UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2010

o 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: (209) 487-6449

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

Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) been subject to such filing requirements for the past 90 days. Yes x No 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 o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

Large accelerated filer o	Accelerated filer o
Non-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). o YES x NO

As of May 14, 2010, the Company had 289,535,717 shares of common stock issued and outstanding.

Part I - Financial Information

Item 1. Financial Statements

Condensed Consolidated Balance Sheets:	3
March 31, 2010 and December 31, 2009

Condensed Consolidated Statements of Operations:	4
Three Months Ended March 31, 2010 and 2009

Condensed Consolidated Statements of Cash Flows:	5
Three Months Ended March 31, 2010 and 2009

Notes to Condensed Consolidated Financial Statements:	6

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	21

Item 3. Quantitative and Qualitative Disclosures about Market Risk	24

Item 4. Controls and Procedures	24

Part II - Other Information	24

Item 1. Legal Proceedings	24

Item 1A. Risk Factors	24

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	30

Item 3. Defaults Upon Senior Securities	31

Item 4. Removed and Reserved	31

Item 5. Other Information	31

Item 6. Exhibits And Reports On Form 8-K	31

Signature	32

INTERNATIONAL AEROSPACE ENTERPRISES, INC

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2010			December 31, 2009
	(unaudited)
ASSETS
CURRENT ASSETS:
Cash	$	889		$	928
Accounts receivable		-			10,662
Inventory		1,145,420			1,145,420
Total current assets
		1,146,309			1,157,010
Other assets:
Unamortized financing costs, net of accumulated amortization and write off of $286,692 and $283,775, respectively		3,308			6,225

	$	1,149,617		$	1,163,235


CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,525,070		$	1,207,707
Advances from related parties		25,551			23,476
Notes payable, related parties		952,282			962,944
Convertible notes payable		807,506			720,822
Total current liabilities		3,310,409			2,914,949

Long term debt, less current maturities:
Derivative liability related to convertible debentures		1,247,387			1,155,842
Warrant liability related to convertible debentures		-			1
Convertible notes payable		-			152,282
Total long term liabilities		1,247,387			1,308,125

Total liabilities		4,557,796			4,223,074

DEFICIENCY IN STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.001 per share; 25,000,000 shares authorized; 6,430,000 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		6,430			6,430

Common stock, par value $0.001 per share; 300,000,000 shares authorized, 154,763,971 and 100,984,063 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively		154,764			100,984
Additional paid in capital		12,737,535			12,601,155
Accumulated deficit		(16,306,908	)		(15,768,408	)
Total deficiency in stockholders’ equity		(3,408,179	)		(3,059,839	)
	$	1,149,617		$	1,163,235

See the accompanying notes to the unaudited condensed consolidated financial statements

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended March 31,
	2010			2009
OPERATING EXPENSES:
Selling and administrative		299,491			123,858
Total operating expenses					123,858

LOSS FROM OPERATIONS		(299,491	)		(123,858	)

Unrealized (loss) on adjustment of derivative and warrant liability to fair value of underlying securities		(91,544	)		(1,149,780	)
Interest expense, net		(147,465	)		(97,386	)

Net Loss from operations before income taxes		(538,500	)		(1,371,024	)

Income taxes		—			—

NET LOSS	$	(538,500	)	$	(1,371,024	)

Net loss per common share, basic and fully diluted:	$	(0.00	)	$	(0.79	)

Weighted average number of common shares outstanding-basic and fully diluted		134,918,419			1,735,593

See the accompanying notes to the unaudited condensed consolidated financial statements

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three months ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss	$	(538,500	)	$	(1,371,024	)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments for depreciation and amortization					—
Income derived from settlement of debt					9,609
Accretion of convertible notes payable		124,562			53,138
Unrealized losses on adjustment of derivative and warrant liability to fair value of underlying securities		91,544			1,149,780
Amortization and write off of financing costs		2,917			2,917
Cash overdraft					(559	)
Accounts payable and accrued expenses		317,363			156,139
Net cash used in operating activities		(2,114	)		—

CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash used in Investing activities		—			—

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances from (to) shareholders		2,075			—
Net cash provided by financing activities		2,075			—

Net increase (decrease) in cash and cash equivalents		(39	)		—
Cash and cash equivalents at beginning of period		928			—
Cash and cash equivalents at end of period	$	889		$	—

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$			$	—
Cash paid during the period for taxes	$			$	—
Unrealized loss on adjustment of derivative and warrant liability to fair value of underlying securities	$	91,544		$	1,149,780

See the accompanying notes to the unaudited condensed consolidated financial statements

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE A - SUMMARY OF ACCOUNTING POLICIES

General

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Accordingly, the results from operations for the three month period ended March 31, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. The unaudited consolidated financial statements should be read in conjunction with the consolidated December 31, 2009 financial statements and footnotes thereto included in the Company’s Annual Report on SEC Form 10-K.

A summary of the significant accounting policies applied in the preparation of the accompanying financial statements follows.

Business and Basis of Presentation

International Aerospace Enterprise (formerly LifeStem International, Inc) and Calbatech Inc), (“Company”) was organized on April 29, 2002 under the laws of the state of Nevada. The Company is a 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 March 31, 2010, the Company had accumulated deficit of $16,306,908.

The consolidated financial statements include the accounts of the Company. All significant inter-company transactions and balances have been eliminated in consolidation.

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.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

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 March 31, 2010 and December 31, 2009.

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 three month periods ended March 31, 2010 and 2008.

Advertising

The Company follows the policy of charging the costs of advertising to expenses as incurred. The Company did not incur advertising costs for the three month periods ended March 31, 2010 and 2009.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

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.

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 three month periods ended March 31, 2010 and 2009 was $-0-.

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 March 31, 2010 and December 31, 2009, the Company’s outstanding accounts receivable was $-0- and $10,622, 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 462,582,664 and 1,735,993 for the three month period ended March 31, 2010 and 2009, respectively.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

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 490%; and risk free interest rate from 0.18% to 1.45%. 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 K 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.

Recent accounting pronouncements

In June 2009, the FASB issued new accounting guidance under ASC Topic 810 on Consolidation to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The guidance is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual periods thereafter. Earlier adoption is prohibited. The adoption of the guidance did not have a material impact on the Company’s condensed consolidated financial statements.

In January 2010 the FASB issued Update No. 2010-06 “Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements” (“2010-06”). 2010-06 requires new disclosures regarding significant transfers between Level 1 and Level 2 fair value measurements, and disclosures regarding purchases, sales, issuances and settlements, on a gross basis, for Level 3 fair value measurements. 2010-06 also calls for further disaggregation of all assets and liabilities based on line items shown in the statement of financial position. This amendment is effective for fiscal years beginning after December 15, 2010 and interim periods within those fiscal years. The Company is currently evaluating whether adoption of this standard will have a material impact on its financial position, results of operations or cash flows.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE A - SUMMARY OF ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In January 2010 the FASB issued Update No. 2010-05 “Compensation—Stock Compensation—Escrowed Share Arrangements and Presumption of Compensation” (“2010-05”). 2010-05 re-asserts that the Staff of the Securities Exchange Commission (the “SEC Staff”) has stated the presumption that for certain shareholders escrowed share represent a compensatory arrangement. 2010-05 further clarifies the criteria required to be met to establish a position different from the SEC Staff’s position. The Company does not believe this pronouncement will have any material impact on its financial position, results of operations or cash flows.

In January 2010 the FASB issued Update No. 2010-04 “Accounting for Various Topics—Technical Corrections to SEC Paragraphs” (“2010-04”). 2010-04 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

In January 2010 the FASB issued Update No. 2010-02 “Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification” (“2010-02”) an update of ASC 810 “Consolidation.” 2010-02 clarifies the scope of ASC 810 with respect to decreases in ownership in a subsidiary to those of a subsidiary or group of assets that are a business or nonprofit, a subsidiary that is transferred to an equity method investee or joint venture, and an exchange of a group of assets that constitutes a business or nonprofit activity to a non-controlling interest including an equity method investee or a joint venture. Management, does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows. Management does not intend to decrease its ownership in any of its wholly-owned subsidiaries.

In January 2010 the FASB issued Update No. 2010-01 “Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force” (“2010-03”) an update of ASC 505 “Equity.” 2010-03 clarifies the treatment of stock distributions as dividends to shareholders and their affect on the computation of earnings per shares. Management does not expect adoption of this standard to have any material impact on its financial position, results of operations or operating cash flows.

In January 2010, the FASB issued new accounting guidance, under ASC Topic 820 on Fair Value Measurements and Disclosures. The guidance requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement. The guidance requires a reporting entity to use judgment in determining the appropriate classes of assets and liabilities and to provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009. As this standard relates to disclosures, the adoption did not have a material impact on the Company’s condensed consolidated financial statements.

In February 2010 the FASB issued Update No. 2010-09 “Subsequent Events (Topic 855)” (“2010-09”). 2010-09 clarifies the interaction of Accounting Standards Codification 855 “Subsequent Events” (“Topic 855”) with guidance issued by the Securities and Exchange Commission (the “SEC”) as well as the intended breadth of the reissuance disclosure provision related to subsequent events found in paragraph 855-10-50-4 in Topic 855. This update is effective for annual or interim periods ending after June 15, 2010. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

In February 2010 the FASB issued Update No. 2010-08 “Technical Corrections to Various Topics” (“2010-08”). 2010-08 represents technical corrections to SEC paragraphs within various sections of the Codification. Management is currently evaluating whether these changes will have any material impact on its financial position, results of operations or cash flows.

In March 2010, the FASB issued new accounting guidance, under ASC Topic 605 on Revenue Recognition. This standard provides that the milestone method is a valid application of the proportional performance model for revenue recognition if the milestones are substantive and there is substantive uncertainty about whether the milestones will be achieved. Determining whether a milestone is substantive requires judgment that should be made at the inception of the arrangement. To meet the definition of a substantive milestone, the consideration earned by achieving the milestone (1) would have to be commensurate with either the level of effort required to achieve the milestone or the enhancement in the value of the item delivered, (2) would have to relate solely to past performance, and (3) should be reasonable relative to all deliverables and payment terms in the arrangement. No bifurcation of an individual milestone is allowed and there can be more than one milestone in an arrangement. The standard is effective for interim and annual periods beginning on or after June 15, 2010. The Company is currently evaluating the impact the adoption of this guidance will have on its condensed consolidated financial statements.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

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.

NOTE C – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

At March 31, 2010 and December 31, 2009, accounts payable and other accrued liabilities are comprised of the following:

	March 31, 2010		December 31, 2009
Accrued expenses	$	491,757	$	333,797
Payroll taxes payable		178,430		178,430
Accrued interest payable		302,383		279,480
Accrued consulting fees		552,500		416,000
Total	$	1,525,070	$	1,207,707

NOTE D – RELATED PARTY TRANSACTIONS

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 $25,551 and $23,476 advances due at March 31, 2010 and 2009. 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.

Consulting services are provided by Global Business Development, a company owned and controlled by shareholders. During the three month period ended March 31, 2010; the Company incurred at an aggregate of $156,802 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.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE E – NOTES PAYABLE

Notes payable at March 31, 2010 and 2009 consists of the following:


	March 31, 2010			December 31, 2009
Note payable, related party, due June 11, 2010; noninterest bearing, unsecured	$	761,482		$	772,144
Notes payable, related party, due October 2010, interest rate of 6% per annum due at maturity, unsecured		60,800			60,800
Note payable, related party, due January 28, 2010, noninterest bearing, unsecured		100,000			100,000
Note payable, related party, due December 7, 2010, interest rate of 6% per annum due at maturity, unsecured		30,000			30,000
		952,282			962,944
Less: current maturities:		(952,282	)		(962,944	)
Long term portion	$	-		$	-

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.

NOTE F - CONVERTIBLE NOTES PAYABLE

A summary of convertible promissory notes payable at December 31, 2009 and 2008 are as follows:

	March 31, 2010		December 31, 2009

10% 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		53,577

10% 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		98,197		215,857

8% 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		484,676		440,703

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE F - CONVERTIBLE NOTES PAYABLE (continued)

	March 31, 2010			December 31, 2009

10% 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		171,056			152,282

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.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		807,506			873,104
Less current maturities		(807,506	)		(720,822	)
Long term portion	$	-		$	152,282

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.

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.

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 three months ended March 31, 2010 and 2009, the Company amortized the debt discount and charged to interest expense $-0- and $-0-, respectively

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE F - CONVERTIBLE NOTES PAYABLE (continued)

2. The Company 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 liability.

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.

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 three month period ended March 31, 2010 and 2009, the Company amortized the debt discount and charged to interest expense $43,973 and $43,973, respectively.

3. 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.

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.

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 three month period ended March 31, 2010 and 2009, the Company amortized the debt discount and charged $18,774 and $18,774 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.

5. 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.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE F - CONVERTIBLE NOTES PAYABLE (continued)

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 March 31, 2010 and December 31, 2009, 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 $807,506 and $873,104 as of March 31, 2010 and December 31, 2009, respectively.

NOTE G – STOCKHOLDERS EQUITY

Preferred stock

The Company is authorized to issue 25,000,000 shares of $0.001 preferred stock. As of March 31, 2010 and December 31, 2009, there were 6,430,000 shares issued and outstanding.

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 154,763,971 and 100,984,063 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.

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.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE G – STOCKHOLDERS EQUITY (continued)

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.

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.

In January 2010, the Company issued an aggregate of 31,056,024 shares of common stock in exchange for convertible notes payable of $138,638.

In February 2010, the Company issued an aggregate of 8,882,494 shares of common stock in exchange for convertible notes payable of $23,843.

In March 2010, the Company issued an aggregate of 13,841,400 shares of common stock in exchange for convertible notes payable of $27,679.

NOTE H – 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 March 31, 2010.

		Options Outstanding		Options Exercisable

Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighed Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$150.00	1	2.07	$150.00	1	$150.00

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE H – OPTIONS AND WARRANTS (continued)

Transactions involving stock options issued to consultants are summarized as follows:


	Number of Shares		Weighted Average Price Per Share
Outstanding at December 31, 2008		1	$	150.00
Granted		—		—
Exercised		—		—
Canceled or expired		—		—
Outstanding at December 31, 2009		1		150.00
Granted		—		—
Exercised		—		—
Canceled or expired		—		—
Outstanding at March 31, 2010		1	$	150.00

Warrants

The following table summarizes the changes in warrants outstanding and the related prices for the shares of the Company’s common stock.


		Warrants Outstanding						Warrants Exercisable
Exercise Price		Number Outstanding		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price
$	0.02		67		4.28	$	0.02		67	$	0.02
$	0.20		40		0.15	$	0.20		40	$	0.20
$	0.35		40		0.15	$	0.35		40	$	0.90
			147		2.07	$			147

Transactions involving warrants issued to non-employees are summarized as follows:


	Number of Shares		Weighted Average Price Per Share
Outstanding as of January 1, 2009		147	$	0.17
Granted		—		—
Exercised		—		—
Canceled or expired		—		—
Outstanding as of December 31, 2009		147		0.17
Granted		-		-
Exercised		—		—
Canceled or expired		—		—
Outstanding as of March 31, 2010		147	$	0.17

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE I - INCOME TAXES

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 March 31, 2010, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $16,300,000, 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.

NOTE J - 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 K- 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.

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE K- 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 March 31, 2010:


	Total			Quoted Prices in Active Markets for Identical Instruments Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3 (A)
Assets:
None
Liabilities:
Derivative Liability	$	(1,247,387		$	—	$		$	(1,247,387	)
Total	$	(1,247,387	)	$	—	$	—	$	(1,247,387	)

(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 three month period ended March 31, 2010:


Derivative Liability:
Balance, January 1, 2010	$	1,155,842
Additions		-
Net reductions to derivative liability	$	91,545
Balance, March 31, 2010	$	1,247,387

The table below presents a reconciliation of the beginning and ending balances of our warrant liability during the three month period ended March 31, 2010:


Warrant Liability:
Balance, January 1, 2009	$	1
Reductions to warrant liability	$	(1	)
Balance, December 31, 2009	$	-

During the three month period ended March 31, 2010, the Company recognized a net unrealized loss of $91,544 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).

INTERNATIONAL AEROSPACE ENTERPRISES, INC.

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2010

NOTE L - 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 three month period ended March 31, 2010 and 2009, the Company has incurred operating losses of $538,500 and $1,371,024, respectively. In addition, the Company has a deficiency in stockholder’s equity of $3,408,179 and $3,059,839 at March 31, 2010 and December 31, 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

In April 2010, the Company issued an aggregate of 120,231,357 shares of common stock in exchange for convertible notes payable of $170,804.25.

We amended Mr. Peck's employment on April 15, 2010 agreement to remove the following section "The Employee will receive shares in order to maintain a majority shareholder position in the Employer. From time to time additional shares may need to be issued in order to maintain the position of majority shareholder of the Employer and from time to time additional shares. Upon termination of this Employment Agreement, whether voluntarily or involuntarily, the Employee will return to the Treasury of the Employer all shares it received in order to maintain a majority shareholder position less five million shares which Employee shall retain. The only shares the Employee will retain are the shares he earned as compensation under the annual stock bonus section plus the additional five million shares."

Instead we issued 1,000,000 shares of preferred stock with a 100:1 vote

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 30, 2010, the Company designated 6,000,000 shares of authorized preferred stock as “Series C Preferred”, $0.001 par value with the following designations:

	●	Dividends. The holders of the Series C Preferred shall not be entitled to receive any dividends.

	●	Redemption. Shares of Series C Preferred may be redeemed by the Corporation at any time after the holder’s termination of employment with the Corporation.

	●	No Circumvention. The Corporation shall not amend its certificate of incorporation, or participate in any reorganization, sale or transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but shall at all times in good faith use its best efforts, and assist in carrying out all such action as may be reasonably necessary or appropriate in order to protect the conversion rights of the holders of shares of Series C Preferred set forth herein.

	●	Voting. Except as otherwise required by law, holder of shares of Series C Preferred shall vote together with the common stock as a single class on a one hundred votes per share basis. The holders of Series C Preferred shall be entitled to receive all notices relating to voting as are required to be given to the holders of the Common Stock.

On April 30, 2010, we issued Mr. Peck 1,500,000 shares of Series C preferred stock.

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

When used in this Quarterly Report on Form 10-Q, the words or phrases will likely result, management expects, or we expect, will continue, is anticipated, estimated or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on any such forward-looking statements, each of which speak only as of the date made. These statements are subject to risks and uncertainties, some of which are described below. Actual results may differ materially from historical earnings and those presently anticipated or projected. We have no obligation to publicly release the result of any revisions that may be made to any forward-looking statements to reflect anticipated events or circumstances occurring after the date of such statements.

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 finished military goods/manufactured aircraft parts with a retail value of approximately $11 million USD, 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.

Revenues

International Aerospace Enterprises did not generate any sales for the three months ended March 31, 2010 and 2009.

Costs and Expenses

Total operating expenses increased to $299,491 for the three month period ending March 31, 2010 from $123,858 for the three month period ending March 31, 2009.

Other Income and Expenses

We recorded a non cash loss for change in the fair value of our debt derivatives of $91,544 for the three months ended March 31, 2010 as compared to a non cash loss of $1,149,780 for the same period last year.

Interest expense was $147,465 and $97,386 for the three months ended March 31, 2010 and 2009, respectively. The increases in the current quarter reflect a write off debt discounts on converted debt of $72,500 and overall decreases reflect a lower debt and discount amortization in 2010 as compared as compared to the same period last year.

Net Income (Loss)

Due primarily to an unrealized loss on adjustment of derivative and warrant liability to fair value of underlying securities relating to the convertible notes it obtained in 2005 and 2007, the Company realized a net loss for the three months ended March 31, 2010 and 2009 of $538,500 and $1,371,024.

Liquidity and Capital Resources

As of March 31, 2010, the Company had current assets of cash and inventory totaling $1,146,420, and total assets of $1,149,617. These numbers compare to current assets of $1,157,010 and total assets of $1,162,235 as of December 31, 2009. Our working capital deficit at March 31, 2010 was $(2,164,100) as compared to working capital deficit of ($1,757,939) at December 31, 2009. For the three months ended March 31, 2010, we used $2,114 cash flow in operating activities. Our primary sources and uses of cash for the three months ended March 31, 2010, included losses from operations of $538,500, adjusted for non-cash items of income and expense, including amortization of financing costs of $2,917, unrealized adjustments of derivative and warrant liability of $91,544, accretion of convertible debt of $124,562 and further adjustment by an increase in accounts payable of $317,363. Our cash provided by financing activities was from advances from related parties of $2,075.

We have incurred an accumulated deficit of $16,306,908 through March 31, 2010. We have incurred negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including the purchase of parts. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. Our anticipated sales revenue for the next few months may not be sufficient to meet our anticipated cash flow requirements for the next few months or for us to implement our business plans.

The Company’s success and ongoing financial viability is contingent upon its selling of its products and the related generation of cash flows. However, should it be necessary, Management believes it would be able to meet its cash flow requirements 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. We will continue to fund operations from cash on hand and through the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to obtain will be sufficient to meet our needs. 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.

The independent auditors report on the Company’s December 31, 2009 financial statements included in our Annual Report on Form 10-K states that the Company’s recurring losses raise substantial doubts about the Company’s ability to continue as a going concern. Nevertheless, through the potential raising of capital management believes it will have the ability to raise sufficient capital resources to meet projected cash flow deficits through the next twelve months. However, if thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations liquidity and financial condition.

Introduction

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”) is an innovative and aggressive provider of military aircraft spare parts who offers inexpensive aircraft spare parts that meet quality manufacturing standards required by the worldwide military/industrial complex establishment. This is a viable, highly profitable industry with excellent fundamentals to create value for current and future shareholders. IAE’s dedication to provide military aircraft spare parts to the U.S. Defense Department and its International Allies is built on a platform of integrity and national respect for the end users requiring spare parts in order to maintain their military aircraft.

IAE currently owns approximately $1,145,420 of in-house inventory and has under option purchase contracts or consignment agreements of approximately $100 million USD in aircraft spare parts. The company is also in negotiations with several entities in order to access additional military spare parts inventory. The company’s owned inventory is currently warehoused in Covina, California. The company intends to relocate its corporate office and parts warehouse to a new location of approximately 10,000 to 15,000 sq. feet and is looking in the area of either Rancho Cucamonga or Ontario, California. They are negotiating for modern offices and warehouse manufacturing space that is climate controlled, sprinkler equipped, and equipped with electronic surveillance security system.

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 significant revenue and profitability. The sales will 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.

PROPERTIES

Corporate

The Company’s temporary office location is at 123 West Nye Lane, Suite 129, Carson City, Nevada 89706. The Company considers this location to be adequate pending its relocation to California as further explained below.

The Company’s assembly, inventory storage and shipping facilities is currently located in Covina, California. The 4,400 square foot facility consists of two buildings located on 0.39 acres and is approximately one-half mile from the Interstate 10 freeway. The Company leases the approximate 700 square foot office space and 3,600 square feet of warehouse space currently housing the company’s owned inventory consisting of 4,982 spare parts. The Company also has an Option Purchase Agreement for an additional 6,578 military aircraft spare parts located in northern California.

The Company’s management is currently seeking to lease 10,000 to 15,000 sq. feet of modern office and warehouse space in order to relocate its current facility to accommodate additional inventories of military aircraft spare parts and the anticipated addition of both management and other needed personnel. The new corporate and inventory warehouse facility will be located in either Rancho Cucamonga or Ontario, California. The move is expected to occur within the next three months and will be a facility that is climate controlled with sprinkler fire protection and an electronic surveillance security system.

ACQUISITION OR DISPOSITION OF PLANT AND EQUIPMENT

We do not anticipate the sale of any significant property, plant or equipment during the next twelve months. Other than as provided within this Form 10-Q and other filings, we do not anticipate the acquisition of any significant property, plant or equipment during the next 12 months.

NUMBER OF EMPLOYEES

As of May 14, 2010, the Company had two employees. In order for us to attract and retain quality personnel, we anticipate we will have to offer competitive salaries to future employees. Other than through acquisition, we do not anticipate our employment base will significantly change during the next 12 months. As we continue to expand, we expect to incur additional costs for personnel. This projected increase in personnel is dependent upon our generating revenues and obtaining sources of financing. There is no guarantee that we will be successful in raising the funds required or generating revenues sufficient to fund the projected increase in the number of employees.

Forward Looking Statements.

This document contains “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-Q will, in fact, occur. The Company does not undertake any obligation to revise these forward-looking statements to reflect new information, 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. For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors” beginning on page 30 and the Risk Factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2009.

ITEM 4T. CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures.

The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the Company’s principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, the Company’s principal executive/financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. In addition, the Company’s principal executive officer and principal financial officer concluded that its disclosure controls and procedures were effective at a reasonable assurance level to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

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, will be or have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, and/or by management override of the control. The design of any system of 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 our stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Because of the inherent limitations in a cost-effective internal control system, misstatements due to error or fraud may occur and not be detected.

Changes in Disclosure Controls and Procedures.

There were no changes in the Company’s disclosure controls and procedures, or in factors that could significantly affect those controls and procedures since their most recent evaluation.

PART II.

ITEM 1. 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 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.

We have a limited supply of products to sell.

Our existing, manufactured, on-the-shelf, ready to ship inventories of military aircraft spare parts is finite (currently consisting of 4,987 itemized parts independently determined to be approximately $1,247,500 USD) combined with an additional 6,578 military aircraft spare parts under final negotiations at a cost of $5 million USD. There are no guarantees that the company will be able to find additional manufactured military aircraft spare parts on the open market at a discounted price with quality standards and proper certification equal to those parts currently on hand that can be purchased and resold through our distribution network.

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 as it has recently done. The sale of additional equity or convertible debt securities would result in additional dilution to the Company’s shareholders.

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 three month period ending March 31, 2010, our revenue was $-0- and selling and administrative expenses of $299,491. Our loss from operations was $299,491 and our net loss was $538,500. We expect to continue to incur expenses. In order to establish our business, we will need to rely on the sales of the products. We therefore expect to incur substantial operating losses for the foreseeable future. Our ability to become profitable depends on our ability to have successful operations and sustain sales, while maintaining reasonable expense levels, all of which are uncertain in light of our absence of any prior operating history.

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

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

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

At March 31, 2010, our cash on hand was $889, our accounts payable and accrued expenses were $1,525,070, our current notes payable were $952,282 and our current convertible notes payable were $807,506. 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.

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 March 31, 2010, we owed notes payable of $952,282 to a related party and convertible notes payable of $807,506. In connection with the convertible note payable we have a derivative liability of $1,247,387.

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 307,818,693 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.

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. From June 2009 through December 2009, we issued an aggregate of 67,738,205 shares of common stock in exchange for convertible notes payable. During the first quarter of 2010, we issued an aggregate of 53,780,600 shares of common stock in exchange for convertible notes payable

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.

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.

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.

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 March 31, 2010, we had a negative working capital of $2,164,100. 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.

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. Mr. Peck also owns 6,000,000 shares of our Series C 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.

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

Unregistered Sales of Equity Securities.

In January 2010, the Company issued an aggregate of 31,056,716 shares of common stock in exchange for convertible notes payable of $138,638. The issuances of the common stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction.

In February 2010, the Company issued an aggregate of 8,882,484 shares of common stock in exchange for convertible notes payable of $23,843. The issuances of the common stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction.

In March 2010, the Company issued an aggregate of13,841,400 shares of common stock in exchange for convertible notes payable of $27,679. The issuances of the common stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction.

In April 2010, the Company issued an aggregate of 120,231,357 shares of common stock in exchange for convertible notes payable of $170,804.25. The issuances of the common stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction.

On April 15, 2010, the Company issued 1,000,000 shares of its Series B Preferred Stock to its Chief Executive Officer in accordance with his employment agreement. The issuances of the stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction

On April 30, 2010, the Company issued 1,500,000 shares of its Series C Preferred Stock to its Chief Executive Officer for services rendered. The issuances of the stock qualified for exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”), since the issuance by us did not involve a public offering. This offering was done with no general solicitation or advertising by us. The shares were issued to one accredited investor that had an opportunity to ask questions of our management. The offering was not a public offering as defined in Section 4(2) because the offer 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 it agreed to, and received shares stating they were restricted. This restriction ensures that these notes and the underlying shares will not be immediately redistributed into the market and therefore not part of a public offering. Based on the analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Act for this transaction

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not Applicable.

ITEM 4. REMOVED AND RESERVED

ITEM 5. OTHER INFORMATION.

On April 30, 2010, holders of approximately 52% of the voting power of our stock authorized our board of directors to effectuate an increase (the “Common Increase”) in the number of authorized shares of our common stock from 300 million shares to 700 million shares. The written consent of stockholders was obtained from stockholders that were the record owners of 1,000,000 shares of common stock and 2,500,000 shares of our voting preferred stock which represent an aggregate of 251,000,000 votes or approximately 52% of the voting power as of April 30, 2010. The Common Increase is anticipated to be effectuated June 8, 2010.

ITEM 6. EXHIBITS

EXHIBIT INDEX


Exhibit No.		Description

3.1		Certificate of Designation, Rights and Preferences of the Series C Preferred Stock
31.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1		Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

SIGNATURES

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	Chief Executive Officer and Chief Financial	May 24, 2010
John M. Peck	Officer (Principal Executive Officer and
	Principal Financial Officer)

International Aerospace Enterprises, Inc. 10-Q