VENGA AEROSPACE SYSTEMS INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

 VENGA AEROSPACE SYSTEMS INC.

Index to the Consolidated Financial Statements

DECEMBER 31, 2006 AND 2005

INDEX

Page

Auditors' report 1

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 5-13



175 Bloor St. East

South Tower, Suite 303
Toronto, Ontario N14W 3R8
Telephone: 416-863-1400
Facsimile: 416-863-4881
wwvwrichrotstein_ corn

AUDITORS' REPORT

To the Shareholders of
Venga Aerospace Systems Inc.
111 Eglinton Avenue East
Suite 200
Toronto, Ontario

We have audited the consolidated balance sheet of VENGA AEROSPACE SYSTEMS INC. as at
December 31, 2006 and 2005 and the consolidated statements of operations and deficit and cash flows
for the years 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, 2006 and 2005 and the results of its operations and the changes in
cash flows for the years then ended in accordance with Canadian generally accepted accounting
principles.

RICH ROTSTEIN LLP

Chartered Accountants
Licensed Public Accountants

Toronto, Canada
April 24, 2007


VENGA AEROSPACE SYSTEMS INC.

CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2006 AND 2005

ASSETS

2006 2005

Current Assets
Cash 207,679 7,467
Accounts receivable & sundry assets 4,830 3,197
Inventory 12,885 12,217
Deposits on equipment (note 3(b)) 253,654 0
Loan receivable (note 5) 238,720 0

717,768 22,881

Other Assets
Investment in private company (note 6) 50.400 0

Total Assets 768,168 22.881

LIABILITIES

Current Liabilities
Accounts payable and accrued charges 32,005 191,530
Deferred revenue 5,072 6,062
Due to 2930170 Canada Inc. (note 7) 0 222,777

37,077 420.369

SHAREHOLDERS' EQUITY (DEFICIENCY)

Capital stock (note 8) 16,723,966 15,377,375

Contributed surplus 890,684 890,684
Deficit (16.883.559) (16,665,547)

731.091 (397,488)

Total Liabilities and Shareholders' Equity (Deficiency) 768,168 22.881

Going concern (note 2)

Approved by the Board of Directors:

" Hirsh Kwinter " Director " Dr. Ezra Franken " Director

The accompanying notes are an integral part of these consolidated financial statements
-2-
 VENGA AEROSPACE SYSTEMS INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

SALES 66,287 8,681

COST OF GOODS SOLD 12,217 208

GROSS PROFIT 54,070 8,473

EXPENSES
General and administration 196,674 213,734
Professional fees 40,408 32,404
Settlement of lawsuit (note 11) 35,000 0

272,082 246,138

LOSS FROM OPERATIONS (218,012) (237,665)

LOSS ON DISPOSAL OF CAPITAL ASSETS 0 (7,114)

NET LOSS FOR THE YEAR (218,012) (244,779)

DEFICIT - BEGINNING OF YEAR (16,665,547) (16,420,768)

DEFICIT - END OF YEAR (16,883,5591 (16,665,547)

Net loss per share - basic and fully diluted (0.001) (0.0011

The accompanying notes are an integral part of these consolidated financial statements
-3-


VENGA AEROSPACE SYSTEMS INC.

CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

2006 2005

OPERATING ACTIVITIES
Net (Loss) (218,012) (244,779)
Items not affecting cash
Deferred revenue amortization (990) (2,600)
Loss on disposal of capital assets 0 7,114
(219,002) (240,265)
Changes in non-cash working capital items
Accounts receivable & sundry assets (1,633) 5,980
Inventories (668) 208
Loan receivable (238,720) 0
Deposit on equipment (253,654) 0
Accounts payable and accrued charges 216,841 (80,395)
(277,834) (74,207)

CASH USED IN OPERATING ACTIVITIES ( 49 6,836) (314,472)

INVESTING ACTIVITIES
Proceeds on sale of capital assets 0 24,033
Investment in private company funded by liquidation of account receivable (50,400) 0
Proceeds on sale of private company 0 10,742

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (50,400) 34,775

FINANCING ACTIVITIES
Additional loan proceeds from 2930170 Canada Inc. 87,600 55,500
Proceeds from issuance of common stock 667,620 221,490
Share issue costs (7.772) 0

CASH PROVIDED BY FINANCING ACTIVITIES 747,448 276,990

NET INCREASE (DECREASE) IN CASH 200,212 (2,707)

Cash and cash equivalents - beginning of year 7,467 10,174

CASH - END OF YEAR 207,679 7,467

Cash and cash equivalents is represented by:

Cash 207,679 7,467

OTHER CASH FLOW INFORMATION:

Interest paid 1,519 10,664
Capital stock issued in exchange for debt (note 8(c)) 686,743 0

The accompanying notes are an integral part of these consolidated financial statements
-4-
 VENGA AEROSPACE SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

CORPORATE
1. PROFILE
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. and on November
3, 1987, the company further changed its name to Venga Aerospace Systems Inc.

GOING CONCERN
2.
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 assumptions were 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.

OPERATIONS
3.
a. Aerospace Unit
Venga's aeronautics division was engaged in the development of a full-scale, composite jet
drone/aircraft known as the TG-10 Brushfire. In May of 1998, a full-scale prototype of the
Company's drone/aircraft was destroyed in a fire. Further development of Venga's composite
drone//aircraft program has been held in abeyance pending the securing of adequate funding for
the program.
On June 17, 2004, the Company entered into a development agreement with Air Combat
Warfare International ("ACWI") of Ayr, Ontario, wherein both parties agreed to make coordinated
efforts to exploit ACWI's existing and potential head and sub-contracts to supply flight and
combat support services for the U.S. military and the military forces of Canada and various other
NATO countries (collectively, the "Targeted Customers"). The Company has now extended its
development agreement with ACWI to April 3, 2008. The parties agreed that during the
continuing or extended period of the agreement, they would continue to make coordinated efforts
to exploit ACWI's potential head and sub-contracts to supply flight and combat support services
to the Targeted Customers.

On September 11, 2005, the Company entered into a development agreement with ARINC
Incorporated ("ARINC") and Fulcrum Inc. to explore the creation of an international maintenance
training centre capable of providing maintenance training to civil and military aircrews. The
Company, in association with ARINC (www.arinc.com ), has now made a formal proposal to the
Canadian government (the "Venga/ARINC Proposal") to provide replacement jet aircraft for the
Canadian Forces' Snowbirds aerial demonstration squadron. The Venga/ARINC Proposal is
based on providing the Canadian Forces newer, Hawk jet aircraft on a turnkey 20-year lease
program. The Venga/ARINC Proposal is currently being reviewed by various branches of the
Canadian government and the Canadian Forces and has yet to be accepted.

-5-
 VENGA AEROSPACE SYSTEMS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

OPERATIONS (Continued)

b. 3D Graphics Unit

Upon the destruction of Venga's prototype drone/aircraft in 1998, the Company, in an effort to re-
focus its business orientation on a commercial enterprise that promised a faster path to
profitability, considered several diverse business opportunities and in March of 1999, Venga
formed the Deep Focus Art Joint Venture the first of several commercial enterprises that the
Company entered or created to market and provide a range of 3D related products and services
for both consumer and commercial applications. These efforts, which include the creation of the
CLIK 3D Joint Venture in November of 2002 and the establishment of the Company's own,
digital based production facility in April of 2004 proved unsuccessful in creating a business
model that would allow the Company to produce 3D images on a cost efficient basis to meet the
Company's production requirements. In a further effort to secure an adequate production
capability, the Company, in June of 2005, entered into a letter of intent with Perc Business and
Capital Services, Inc., of Kenner Louisiana ("Perc") and Armadillo Photo Supply, Inc. of Houston,
Texas (the "Armadillo Letter of Intent") to establish a new joint venture which, when operational,
would supply a range of 3D products and print services for both the commercial and consumer
marketplaces. On August 9, 2006, the Company signed a further letter of intent (the "ERG Letter
of Intent") with Perc and ERG Investments, LLC of Lafayette, Louisiana ("ERG") to establish a
new joint venture which superseded the earlier Armadillo Letter of Intent but essentially adopted
the business objectives set out in the Armadillo Letter of Intent. Pursuant to the terms of the ERC
Letter of Intent, the Company and ERG were each to retain a 40% ownership position in the
proposed joint venture with the balance of the venture being owned by Perc. The ERG Letter of
Intent required that ERG provide the proposed new joint venture with $600,000 USD financing
which funds were to be used for the purchase of production equipment and to provide the
proposed business with operating capital. Establishment of the proposed joint venture
contemplated by the ERG Letter of Intent was made conditional on the parties fulfilling three
milestones on or before October 9, 2006: the entering into of a final form of joint venture
agreement; ERG's successful purchase of certain production equipment and the Company
securing the approval of the TSX Venture Exchange (the "Exchange") for the issuance of Venga
common shares in accordance with both the provisions of the Exchange's Policy 5.3 -
Acquisitions and Dispositions of Non-Cash Assets and the terms of the ERG Letter of Intent. In
compliance with the terms of the ERG Letter of Intent, on November 14, 2006, the Company
entered into a joint venture agreement (the "New JV Agreement") with 3DP North America, Inc.,
of Kenner, Louisiana; United Business & Capital Services, LLC of Kenner, Louisiana (an
associated corporate entity of Perc); EKG, LLC of Lafayette, Louisiana (an associated corporate
entity of ERG) and Armadillo Photo Supply, Inc. ("Armadillo") creating a new joint venture, the
3DP North America Joint Venture (the "New JV"), to provide a range of advanced 3D products
and services for both commercial and consumer customers. The New JV Agreement required
the New JV to purchase certain of the Company's existing 3D consumer camera inventories and
production equipment for $50,000 USD. The New JV's purchase of the Company's existing 3D
consumer camera inventories and production equipment was completed on December 1, 2006,
with the purchased assets being shipped on December 21, 2006, to the New JV's planned
production facility in Houston, Texas. The Company, which holds a 30% equity interest, with
respect to profits, in the New JV has no management rights or ongoing funding requirements or
obligations with respect to the New JV. The Company's participation in the management and
operation of the New JV is limited to the Company's right to receive 30% of the New JV's net
profits as and when such profits are distributed to the joint venturers in accordance with the
terms and provisions of the New JV Agreement. The Company is only liable to the extent of its
investment and is indemnified from the other joint venturers for any excess losses and liabilities.
Upon termination of the New JV, the Company is entitled to its capital account share in assets of
the New JV.

-6-


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

The consolidated financial statements include the accounts of Venga Aerospace
Systems Inc. ("the Company") and its subsidiaries, all of which are wholly owned.

Investments in jointly controlled companies, jointly controlled partnerships and

unincorporated joint ventures are accounted for using the proportionate consolidation
method, whereby the Company's proportionate share of revenues, expenses, assets and
liabilities are included in the accounts.
Investments in companies over which the Company has significant influence are
accounted for using the equity method.

(b) Basis of Presentation

The Company has prepared these comparative financial statements on a consolidated
basis which includes its wholly-owned subsidiary, Venga Joint Venture Ltd and a 30%
proportionate consolidation with 3DP Joint Venture ("New JV"). The New JV agreement
provides that the company will participate in 30% of profits generated through the New
JV. The company was required to fund a maximum of $600,000 USD of capital to the
New JV and upon termination of the New JV, receive back its capital investment in the
New JV assets. As at December 31, 2006, the Company funded 95% of the New JV
activities. As a result, these consolidated financial statements include the Company's
proportionate share of the net assets of the New JV being 951/o. The basis of
consolidation is proportionate capital share, which will vary over time, and not profit
share. All inter-company transactions and balances have been eliminated on
consolidation.

(c) 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, the disclosure of
contingent 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. Significant estimates include prepaid expenses and certain
accrued liabilities.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

(d) Financial Instruments

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

receivable, 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.

Credit Risk:
The Company does not have a significant exposure to any individual customer or
counter party.

Foreign Currency Risk:

Consulting contracts billed in U.S. dollars by the Company are recorded at the exchange
rate in effect at the time of sale, and are collected on standard trade payable terms.
Excess U.S. dollar balances are converted to Canadian dollars on a regular basis. The
Company does not enter into foreign currency hedges. Further devaluation in the U.S.
dollar relative to the Canadian dollar could impact the Company's ability to continue at
current sales growth rates and attain cash positive operations as substantially all of the
sales contracts are denominated in U.S. dollars.

(e) Inventory

The Company records inventory at the lower of cost and net realizable value. Cost is
determined on the first-in, first-out basis.
(f) Income Taxes

The Company uses the asset and liability method of accounting for income taxes under
which future tax assets and liabilities are recognized for differences between the
financial statement carrying amounts of existing assets and liabilities and their
respective tax bases. Future tax assets and liabilities are measured using substantively
enacted tax rates in effect in the year in which those temporary differences are expected
to be recovered or settled. The effect on future tax assets and liabilities of a change in
tax rates is recognized as part of the provision for income taxes in the year that includes
the enactment date. A valuation allowance is recorded to the extent there is uncertainty
regarding realization of future tax assets.

(g) Translation of Foreign Currencies

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 and losses are charged to income.

(h) Long-term Investments

Long-term investments are recorded at cost. Gains and losses are recognized when
investments are sold. Income is recognized only to the extent dividends are received.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

(i) Impairment of Long-lived Assets

Long-lived assets, including capital assets, are amortized over their useful lives. The
Company reviews long-lived assets for impairment when events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the sum of
the undiscounted cash flows expected to result from the use and eventual disposition of
a group of assets us less than its carrying amount, it is considered impaired. An
impairment loss is measured as the amount by which the carrying amount of the group
of assets exceeds its fair value. At December 31, 2006, no such impairment has
occurred.

U) Basic and Diluted Loss per Share

The Canadian Institute of Chartered Accountants ("CICA") recommends the use of the
treasury stock method in computing earnings/loss per share. Under this method, basic
loss per share is computed by dividing earnings available to common shareholders by
the weighted average number of common shares outstanding during the year. In
computing the loss per share on a fully diluted basis, the treasury stock method assumes
that proceeds received from in-the-money stock options are used to repurchase common
shares at the prevailing market rate.

The weighted average number of common shares outstanding during the year was
205,731,048 (2005 - 198,969,733).

(k) Concentration of Credit Risk

The Company derived net sales from one (2005 - Nil) major customers amounting to
approximately $50,400 representing 76% of total revenues (2005 - $Nil representing
Nil% of total revenues). Accounts receivable from the above significant customers at
December 31, 2006 amounted to approximately $Nil (2005 - $Nil).

(1) Revenue Recognition

Revenue is earned from the provision of 3D graphic consulting services and from the
sale of inventory items. The Company recognizes revenue from consulting services
when performance of the consulting services are complete and recognizes revenue from
the sale of inventory items when goods are shipped. Deferred revenue is amortized to
income as it is earned.

(m) Segmented Information

The Company has determined that it has one active operating segment. During the
period, revenues from U.S. sales totaled $66,287 and Canadian sales totaled $Nil.

(n) Comparative Figures

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

5 LOAN RECEIVABLE

The loan receivable from EKG, LLC is repayable within a year, is non-interest bearing and is
unsecured.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

6. INVESTMENT IN PRIVATE COMPANY

The Company, through a shares for debt conversion, received an immediate 3% interest and an
option to acquire up to an additional 15% interest in Global Mineral Investments, LLC ("GMI") a
private U.S. corporation engaged in the leasing and development of gold mining concessions in
West Africa. GMI has been invited by Liberia's Ministry of Lands, Mines and Energy to evaluate
and potentially acquire gold concessions in that country's Sinoe County region. In addition, the
Liberian government has indicated that certain oil concessions may be made available to GMI.

7. DUE TO 2930170 CANADA INC.

As of the end of the quarterly period ending September 30, 2006, the Company owed 2930170
Canada Inc. ("293 Inc.") the principal sum of $310,377 plus accrued interest of $54,975. 293 Inc.
is controlled by 3 of the 4 current directors of the Company. In January of 2006, the Company
and 293 Inc. had entered into an agreement (the "Initial 293 Settlement Agreement") wherein
293 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 293 Inc. In September of 2006, the Company and 293 Inc. entered into a further
agreement (the "Second 293 Settlement Agreement") wherein 293 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 the full debt that the Company owed 293 Inc. The initial 293
Settlement Agreement and the Second 293 Settlement Agreement (collectively hereinafter
referred to as the "293 Agreements") and the contemplated issuance of the Company's shares
were made subject to the approval of the TSX Venture Exchange. On September 15, 2006 the
Company announced that it had completed a series of agreements (including the 293
Agreements) to settle outstanding debts with unsecured and secured creditors. These
agreements require the issuance of 13,734,860 common shares (the "Consideration Shares") at
a price of $0.05 CDN per common share for a total of $686,743 CDN. The TSX Exchange, on
September 27, 2006, granted the Company its approval (the "TSX Approval") to the issuance of
the Consideration Shares. Pursuant to the terms of the 293 Agreements and the TSX Approval,
the Company issued 293 Inc. 7,307,040 common shares extinguishing the total debt of $365,352
that the Company owed 293 Inc.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

8. CAPITAL STOCK

(a) Authorized:
Unlimited common stock

(b) Issued and outstanding:

umber of mount
Shares $

Balance at December 31, 2004 196,754,833 15,155,885

Debt to equity conversions 4,429,800 221,490
Balance at December 31, 2005 201,184,633 15,377,375
Debt to equity conversions (c) 13,734 ,860 686,743
Private placement (d) 13,352,400 667,620
Share issuance costs 0 (7,772)
Balance at December 31, 2006 228,271,893 16,723,966

Weighted average number of shares outstanding: 2006 2005

Basic and fully diluted 205,731,048 198.969.733

(c) Debt to equity conversion

On September 15, 2006, the Company announced that it had completed a series of agreements
to settle outstanding debts with creditors through the issuance of capital stock of the Company.
These agreements required the issuance of 13,734,860 common shares (the "Consideration
Shares") at a price of $0.05 CDN per common share for a total of $686,743 CDN. The
Exchange, on September 27, 2006, granted the Company its approval to the issuance of the
Consideration Shares.

(d) Private placement

As a further term of the New JV Agreement, EKG, LLC was required to advance the Company
the sum of $600,000 USD in the form of a private placement (the "EKG Private Placement") in
accordance with the Exchange's Policy 4.1 - Private Placements. On December 4, 2006, the
Exchange accepted and approved for filing documentation with respect to the EKG Private
Placement for the issuance of 13,352,400 common shares which EKG, LLC would purchase at a
price of $0.05 per share. On December 5, 2006, the Company received the first tranche of the
EKG Private Placement in the amount of $250,000 USD for which the Company issued
5,563,500 common shares. The Company closed the second tranche of the EKG Private
Placement on December 18, 2006 when it issued 4,784,610 common shares priced at $0.05
CDN for gross proceeds of $215,000 USD. The final tranche of the EKG Private Placement was
closed on December 19, 2006 through the issuance of 3,004,290 common shares priced at $0.05
CDN for gross proceeds of $135,000 USD.

9. ECONOMIC DEPENDENCE

Approximately 76% of the Company's revenue has been derived from one customer.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

10. INCOME TAXES

(a) Provision of income taxes

The provision for income taxes differs from that calculated by applying statutory rates for
the following reasons:
2006 2005

Net loss before income taxes (218,012) 244,779

Expected income tax recovery based upon the combined

Canadian federal and provincial expected tax rates of
36.12% (2005 - 26.41%) (78,746) (64,646)

Adjustments to tax benefit resulting from:

Permanent differences (items not deductible for tax
purposes) 34 (1)
Share issue costs tax effect (561) 0
Timing differences 0 0
Valuation allowance 79.273 64.647

Provision for income taxes 0 0

(b) Future income tax balances

The tax effect of temporary differences that gives rise to future income tax assets and
liabilities at December 31, 2006 and 2005 are as follows:
2006 2005

Non-capital losses 400,380 338,594

Share issue costs 2,246 0
Timing differences tax recovery (potential future taxes) 0 0
Total gross future tax assets 402,626 338,594
Valuation allowance (402,626) (383,594)
Total net future tax assets 0 0

In assessing the realizability of future tax assets, management considers whether it is more likely
than not that some portion or all of the future tax assets will not be realized. The ultimate
realization of future tax assets is dependent upon the generation of future taxable income during
the periods in which those temporary differences become deductible.


VENGA AEROSPACE SYSTEMS INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006 AND 2005

The Company has accumulated losses for income tax purposes totaling approximately
$1,108,473 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:

2007 60,000
2008 120,000
2009 60,000
2013 198,000
2014 451,000
2026 219.473
1,108,473

11. LITIGATION
The Company was subject to an arbitration proceeding (the "Ongoing Litigation") instituted by a
former insider (and other related parties of the insider) of the Company (collectively referred to
as the "Claimants") for matters that were the subject of claims that the Claimants had raised in a
number of Ontario small claims court actions; a Superior Court of Ontario action and matters
pertaining to the Claimants' past involvement in the Company's business operations. The
Company has denied liability to the Claimants for these claims and actions and had both
defended these claims and actions and had instituted its own counter-claim against the
Claimants. On August 30, 2006, the Company, other named respondents in the Ongoing
Litigation and unnamed related parties (collectively referred to as the "Releasors") reached a
final settlement with the Claimants that resolved and terminated the Ongoing Litigation and a
settlement for $35,000. In addition, the Releasors and the Claimants signed a full and final
release (the "Mutual Releases") releasing and indemnifying the other for any claims or demands
that either the Releasors or the Claimants could raise against the other with respect to any
matter contained or referred to in the Ongoing Litigation or could otherwise be raised or
advanced as of the date of the Mutual Releases.

SUBSEQUENT
12. EVENT

On January 30, 2007, the Company signed a letter of intent with ARINC confirming the parties'
intention to finalize a full teaming agreement with respect to the Venga/ARINC Proposal. On
April, 23, 2007, the letter of intent was renewed for a further 90 days.