VENGA AEROSPACE SYSTEMS INC .

CONSOLIDATED FINANCIAL STATEMENT S

FOR THE YEAR ENDED DECEMBER 31, 2005

(with comparative figures for 2004)

 VENGA AEROSPACE SYSTEMS INC .

Index to the Financial Statements

DECEMBER 31, 200 5

INDEX

Pag e

Auditors' report

FINANCIAL STATEMENTS

Consolidated balance sheet 2

Consolidated statement of operations and deficit 3

Consolidated statement of cash flows 4

Notes to the consolidated financial statements 5-8

 175 Bloor St. East
South Tower, Suite 303
Toronto, Ontario M4W 3R8
Telephone : 416-863-1400
Facsimile : 416-863-4881
ww,A rnchrotstein .com

AUDITORS' REPORT

To the Shareholders o f
Venga Aerospace Systems Inc .

We have audited the consolidated balance sheet of VENGA AEROSPACE SYSTEMS INC . as at
December 31, 2005 and the consolidated statements of operations and deficit and cash flows for the
year then ended . These financial statements are the responsibility of the Company' s management . Our
responsibility is to express an opinion on these financial statements based on our audit .

We conducted our audit in accordance with Canadian generally accepted auditing standards . Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatement . An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements . An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation .

In our opinion, these financial statements present fairly, in all material respects, the financial position of
the Company as at December 31, 2005 and the results of its operations and the changes in cash flows
for the year then ended in accordance with Canadian generally accepted accounting principle s

The 2004 comparative figures were audited by another firm of Chartered Accountants .

R" Ra&&4t
RICH ROTSTEIN
Chartered Accountants

Toronto, Canada
April 27, 2006
 VENGA AEROSPACE SYSTEMS INC .
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 200 5
(with comparative figures for 2004 )

ASSET S

2005 2004

Current Assets
Cash 7,467 10,17 4
Accounts receivable & sundry assets 3,197 19,91 9
Inventory 12,217 12,42 5

22,881 42,51 8

Prope rty, Plant and Equipment (note 4) 0 31,14 7

Total Assets 22 .881 73,66 5

LIABILITIE S

Current Liabilities
Accounts payable and accrued charges (note 5) 191,529 271,924
Deferred revenue 6,062 8,66 2
Due to 2930170 Canada Inc . (note 6) 222,777 167,277

420 .368 447,86 3

SHAREHOLDERS' DEFICIENC Y

Capital stock (note 7) 15,377,375 15,155,88 5

Contributed surplus 890,684 890,684
Deficit (16,665,546) (16,420 767 )

397,487) (374,198 )

Total Liabilities and Shareholders' Deficiency 22,881 73,665

Approved by the Board of Directors :

Hirsh Kwinte r

Ezra Franke n

The accompanying notes are an integral part of these financial statements

-2-
 VENGA AEROSPACE SYSTEMS INC .
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 200 5
(with comparative figures for 2004 )

2005 2004

REVENU E
Sales 8,681 16,81 8

COST OF GOODS SOL D

Cost of sales 208 4,24 8

GROSS PROFIT 8,473 12,57 0

EXPENSES
General & administration 213,734 163,252
Professional fees 32,404 94,55 1
Amortization 0 6,142
Interest 0 1,399

246,138 265,34 4

LOSS FROM OPERATIONS (237,665) (252,774 )

LOSS ON DISPOSAL OF CAPITAL ASSETS (7,114) (37 866)

LOSS BEFORE EXTRAORDINARY ITEMS (244,779) (290,640)

EXTRAORDINARY ITEM S

Contingency Loss (note 10 ) 0 60,77 9

NET LOSS FOR THE YEAR (244,779) (351,419 )

DEFICIT - BEGINNING OF YEAR (16,420,767) (16,069,348 )

DEFICIT - END OF YEAR (16,665,546) (16,420,767)

The accompanying notes are an integral part of these financial statements

-3-
 VENGA AEROSPACE SYSTEMS INC .
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 200 5
(with comparative figures for 2004)

2005 200 4

OPERATING ACTIVITIE S
Net (Loss) (244,779) (351,419 )
Depreciation 0 6,14 2
Loss on disposal of capital assets 7,114 37,866
(237,665) (307,411 )
6( 6,065) 163,45 1

CASH USED IN OPERATING ACTIVITIES (303,73 (143 960 )

INVESTING ACTIVITIE S
Purchase (sale) capital assets 24,033 (33,463 )

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 24,033 (33,463 )

FINANCING ACTIVITIES
Decrease in bank loan 0 (22,164 )
Receipts from related parties 55,500 77,000
Proceeds from issuance of common stock 221,490 108,239

CASH PROVIDED BY FINANCING ACTIVITIES 276,990 163,07 5

NET DECREASE IN CASH (2,707) (14,348 )

Cash and cash equivalents - beginning of year 10,174 24,522

CASH - END OF YEAR 7,467 10 .174

The accompanying notes are an integral part of these financial statements

-4-
 VENGA AEROSPACE SYSTEMS INC .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2005

1. THE COMPAN Y

The Company was incorporated under the Business Corporations Act (Ontario) by certificates of
amalgamation dated April 26, 1979, amalgamating Frodac Mines Ltd ., Great Bear Silver Mines
Limited and Silver Monard Mines Limited to become Frodac Consolidated Energy Resources
Ltd . On July 25, 1985, it changed its name to Global Aerospace Systems Inc . On November 3,
1987, it changed its name to Venga Aerospace Systems Inc .

2. OPERATION S

The Company's graphics division markets and sells a range of 3D products . The Company's
aeronautics division was in development of a full-scale composite drone aircraft . Further
development of the Company's composite aircraft has stopped as is being held in abeyance until
funding for the project can be secured . The Company has now entered into development
agreements with ARINC Incorporated to explore the creation of an international maintenance
training centre capable of providing maintenance training to civil and military aircrews and with
Air Combat Warfare International to secure contracts to supply flight and combat support
services for the U .S . military and the military forces of Canada and various other NATO
countries . The Company has made an unsolicited proposal to supply equipment and services to
the Canadian Armed Forces . This proposal has yet to be accepted .

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentatio n

The company has prepared these comparative financial statements on a consolidated

basis which includes its wholly-owned subsidiary, Venga Joint Venture Ltd .

(b) Going Concern

These consolidated financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assumes that the Company will continue
in operation for the foreseeable future and will be able to realize its assets and discharge
its liabilities in the normal course of operations .

The Company's ability to remain as a going concern is dependent upon it successfully

implementing its business plan including, a return to profitable operations and to raise
additional capital . Management believes that steps taken to date and those in process
will allow it to continue as a going concern . There can be no assurance that the
Company will be successful in its efforts .

If the going concern assumption was not appropriate for these consolidated financial
statements, then adjustments would be necessary the to carrying values of assets and
liabilities, the reported expenses and losses per share and the balance sheet
classifications used .

(c) Inventory

The company records inventory at the lower of cost and net realizable value . Cost is
determined on the first-in, first-out basis .
 VENGA AEROSPACE SYSTEMS INC .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 200 5

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued )

(d) Capital Assets and Amortizatio n

The Company records capital assets at historical cost and will be annually providing for
amortization . Amortization rates are calculated to write off the assets over their
estimated useful life as follows :

Office equipment - 20% declining balance

Computer equipment - 30% declining balance

(e) Translation of Foreign Currencie s

Monetary assets and liabilities are translated at the year-end exchange rate . All other
assets and liabilities are translated at the exchange rates in effect at the dates of
transactions . Revenue and expense items are translated at the monthly average
exchange rate for the year. Exchange gains and losses are charged to income .

(f) Joint Venture s

The Company's interest in joint ventures is accounted for by the proportionate

consolidation method . Under this method, the Company books its share of all assets,
liabilities, revenues and expenses on a line by line basis .

(g) Use of Estimates

The preparation of these consolidated financial statements, in conformity with Canadian

generally accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expense during the
reporting period . Actual results could differ from these estimates .

(h) Financial Instruments

The Company's financial instruments consist of cash, accounts receivable, sundry

assets, accounts payable, accrued liabilities and loans payable . It is the opinion of
management that the Company is not exposed to significant interest, foreign exchange
and credit risks arising from its financial instruments . The fair values of these financial
instruments approximate their carrying values, unless otherwise noted .

(i) Revenue Recognitio n

The company recognizes revenue when the sale is complete .

 VENGA AEROSPACE SYSTEMS INC .
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 200 6

4. PROPERTY, PLANT AND EQUIPMENT

200 5 200 4
Ne t Net
Accumulate d Carryin g Carrying
ost Amortization Amount Amoun t

Office equipment 0 0 0 46 3
Computer equipment 0 0 0 30,684

0 0 0 31 147

During the year, the Company sold all of it's Property, Plant and Equipment . The Company realized a
loss on the disposal of these assets in the amount of $7,114 (2004 - $37,866) .

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The 2004 accounts payable and accrued liabilities figure includes two amounts that were due to
two shareholders in the amount of $132, 656 pursuant to two court orders during that year . One of
the cases was settled in April 2005 (see note 10) .

6. DUE TO 2930170 CANADA INC .

2930170 Canada Inc. is controlled by 3 of the 4 current directors of the Company . The amount
owed to 2930170 Canada Inc . bears interest at the rate of 5% per annum, is payable on demand
and is secured pursuant to the provisions of the Ontario Personal Property Securities Act .
Subsequent to year end, the Company and 2930170 Canada Inc . entered into an agreement
wherein 2930170 Canada Inc . agreed to accept common shares of the Company in accordance
with the TSX Venture Exchange's Policy 4 .3 - shares for debt in payment of a portion of the debt
that the Company owed 2930170 Canada Inc .

7. CAPITAL STOC K

Authorized
Unlimited Common shares and special shares without par value

2005 2004

Issue d

201,184,633 Common shares (2004- 196,754,833) 15,377,375 15 .155 .88 5

On April 18, 2005, the TSX Venture Exchange approved the Company's application to issue 4,429,800
common shares, including 2,100,000 common shares to settle a lawsuit and 2,329,800 common shares
to settle claims of creditors of the Company .
 VENGA AEROSPACE SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 200 5

8. TAX BENEFITS AVAILABL E

The Company has operating losses available to offset future income for tax purposes of
approximately $1,177,000, which expire as follows :

2005 115,000
2006 173,000
2007 60,000
2008 120,000
2009 60,000
2013 198,000
2014 451 .00 0
1 .177 .000

The benefit of these losses has not been recognized in the financial statements .

9. COMPARATIVE FIGURE S

The Company has reclassified the comparative figures, where necessary, to conform to the
current year's presentation .

10 CONTINGENCY LOS S

In October of 2003, the Company was sued by a former director and officer of the Company in
the Ontario Superior Court of Justice . The case was settled in April 2005 . The Company was
required to pay $30,000 in cash and issue 2,100,000 common shares . A cash payment of
$16,000 was paid in 2004, the remaining balance of $14,000 was paid during the fiscal year. The
Company issued 2,100,000 common shares at $0 .05 each on April 18, 2005 .

11 . SUBSEQUENT EVENT

(a) The Company entered into an agreement with 2930170 Canada Inc . wherein the
Company agreed to settle a portion of a claim of a creditor (see note 6) through the
issuance and delivery of the Company's common shares to the creditor . This agreement
to issue the Company's shares is subject to the approval of the TSX Venture Exchange.

(b) The Company is subjected to an arbitration proceeding that was instituted by a former
insider . The individual seeks various relief and maintains a claim for damages and has
sued previously in Small Claims Court . The current arbitration is for an amount larger than
the $10,000 Small Claims Court limit and the claim (not including costs) will probably not
exceed $50,000, if it succeeds .