ended December 31, 2009 and 2008, the Company amortized the debt discount
and charged to interest expense $178,333 and $178,822,
respectively.
 
 The
Company entered into a Securities Purchase Agreement with four accredited
investors on January 1, 2008 for the issuance of an aggregate of $228,423 of
convertible notes (“Convertible Notes”). The Convertible Notes accrue interest
at 10% per annum, payable quarterly, and are due three years from the date of
the note. The note holder has the option to convert any unpaid note principal to
the Company’s common stock at a rate of the lower of (i) $0.14 or (ii) 40% of
the average of the three lowest intraday trading prices for the common stock on
a principal market for the 20 trading days before but not including conversion
date. The effective interest rate at the date of inception was
indeterminable.
 
 As of
December 31, 2009, the Company issued to the investors Convertible Notes in a
total amount of $228,423 in exchange for reduction in interest liability of
$228,423.
 
 F-22
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE F - CONVERTIBLE NOTES PAYABLE
(continued)
 
 The
Company’s identified embedded derivatives related to the Securities Purchase
Agreement entered into on January 1, 2008. These embedded derivatives included
certain conversion features, variable interest features, call options and
default provisions. The accounting treatment of derivative financial instruments
requires that the Company allocate the fair values of the derivatives as of the
inception date of the Securities Purchase Agreement up to the proceeds amount
and to fair value as of each subsequent balance sheet date. At the inception of
the Securities Purchase Agreement, the Company allocated $228,423 to the
embedded derivatives.
 
 For the
year ended December 31, 2009 and 2008, the Company amortized the debt discount
and charged $71,141 and $76,141 to interest expense, respectively.
 
 4.  On
October 16, 2009, the Company issued a convertible debenture to accredited
investors for $150,000 of convertible note (“Convertible Note”). The Convertible
Note accrues interest at 8% per annum, payable at maturity, and is due one year
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of 50% of the average of
the five lowest intraday trading prices for the common stock on a principal
market before but not including conversion date. The effective interest rate at
the date of inception was indeterminable.
 
 4.  On
December 1, 2009, the Company issued a convertible debenture to accredited
investors for $50,000 of convertible note (“Convertible Note”). The Convertible
Note accrues interest at 8% per annum, payable at maturity, and is due one year
from the date of the note. The note holder has the option to convert any unpaid
note principal to the Company’s common stock at a rate of 50% of the average of
the five lowest intraday trading prices for the common stock on a principal
market before but not including conversion date. The effective interest rate at
the date of inception was indeterminable.
 
 The
accompanying financial statements comply with current requirements relating to
warrants and embedded derivatives as described in Accounting Standards
Codification subtopic 815-10, Derivatives and Hedging and ASC 470-20 as
follows:
 ●
                The
      Company allocated the proceeds received between convertible debt and
      detachable warrants based upon the relative fair market values on the
      dates the proceeds were received. The fair values of the detachable
      warrants and the embedded derivatives were determined under the
      Black-Scholes option pricing formula and the intrinsic method,
      respectively●
                Subsequent
      to the initial recording, the increase (or decrease) in the fair value of
      the detachable warrants, determined under the Black-Scholes option pricing
      formula and the increase (or decrease) in the intrinsic value of the
      embedded derivatives of the convertible debentures are recorded as
      adjustments to the liabilities at December 31, 2009 and 2008,
      respectively.●
                The
      expense relating to the increase (or decrease) in the fair value of the
      Company’s stock reflected in the change in the fair value of the warrants
      and derivatives is included as other income item as a gain or loss arising
      from convertible financing on the Company’s balance
  sheet.●
                Accreted
      principal of $873,104 and $924,223 as of December 31, 2009 and 2008,
      respectively.
 
 F-23
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
G – CONVERTIBLE PREFERRED STOCK
 
 On April
15, 2004, the Company issued 1,250,000 shares of Preferred Stock at a price of
$0.20 per share to one entity. The preferred shares issued are convertible on a
1 to 1.5 basis of preferred stock to common shares.
 
 On
January 2, 2008, the Company issued an aggregate of 10,000,000 shares of
Preferred Stock in exchange for officer’s accrued compensation totaling
$252,000. The preferred shares issued are convertible on a 1 to 10 basis of
preferred stock to common shares.
 
 In April
2008, the Company issued an aggregate of 1,180,000 shares of Preferred Stock in
exchange for services rendered totaling $15,340. The preferred shares issued are
convertible on a 1 to 10 basis of preferred stock to common shares.
 
 In May
2008, the shareholders of 5,000,000 shares of Preferred Stock converted to
50,000,000 of the Company’s common stock.
 
 In May
2009, the shareholders of 1,000,000 shares of Preferred Stock converted to
10,000,000 of the Company’s common stock.
 
 NOTE
H – STOCKHOLDERS EQUITY
 
 Preferred
stock
 
 The
Company is authorized to issue 25,000,000 shares of $0.001 preferred
stock.  As of December 31, 2009 and 2008, there were 6,430,000 and
7,430,000 shares issued and outstanding.
 
 During
the year ended December 31, 2008, the Company issued an aggregate of 11,180,000
shares of its preferred stock for services rendered.  The fair value
of $267,340 was determined based on the prevailing market price of the
underlying common stock.
 
 During
the year ended December 31, 2008, certain Company officers converted 5,000,000
shares of preferred stock to 1,000,000 shares of the Company’s common stock (see
reverse split dated April 29, 2009 below.
 
 During
the year ended December 31, 2009, 1,000,000 shares of preferred stock were
converted into 10,000,000 shares of the Company’s common stock.  Of
the 10,000,000 shares of common stock issued, 550,000 were to current
officers.
 
 Common
stock
 
 The
Company is authorized to issue 300,000,000 shares of $0.001 common
stock.  As of December 31, 2009 and 2008, there were 161,984,063 and
1,574,424 shares issued and outstanding.
 
 On April
29, 2009, the Company affected a one-for-fifty (1 to 50) reverse stock split of
its outstanding shares of common stock, $0.001 par value. All references in the
consolidated financial statements and the notes to consolidated financial
statements, number of shares, and share amounts have been retroactively restated
to reflect the reverse split. The Company has restated from 78,721,208 to
1,574,424 shares of common stock issued and outstanding as of December 31, 2008
to reflect the reverse split.
 
 F-24
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
H - COMMON STOCK (continued)
 
 In May
2008 the Company issued an aggregate of 460,722 shares of common stock for
services rendered which represents the value of the services received and which
did not differ materially from the value of the stock issued
 
 In May
2008, the Company issued 41 shares of common stock in exchange for convertible
notes payable of $1,815.
 
 In June
2008, the Company issued an aggregate of 20,000 shares of common stock in
exchange for convertible notes payable of $245,000.
 
 In July
2008, the Company issued an aggregate of 30,000 shares of common stock in
exchange for convertible notes payable of 9,000.
 
 In August
2008, the Company issued an aggregate of 98,334 shares of common stock in
exchange for convertible notes payable of $23,016.
 
 In
September 2008, the Company issued an aggregate of 132,002 shares of common
stock in exchange for convertible notes payable of $27,001.
 
 In
October 2008, the Company issued an aggregate of 106,668 shares of common stock
in exchange for convertible notes payable of $3,200.
 
 In
November 2008, the Company issued an aggregate of 117,392 shares of common stock
in exchange for convertible notes payable of $3,950.
 
 In
December 2008, the Company issued an aggregate of 64,058 shares of common stock
in exchange for convertible notes payable of $2,882.
 
 In
January 2009, the Company issued an aggregate of 128,116 shares of common stock
in exchange for convertible notes payable of $3,201.
 
 In
February 2009, the Company issued 64,058 shares of common stock in exchange for
convertible notes payable of $1,602.
 
 In March
2009, the Company issued an aggregate of 192,174 shares of common stock in
exchange for convertible notes payable of $4,803.
 
 In April
2009, the Company issued an aggregate of 161,604 shares of common stock in
exchange for convertible notes payable of $15,352.
 
 In May
2009 the Company issued an aggregate of 10,133,330 shares of common stock for
services rendered valued at $2,201,833 which represented the fair value of the
common stock at the time of issuance and charged to current period
operations.  Of the share issued above, 6,116,666 ($506,966) were
issued to current officers and directors.
 
 In June
2009, the Company issued an aggregate of 4,293,346 shares of common stock in
exchange for convertible notes payable of $177,504.
 
 In July
2009, the Company issued an aggregate of 1,500,000 shares of common stock in
exchange for convertible notes payable of $7,800.
 
 F-25
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
H - COMMON STOCK (continued)
 
 In August
2009, the Company issued an aggregate of 3,293,380 shares of common stock in
exchange for convertible notes payable of $50,000.
 
 In
September 2009, the Company issued an aggregate of 11,740,566 shares of common
stock in exchange for convertible notes payable of $119,650.
 
 In
October 2009, the Company issued an aggregate of 17,290,137 shares of common
stock in exchange for convertible notes payable of $188,930.
 
 In
November 2009, the Company issued an aggregate of 18,085,060 shares of common
stock in exchange for convertible notes payable of $195,600.
 
 In
December 2009, the Company issued an aggregate of 11,526,716 shares of common
stock in exchange for convertible notes payable of $89,500
 
 NOTE
I – OPTIONS AND WARRANTS
 
 Non-Employee Stock
Options
 
 On
December 1, 2002, the Company issued 80,000 options to a consultant as incentive
to enter into a consulting agreement with the Company for a period of one year.
The 80,000 options vest quarterly over a period of three years with an exercise
price of $.01 per share and a life of ten years from the date of
grant.
 
 The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock issued to consultants at
December 31, 2009.
 
 Options
      Outstanding
                
                
                Options
      ExercisableExercise
                  Price
                
                
                Number
                  Outstanding
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
                  Life
      (Years)
                
                
                Weighed
                  Average
                  Exercise
                  Price
                
                
                Number
                  Exercisable
                
                
                Weighted
                  Average
                  Exercise
                  Price$0.001
                
                
                1
                
                
                2.92
                
                
                $150.00
                
                
                1
                
                
                $001
 
 F-26
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
I – OPTIONS AND WARRANTS (continued)
 
 Transactions
involving stock options issued to consultants are summarized as
follows:
 Number
      of
                  Shares
                
                
                Weighted
                  Average
                  Price
      Per
                  ShareOutstanding
      at December 31, 2007
                
                
                1
                
                
                $
                0.001Granted
                
                
                —
                
                
                
                —Exercised
                
                
                —
                
                
                
                —Canceled
      or expired
                
                
                —
                
                
                
                —Outstanding
      at December 31, 2008
                
                
                1
                
                
                
                0.001Granted
                
                
                —
                
                
                
                —Exercised
                
                
                —
                
                
                
                —Canceled
      or expired
                
                
                —
                
                
                
                —Outstanding
      at December 31, 2009
                
                
                1
                
                
                $
                0.001
 
 Warrants
 
 The
Company issued 67 warrants during the year ended December 31, 2007 in connection
with the issuance of convertible notes payable (see note F). The Company did not
grant any compensatory warrants during the years ended December 31, 2009 and
2008. The following table summarizes the changes in warrants outstanding and the
related prices for the shares of the Company’s common stock.
 
 Warrants
(continued)
 Warrants
      Outstanding
                
                
                
                
                
                Warrants
      ExercisableExercise
                  Price
                
                
                Number
                  Outstanding
                
                
                Weighted
                  Average
                  Remaining
                  Contractual
      Life
                  (Years)
                
                
                Weighted
                  Average
                  Exercise
      Price
                
                
                Number
                  Exercisable
                
                
                Weighted
                  Average
                  Exercise
      Price$
                0.02
                
                
                
                67
                
                
                
                4.53
                
                
                $
                0.02
                
                
                
                67
                
                
                $
                0.02$
                0.20
                
                
                
                40
                
                
                
                0.40
                
                
                $
                0.20
                
                
                
                40
                
                
                $
                0.20$
                0.35
                
                
                
                40
                
                
                
                0.40
                
                
                $
                0.35
                
                
                
                40
                
                
                $
                0.90147
                
                
                
                2.32
                
                
                $
                
                
                
                
                147
 
 Transactions
involving warrants issued to non-employees are summarized as
follows:
 
 
 F-27
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
I – OPTIONS AND WARRANTS (continued)
 
 Number
                  of
      Shares
                
                
                Weighted
                  Average
                  Price
                  Per
      ShareOutstanding
      as of January 1, 2008
                
                
                147
                
                
                $
                0.17Granted
                
                
                —
                
                
                
                —Exercised
                
                
                —
                
                
                
                —Canceled
      or expired
                
                
                —
                
                
                
                —Outstanding
      as of December 31, 2008
                
                
                147
                
                
                
                0.17Granted
                
                
                -
                
                
                
                -Exercised
                
                
                —
                
                
                
                —Canceled
      or expired
                
                
                —
                
                
                
                —Outstanding
      as of December 31, 2009
                
                
                147
                
                
                $
                0.17
 
 NOTE J - INCOME
TAXES
 
 The
Company follows Accounting Standards Codification subtopic 740-10, Income Taxes
(“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.
 
 Under
this method, deferred tax liabilities and assets are determined based on the
difference between financial statements and tax basis of assets and liabilities
using enacted tax rates in effect for the year in which the differences are
expected to reverse. Temporary differences between taxable income reported for
financial reporting purposes and income tax purposes are insignificant. A
management estimates that at December 31, 2009, the Company has available for
federal income tax purposes a net operating loss carry forward of approximately
$16,100,000, expiring in the year 2024, that may be used to offset future
taxable income. Due to significant changes in the Company’s ownership, the
future use of its existing net operating losses may be limited.
 
 The
Company has provided a valuation reserve against the full amount of the net
operating loss benefit, since in the opinion of management based upon the
earnings history of the Company; it is more likely than not that the benefits
will not be realized.
 
 Components
of deferred tax assets as of December 31, 2009 and 2008 are as
follows:
 
 F-28
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
J - INCOME TAXES (continued)
 
 Non
current:
 2009
                
                
                2008Net
      operating loss carry forward
                
                $
                5,600,000
                
                
                $
                3,500,000Valuation
      allowance
                
                
                (5,600,000
                )
                
                
                (3,500,000
                )Net
      deferred tax asset
                
                
                —
                
                
                
                —
 
 NOTE
K - COMMITMENTS AND CONTINGENCIES
 
 Employment
Agreements
 
 The
Company has employment agreements with key employees. In addition to salary and
benefit provisions, the agreements include defined commitments should the
employees terminate the employment with or without cause.
 
 NOTE
M- FAIR VALUE
 
 ASC
825-10 defines fair value as the price that would be received from selling an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. When determining the fair value
measurements for assets and liabilities required or permitted to be recorded at
fair value, the Company considers the principal or most advantageous market in
which it would transact and considers assumptions that market participants would
use when pricing the asset or liability, such as inherent risk, transfer
restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value
hierarchy that requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 825-10
establishes three levels of inputs that may be used to measure fair
value:
 
 Level
1 - Quoted prices in active markets for identical assets or
liabilities.
 
 Level
2 - Observable inputs other than Level 1 prices such as quoted prices for
similar assets or liabilities; quoted prices in markets with insufficient volume
or infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
 
 Level
3 - Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
 
 To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment. In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, for disclosure
purposes, the level in the fair value hierarchy within which the fair value
measurement is disclosed is determined based on the lowest level input that is
significant to the fair value measurement.
 
 F-29
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
M- FAIR VALUE (continued)
 
 Items
recorded or measured at fair value on a recurring basis in the accompanying
condensed financial statements consisted of the following items as of December
31, 2009:
 
 Total
                
                
                Quoted
                  Prices
      in
                  Active
                  Markets
      for
                  Identical
                  Instruments
                  Level
      1
                
                
                Significant
                  Other
                  Observable
                  Inputs
                  Level
      2
                
                
                Significant
                  Unobservable
                  Inputs
                  Level
      3 (A)Assets:NoneLiabilities:Derivative
      Liability
                
                $
                (1,155,842
                )
                
                $
                —
                
                
                $
                
                
                
                $
                (1,155,842
                )Warrant
      Liability
                
                $
                (1
                )
                
                $
                —
                
                
                $
                —
                
                
                $
                (1
                )Total
                
                $
                (1,155,843
                )
                
                $
                —
                
                
                $
                —
                
                
                $
                (1,155,843
                )
 (A) Fair
value is estimated based on internally-developed models or methodologies
utilizing significant inputs that are unobservable from objective
sources.
 
 The table
below presents a reconciliation of the beginning and ending balances of our
derivative liability during the year ended December 31, 2009:
 
 Derivative Liability:Balance,
      January 1, 2009
                
                $
                2,266,930Additions
                
                
                610,015Net
      reductions to derivative liability
                
                $
                (1,721,102
                )Balance,
      December 31, 2009
                
                $
                1,155,843
 
 The table
below presents a reconciliation of the beginning and ending balances of our
warrant liability during the year ended December 31, 2009:
 
 Warrant Liability:Balance,
      January 1, 2009
                
                $
                15Reductions
      to warrant liability
                
                $
                (14
                )Balance,
      December 31, 2009
                
                $
                1
 
 During
the year ended December 31, 2009, the Company recognized a net unrealized gain
of $1,721,102 in connection with the change in the derivative and warrant
liability. The unrealized loss was charged to operations under the unrealized
gain (loss) on change in fair value of derivative and warrant liability included
in other income (expense).
 
 F-30
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
N – DISCONTINUED OPERATIONS
 
 During
the fourth quarter 2008, KD Medical, Inc., Molecula, Inc., Molecularware, Inc.
and LifeStem, Inc., wholly owned subsidiaries of the Company, met all the
criteria of Standards Codification subtopic 360-10, Property, plant and
equipment (“ASC 360-10”) to be classified as held for sale.
 
 In
December 2008, the Company concluded the sale of the stock of KD Medical, Inc.,
Molecula, Inc., Molecularware, Inc. and LifeStem, Inc. to officers and majority
shareholders in exchange for 49,000,000 shares of the Company’s common stock,
5,000,000 shares of the Company’s preferred stock, net with a issuance of two
promissory notes payable in an aggregate amount of $150,000, due in monthly
installments over six months with interest of 6% per annum. The related gain on
the sale of $1,009,241 was recorded as an adjustment to equity due to the
related party transaction.
 
 The net
assets (liabilities) sold were as follows:
 
 December
      31,
                  2008Assets
      held for sale:Cash
                
                $
                3,854Accounts
      receivable, net
                
                
                125,345Inventory
                
                
                238,611Prepaid
      expenses
                
                
                18,274Property,
      plant and equipment, net
                
                
                61,807Total
      assets held for sale
                
                $
                447,891
 
 December
      31,
                  2008Held
      for sale liabilities:Accounts
      payable and accrued expenses
                
                $
                452.379Accrued
      consulting fees
                
                
                753,510Capital
      leases
                
                
                42,165Notes
      payable
                
                
                111,579Total
      held for sale liabilities
                
                $
                1,359,633
 
 The
subsidiaries are classified as a discontinued operation in accordance with ASC
360-10. The Consolidated Statements of Operations for all prior periods have
been reclassified to reflect the discontinuance of operations. The operating
results of the subsidiaries for all periods are as follows:
 
 December
      31,
                  2008Net
      sales
                
                $
                1,210,590Income
      (loss) before income taxes
                
                
                33,508(Provision)
      for income taxes
                
                
                —Discontinued
      operations, net of tax
                
                $
                33,508
 
 F-31
 
 INTERNATIONAL
AEROSPACE ENTERPRISES, INC.
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
31, 2009 AND 2008
 
 NOTE
O - LOSSES PER SHARE
 
 The
following table presents the computation of basic and diluted losses per share
as of December 31 2009 and 2008, respectively:
 
 2009
                
                
                2008Income
      (loss) available for common shareholders
                
                $
                (2,680,423
                )
                
                $
                (1,535,322
                )Basic
      income (loss) per share
                
                $
                (0.12
                )
                
                $
                (0.99
                )Fully
      diluted income (loss) per share
                
                $
                (0.12
                )
                
                $
                (0.99
                )Weighted
      average common shares outstanding-basic
                
                
                35,898,206
                
                
                
                1,574,424Weighted
      average common shares-fully diluted
                
                
                162,556,334
                
                
                
                25,311,026
 
 Net loss
per share is based upon the weighted average shares of common stock
outstanding.
 
 NOTE
P - GOING CONCERN MATTERS
 
 The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying financial
statements for the year ended December 31, 2009 and 2008, the Company has
incurred operating losses of $2,680,423 and $1,535,322, respectively. In
addition, the Company has a deficiency in stockholder’s equity of $3,059,839 and
$3,462,694 at December 31, 2009 and 2008, respectively. These factors among
others may indicate that the Company will be unable to continue as a going
concern for a reasonable period of time.
 
 The
Company’s existence is dependent upon management’s ability to develop profitable
operations. Management is devoting substantially all of its efforts to
establishing its business and there can be no assurance that the Company’s
efforts will be successful. However, the planned principal operations have not
fully commenced and no assurance can be given that management’s actions will
result in profitable operations or the resolution of its liquidity problems. The
accompanying statements do not include any adjustments that might result should
the Company be unable to continue as a going concern.
 
 In order
to improve the Company’s liquidity, the Company is actively pursuing additional
equity financing through discussions with investment bankers and private
investors. There can be no assurance that the Company will be successful in its
efforts to secure additional equity financing.
 
 NOTE
Q – SUBSEQUENT EVENTS
 
 Subsequent
events have been evaluated through April 15, 2010, a date that the financial
statements were issued.
 
 In
January 2010, the Company issued an aggregate of 18,943,199 shares of its common
stock in exchange for convertible notes of $97,108
 
 In
February 2010, the Company issued an aggregate of 19,264,884 shares of its
common stock in exchange for convertible notes of $58,452.
 
 In March
2010, the Company issued an aggregate of 13,841,400 shares of its common stock
in exchange for convertible notes of $20,765.
 
 On April
15, 2010, the Company designated 1,000,000 shares of authorized preferred stock
as “Series B Preferred”, $0.001 par value with the following
designations:
 
 ●
                Voting:  Each
      Series B Preferred share shall vote together with common stock as a single
      class on a one hundred votes per share basis●
                Dividends:
      Holders of Series B Preferred shares shall not be entitled to receive any
      dividends●
                Redemption:  Shares
      of Series B Preferred shares may be redeemed by the Corporation at any
      time after holder’s termination of employment with the
      Corporation
 
 On April
15, 2010, the Company issued 1,000,000 shares of Series B Preferred stock as
officer compensation.
  F-32


ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  There
were no disagreements with auditors for the period ended December 31,
2009.
 
 ITEM
9A(T). CONTROLS AND PROCEDURES.
 
 Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and
15d-15(f) of the Exchange Act. Internal control over financial reporting is
a process designed by, or under the supervision of, our principal executive and
principal financial officers, or persons performing similar functions, and
effected by our board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Internal control over financial
reporting includes those policies and procedures that:
 ●
              pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect transactions and dispositions of
  assets;
  30
  ●
              provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures are being made
      only in accordance with authorizations of management and the board of
      directors; and●
              provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of assets that could have a
      material effect on the financial
statements.
  Because
of their inherent limitations, any system of internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
  Our
management, including the chief executive officer and chief financial officer,
evaluated the effectiveness of our internal control over financial reporting as
of December 31, 2009 based on the framework defined in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
  Management’s
assessment of the control environment included all significant locations and
subsidiaries.
  Material
Weaknesses
  Based on
our evaluation under COSO, management concluded that our internal control over
financial reporting was not effective as of December 31, 2009, due to
control deficiencies in three areas that we believe should be considered
material weaknesses. A material weakness is defined within the Public Company
Accounting Oversight Board’s Auditing Standard No. 5 as a deficiency, or a
combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or
detected on a timely basis.
 1.
              The
      company did not sufficiently segregate duties over incompatible functions
      at the corporate headquarters.The
      company’s inability to sufficiently segregate duties is due to a staff
      vacancy at the corporate headquarters, which management expects to fill
      during the current year. Further, management has increased the frequency
      of independent reconciliations of significant accounts, which will
      mitigate the lack of segregation of duties until the accounting department
      at the corporate headquarters is fully staffed2.
              In
      conjunction with the lack of segregation of duties, the company did not
      institute specific anti-fraud controls.While
      management found no evidence of fraudulent activity, the chief accounting
      officer has access to both accounting records and corporate assets,
      principally the operating bank account. Management believes this exposure
      to fraudulent activity is not material either to the operations of the
      company or to the financial reporting; however, management has instituted
      Key Controls specifically designed to prevent and detect—on a timely
      basis—any potential loss due to fraudulent activity.In
      addition, management is in the process of instituting whistle-blower
      policies and procedures, see material weakness 3, following. This policy
      and procedure will further strengthen the anti-fraud controls at the
      corporate headquarters.3.
              The
      company did not institute, as of December 31, 2008, a whistle-blower
      policy and procedure as required by Section 301 of the Sarbanes-Oxley
      Act.
  31
  Management
has drafted a whistle-blower policy, and will communicate the policy as soon as
it is approved by the Board of Directors. In addition, management is compiling
specific procedures for the Chairman of the Audit Committee to independently
investigate and resolve any issues or concerns raised
  Limitations
on Effectiveness of Controls and Procedures
  Our
management, including our chief executive officer and chief financial officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all fraud. A 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 in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include, but are not limited to, 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, or by management override of the
control. The design of any system of controls also is 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, control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate.
  This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management’s report in this annual
report.
 
 ITEM 9B.
OTHER INFORMATION
  Other
than set forth herein, there in no other information required to be
disclosed.
 
 PART
III.
 
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Below is
certain information regarding our directors and executive officers.
  Name
              
              Age
              
              PositionJohn
      Peck
                Saffet
      Uslu
              
              64
              
              Chairman,
      Chief Executive Officer
                PresidentSylvia
      Quintero
              
              51
              
              Secretary,
      TreasurerDavid
      McLarney
              
              52
              
              Director
  John M.
Peck – Chief Executive Officer, Director
  John M.
Peck, has been our Chairman and Chief Executive Officer since December
2008.     He also served as our President until July 1,
2009.  He was President/CEO of JOLIN Industries, Inc., from 2006 to
2009. Mr. Peck provided marketing and consulting services to aerospace companies
and countries where he was involved in the purchasing and sales of military
aircraft parts. From 2005 to 2006, Mr. Peck was a consultant to ACTMI where he
was involved in the creation of, and expansion thereafter, of ACTMI’s
International customer base. From 2002 through 2005, Mr. Peck was a Procurement
and Supply Chain Account Analyst and Buyer to Technical and Management Services
Corporation (TAMSCO) as the Program Manager of Saudi Arabian Operations (in
country) where he managed an annual budget of over $500,000,000.00 USD as a
subcontractor to the United States Air Force headed by the United States State
Department. From 1995 to 2001 Mr. Peck worked as a consultant to the Senior Vice
President of Operations and Business Development for SR (Sperry Rand
Corporation) on a systems development project designed to track the status of
worldwide hardware purchases for the Kingdom of Saudi Arabia, United Kingdom and
the United States. From 1993 to 1995 Mr. Peck worked with Hughes Aircraft
Systems International on the “Peace Shield Program” with an annual operating
budget of over $1 Billion USD.
  32
  Mr. Peck
attended University of Maryland from 1963-1966, LaSalle Institute in 1969, Troy
State from 1978-1981, Calhoun College from 1983-1984 and California Coast
College from 1992-1994. Mr. Peck earned Military Schooling Diplomas in more than
forty individual classes, with concentrations in computer science and
logistics.
  Saffet
Uslu-President
  Mr Uslu
has served as our President since July 2009.   For the last ten
years he has served as the President and Chief Executive Officer of Sunshine
Industries USA Inc., a company that was engaged in the sale of military parts
and supplies.  Mr. Uslu established business relationships with the
Turkish government while working for Sunshine Industries USA Inc. Mr Uslu holds
a Master’s Science Degree in engineering from the University of Southern
California  and  a Bachelor Science Degree in Mechanical
Engineering from Technical University of Turkey.
  Sylvia C.
Quintero, MBA – Secretary, Treasurer,
  Ms.
Quintero,  has served as our Secretary and Treasurer since December
2008.  She is currently the Senior Business Manager at the University
of Arizona, Department of Immunobiology. She also has served as Director of
Finance for Arizona Aircraft Spares from 2003 to 2004. Prior to that, Ms.
Quintero was the Business Manager for the University of Arizona Department of
Journalism where her duties included supervision, oversight of daily business
operations including accounting, payroll, budget and finance projections,
purchasing and personnel hiring.
  Ms.
Quintero earned a Masters in Business administration from the University of
Phoenix in 1993 and her Bachelor of Science in Business Administration from the
University of Phoenix in 1990.
  Ms.
Quintero brings a number specialized skills to the Secretary/Treasurer role with
the Company. The following is a rendition of a few of her skills: Bilingual -
English and Spanish; Extensive PC and Macintosh knowledge; software experience
including word processing, spreadsheets and website research; and accounting
training for SEC filings. In her roles as the Senior Business Manager at the
University of Arizona Departments of Journalism and Immunobiology, she has
gained extensive online experience in payroll/ PSOS, SIS, FRS, PET and Pcard
including UMS purchasing requisitions.
  David W.
McLarney, MBA – Director
  Mr.
McLarney, serves as Head of the Company’s audit committee providing Board
oversight for the company and its shareholders. Mr. McLarney is currently a
senior airline Check Pilot and Flight Test Analyst for A 321, B 737/757 aircraft
for U.S. Airways, Inc. He has been employed by U.S. Airways, Inc. since
1986.
  He has
also held the position of Deputy Director of Government Aerospace contracting.
In that position he managed over 80 contracting officers buying for 30 Federal
Stock Supply classifications for the Joint Defense major deviation weapons
system operations, support and maintenance. He was the Director of annual
procurement for the U.S. Air Force which entailed purchasing over $35 million
USD annually. While in that capacity he established the software procedures and
audited DOD Prime Vendor Program aircraft part acquisitions and aerospace
contracts.
  33
  Mr.
McLarney was Executive Administrator for the U.S. Air Force squadron finance,
human relations and training functions each under his command.
  Mr.
McLarney earned a Master’s in Business Administration from Saint Mary’s
University, San Antonio, Texas and his Bachelor of Science degree in engineering
and management while at the U.S. Naval Academy, Annapolis, Maryland. Mr.
McLarney also attended Louisiana State University in Louisiana as a CPA Prep.
Candidate. Mr. McLarney’s background as a Government Contract Officer with
studies at the Defense Acquisition University, Washington DC has provided him
with excellent credentials to help direct the Company’s management in its future
expansion and growth. He will provide the Company an Independent Board member
with a unique capacity for integrating his extensive aerospace experience and
direct procurement knowledge along with his finance and accounting education to
assist in the guidance of the Board of Directors and corporate
management.
 
 Directors’
Term of Office
  Directors
will hold office until the next annual meeting of stockholders and the election
and qualification of their successors. Officers are elected annually by our
board of directors and serve at the discretion of the board of
directors.
  Audit
Committee
  The Audit
Committee is comprised of David McLarney. The Audit Committee is responsible for
recommending the Company’s independent public accounting firm and reviewing
management’s actions in matters relating to audit functions. The Committee
reviews with the Company’s independent public accountants the scope and results
of its audit engagement and the Company’s system of internal controls and
procedures. The Committee also reviews the effectiveness of procedures intended
to prevent violations of laws. The Committee also reviews, prior to publication,
our reports on Form 10-K and Form 10-Q. Our board has determined that all audit
committee members are independent under applicable SEC regulations. Our board of
directors has determined that Mr. McLarney qualifies as an “audit committee
financial expert” as that term is used in Section 407 of the Sarbanes-Oxley Act
of 2002.  Our Audit Committee charter is located on our website
www.adeonapharma.com.
  Compensation Committee and
Nominating Committee
  Our
Compensation Committee consisted of Donald Ross until his untimely death and now
consists of all board members. These committees perform several functions,
including reviewing all forms of compensation provided to our executive
officers, directors, consultants and employees, including stock compensation,
and recommending appointments to the board and appointment of executive
officers.
  34
  One of
the purposes of our nominating committee is to assist the Board in identifying
qualified individuals to become members of your Board.  The committee
seeks individuals who have an inquisitive and objective perspective, practical
wisdom and mature judgment, and the talent and expertise to understand, and
provide sound and prudent guidance with respect to, the Company’s activities,
operations and interests.  Candidates must also be individuals who
have the highest personal and professional integrity, who have demonstrated
exceptional ability and judgment, and who are likely to be the most effective,
in conjunction with the other members of your Board, in collectively serving the
long-term interests of shareholders.
  Section
16(a) Beneficial Ownership Reporting Compliance
  Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s executive
officers, directors and persons who beneficially own more than 10 percent of a
registered class of the Company’s equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of the
Company’s common stock.  Such officers, directors and persons are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms that they file with the SEC.
  Based
solely on a review of the copies of such forms that were received by the
Company, or written representations from certain reporting persons that no Form
5s were required for those persons, the Company is not aware of any failures to
file reports or report transactions in a timely manner during the Company’s
fiscal year ended December 31, 2009 except that Mr. Peck, Mr. Uslu, and Ms.
Quintero failed to file Form 3s when they became officers of the Company and Mr.
McLarney also failed to file a Form 3 when he became a director of the
Company..
  Code
of Ethics
  The
Company has long maintained a Code of Ethical Conduct which is applicable to all
directors, officers and employees of the Company.  In addition, the
Company has adopted a Code of Ethics for CEO and Senior Financial Officers which
applies to the Company’s Chief Executive Officer, Chief Financial Officer,
Treasurer and Controller.
  The
Company has adopted a code of ethics that applies to its principal executive
officer, principal financial officer, principal accounting officer and
controller.  Such code of ethics is posted on the Company’s internet
website, which is located at www.IAE247.com.
  ITEM
11. EXECUTIVE COMPENSATION
  The
following table discloses information for the fiscal year ended December 31,
2009 regarding the total compensation we paid to each individual who served as
our principal executive officer during the year ended December 31, 2009 and any
other most highly compensated executive officer whose total compensation
exceeded $100,000 during the year ended December 31, 2009.
 
 Name
      and
                  Principal
      Position
                
                Year
                Salary
                
                
                Bonus
                
                Stock
                  Awards
      (1)
                
                Equity
                  Awards
                Non-Equity
                  Incentive
      Plan
                  Compensation
                All
      Other
                  Compen-
                  sation
                
                TotalsJohn
      Peck
                
                2009
                $
                126,000
                (2
                )
                
                
                
                
                
                
                
                
                $
                126,000Chief
      Executive Officer
                
                2008$
                587,856Saffet
      Uslu
                
                2009
                $
                377,856
                (3
                )
                
                
                $
                110,000President
                
                2008Sylvia
      Quintero
                
                2009
                $
                10,000
                
                
                
                
                $
                110,000
                
                
                
                
                
                $
                120,000Secretary/Treasurer
                
                2008
    35
  Compensation
of Directors
  The following table sets
forth information for the fiscal year ended December 31, 2009 regarding the
compensation of our directors who at December 31, 2009 were not also named
executive officers.
  Fees
      earned
              
              
              
              OtherName
              
              or
      paid in cash(1)
              
              Option
      awards
              
              compensation
              
              TotalDavid McLanney
              
              $10,000
              
              
              
              
              
              $10,000
  (1)
              This
      amount has been accrued.
  Equity
Compensation Plan Information
  As of
December 31, 2009, the number of stock options and restricted common stock
outstanding under our equity compensation plans, the weighted average exercise
price of outstanding options and restricted common stock and the number of
securities remaining available for issuance were as follows:
  Plan
      category
              
              Number
      of securities to
                be
      issued upon exercise
                of
      outstanding options
              
              Weighted-average
                exercise
      price of
                outstanding
      options
              
              Number
      of securities
                remaining
      available for
                future
      issuance under
                equity
      compensation plansPlans
      Approved By ShareholdersTotal
      Plans Approved By ShareholdersEquity
      Plans Not approved By Shareholders
              
              10,000,000
              
              -0-
              
              -0-Total
      All Plans
              
              10,000,000
              
              -0-
              
              -0-
 
 36
 
 Employment
Agreements
  In July
2009 we entered into an employment agreement with Safft Uslu to service as our
President for a three year term.  The agreement provides for a base
salary of $140,000 plus the ability to receive a cash bonus equal to 5% of our
net profits.   Mr Uslu is to receive 1,000,000 shares of
restricted stock upon execution of the agreement of which said shares have not
yet been issued and is entitled to annual stock issuances based upon the percent
increase in the company’s gross sales which range from 125,000 shares to 500,000
shares.  In the event of a change of control or termination by the
company without cause, Mr. Uslu is entitled to receive his one year
salary.
  In
December 2008 we entered into an employment agreement with John Peck to service
as our Chief Executive Officer/ President for a three year term.  The
agreement provides for a base salary of $126,000 plus the ability to receive a
cash bonus equal to 5% of our net profits.   Mr. Peck is entitled
to annual stock issuances based upon the percent increase in the company’s gross
sales which range from 125,000 shares to 500,000 shares.  In the event
of a change of control or termination by the company without cause, Mr. Peck is
entitled to receive his one year salary and in the event of death his estate is
entitled to receive an annual payment of $96,000 for the remainder of the term
of the agreement. Mr. Peck is also entitled to receive 1,000,000 shares of
preferred stock that vote on a 100:1 basis. Upon termination of
employment the Company may Redeem all such shares.
 
 ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  The
following table sets forth certain information regarding beneficial ownership of
our common stock and warrants to purchase shares of our common stock as of April
15, 2010 by (i) each person (or group of affiliated persons) who is known by us
to own more than five percent of the outstanding shares of our common stock,
(ii) each of our directors and executive officers, and (iii) all of our
directors and executive officers as a group.
  Beneficial
ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to securities. The principal address of
each of the stockholders listed below except as indicated is c/o International
Aerospace Enterprises, Inc., 123 West Nye Lane, Suite 129, Carson City, Nevada
89706.    We believe that all persons named in the table
have sole voting and investment power with respect to shares beneficially owned
by them. All share ownership figures include shares issuable upon exercise of
options or warrants exercisable within 60 days of April 15, 2010, which are
deemed outstanding and beneficially owned by such person for purposes of
computing his or her percentage ownership, but not for purposes of computing the
percentage ownership of any other person.
  37
 
 Principal
Stockholders Table
  Name
      of Owner(1)
              
              Shares
      Owned
              
              Percentage
      of
                Shares
                OutstandingJohn
      M. Peck(2)
              
              
              100,000,000
              
              
              
              37.97
              %Saffet
      Uslu(3)
              
              
              11,500,000
              
              
              
              7.04
              %Sylvia
      Quintero
                David
      McLarney
              
              
              500,
      000
                1,046,666All
      officers and directors as a group (4 persons)
              
              
              113,096,666
              
              
              
              44.01
              %
  *
              Less
      than 1%(1)
              Each
      person has sole voting power and sole dispositive power as to all of the
      shares shown as beneficially owned by
them.
 (2)
              Includes
      1,000,000 shares of preferred stock that vote on as convented basis on a
      100:1 vote per share basis.
 (3)
              Includes
      11,000,000 shares issued to a company controlled by Mr.Uslu as collateral
      for a loan by the company which must be returned to the Company
      upon repayment of the loan.
  38
 
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  On
December 26, 2008, the Company sold subsidiaries KD Medical, Inc., Molecula,
Inc., Molecularware, Inc. and LifeStem, Inc. to two officers and majority
shareholders in exchange for 49,000,000 shares of the Company’s common stock,
5,000,000 shares of the Company’s preferred stock and promissory notes payables
of $150,000.
  The
Company’s current officers and shareholders have advanced funds to the Company
for travel related and working capital purposes.  No formal repayment
terms or arrangements existed. There were $23,476 and $-0- advances due at
December 31, 2009 and 2008. See Note E below relating to outstanding related
party notes.
  During
the year ended December 31, 2009; related parties provided services and other
related costs towards the Company’s operations in exchange for notes totally an
aggregate of $190,800.
  ’
    ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
  The following table sets
forth fees billed to us by our auditors during the years ended December 31, 2009
and 2008 for: (i) services rendered for the audit of our annual financial
statements and the review of our quarterly financial statements, (ii) services
by our auditor that are reasonably related to the performance of the audit or
review of our financial statements and that are not reported as Audit Fees,
(iii) services rendered in connection with tax compliance, tax advice and tax
planning, and (iv) all other fees for services rendered.
  December
                31,
      2008
              
              
              December
                31,
      2009(i)
      Audit Fees
              
              $
              45,442
              
              
              $
              40,000(ii)
      Audit Related Fees
              
              $
              0
              
              
              $
              0(iii)
      Tax Fees
              
              $
              0
              
              
              $
              0(iv)
      All Other Fees
              
              $
              0
              
              
              $
              0Total
      fees
              
              $
              45,442
              
              
              $
              40,000
  AUDIT
FEES. Consists of fees billed for professional services rendered for the audit
of the Company’s consolidated financial statements and review of the interim
consolidated financial statements included in quarterly reports and services
that are normally provided by our auditors in connection with statutory and
regulatory filings or engagements.
  AUDIT-RELATED
FEES. Consists of fees billed for assurance and related services that are
reasonably related to the performance of the audit or review of the Company’s
consolidated financial statements and are not reported under “Audit Fees.” There
were no Audit-Related services provided in fiscal 2009 or 2008.
  TAX FEES.
Consists of fees billed for professional services for tax compliance, tax advice
and tax planning. There were no tax services provided in fiscal 2009 or
2008.
  ALL OTHER
FEES. Consists of fees for products and services other than the services
reported above. There were no management consulting services provided in fiscal
2009 or 2008.
  POLICY ON
AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF
INDEPENDENT AUDITORS
  Although
one will be formed soon, the Company currently does not have a designated Audit
Committee, and accordingly, the Company’s Board of Directors’ policy is to
pre-approve all audit and permissible non-audit services provided by the
independent auditors. These services may include audit services, audit-related
services, tax services and other services. Pre-approval is generally provided
for up to one year and any pre-approval is detailed as to the particular service
or category of services and is generally subject to a specific budget. The Board
of Directors may also pre-approve particular services on a case-by-case
basis.
 
 PART
IV.
 
 ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
  Exhibits.
  Exhibits
included or incorporated by reference in this document are set forth in the
Exhibit Index.
  39
 
 SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned.
  International
      Aerospace Enterprises, Inc.By:
              /s/
      John M. PeckJohn
      M. Peck
                Chief
      Executive Officer
                (Principal
      Executive Officer)
                
                Date:
      April 15, 2010
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Company and in the
capacities and on the date indicated:
 Signature
              
              Title
              
              Date/s/
      John M. Peck
              
              CEO/Director(Principal
      Executive Officer)
              
              April
      15, 2010John
      M. Peck/s/Sylvia
      C. Quintero
              
              Secretary/Treasurer
              
              April
      15, 2010Sylvia
      C. Quintero
 
 40
 
 EXHIBIT INDEX
 Exhibit
      No.
              
              Description2.1
              
              Articles
      of Incorporation*2.1.1
              
              Articles
      of Amendment to Articles of Incorporation, dated September 16,
      1998*2.1.2
              
              Articles
      of Amendment dated March 20, 2003*2.1.3
              
              Articles
      of Merger dated March 20, 2003 for redomicile *2.1.3.1
              
              Merger
      Agreement underlying Articles of Merger for redomicile
*2.1.4
              
              Articles
      of Merger dated March 20, 2003 for merger of subsidiary, CalbaTech, Inc.,
      into Parent, Traffic Technology, Inc. with name change to CalbaTech, Inc.
      post merger *2.1.4.1
              
              Merger
      Agreement underlying Articles of Merger for merger of Subsidiary and
      Parent and concurrent name change *2.1.4.2
              
              Certificate
      of Designations2.2
              
              Bylaws
      of Traffic Technology, Inc., a Nevada Corporation *6.1
              
              Consulting
      Agreement with Pinnacle West Capital Corporation, dated May 30,
      2000*6.2
              
              Distributor
      Agreement with Layton Solar, dated April 3, 2000*6.2.1
              
              Amendment
      to Distributor Agreement with Layton Solar, dated August 24,
      2000*6.3
              
              Distributor
      Agreement with IMS Industries, dated March 17, 2000*6.4
              
              Distributor
      Agreement with Taiwan Signal Technologies Co., dated June 30,
      2000*6.5
              
              Distributor
      Agreements with Artflex, Sinalizacao and Viaria Ltd., dated August 7,
      2000*6.6
              
              Distributor
      Agreement with Supremetech Engineering Co. dated August 15,
      2000*6.7
              
              Consulting
      Service Agreement for LED Traffic Signal Technology Transfer and Licensing
      with JCI Group, Inc. (China), dated January 8, 2001*6.8
              
              LED
      Single Lens Traffic Signal Technology Transfer and Consulting Service
      Agreement with JCI Group, Inc. Japan), dated April 25,
    2001*6.9
              
              Form
      of Distributor Agreement (United States)*10.1
              
              Employment
      Agreement for John Peck incorporated by reference to the Company’s
      Quarterly report on Form 10-Q for the quarter ended September 30, 2009
      *10.2
              
              Employment
      Agreement for Saffet Uslu incorporated by reference to the Company’s
      Quarterly report on Form 10-Q for the quarter ended September 30, 2009
      *10.310.410.5
              
              Asset
      Purchase Agreement (Zoval Enterprises) *10.6
              
              Agreement
      and Plan of Reorganization for the acquisition of Molecularware
      *10.7
              
              Agreement
      and Plan of Reorganization for the acquisition of Molecula
    *10.8
              
              Lease
      Agreement for KD Medical with Snowden First, LLC *10.9
              
              Amendment
      to John Peck Employment Agreement23.1
              
              Consent
      of De Joya Griffith & Company, LLC (filed herein)24.131.1
              
              Rule
      13a-14(a)/15d-14(a) Certification of John Peck (filed
    herein).31.2
              
              Rule
      13a-14(a)/15d-14(a) Certification of Sylvia Quintero (filed
      herewith).32.1
              
              Section
      1350 Certification of John Peck (filed herein).32.2
              
              Section
      1350 Certification of (filed
herein).
  *
Documents previously filed with the SEC