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To the Shareholders of
Venga Aerospace Systems Inc.
We have audited the consolidated balance sheets of Venga Aerospace Systems Inc. as at
December 31, 2003 and 2002 and the consolidated statements of operations and deficit and cash flows for the
years then ended. These consolidated 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 consolidated financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2003 and 2002 and the results of its operations and its cash flows
for the years then ended in accordance with Canadian generally accepted accounting principles.
2003 2002
ASSETS
Current
Cash and term deposits $ 24,522 $ 132,782
Accounts receivable and sundry assets 88,881 1,634
Inventory 16,031 -
Deposit (Note 4) 19,386 93,360
148,820 227,776
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 6) $ 209,088 $ 105,851
Current portion of bank term loan (Note 11) 11,000 11,000
Due to 2930170 Ontario Inc. (Note 7) 90,277 69,277
310,365 186,128
321,529 208,292
CAPITAL DEFICIENCY
Capital Stock (Note 8) 15,047,646 15,047,646
(131,017) 66,956
$ 190,512 $ 275,248
Approved on behalf of the Board "Hirsh Kwinter" Director "Dr. Ezra Franken" Director
Venga Aerospace Systems Inc.
Consolidated Statement of Operations and Deficit
2003 2002
Expenses
Professional fees 133,359 19,646
General and administrative 83,666 19,062
Interest 16,231 14,032
Amortization 10,281 11,992
243,537 64,732
Other Items
Insurance Claim Recovery (Note 9) 112,500 -
Interest 1,369 4,581
Loss on CLIK 3D Joint Venture (Note 4) (73,974) -
39,895 4,581
2003 2002
OPERATING ACTIVITIES
(113,718) (47,853)
Changes in non-cash assets and liabilities (42) (25,981)
INVESTING ACTIVITIES
FINANCING ACTIVITIES
1. THE COMPANY
The Company was incorporated under the Business Corporations Act (Ontario) by certificate 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. OPERATIONS
The Company's graphics division markets and sells advanced 3D products and services for both consumer
and commercial applications. 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 and is being
held in abeyance until adequate funding for the project can be secured.
Basis of Presentation
The Company has prepared these financial statements on a consolidated basis which includes its wholly-
owned subsidiary, Venga Joint Venture Ltd..
Going Concern
These consolidated financial statements have been prepared on the basis of accounting principles applicable
to a going concern, which assume 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 to the carrying values of assets and liabilities, the reported expenses and
losses per share and the balance sheet classifications used.
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 Consolidated Financial Statements
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:
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 the transactions. Revenue and expense items are
translated at the monthly average exchange rate for the year. Exchange gains or losses are charged to
income.
Joint Ventures
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.
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 financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these estimates.
Revenue Recognition
4. DEPOSIT
In 2002, the Company paid $93,360 to CLIK 3D Joint Venture to be used as a deposit on the purchase of
some equipment. A further payment of $60,000 US was to be paid during the current year. Subsequent to the
year end, the Company entered into an agreement with its co-venturist to end the joint venture. Pursuant to
the terms of the agreement, the Company will receive $15,000 US ($19,386 CDN) from the joint venture's
assets. Both parties have agreed to full and final releases relating to all other matters of the joint venture.
Venga Aerospace Systems Inc.
Notes to Consolidated Financial Statements
5. CAPITAL ASSETS
2003 2002
Accumulated Net Book Net Book
Cost Amortization Value Value
Included in accounts payable and accrued liabilities are amounts due to two shareholders in the amount of
$84,221 pursuant to two court orders during the year. The Company has appealed both decisions. Of this
amount, $30,000 was previously recorded as share capital but has been reclassified in these financial
statements.
This amount is due to another 40% co-venturist of Deep Focus Art Joint Venture - See Note 13. This amount
is unsecured, bears interest at 5% per annum and is repayable as to principal and accrued interest on July 1,
2004. 2930170 Canada Inc. is controlled by 3 of the 4 current directors of the Company.
8. CAPITAL STOCK
Authorized
The capital stock was reduced by $30,000 and the prior year balance was also restated, as described in
detail in Note 9 and Note 17.
The amount represents the consideration against the full and final settlement accepted by the Company to
give final release and discharge to the parties involved in its claim for damages caused to the Company as a
result of the fire which occurred on or about May 23, 1998. It was received subsequent to the year-end on
January 8, 2004, net of legal fee and other charges of $27,324.
Venga Aerospace Systems Inc.
Notes to Consolidated Financial Statements
The Company has accumulated losses for income tax purposes totaling approximately $1,147,000 for which
the tax benefits have not been recognized in the financial statements. These losses can be deducted from
future years' taxable income and expire as follows:
2004 $ 421,000
2005 115,000
2006 173,000
2007 60,000
2008 120,000
2009 60,000
2010 198,000
$ 1,147,000
The Company has a 50% interest in a joint venture formed to develop two dimensional to three dimensional
technologies and produce high resolution 3D images in various hardcopy formats. The following information
summarizes the activity of the joint venture from January 1, 2003 to December 31, 2003:
2003 2002
Assets
Current
Cash and term deposit $ 29,815 $ 30,548
Accounts receivable and sundry assets 3,873 3,874
33,688 34,422
$ 109,421 $ 129,366
Liabilities
Current
Accounts payable and accrued charges $ 7,544 $ 7,544
Current portion of bank term loan 22,000 22,000
29,544 29,544
41,905 73,514
The joint venture has a small business loan with the Bank of Montreal to be utilized for the acquisition of
equipment directly related to the joint venture's advanced graphics business operation. The loan is secured
by a general security agreement, a guarantee in the amount of $105,000 from the Company and its co-
venturers and a chattel mortgage over specific assets financed, bears interest at prime plus 3% per annum
and the principal amount is repayable as follows:
2004 $ 22,000
2005 22,328
$ 44,328
The Company's 50% interest in the joint venture's small business loan is as follows:
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.
Venga Aerospace Systems Inc.
Notes to Consolidated Financial Statements
The Company has reclassified the comparative figures, where necessary, to conform to the current year's
presentation.
14. LITIGATION
On May 12, 2004 the Company was sued by a former insider and senior member of the Company's
management team in the Ontario Superior Court of Justice. In this action, the plaintiff is claiming damages for
a debt allegedly owed by the Company to the Plaintiff, recovery of possession of certain property; an
injunction restraining the Company from disposing of certain property; and damages for breach of contract.
The Company's management considers this plaintiff's action to be without merit and substance and intends to
both vigorously defend the action and institute a counter-claim against the plaintiff.
The prior year's figures have been restated to properly reclassify the loan that was incorrectly recorded as
share capital, as described in detail in Note 6.