<PAGE>

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-QSB
(Mark One)

[X]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

       For the transition period from ________________ to _______________

                                    000-21749
                            (Commission file number)

                          MOONEY AEROSPACE GROUP, LTD.
        (Exact name of small business issuer as specified in its charter)

            DELAWARE                                           95-4257380
  (State or other jurisdiction                                (IRS Employer
of incorporation or organization)                          Identification No.)

                165 AL MOONEY ROAD NORTH, KERRVILLE, TEXAS 78028
                    (Address of principal executive offices)

                                 (830) 896-6000
                           (Issuer's telephone number)

                                       N/A
              (Former name, former address and former fiscal year,
                         if changed since last report)

     State the number of shares outstanding of each of the issuer's classes
              of common equity, as of the latest practicable date:
            As of April 30 2004 - 632,043,258 shares of common stock

    Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                                      INDEX

                                                                           Page
                                                                          Number
                                                                          ------

PART I.    FINANCIAL INFORMATION                                             2

Item 1.    Financial Statements                                              2

           Consolidated Balance Sheet as of March 31, 2004 (unaudited)       2

           Consolidated Statements of Operations for the
           three months ended March 31, 2004 and 2003 (unaudited)            3

           Consolidated Statements of Cash Flows for the
           three months ended March 31, 2004 and 2003 (unaudited)            4
           Notes to Consolidated Financial Statements (unaudited)            6

Item 2.    Management's Discussion and Analysis or Plan of Operations       13

Item 3.    Controls and Procedures                                          19

PART II.   OTHER INFORMATION                                                19

Item 1.    Legal Proceedings                                                19

Item 2.    Change in Securities                                             20

Item 3.    Defaults Upon Senior Securities                                  21

Item 4.    Submission of Matters to a Vote of Security Holders              21

Item 5.    Other Information                                                21

Item 6.    Exhibits and Reports on Form 8-K                                 21

SIGNATURES                                                                  22

CERTIFICATIONS                                                              23

                                       1





<PAGE>
<TABLE>

PART I.    FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

                             MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                                     CONSOLIDATED BALANCE SHEET

                                                                                         MARCH
                                                                                        31, 2004
                                                                                     --------------
                                                                                       (unaudited)
                                     ASSETS
<S>                                                                                  <C>
CURRENT ASSETS
     Cash and cash equivalents                                                       $     519,000
     Accounts receivable, net of allowance for doubtful accounts of $2,000                 128,000
     Inventory                                                                           8,934,000
     Debt issuance costs, current portion                                                  325,000
     Prepaid expenses and other current assets                                              70,000

                                                                                     --------------
TOTAL CURRENT ASSETS                                                                     9,976,000

PROPERTY AND EQUIPMENT, net                                                              3,810,000
TRADE NAME                                                                               1,802,000
DEBT ISSUANCE COSTS, less current portion                                                1,169,000

                                                                                     --------------
TOTAL ASSETS                                                                         $  16,757,000
                                                                                     ==============

                    LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable                                                                $   1,956,000
     Accrued expenses                                                                    1,940,000
     Accrued interest                                                                    3,940,000
     Accrued settlement of abandoned lease                                              24,152,000
     Advanced deposits                                                                   1,449,000
     Advances from related parties                                                         540,000
     Revolver loan                                                                       2,687,000
     Convertible debentures, current portion                                             2,377,000
     Notes payable, current portion (including related party notes of $288,000)            521,000

                                                                                     --------------
TOTAL CURRENT LIABILITIES                                                               39,562,000

CONVERTIBLE DEBENTURES, less current portion (including related
     party convertible debentures of $75,000)                                           25,238,000
NOTES PAYABLE, less current portion                                                      5,002,000

                                                                                     --------------
TOTAL LIABILITIES                                                                       69,802,000
                                                                                     --------------

COMMITMENT AND CONTINGENCIES                                                                    --

STOCKHOLDERS' DEFICIT
     Preferred stock, $0.0001 par value; 5,000,000 shares authorized; 0 shares
       issued and outstanding; 100,000 shares designated as Series A                            --
     Series A, Cumulative Convertible Preferred Stock, $100 stated value
       per share, 100,000 shares authorized; 21,322 shares issued and
       outstanding                                                                       1,718,000
     Class A Common stock, $0.0001 par value; 3,000,000,000 shares
       authorized; 592,798,620 shares issued and outstanding                                59,000
     Class B Common stock, $0.0001 par value; 10,000,000 shares
       authorized; 1,013,572 shares issued and outstanding                                      --
     Class E-1 Common stock, $0.0001 par value; 4,000,000 shares
       authorized; 4,000,000 shares issued and outstanding                                      --
     Class E-2 Common stock, $0.0001 par value; 4,000,000 shares
       authorized; 4,000,000 shares issued and outstanding                                      --
     Additional paid-in capital                                                         99,696,000
     Accumulated deficit                                                              (154,518,000)

                                                                                     --------------
TOTAL STOCKHOLDERS' DEFICIT                                                            (53,045,000)
                                                                                     --------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                          $  16,757,000
                                                                                     ==============
</TABLE>

                                    See accompanying notes to the
                                 consolidated financial statements.

                                                 2





<PAGE>
<TABLE>

                        MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                 THREE MONTHS ENDED
                                                          --------------------------------
                                                             MARCH               MARCH
                                                            31, 2004            31, 2003
                                                          -------------      -------------
                                                           (unaudited)        (unaudited)
<S>                                                       <C>                <C>
NET SALES                                                 $  3,736,000       $  1,865,000

COST OF SALES                                                3,886,000          1,532,000

                                                          -------------      -------------
GROSS PROFIT (LOSS)                                           (150,000)           333,000
                                                          -------------      -------------

OPERATING EXPENSES
      Research and development expenses                        144,000                 --
      Selling and support expenses                             674,000            479,000
      General and administrative expenses                    1,265,000          1,141,000
      Non-recurring expenses                                10,052,000                 --

                                                          -------------      -------------
TOTAL OPERATING EXPENSES                                    12,135,000          1,620,000
                                                          -------------      -------------

LOSS FROM OPERATIONS                                       (12,285,000)        (1,287,000)
                                                          -------------      -------------

OTHER INCOME (EXPENSE)
      Interest income                                               --             10,000
      Other income, net                                         65,000            341,000
      Amortization of debt issue costs and discounts          (733,000)        (1,543,000)
      Interest expense                                        (601,000)        (2,338,000)

                                                          -------------      -------------
TOTAL OTHER INCOME (EXPENSE)                                (1,269,000)        (3,530,000)
                                                          -------------      -------------

LOSS BEFORE PROVISION FOR INCOME TAXES                     (13,554,000)        (4,817,000)

PROVISION FOR INCOME TAXES                                          --                 --

NET LOSS                                                  $(13,554,000)      $ (4,817,000)
                                                          =============      =============

NET LOSS PER SHARE - BASIC AND DILUTED                    $      (0.03)      $      (0.05)
                                                          =============      =============
</TABLE>

                               See accompanying notes to the
                            consolidated financial statements.

                                            3





<PAGE>
<TABLE>

                        MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                              THREE MONTHS ENDED
                                                        --------------------------------
                                                            MARCH             MARCH
                                                           31, 2004          31, 2003
                                                        -------------      -------------
                                                         (unaudited)        (unaudited)
<S>                                                     <C>                <C>
CASH FLOW FROM OPERATING ACTIVITIES:
    Net loss                                            $(13,554,000)      $ (4,817,000)
    Adjustment to reconcile net loss to net cash
      used in operating activities:
        Noncash professional service expense                 250,000                 --
        Amortization of debt discount                        363,000          1,477,000
        Amortization of debt issuance costs                  372,000             66,000
        Depreciation and amortization expense                196,000            142,000
    Changes in operating assets and liabilities:
      Accounts receivable                                         --           (105,000)
      Inventory                                             (268,000)        (1,371,000)
      Prepaid expenses and other current assets              113,000             86,000
      Accounts payable                                    (1,028,000)          (191,000)
      Accrued expenses                                      (689,000)           823,000
      Accrued interest                                       523,000          2,306,000
      Accrued settlement of abandoned lease               10,053,000                 --
      Accrued warrant liability                                   --           (350,000)
      Advanced deposits                                     (162,000)           153,000

                                                        -------------      -------------
Net cash used in operating activities                     (3,831,000)        (1,781,000)
                                                        -------------      -------------

CASH FLOW FROM INVESTING ACTIVITIES:
    Purchase of property and equipment                       (13,000)           (16,000)

                                                        -------------      -------------
Net cash used in investing activities                        (13,000)           (16,000)
                                                        -------------      -------------

CASH FLOW FROM FINANCING ACTIVITIES:
    Proceeds from revolver loan, net                       2,687,000                 --
    Proceeds from advances from related parties              540,000                 --
    Proceeds from issuance of notes payable                       --          2,200,000
    Payments for debt issue costs                                 --           (229,000)
    Payments on notes payable                                (39,000)        (1,346,000)

                                                        -------------      -------------
Net cash provided by financing activities                  3,188,000            625,000
                                                        -------------      -------------

NET DECREASE IN CASH AND
    CASH EQUIVALENTS                                        (656,000)        (1,172,000)

CASH AND CASH EQUIVALENTS, Beginning of period             1,175,000          1,413,000
                                                        -------------      -------------

CASH AND CASH EQUIVALENTS, End of period                $    519,000       $    241,000
                                                        =============      =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

    Interest paid                                       $     76,000       $         --
                                                        =============      =============
    Income taxes paid                                   $         --       $         --
                                                        =============      =============
</TABLE>

                               See accompanying notes to the
                            consolidated financial statements.

                                            4





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, 2004, the Company: 1) converted 4,646
shares of Series A preferred stock into 15,162,101 shares of Class A common
stock valued at $363,795, 2) converted $1,738,295 of convertible debentures into
76,550,436 shares of Class A common stock, 3) converted $330,852 of accrued
interest into 14,009,603 shares of Class A common stock, 4) issued 7,650,128
shares of Class A common stock for accrued compensation of $102,513, 5) issued
12,500,000 shares of Class A common stock for consulting fees valued at
$250,000, 6) issued 9,523,810 shares of Class A common stock valued at $200,000
and issued a convertible note in the amount of $190,000 as full settlement for a
legal claim .

During the three months ended March 31, 2003, the Company converted: 1) 2,132
shares of Series A preferred stock into 14,286,525 shares of Class A common
stock valued at $165,000, 2) $286,000 of convertible debentures into 19,151,509
shares of Class A common stock, and 3) $32,000 of accrued interest into
2,466,014 shares of Class A common stock.

                               See accompanying notes to the
                            consolidated financial statements.

                                       5





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The unaudited consolidated financial statements have been prepared by Mooney
Aerospace Group, Ltd. (the "Company"), pursuant to the rules and regulations of
the Securities and Exchange Commission. The information furnished herein
reflects all adjustments (consisting of normal recurring accruals and
adjustments) that are, in the opinion of management, necessary to fairly present
the operating results for the respective periods. Certain information and
footnote disclosures normally present in annual consolidated financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been omitted pursuant to such rules and
regulations. These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes for
the year ended December 31, 2003 included in the Company's Annual Report on Form
10-KSB. The results of the three months ended March 31, 2004 are not necessarily
indicative of the results to be expected for the full year ending December 31,
2004.

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation of the Company as a going concern. The
Company incurred a net loss for the three months ended March 31, 2004 of
$13,554,000 and at March 31, 2004, had an accumulated deficit of $154,518,000
and a working capital deficit of $29,586,000. In addition, an arbitrator
rendered a judgment in the amount of $23,902,000 against the Company in a legal
dispute brought by the Company's former landlord. These conditions raise
substantial doubt as to the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty. These consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts, or amounts and classification of
liabilities that might be necessary should the Company be unable to continue as
a going concern.

Management plans to take the following steps that it believes will be sufficient
to provide the Company with the ability to continue in existence.

         1.       The Company's management team has been developing a financial
                  plan to address its working capital requirements and believes
                  that if executed successfully, the plan will substantially
                  improve the Company's ability to meet its working capital
                  requirements throughout the year ended December 31, 2004.

         2.       Management has restructured its current outstanding debt and
                  raised additional capital through the issuance of notes
                  payable, including a $5,000,000 long-term note issued on
                  November 14, 2003, that it believes will be sufficient to fund
                  its current operations and increase the number of airplanes
                  produced to generate sufficient revenue to achieve profitable
                  operating results.

         3.       The Company also has a revolver loan for up to $4,000,000 to
                  finance materials purchases for production. The revolver loan
                  is repaid as each plane is sold. In addition to this, during
                  April 2004, this revolver loan was increased $1,500,000 to be
                  used for working capital purposes (see Note 12). With these
                  additional funds we should be able to finance our plan of
                  operations.

Stock Options
-------------
The Company did not grant any new options and no options were cancelled or
exercised during the three months ended March 31, 2004. As of March 31, 2004, no
options were outstanding under the Company Stock Option Plan (the "Plan"), and
300,000 were options outstanding that were issued outside the Plan in July 2002

                                       6





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

that were fully vested on that date. The pro forma information regarding the
effect on operations that is required by SFAS 123 and SFAS 148 has not been
presented since there is no pro forma expense to be shown for the three months
ended March 31, 2004 and 2003.

NOTE 2 - EARNINGS PER SHARE

In 1997, the Financial Accounting Standard Boards ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. Basic earnings per
share is computed using the weighted-average number of common shares outstanding
during the period. Common equivalent shares are excluded from the computation if
their effect is anti-dilutive. (See Note 11 for per share information) The
following potential common shares have been excluded from the computation of
diluted net loss per share as of March 31, 2004 and 2003 because the effect
would have been anti-dilutive:

<TABLE>
                                                                      2004              2003
                                                                 ---------------  ---------------
<S>                                                                <C>              <C>
         Conversion of Series A preferred stock                       67,149,661      375,077,777
         Conversion of convertible debentures                      1,447,662,452    3,947,746,311
         Stock options issued to employees                               300,000          300,000
         Warrants issued with convertible debentures                           -       62,939,612
         Warrants issued with Series A preferred stock                         -        2,771,002
         Warrants issued with equity line                              4,268,764        4,268,764
         Warrants issued with severance package                        2,000,000        2,000,000
         Warrants issued with acquisition of MAC                       3,623,189        3,623,189
                                                                 ---------------  ---------------
                                                                   1,525,004,066    4,398,726,655
                                                                 ===============  ===============
</TABLE>

NOTE 3 - INVENTORY

Inventory at March 31, 2004 consisted of the following:

         Raw materials and purchased parts                       $     2,116,000
         Work-in-process                                               3,997,000
         Semi-finished and finished goods                              2,821,000
                                                                 ---------------

                                                                 $     8,934,000
                                                                 ===============
NOTE 4 - PROPERTYAND EQUIPMENT

Property and equipment at March 31, 2004 consisted of the following:

         Aircraft                                                $      660,000
         Office furniture and equipment                                 577,000
         Machinery and equipment                                      4,078,000
                                                                 ---------------
                                                                      5,315,000
          Less accumulated depreciation and amortization             (1,505,000)
                                                                 ---------------
                                                                 $    3,810,000
                                                                 ===============

                                       7





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE 5 - NOTES PAYABLE
<TABLE>

Notes payable at March 31, 2004 consisted of the following:

<S>                                                                                      <C>
         Note payable to BLX Commercial Capital, LLC - interest rate prime plus
              2%; secured by virtually all the assets of the Company and a
              $2,000,000 life insurance policy on the Company's Chief Executive
              Officer and is guaranteed under the U.S. Department of Agriculture
              Business and Industry Guaranteed Loan Program; monthly principal
              and interest payments of $32,516, with any unpaid principal and
              interest due on November 1, 2028.                                          $      4,972,000

         Note payable to Lincoln Mortgage Corporation- interest rate 4.75%;
              unsecured note with monthly principal payment of $2,470 plus
              interest, with any unpaid principal and
              interest due on April 1, 2008.                                                      107,000

         Notes payable to individual investors (including $288,000 to the
              Company's chairman) - interest rate 8%; unsecured notes with all
              principal and interest payments due at
              maturity on various dates in 2004.                                                  444,000
                                                                                         ----------------

                                                                                                5,523,000
                            Less current maturities                                              (521,000)
                                                                                         -----------------

                                                                                         $      5,002,000
                                                                                         =================
</TABLE>

NOTE 6 - REVOLVING LOAN

On November 17, 2003, the Company finalized a revolving loan in the aggregate
principal amount of $4,000,000 issued by MAC to two related parties, pursuant to
an Amended and Restated Loan and Purchase Money Security Agreement. The
revolving loan has a term of two (2) years and bears interest at a rate of 10%
per annum. The proceeds of the revolving loan will be used to finance the
purchase of airplane parts to be used in the manufacture of airplanes, and is
secured by parts and equipment purchased with such proceeds. The issuers of the
revolving loan have the option of converting any or all the amounts outstanding
under the loan to shares of the Company's common stock at $0.00856 per share,
which represents a total beneficial conversion feature of $4,000,000. As the
beneficial conversion feature may at any time exceed the outstanding balance due
on the revolving loan, the discount is presented as a contra-equity account,
included in additional paid-in capital, in the accompanying consolidated
financial statements. The beneficial conversion feature is being amortized over
the term of the loan beginning on the date of the first borrowing. For the three
months ended March 31, 2004, the Company amortized $363,000 of the beneficial
conversion feature. As of March 31, 2004, there was $2,687,000 outstanding under
this revolving loan. In connection with this revolving loan, the Company is
required to pay a commitment fee of $400,000 payable in shares of the Company's
common stock. As of March 31, 2004, the shares had not been issued and this
$400,000 commitment fees has been included in accrued expenses in the
accompanying consolidated balance sheet. This commitment fee will be amortized
over the 24 month term of the revolving loan. The commitment shares were
subsequently issued during April 2004 (see Note 12).

                                       8





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE 7 - ADVANCES FROM RELATED PARTIES

During the three months ended March 31, 2004, the Company received $540,000 in
advances from two related parties in connection with a loan security agreement
(see Note 12). These advances are for working capital purposes and were made
prior to the execution of the loan security agreement.

NOTE 8 - CONVERTIBLE DEBENTURES
<TABLE>

Convertible debentures at March 31, 2004 consisted of the following:

<S>                                                                                      <C>
         Secured convertible debentures to various individual investors (including
              $75,000 to the Company's Chairman) - interest rate 8%;
              convertible into shares of the Company's Class A common
              stock at a rate of $0.0192 per share; debentures mature at
              various dates through 2007.                                                $     21,161,000

         Unsecured convertible debentures to various individual investors -
              interest rate 3%; convertible into shares of the Company's Class A
              common stock at a rate of $0.0384 per share;
              debentures mature in June 2006.                                                   6,264,000

         Unsecured convertible debentures to Whiteford Jetwings Ltd. -
              interest rate 3%; convertible into shares of the Company's
              Class A common stock at a rate of $0.021 per share;
              debenture matures in 2006.                                                          190,000
                                                                                         -----------------

                                                                                               27,615,000
                            Less current maturities                                            (2,377,000)
                                                                                         -----------------

                                                                                         $     25,238,000

A rollforward of the convertible debentures is as follows:

              Balance, December 31, 2003                                                $      29,164,000
              Issuance of convertible debentures for legal settlement                             190,000
              Conversions into equity                                                          (1,739,000)
                                                                                        ------------------
              Balance, March 31, 2004                                                   $      27,615,000
                                                                                        ==================
</TABLE>

                                       9





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

NOTE 9 - COMMON STOCK

During the three months ended March 31, 2004, the Company: 1) converted 4,646
shares of Series A preferred stock into 15,162,101 shares of Class A common
stock valued at $363,795, 2) converted $1,738,295 of convertible debentures into
76,550,436 shares of Class A common stock, 3) converted $330,852 of accrued
interest into 14,009,603 shares of Class A common stock, 4) issued 7,650,128
shares of Class A common stock for accrued compensation of $102,513, 5) issued
12,500,000 shares of Class A common stock for consulting fees valued at
$250,000, and 6) issued 9,523,810 shares of Class A common stock valued at
$200,000 and issued a convertible note in the amount of $190,000 as full
settlement for a legal claim.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Litigation
----------

L. PETER LARSON AND DALE RUHMEL v. MOONEY AEROSPACE GROUP, INC. This cause of
action was filed in Los Angeles County Superior Court on December 31, 2002. The
initial complaint against the Company was filed by two former executives, R.
Peter Larson and Dale Ruhmel. The causes of action are for Breach of Contract,
Labor Code Violations, Intentional Misrepresentation, Slander and Intentional
Infliction of Emotional Distress in Violation of the California Unfair Labor
Code.

Peter Larson was employed as an Executive Vice President and Chief Financial
Officer of Mooney, Dale Ruhmel was Executive Vice President of Engineering and
became Chief Operating Officer. Both plaintiffs had entered into a written
employment agreement with the Company on or about January 8, 2002. Plaintiffs
were employed by the Company until the end of October 2002. Plaintiffs claim
that the Company breached their employment agreements by terminating their
employment without good cause and failing to pay severance payments as required
by the agreements. Plaintiffs also claim that at the time of the termination
they were not paid all of their vacation and wages owed as required by the
California Labor Code. Plaintiffs also claim that the Company misrepresented its
intentions to honor the agreements and that plaintiffs relied upon this to their
detriment. There were also allegations of intentional infliction of emotional
distress and slander.

The damages sought in the complaint include attorneys' fees, tort damages if
defamation or fraud can be proven, contractual damages (the contract provides
for a year's severance if terminated without cause or notice). The Company has
filed a cross-complaint against the two individuals. The Company has accrued
damages for this action as of March 31, 2004, for which a settlement agreement
was reached and completed in May 2004. This agreement calls for a settlement
of $200,000 paid out over six months from the proceeds of sales of Class A
common stock.

WHITEFORD JET WINGS, LTD. v. MOONEY AEROSPACE GROUP, LTD. ET AL., Cal. Super.
Ct. (Los Angeles County, Long Beach District), Case No. NC033548 (filed January
21, 2003). This case was filed by a company that alleged it had signed an
agreement to be the exclusive regional distributor of Jetcruzer aircraft in
Illinois, Indiana, Kentucky, and Wisconsin, and that it had put down a deposit
of $390,000 for the first 39 aircraft it was to purchase. The suit sought return
of the $390,000 deposit on a variety of theories, including breach of contract,
account stated, and fraud. A settlement has been reached and the terms include
$200,000 from the issuance of 9,523,810 shares of Class A common stock and a
convertible note for the amount of $190,000, which is convertible into Class A
common stock at the conversion price of .021 cents per share, or 9,047,619
shares. The note carries an interest rate of 3% and is restricted to conversion
of no more than $50,000 in any 30 day period. The 9,523,810 shares of Class A
common stock were issued March 26, 2004.

                                       10





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)

AP-LONG BEACH AIRPORT LLC v. MOONEY AEROSPACE GROUP, LTD. The Company leased
approximately 10 acres of land located on the Long Beach Airport in Long Beach,
California. The lease commenced on January 14, 1998 and had a term of 30 years
with an option to renew for an additional 10 year term. The lease contained
options to lease other airport properties. The lease contained incremental
increases, which escalated the monthly rent to approximately $15,600 after 5
years.

Pursuant to an Agreement dated May 19, 1999, the Company sold its leasehold
interest in real property located at 3205 Lakewood Boulevard, Long Beach,
California, together with the manufacturing hangar facility (approximately
205,000 square feet) and finished office space (approximately 22,000 square
feet) owned by the Company. The cash purchase price was $9,800,000. As part of
this transaction, the Company entered into an agreement to sublease the land and
lease the manufacturing hangar facility and finished office space for a term of
18 years, plus an option to extend the lease for an additional 10 years. The
$246,000 deferred gain on the sale of the facility was being amortized over the
18 year lease term and is now recorded in liabilities related to abandon
building.

AP Long Beach Airport, LLC ("AP"), the lessor, has filed a complaint in the Los
Angeles Superior Court, alleging breach of a Sublease Agreement by the Company
for failure to pay rent. Specifically, AP alleges that AP and the Company
entered into a Lease Agreement for the lease of real property located in Long
Beach, California to the Company for a thirty year term. AP and the Company
later entered into first, an Assignment and Assumption Agreement and then, a
Sublease Agreement wherein AP sublet the property to the Company for a term of
eighteen years at a monthly rent of $106,167. AP seeks to recover the fair
rental value of the property and base rent pursuant to the Lease and Sublease
Agreements in addition to its attorneys' fees and costs. On December 3, 2003, in
connection with the lawsuit in the Superior Court of the State of California for
the County of Los Angeles, South District, the Company and AP entered into a
stipulation regarding: Admission of Liability and Binding Arbitration of
Damages. Under the Stipulation, the Company admitted liability to all of AP's
claims, except that the Company and AP agreed to enter into binding arbitration
with respect to (i) the calculation of damages sought by AP and (ii) whether AP
properly mitigated its damages. On May 3, 2004, the Company and its former
landlord completed the arbitration proceedings. The arbitrator's Preliminary
Arbitration Award provides for the payment by the Company of $23,902,000 to
AP-Long Beach Airport LLC, plus attorney's fees to be determined at a later
date. The Superior Court has not yet reduced it to judgment. The Company has
taken the position with the court that it is entitled to de novo review. The
Court has not yet ruled on the Company's position. During the three months ended
March 31, 2004, the Company has accrued an additional $10,053,000 related to
this litigation, bringing the total accrual related to this litigation to
$24,152,000, the amount awarded by the arbitrator plus $250,000 in estimated
attorney fees.

In the ordinary course of business, the Company is generally subject to claims,
complaints, and legal actions.

NOTE 11 - PER SHARE INFORMATION

The Company calculates basic net loss per share as required by SFAS No. 128,
"EARNINGS PER SHARE." Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities, and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. The following table sets forth the computation of
basic loss per share for the three months ended March 31, 2004 and 2003:

                                       11





<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
               FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
                                   (UNAUDITED)
<TABLE>
                                                                                       2004               2003
                                                                                ------------------ -----------------
<S>                                                                             <C>                <C>
                  Numerator
                    Loss before extraordinary item                              $     (13,554,000) $     (4,817,000)
                    Amortization of discount on preferred stock                                 -           (39,000)
                    Dividends in Arrears                                                 (446,000)         (471,000)
                                                                                ------------------ ----------------
                  Numerator for basic loss per share                            $     (14,000,000) $     (5,327,000)
                                                                                ================== =================

                  Denominator
                    Weighted average shares of Class B shares                           1,014,000         1,014,000
                    Weighted average shares of Class A shares                         527,579,000       103,106,000
                                                                                ------------------ -----------------
                  Numerator for basic loss per share                                  528,593,000       104,120,000
                                                                                ================== =================

                  Basic loss per share                                          $           (0.03) $          (0.05)
                                                                                ================== =================
</TABLE>

There is no difference between the loss per common share amounts computed for
basic and dilutive purposes because the impact of convertible debt and preferred
stock, options and warrants would be anti-dilutive.

NOTE 12 - SUBSEQUENT EVENTS

From April 1, 2004 to April 30, 2004, the Company issued 17,791,462 shares of
common stock for conversions of preferred stock and convertible debentures,
17,391,304 for commitment fees and issued 4,061,882 per employment agreements.

On May 6, 2004, the Company entered into an amendment to the Amended and
Restated Loan and Purchase Money Security Agreement dated November 17, 2003 (see
Notes 6 & 7) that provides for additional funding for working capital purposes
up to $1,500,000. This brings the total that can be borrowed under the Revolver
Loan to $5,500,000.

                                       12





<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related footnotes for the year ended
December 31, 2003 included in our Annual Report on Form 10-KSB. The discussion
of results, causes and trends should not be construed to imply any conclusion
that such results or trends will necessarily continue in the future.

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-QSB and the documents incorporated herein by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for
forward looking statements to encourage companies to provide prospective forward
looking information about themselves so long as they identify these statements
as forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
Quarterly Report on Form 10-QSB are forward looking. In particular, the
statements herein regarding industry prospects and future results of operations
or financial position are forward-looking statements. Forward-looking statements
reflect management's current expectations and are inherently uncertain. Our
actual results may differ significantly from management's expectations.

GENERAL

On February 8, 2002, we announced we had purchased Congress Financial
Corporation's ("Congress") position as senior secured creditor for Mooney
Aircraft Corporation of Kerrville, Texas ("MACorp"). On February 6th, the U.S.
Bankruptcy Court in San Antonio, Texas, approved an operating agreement that
allowed us to manage MACorp until a plan of reorganization was approved. The
Bankruptcy Court approved the sale of substantially all of the MACorp assets to
us on March 18, 2002 and on April 19, 2002 we completed the Mooney asset
acquisition.

MACorp was the world's leading supplier of high performance single engine
general aviation aircraft primarily serving business and owner-flown markets.
MACorp produced over 10,000 aircraft since its founding in 1947, and presently
has over 8,000 aircraft in operation in the US alone. We have acquired
substantially all of MACorp's assets and intend to return to full production of
the Mooney aircraft line. MACorp's assets are held by our wholly owned
subsidiary named Mooney Airplane Company, Inc. ("MAC"). On July 23, 2002, we
changed our name to Mooney Aerospace Group, Ltd.

We believe that the acquisition of MACorp's assets will allow us to create a
dynamic general aviation company by returning Mooney to full production and
creating substantial potential for earnings growth for the Company and its
shareholders.

We have commenced the commercial sale of our aircraft, and we derive a
substantial portion of our revenues from the sale of a relatively small number
of aircraft. As a result, a small reduction in the number of aircraft shipped in
a quarter could have a material adverse effect on our financial position and
results of operations for that quarter. Our policy is to collect progress
payments during the construction of aircraft and final payments upon the
delivery of aircraft. Construction or delivery delays near the end of a
particular quarter due to, for example, shipment rescheduling, delays in the
delivery of component parts or unexpected manufacturing difficulties, could
cause the financial results of the quarter to fall significantly below our
expectations and could materially and adversely affect our financial position
and results of operations for the quarter.

                                       13





<PAGE>

During 2004, we intend to focus our efforts on the following events:

         o        The restoration to full production of MAC's manufacturing line
                  in Kerrville, Texas.

         o        Enhancement and aggressive implementation of our marketing
                  program.

         o        Reduction of costs to increase profit margins.

On June 27, 2002 MAC announced that we had received a Federal Aviation
Administration (FAA) production certificate that covers the: Eagle2 (Mooney
M20S), Ovation2 (Mooney M20R) and the Bravo2 (Mooney M20M). We are making good
progress in getting the factory up to full production.

On August 8, 2002 we announced that MAC had received FAA certification as a
repair station. The repair station is co-located with the MAC production
facility in Kerrville, Texas. This will enhance our support to Mooney owners and
provide us with additional business opportunities.

We are in the process of offering the Garmin GRMN G1000 all glass integrated
avionics system as two new models the Ovation2 GX and the BravoGX. The
certification program is now underway and is expected to be complete by
mid-summer of 2004. We are extremely excited about our ability to offer the best
of both worlds in panel technology.

We have generated $3,736,000 in operating revenues for the three months ended
March 31, 2004 from the sale of aircraft and spare parts sales, and have
incurred a net loss during the same period of $13,554,000. We believe we will
continue to experience losses until such time as we attain a sales level of our
aircraft on a commercial scale. No assurance can be made that we will be able to
attain sales levels of our aircraft in the foreseeable future that will allow us
to generate revenue sufficient to maintain its operations without other sources
of financing.

GOING CONCERN

The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which contemplate continuation as a going concern. We incurred a net
loss for the three months ended March 31, 2004 of $13,554,000 and, at March 31,
2004, had an accumulated deficit of $154,518,000 and a working capital deficit
of $29,586,000. In addition, an arbitrator rendered a judgment in the amount of
$23,902,000 against us in a legal dispute brought by our former landlord. These
conditions raise substantial doubt as to our ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.

Management plans to take the following steps that it believes will be sufficient
to provide us with the ability to continue in existence.

         o        Our management team has been developing a financial plan to
                  address our working capital requirements and believes that if
                  executed successfully, the plan will substantially improve our
                  ability to meet our working capital requirements throughout
                  the year ended December 31, 2004.

                                       14





<PAGE>

         o        Management has restructured our current outstanding debt and
                  raised additional capital through the issuance of notes
                  payable, including a $5,000,000 long-term note issued on
                  November 14, 2003, that we believes will be sufficient to fund
                  our current operations and increase the number of airplanes
                  produced to generate sufficient revenue to achieve profitable
                  operating results.

         o        The Company also has a revolver loan for up to $4,000,000 to
                  finance materials purchases for production. The revolver loan
                  is repaid as each plane is sold. In addition to this, during
                  April 2004, this revolver loan was increased $1,500,000 to be
                  used for working capital purposes (see Note 12). With these
                  additional funds we should be able to finance our plan of
                  operations.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2004, we had a working capital deficit of $29,586,000 and
stockholders' deficit of $53,045,000. Since our inception in January 1990, we
have experienced continuing negative cash flow from operations, which have
resulted in our inability to pay certain existing liabilities in a timely
manner. We have financed our operations through private funding of equity and
debt and through the proceeds generated from our December 1996 initial public
offering.

We expect to continue to incur losses until such time as we restore our
production processes to planned production levels and regain market acceptance
of our aircraft at selling prices and volumes which provide adequate gross
profit to cover operating costs and generate positive cash flow. Our working
capital requirements will depend upon numerous factors, including the level of
resources devoted to the scale-up of manufacturing and the establishment of
sales and marketing. No assurance can be made that we will be able to restore
Mooney's production processes to planned levels, regain market acceptance for
our aircraft or generate positive cash flow in the foreseeable future, or ever.
If we are unable to generate cash flow through our operations as necessary, we
will have to continue to obtain financing through equity or debt financing. No
assurance can be made that we will be able to obtain sufficient equity or debt
financing under terms acceptable to us to allow us to maintain operations
according to our current operating plans, or at all.

Our management team has developed a financial plan to address our working
capital requirements. Since early 2001, this has included the issuance of
convertible debentures. The debentures are convertible into shares of Class A
Common Stock at fixed prices in accordance with the restructuring that took
place in the 2nd quarter of 2003. The notes earn interest at the rate stated in
the note agreements and the payment terms vary with each agreement.

On June 17, 2003, we implemented a restructuring plan whereby all convertible
note holders agreed to waive all outstanding defaults, including waiver of the
penalties for non-registration of the shares underlying the convertible
debentures up to and for an additional six months following the plan date. The
restructuring set fixed note conversion prices of $0.0192 for secured debenture
notes and preferred stock; and $0.0384 for unsecured debenture notes. In
connection with the restructuring plan, the Company has received more than
$5,500,000 of new financing. The Company did not take a charge to earnings as a
result of fixing the conversion prices since the conversion prices are higher
than the market price of the Company stock at the time the agreements were
reached with investors.

In addition to waiving all outstanding defaults, holders of convertible notes
agreed to cancel all outstanding warrants currently held by them. The maturity
dates for the unsecured notes were extended by three years from the
restructuring date. Interest rates on all unsecured notes and the preferred
stock has been reduced from 8% to 3%.

                                       15





<PAGE>

On November 14, 2003, we issued a long-term note payable in the amount of
$5,000,000 with BLX, of which some of the proceeds were used to repay the
Congress notes in full. This note is guaranteed by the Department of Agriculture
Business and Industry Guaranteed Loan Program. The note is guaranteed and
secured by virtually all assets and is due by November 13, 2028.

On November 17, 2003, we issued a secured revolving loan in the aggregate
principal amount of $4,000,000 issued by MAC to two related parties, pursuant to
an Amended and Restated Loan and Purchase Money Security Agreement. The
revolving loan has a term of two (2) years and bears interest at a rate of 10%
per annum. The proceeds of the revolving loan will be used to finance the
purchase of airplane parts to be used in the manufacture of airplanes, and is
secured by parts and equipment purchased with such proceeds. The issuers of the
revolving loan have the option of converting any and all the amounts outstanding
under the loan to shares of our common stock at $.00856 per share. As of March
31, 2004, there was $2,687,000 outstanding under this revolving loan. On May 6,
2004, we entered into an amendment to the Amended and Restated Loan and Purchase
Money Security Agreement dated November 17, 2003 that provides for additional
funding for working capital purposes up to $1,500,000. This brings the total
that can be borrowed under the Revolver Loan to $5,500,000.

Our current cash balance, along with amounts available to us under the revolving
loan, should be sufficient to meet our operating needs for the next 12 months.
However if additional funding is required it will be accomplished either through
additional stock issuances or debt financing obtained from certain private
parties.

CRITICAL ACCOUNTING POLICIES

The Plan of Operations discusses our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. When we prepare these consolidated financial statements,
we are required to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. On an
on-going basis, we evaluate our estimates and judgments, including those related
to investments, long-lived assets, deferred tax assets, other liabilities and
revenue recognition. We base our estimates and judgments on historical
experience and on various other factors that we believe to be reasonable under
the circumstances, the results of which form the basis for our judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Revenue Recognition - We recognize revenue on substantially all aircraft sales
and parts and service sales when each of the following four criteria is met: 1)
a contract or sales arrangement exists; 2) products have been shipped or
services have been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured. We also recognize
revenue on aircraft sales under bill-and-hold transactions when each of the
following seven criteria are met: 1) the risk of ownership has passed to the
buyer; 2) the buyer has made a fixed commitment to purchase the goods; 3) the
buyer has requested that the transaction be on a bill-and-hold basis and has a
substantial business purpose for ordering so; 4) there is a fixed schedule for
delivery of the goods and the delivery date is reasonable and consistent with
the buyer's business practices; 5) we have not retained any specific performance
obligations such that the earnings process is not complete; 6) the aircraft has
been segregated from our inventory and is not subject to being used to fill
other orders; and 7) the aircraft must be complete and ready for shipment.

                                       16





<PAGE>

Inventory Obsolescence -- We provide an inventory obsolescence reserve for parts
whose values have been determined to be impaired or whose future utility appears
limited based on usage over the prior two years.

For further information regarding the accounting policies that we believe to be
critical accounting policies and that affect our more significant judgments and
estimates used in preparing our consolidated financial statements, see our
December 31, 2003 consolidated financial statements in our annual report
contained in our Form 10-KSB filed on March 30, 2004.

CONVERSION OF PERFORMANCE SHARES

In the event we attain certain earnings thresholds or our Class A Common Stock
meets certain minimum bid price levels, the Class E Common Stock will be
converted into Class B Common Stock. In the event any such converted Class E
Common Stock is held by officers, directors, employees or consultants, the
maximum compensation expense recorded for financial reporting purposes will be
an amount equal to the fair value of the shares converted at the time of such
conversion which value cannot be predicted at this time. Therefore, in the event
we attain such earnings thresholds or stock price levels, we will recognize a
substantial charge to earnings during the period in which such conversion
occurs, which would have the effect of increasing our loss or reducing or
eliminating our earnings, if any, at that time. For the year ending December 31,
2002, such earning thresholds would be pre-tax income of $45 million and $56.25
million for Class E-1 and Class E-2 Common Stock, respectively. In the event we
do not attain these earnings thresholds or minimum bid price levels, and no
conversion occurs, no compensation expense will be recorded for financial
reporting purpose.

RESULTS OF OPERATIONS

Three months ended March 31, 2004 vs. March 31, 2003
----------------------------------------------------

Net sales for the three months ended March 31, 2004 increased by $1,871,000 or
100% from $1,865,000 for the three months ended March 31, 2003 compared to
$3,736,000 for the same period in 2004. During the three months ended March 31,
2004, we sold 7 airplanes as compared to the sale of 3 airplanes for the three
months ended March 31, 2003.

Cost of sales for the three months ended March 31, 2004 increased by $2,354,000
or 154% from $1,532,000 for the three months ended March 31, 2003 compared to
$3,886,000 for the same period in 2004. The increase in cost of sales is
directly related to the significant increase in aircraft sales. We have the
capacity to produce more airplanes than have been produced in the past thereby
reducing the fixed manufacturing costs associated with each airplane produced.
As we increase our production of airplanes we expect our gross margin to
improve.

Research and development costs for the three months ended March 31, 2004
increased by $144,000 or 100%, from $0 for the three months ended March 31,
2003, compared to $144,000 for the three months ended March 31, 2004. The
significant increase is due to the development of our new instrument panel that
will be installed on our aircraft later in 2004.

Selling and support expenses for the three months ended March 31, 2004 increased
by $195,000 or 41% from $479,000 for the three months ended March 31, 2003
compared to $674,000 for the same period in 2004. The increase is directly
related to the increase in aircraft sales.

General and administrative expenses for the three months ended March 31, 2004
increased by $124,000 or 11% from $1,141,000 for the three months ended March
31, 2003 compared to $1,265,000 for the same period in 2004.

                                       17





<PAGE>

Non-recurring expenses for the three months ended March 31, 2004 relates to the
additional accrual for a legal judgment related to litigation with our former
landlord. On May 3, 2004, we and our former landlord completed arbitration
proceedings of a claim for alleged damages due to termination by us of our lease
at our former headquarters in Long Beach, California. The arbitrator's
Preliminary Arbitration Award provides for the payment by us of $23,902,000 to
AP-Long Beach Airport LLC, plus attorney's fees to be determined at a later
date. It is our intention to seek a jury trial. During the three months ended
March 31, 2004, we have accrued an additional $10,053,000 related to this
litigation, bring the total accrual related to this litigation to $24,152,000,
the amount awarded by the arbitrator plus $250,000 in estimated attorney fees.

Other income (expense) for the three months ended March 31, 2004 decreased by
$276,000 from $341,000 for the three months ended March 31, 2003 to of $65,000
for the same period in 2004. Other income for the three months ended March 31,
2003 was related to the decrease in the fair value of detachable warrants
associated with the convertible debentures. All these warrants were canceled in
June 2003, as a result there is no such change in the warrant valuation for the
three months ended March 31, 2004. For the three months ended March 31, 2004,
the other income relates to the settlement of certain deposits for less that the
recorded amount.

Amortization of debt issue costs and discounts for the three months ended March
31, 2004 decreased by $810,000 or 52% from $1,543,000 for the three months ended
March 31, 2003 compared to $733,000 for the same period in 2004. The significant
decrease is due to the debt discounts being written off in the 2nd quarter of
2003 as a result of the debt restructuring. The amortization for the three
months ended March 31, 2004 only represents amortization of the debt issue costs
and the amortization of the beneficial conversion feature of the revolver loan.

Interest expense for the three months ended March 31, 2004 decreased by
$1,737,000 or 74% from $2,338,000 for the three months ended March 31, 2003
compared to $601,000 for the same period in 2004. For the three months ended
March 31, 2003, we accrued penalties related to the non-registration of the
shares underlying the convertible debentures. As a result of the debt
restructuring in the 2nd quarter of 2003, the penalties were forgiven and future
penalties were waived.

Cash used in operating activities for the three months ended March 31, 2004,
increased by $2,050,000 as compared to the same period in 2003, due principally
to the increased net loss.

Mooney Airplane Company is the only operating entity and the changes in
operating assets and liabilities are mainly related to the operations of that
business, including changes in inventory, property and equipment and accounts
payable.

Cash used in investing activities for the three months ended March 31, 2004,
decreased by $3,000 as compared to the same period in 2003.

Cash provided by financing activities for the three months ended March 31, 2004,
increased by $2,563,000 as compared to the same period in 2003. The increase is
principally due to our borrowings under the revolver loan.

                                       18





<PAGE>

ITEM 3.    CONTROLS AND PROCEDURES

As required by SEC rules, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures at the end of the period
covered by this report. This evaluation was carried out under the supervision
and with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There were no significant changes to our internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of their evaluation.

Our disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.

PART II.   OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

L. PETER LARSON AND DALE RUHMEL V. MOONEY AEROSPACE GROUP, INC.
---------------------------------------------------------------

This cause of action was filed in Los Angeles County Superior Court on December
31, 2002. The initial complaint against the Company was filed by two former
executives, R. Peter Larson and Dale Ruhmel. The causes of action are for Breach
of Contract, Labor Code Violations, Intentional Misrepresentation, Slander and
Intentional Infliction of Emotional Distress in Violation of the California
Unfair Labor Code.

Peter Larson was employed as an Executive Vice President and Chief Financial
Officer of Mooney, Dale Ruhmel was Executive Vice President of Engineering and
became Chief Operating Officer. Both plaintiffs had entered into a written
employment agreement with the Company on or about January 8, 2002. Plaintiffs
were employed by the Company until the end of October 2002. Plaintiffs claim
that the Company breached their employment agreements by terminating their
employment without good cause and failing to pay severance payments as required
by the agreements. Plaintiffs also claim that at the time of the termination
they were not paid all of their vacation and wages owed as required by the
California Labor Code. Plaintiffs also claim that the Company misrepresented its
intentions to honor the agreements and that plaintiffs relied upon this to their
detriment. There were also allegations of intentional infliction of emotional
distress and slander.

The damages sought in the complaint include attorneys' fees, tort damages if
defamation or fraud can be proven, contractual damages (the contract provides
for a year's severance if terminated without cause or notice). The Company has
filed a cross-complaint against the two individuals. The Company has accrued
damages for this action as of March 31, 2004, for which a settlement agreement
was reached and completed in May 2004. This agreement calls for a settlement
of $200,000 paid out over six months from the proceeds of sales of Class A
common stock.

WHITEFORD JET WINGS, LTD. v. MOONEY AEROSPACE GROUP, LTD. ET AL., Cal. Super.
Ct. (Los Angeles County, Long Beach District), Case No. NC033548 (filed January
21, 2003). This case was filed by a company that alleged it had signed an
agreement to be the exclusive regional distributor of Jetcruzer aircraft in
Illinois, Indiana, Kentucky, and Wisconsin, and that it had put down a deposit
of $390,000 for the first 39 aircraft it was to purchase. The suit sought return
of the $390,000 deposit on a variety of theories, including breach of contract,
account stated, and fraud. A settlement has been reached and the terms include

                                       19





<PAGE>

$200,000 from the issuance of 9,523,810 shares of Class A common stock and a
convertible note for the amount of $190,000, which is convertible into Class A
common stock at the conversion price of .021 cents per share, or 9,047,619
shares. The note carries an interest rate of 3% and is restricted to conversion
of no more than $50,000 in any 30 day period. The 9,523,810 shares of Class A
common stock were issued March 26, 2004.

AP-LONG BEACH AIRPORT LLC V. MOONEY AEROSPACE GROUP, LTD.
---------------------------------------------------------

The Company leased approximately 10 acres of land located on the Long Beach
Airport in Long Beach, California. The lease commenced on January 14, 1998 and
had a term of 30 years with an option to renew for an additional 10 year term.
The lease contained options to lease other airport properties. The lease
contained incremental increases, which escalated the monthly rent to
approximately $15,600 after 5 years.

Pursuant to an Agreement dated May 19, 1999, the Company sold its leasehold
interest in real property located at 3205 Lakewood Boulevard, Long Beach,
California, together with the manufacturing hangar facility (approximately
205,000 square feet) and finished office space (approximately 22,000 square
feet) owned by the Company. The cash purchase price was $9,800,000. As part of
this transaction, the Company entered into an agreement to sublease the land and
lease the manufacturing hangar facility and finished office space for a term of
18 years, plus an option to extend the lease for an additional 10 years. The
$246,000 deferred gain on the sale of the facility was being amortized over the
18 year lease term and is now recorded in liabilities related to abandon
building.

AP Long Beach Airport, LLC ("AP"), the lessor, has filed a complaint in the Los
Angeles Superior Court, alleging breach of a Sublease Agreement by the Company
for failure to pay rent. Specifically, AP alleges that AP and the Company
entered into a Lease Agreement for the lease of real property located in Long
Beach, California to the Company for a thirty year term. AP and the Company
later entered into first, an Assignment and Assumption Agreement and then, a
Sublease Agreement wherein AP sublet the property to the Company for a term of
eighteen years at a monthly rent of $106,167. AP seeks to recover the fair
rental value of the property and base rent pursuant to the Lease and Sublease
Agreements in addition to its attorneys' fees and costs. On December 3, 2003, in
connection with the lawsuit in the Superior Court of the State of California for
the County of Los Angeles, South District, the Company and AP entered into a
stipulation regarding: Admission of Liability and Binding Arbitration of
Damages. Under the Stipulation, the Company admitted liability to all of AP's
claims, except that the Company and AP agreed to enter into binding arbitration
with respect to (i) the calculation of damages sought by AP and (ii) whether AP
properly mitigated its damages. On May 3, 2004, the Company and its former
landlord completed the arbitration proceedings. The arbitrator's Preliminary
Arbitration Award provides for the payment by the Company of $23,902,000 to
AP-Long Beach Airport LLC, plus attorney's fees to be determined at a later
date. The Superior Court has not yet reduced it to judgment. The Company has
taken the position with the court that it is entitled to de novo review. The
Court has not yet ruled on the Company's position. During the three months
ended March 31, 2004, the Company has accrued an additional $10,053,000 related
to this litigation, bringing the total accrual related to this litigation to
$24,152,000, the amount awarded by the arbitrator plus $250,000 in estimated
attorney fees.

ITEM 2.    CHANGE IN SECURITIES

During the three months ended March 31, 2004, the Company: 1) converted 4,646
shares of Series A preferred stock into 15,162,101 shares of Class A common
stock valued at $363,795, 2) converted $1,738,295 of convertible debentures into
76,550,436 shares of Class A common stock, 3) converted $330,852 of accrued
interest into 14,009,603 shares of Class A common stock, 4) issued 7,650,128
shares of Class A common stock for accrued compensation of $102,513, 5) issued
12,500,000 shares of Class A common stock for consulting fees valued at
$250,000, 6) issued 9,523,810 shares of Class A common stock valued at $200,000
and issued a convertible note in the amount of $190,000 as full settlement for a
legal claim .

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<PAGE>

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5.    OTHER INFORMATION

Not applicable

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

31.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 302 of the Sarbanes-Oxley Act of 2002

32.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
         to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

8-K filed on May 10, 2004

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<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                       MOONEY AEROSPACE GROUP, LTD.

May 24, 2004                           By:  /s/ J. Nelson Happy
                                          --------------------------------------
                                            J. Nelson Happy
                                            Vice Chairman,  President & Chief
                                            Financial Officer and Secretary
                                            (Principal Executive Financial
                                            and Accounting Officer)

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