UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549




FORM 10-K/A






(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 smaller
reporting 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 163,384,660 shares of common stock issued and outstanding, of which 50,287,994 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 $2,680,423.  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 net losses of $2,680,423 and $1,535,322, respectively. In addition, the Company has a deficiency in stockholder’s equity of $15,768,408 and $13,087,985 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.




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.




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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.




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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.




In April 2010, the Company issued an aggregate of 1,000,000 shares of Series B Preferred Stock. The issuance 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 $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.




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, PLLC
 108 Center Street, North, 2nd Floor
 Vienna, Virginia 22180-5712
 703-242-6500
 703- 242-1600-fax
 
 
 International Aerospace Enterprises, Inc.
 123 West Nye Lane
 Suite 129
 Carson City, NV 89706
 
 /s/ Turner, Jones & Associates, PLLC
 Vienna, Virginia
 May 15, 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
 
 INTERNATIONAL AEROSPACE ENTERPRISES, 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
 
 INTERNATIONAL AEROSPACE ENTERPRISES, 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
  INTERNATIONAL AEROSPACE ENTERPRISES, 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
  INTERNATIONAL AEROSPACE ENTERPRISES, 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, 2009, 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

64

Chairman, Chief Executive OfficerSaffet Uslu



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

2008Saffet Uslu

2009
$
377,856
(3
)









$
377,856President

2008Sylvia Quintero

2009
$
10,000




$
110,000





$
120,000Secretary/Treasurer

2008
    35
  OPTIONS EXERCISES AND STOCK VESTED DURING 2009Option Awards


Stock AwardsNumberof


Value


NumberShares


Realized


of


ValueAcquired


on


Shares


Realizedon


Exercise


Acquired


onExercise


($)


on


Vesting(#)





Vesting


($)Name







(#)John M. Peck

-


-Saffet Uslu

-


-Sylvia Quintero

-


-


500,000


$110,000
  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 plansEquity Plans Approved By ShareholdersTotal Equity 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 with the common stock 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: May 17, 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)

May 17, 2010John M. Peck/s/Sylvia C. Quintero

Secretary/Treasurer

May 17, 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