U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB/A

(Mark One)

|X|   ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934

      For the fiscal year ended December 31, 2005

                                       or

|_|   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934

      For the transition period from _____ to _____

                          Commission File No. 000-21749


                          MOONEY AEROSPACE GROUP, LTD.
                 (Name of Small Business Issuer in its Charter)


               Delaware                                       95-4257380
    (State or Other Jurisdiction of                       (I.R.S. Employer
     Incorporation or Organization)                      Identification No.)


      165 Al Mooney Road North, Kerrville, Texas                78028
       (Address of Principal Executive Offices)               (Zip Code)


                                 (830) 896-6000
                (Issuer's Telephone Number, Including Area Code)


Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:

                                      Units
                    Common Stock, par value $.0001 per share

Check whether the issuer: (1) Filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

                                 Yes |X| No |_|
<PAGE>

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |X|

Indicate by a check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act):

                                 Yes |_| No |X|

State issuer's revenues for its most recent fiscal year: $42,083,000

The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock on April 4, 2006
was $6,006,555.

Check whether the issuer has filed all documents and reports required to be
filed by Section 12,13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court:

                                 Yes |X| No |_|

The number of shares outstanding of the issuer's common stock as of March 31,
2006 was 10,631,071

Transitional Small Business Disclosure Format (check one): Yes |_| No |X|


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<PAGE>

                                     PART I

This Amended Annual Report on Form 10-KSB reflects changes resulting from the
restatement of our 2004 financial statements. We have restated our 2004
financial statements to (1) reflect the transfer of Mooney Airplane Company,
Inc. ("MAC") to Allen Holding & Finance Ltd. ("Allen") in May 2004 and our
subsequent re-acquisition of MAC from Allen in December 2004; (2) correct an
error in the calculation of the gain from the forgiveness of debt in connection
with our emergence from bankruptcy in December 2004 and revise our disclosures
related thereto; (3) correct amounts presented in the Consolidated Statement of
Stockholders' Deficiency and footnotes to the consolidated financial statements;
and (4) corrected 2004's high and low stock prices set forth in Part II, Item 5.

Item 1. Description of Business

Cautionary statement for purposes of "Safe Harbor Provisions" of the Private
Securities Litigation Reform Act of 1995.

Certain statements contained in this Amended Annual Report on Securities and
Exchange Commission ("SEC") Form 10-KSB ("Form 10-KSB") constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve known and unknown risks,
uncertainties and other factors that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different than any expressed or implied by these forward-looking statements.
These statements may be contained in our filings with the Securities and
Exchange Commission, press releases, and written or oral presentations made by
our representatives to analysts, rating agencies, stockholders, news
organizations and others. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "intend", "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "continue," or
the negative of these terms or other comparable terminology. Although we believe
that the expectations in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements.

                                    Overview

Unless otherwise noted or required by the context, references to "we", "our",
"us" or the "Company" mean Mooney Aerospace Group Ltd. and its wholly-owned
subsidiary, Mooney Airplane Company, Inc.

Mooney Aerospace Group Ltd. ("MNYG") was organized in 1990 to design, develop,
manufacture and market general aviation aircraft. During 2002, we recognized a
unique opportunity and purchased the assets of Mooney Aircraft Corporation
("MACorp"). MACorp. has produced high-performance, single engine piston aircraft
for 60 years. Mooney aircraft are recognized as one of the highest performance
four-place piston engine aircraft in commercial production. Over 11,000
airplanes have been manufactured, with over 7,000 now in operation around the
world.

We believe that there is a unique market opportunity to manufacture, sell and
support the Mooney aircraft, due to the following factors: 1) the deteriorating
comfort and convenience of airline travel, and the resurgence of interest in
purchasing light aircraft for business and personal transportation for small and
medium sized businesses and high net worth individuals; 2) reduction of product
liability legal exposure to manufacturers of general aviation aircraft as a
result of the General Aviation Revitalization Act of 1994, and 3) an excellent
competitive position in the four place, high performance piston powered aircraft
market.

To take advantage of this opportunity, we have hired an experienced management
team to provide leadership to efficiently manufacture and profitably market the
two Mooney models, the Ovation2 GX and the high performance Acclaim GX.

Our sales strategy is based on a direct marketing approach, with the assistance
of Mooney Team Representatives (companies that are dealers who sell our products
on a commission basis). We have implemented this approach which includes a sales
strategy based on four factors: 1) Company sales representatives with highly
successful records of aviation sales, including Mooney products; 2) a
professional sales staff in Kerrville, Texas; 3) Mooney Team Representatives
("MTR") in the United States, of which we presently have two contracted, one
located in California and another located in the Southeast, serving the states
of Florida, North Carolina, South Carolina, Tennessee, Arkansas, Georgia,
Louisiana, Alabama, Mississippi, and Texas; and 4) one contracted international
MTR to market our products outside the United States.

We also serve customers who visit the factory in Kerrville, Texas, providing
tours and demonstration flights when appropriate. This personalized service has
shown to be effective in the sale of our products.


                                       3
<PAGE>

                               Industry Background

The general aviation industry comprises essentially all nonmilitary aviation
activity other than scheduled and commercial airlines licensed by the FAA and
the Department of Transportation. General aviation aircraft are frequently
classified by their type and number of engines and include aircraft with fewer
than 20 seats. There are three different types of engines: piston, propjet and
turbofan (jet). Piston aircraft use an internal combustion engine to drive a
propeller, and there may be one or two engines and propellers. Propjet aircraft
combine a jet turbine power plant with a propeller geared to the main shaft of
the turbine, and there may be one or two engines and propellers. Turbofan
aircraft use jet propulsion to power the aircraft.

Purchasers of general aviation aircraft include corporations, governments, the
military, the general public and fractional interest entities. A corporation may
purchase a general aviation aircraft for transporting its employees and
property. Many companies use an aircraft in their line of business, including
on-demand air taxi services, air ambulance services and freight and delivery
services. Governments and military organizations may purchase an aircraft for
the transportation of personnel, freight and equipment. Members of the general
public may purchase an aircraft for personal and/or business transportation,
freight, equipment and pleasure use. An aircraft must qualify under FAA
regulations in order to be used for certain purposes, and the ability of an
aircraft to so qualify will have a material affect on the potential market for
such aircraft.

Currently, there are only six major manufacturers of small general aviation
aircraft based in the United States. Piston aircraft make up the numerical
majority of aircraft delivered by these manufacturers, whereas turboprop and jet
aircraft account for the majority of billings. Aircraft deliveries by United
States manufacturers have increased consistently; for example, sales were
approximately $3.1 billion in 1996, and recorded $8.4 billion in 2005, with a
spike in 2004 of approximately $11.9 billion.

                                    Strategy

We believe that an opportunity exists in the general aviation industry to create
a company whose products are the best aircraft models in their class. We began
implementing this strategy through our acquisition of MACorp assets at a federal
bankruptcy auction in San Antonio, Texas on April 19, 2002, and through the
provisions of an Asset Purchase Agreement with MACorp's general unsecured
creditors committee. We formed a new company to own and operate these assets,
Mooney Airplane Company, Inc.

We are producing two models, the Ovation2 GX and the Acclaim GX. We continue to
hire a management team with significant experience in aviation and business
management and we believe that the team can make MAC profitable.

                                  Manufacturing

We manufacture all Mooney airplanes in Kerrville, Texas. We have a favorable
long-term lease on both land and buildings at the Kerrville Airport, which makes
Kerrville a financially attractive location to build aircraft. Additionally, the
Kerrville area has an experienced aerospace labor work force developed over the
many years the Mooney aircraft has been produced in this location. There are no
other aircraft manufacturers in the immediate area, therefore the competition
for scarce, experienced workers is minimal.

                               Market Opportunity

Historically, Mooney has produced top of the line, single engine piston
airplanes that now include the Ovation2 and the Acclaim, which are widely
considered to be among the performance leaders in the four-passenger single
engine aircraft market. For 60 years Mooney has produced high performance piston
aircraft. There are more than 7,000 Mooney aircraft in operation around the
world. We also sell aircraft parts and service to support many of these
aircraft.

Domestic Sales

Through the combination of direct salespeople and Mooney Team Representatives,
("MTRs"), we have adequately covered the U.S. geographically.

We have increased our advertising campaign nationwide featuring the glass panel
flight deck (called the GX). We provide one toll free telephone number to call
and one website to view. Our distributed sales force is supported by a
professional sales support staff at our facility in Kerrville, Texas. We believe
that this method is ideal for sales in today's fast-paced market environment.
The sales process still requires personal contact between the salespeople and
the prospective customers.


                                       4
<PAGE>

International Sales

We have appointed an international MTR who will represent us in selected
countries. In addition we will evaluate other candidates in the future as
business dictates. Agents will conduct sales by signing international customers
to a Mooney contract and will be paid a commission for their success on a per
aircraft basis, unless they decide to step in-between and buy the aircraft at
list-price less the amount of their commission. We have made several sales in
Europe that will give us access to an aircraft for demonstrations.

New Product Development Programs

Mooney's strategy for the M20 airframe is one of continually enhancing an
industry-leading design. In 2004 Mooney introduced and began to deliver aircraft
equipped with state of the art avionics utilizing the Garmin G1000 all glass
integrated avionics system, thereby creating the new Ovation2 GX and Bravo GX
models. We also introduced the Hartzell three blade propeller, the Amsafe
inflatable seatbelt, and a redesigned all-leather interior. Other product
developments for the M20 are in progress including a model with a turbo
normalized engine, the Acclaim, that will supplant the Bravo.

Product-Liability Risk Limitations

In 1994, the United States enacted the General Aviation Revitalization Act of
1994 ("GARA"). GARA provides protection for manufacturers of general aviation
aircraft against certain lawsuits for wrongful death or injuries resulting from
an aircraft accident. Except as set forth in GARA, and provided a period of 18
years has passed from the date of delivery of the aircraft to the original
purchaser or retailer, no claim for damages resulting from personal injury or
wrongful death may be brought against the manufacturer of a general aviation
aircraft. Although GARA will not directly affect us until eighteen years from
the date we delivered our first aircraft, management believes that GARA has
benefited us and will benefit us in the future, in that it may encourage
increased manufacturing and sales of general aviation aircraft and this
increased activity may in turn result in an increased number of licensed pilots.
Management believes that a greater number of licensed pilots may provide an
increased market for our aircraft. However, there can be no assurance that our
view of GARA's effects will prove to be correct.

With respect to the MACorp assets, the U. S. Bankruptcy Court for the District
of San Antonio's order and the Asset Purchase Agreement grant us ownership of
the MACorp assets free and clear of any product-liability claims for products
manufactured prior to our acquisition of the assets. Therefore we believe that
we would not be found liable for product-liability claims related to MACorp.
aircraft or parts manufactured prior to our acquisition of MACorp. assets.

However, we would have liability for aircraft and parts manufactured after the
Asset Purchase. If there are any lawsuits we will incur costs associated with
the defense of such claims.

Foreign Certification

In order for us to sell our aircraft in foreign countries, we must comply with
each country's aircraft certification process. Certain countries will accept as
adequate certification issued by the FAA, while others impose additional
requirements. In countries that do require additional certification, the FAA
certification often provides a starting point from which such country begins its
certification process. Garmin is seeking international certification of the
G1000 for us. Priorities for other certifications will be determined by the
level of interest in our products by dealers and distributors in the various
foreign markets.


                                       5
<PAGE>

                                  Risk Factors

An investment in our common stock is highly speculative and involves a high
degree of risk. Therefore, you should consider all of the risk factors discussed
below, as well as the other information contained in this document. You should
not invest in our common stock unless you can afford to lose your entire
investment and you are not dependent on the funds you are investing.

We have a substantial amount of debt and are in default of several of our debt
agreements; a demand for payment by our lenders would likely result in
insolvency.

The Company is highly leveraged. As of December 31, 2005, we had approximately
$49.8 million of indebtedness and are in default of agreements covering
approximately $5.9 million of indebtedness. As of the date of the filing of this
Form 10-KSB/A, the Company is in default of approximately $25.3 million in
indebtedness. To date, the lenders have not demanded payment. We are negotiating
with them to cure the defaults by restructuring the terms of these loans;
however, there can be no assurance that we will be able to reach an agreement
with the lenders to cure the defaults. A demand for payment by our lenders would
likely result in insolvency. Our high level of debt may make it extremely
difficult or impossible to obtain additional financing for working capital,
capital expenditures and other purposes. We also believe that the Company is
more highly leveraged than its competitors thereby placing it at a competitive
disadvantage. Our high degree of leverage makes us more vulnerable to a downturn
in our business or the economy generally.

Risk of low-price stocks, including limitations on market liquidity.

The Securities and Exchange Commission classifies our Common Stock as a "penny
stock". This classification severely and adversely affects the market liquidity
for our Common Stock. Commission regulations define a "penny stock" to be any
non-NASDAQ equity security that has a market price of less than $5.00 per share
or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery prior to any transaction in a penny stock a disclosure
schedule prepared by the Commission relating to the penny stock market.
Disclosure is required to be made about commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements are required to disclose recent price
information for the penny stock held in the account and information on the
limited market in penny stocks.

As a "penny stock" shares of our common stock are subject to Rule 15g-9 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which
imposes additional sales practice requirements on broker-dealers which sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses). For
transactions covered by this rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
prior written consent to the transaction. Consequently, the rule may adversely
affect the ability of broker-dealers to sell our securities and may adversely
affect the ability of holders of our securities to sell such securities in the
secondary market.

We have accumulated a substantial deficit; we have a history of losses and
continued lack of profitability could lead to a cessation of operations.

To date, we have incurred significant losses. At December 31, 2005, we had an
accumulated deficit of approximately $153,722,000. During the twelve months
ended December 31, 2005, we incurred a loss of $13,553,000. In 2004 we reported
a net loss of $7,320,000 that included a gain of $6,183,000 resulting from the
forgiveness of debt in connection with our emergence from bankruptcy in December
2004. We incurred substantial losses prior to 2004 principally from significant
costs associated with the development of the Jetcruzer 500 and the acquisition
of Mooney Aircraft Corporation. We expect to incur further losses in the future
due to significant costs associated with manufacturing our aircraft, maintaining
the necessary regulatory approvals, and marketing and selling our aircraft.
There can be no assurance that sales of our aircraft will generate sufficient
revenues to fund our continuing operations, that we will generate positive cash
flow from our operations, or that we will attain or thereafter sustain
profitability in any future period. If we do not begin to generate profits, we
may be forced to cease or curtail our operations.

We will need additional financing; failure to obtain financing could lead to a
cessation or curtailment of our operations.

We have substantial liquidity needs in the operation of our business. Because
substantially all of our assets are encumbered and some of our existing debt
agreements contain restrictions against additional borrowing, the options
available to us for additional financing may be limited. We will need to obtain
additional financing to continue the production of new aircraft and spare parts
and to develop the business in general. Failure to obtain such additional
financing would have a material adverse effect on our business and prospects and
could require that we severely limit or cease our operations. Additional
financing may not be available on acceptable terms or at all.


                                       6
<PAGE>

At December 31, 2005, the Company had $19.5 million of Secured Debenture Notes
("Debenture Notes") outstanding. The Debenture Notes are due on the third
anniversary of the date the Debenture Notes were issued which is either June 16,
2006 or November 7, 2007. The Debenture Notes accrue interest at 8% payable at
maturity. Pursuant to the terms of the Company's Amended Plan of Reorganization
approved by the United States Bankruptcy Court for the District of Delaware (the
"Bankruptcy Court") on December 14, 2004, the Debenture Notes were convertible
into the Company's common stock. The conversion right expired on October 15,
2005. In addition, pursuant to the Amended Plan of Reorganization, our
obligation to pay certain unsecured notes (consisting of principal and interest)
that were outstanding on June 10, 2004 and the interest that had accrued on the
Debenture Notes through June 10, 2004 was discharged.

On November 13, 2003, we closed a long-term loan with Business Loan Express
("BLX"). This loan is guaranteed by the U. S. Department of Agriculture Business
and Industry loan program. This loan is for $5,000,000 to MAC and is secured by
many of the assets of the Company, with all unpaid principal and interest due on
November 1, 2028.

In 2004 we obtained a revolving loan secured by a purchase money security
agreement from Alpha Capital Aktiengesellschaft, Bristol Investments Fund Ltd.,
Edward Turin, MM&CTW Foundation Inc., Renaissance Development Holdings
International, Ltd., Taria Inc., and TRW Holdings Party Ltd. to Mooney Airplane
Company Inc. as borrower in the amount of $6,250,000 to purchase parts and
materials for manufacture of Mooney airplanes. The security agreement was
amended to state, among other things, that the maximum amount of the loan shall
not exceed seven million five hundred thousand dollars ($7,500,000). The balance
of this loan as of December 31, 2005 was $6,250,000. The interest being accrued
on this loan is at 8% per annum. This note is convertible into shares of the
Company's common stock at $2.22 per share.

In 2004 we obtained additional financing in the amount of $3,100,000 referred to
as "Airplane Notes" from the same parties as the revolving loan. These notes
bear interest at 8% per annum and mature November 7, 2007. The balance of this
loan as of December 31, 2005 was $3,100,000.

In 2004 we also obtained additional financing referred to as the Secured
Promissory Notes in the principal amount of $9,000,000 of which $3,930,000 was
still outstanding at December 31, 2005. These notes were funded by the same
parties as listed for the revolving loan. These notes bear interest at 17.5% per
annum and provided for a maturity date of November 7, 2006 callable on March 7,
2005. They were called on that date and the Company is now in default on the
payment of this obligation. Negotiations between the Company and the lenders to
cure the default are ongoing.

During 2004, we agreed to pay Libra Finance, S.A. a fee of $986,000 in
connection with certain financing transactions. The fee is evidenced by a
non-interest bearing promissory note which was due on February 7, 2005. This
note is in default. The Company is in the process of renegotiating the terms of
the note. Should this note not be refinanced, management has no other option to
cure the default.

On March 8, 2005 we executed a promissory note in favor of Guarantee & Finance
Inc. in the amount of $1,000,000. The note has a stated interest rate of 12% per
annum that increased to 17% when we failed to repay the note on April 5, 2005.
This note is in default. We are in the process of renegotiating the terms of the
note. Should this note not be refinanced, management has no other option to cure
the default.

During 2005, our stockholders loaned us $9,684,000. The terms of these loans are
in the process of being determined. No interest has been recorded on these
loans. Therefore, any interest payable will increase our net loss and our
stockholders' deficit.

Several stockholders own sufficient shares of our common stock and voting
equivalents to singularly determine the results of any stockholder vote and
control of our Board of Directors.

As of March 31, 2006, Allen Holding & Finance Ltd. owned 4,925,000 shares of our
common stock, Esquire Trade & Finance Inc. owned 363,191 shares of our common
stock and Tusk Investments owned 828,182 shares of our common stock. On August
11, 2006, Alpha Capital Aktiengesellschaft ("Alpha Capital"), with these other
parties, filed a Schedule 13D with the Securities and Exchange Commission (the
"Schedule 13D Filing") which indicated Alpha held beneficial ownership of
convertible notes convertible into an additional 5,727,273 shares of our common
stock. The Schedule 13D Filing also indicated that these parties intended to act
in concert to effect a "going private" transaction for the Company, stating that
these parties "have agreed to cooperate in an effort to attempt to cause the
Company to be privatized and its indebtedness to be recapitalized."

Accordingly, these parties acting in concert can determine the outcome of all
corporate matters requiring stockholder approval, including the election of all
of our directors and transactions such as the sale of the Company. Moreover,
based upon the current number of shares outstanding, it would be very difficult
to obtain shareholder approval for any matter without the consent of Allen
Holding & Finance Ltd., which owned approximately 46.3% of our total common
stock outstanding at March 31, 2006.


                                       7
<PAGE>

Regulatory uncertainty could result in additional costs or liabilities.

Our aircraft and our operations are also subject to the risk of modification,
suspension or revocation of any FAA certificate. A modification, suspension, or
revocation could occur if, in the FAA's judgment, compliance with airworthiness
or safety standards by us was in doubt. If the FAA suspended or revoked our type
or production certificate for an aircraft model, sales of that model would be
adversely affected or terminated. If, in the FAA's judgment, an unsafe condition
developed or was discovered after one or more of our aircraft had entered
service, the FAA could issue an Airworthiness Directive, which could result in a
requirement that we develop appropriate design changes at our expense. Foreign
authorities could impose similar obligations upon us as to aircraft within their
jurisdiction. Any or all of these occurrences could expose us to substantial
additional costs and liabilities.

Limited product line; fluctuations in sales of aircraft may result in periodic
material reductions in revenue and profitability.

If there is a downturn in the market for general aviation aircraft due to
economic, political or other reasons, we would not be able to rely on sales of
other products to offset the downturn. It is possible that sales of business
aircraft could decline in the future for reasons beyond our control.
Furthermore, if a potential purchaser is experiencing an economic downturn or is
for any other reason seeking to limit its capital expenditures, the high unit
selling price of a new aircraft may result in such potential purchaser deferring
its purchase or electing to purchase a pre-owned aircraft or a lower priced
aircraft. Further, since we intend to rely on the sale of a relatively small
number of high unit selling price aircraft to provide substantially all of its
revenue, small decreases in the number of aircraft delivered in any year may
have a material negative effect on the results of operations for that year. In
addition, small changes in the number and timing of deliveries of, and receipt
of payments on, new aircraft may have a material effect on our liquidity.

We face numerous competitors, many of whom have greater resources; competition
may improve or develop competitive products.

Our aircraft compete with other aircraft that have comparable characteristics
and capabilities. Many of our competitors, including Cirrus Design (Cirrus),
Columbia Corporation (Columbia), Textron Lycoming (Cessna Aircraft Company),
Raytheon Aircraft Company (Beechcraft) and New Piper Aircraft Corporation are
substantially larger in size and have greater financial, technical, marketing,
and other resources than we do. Certain of our actual and potential competitors
have greater financial and other resources that may allow them to modify
existing aircraft or develop alternative new aircraft that could compete with
our aircraft. Our ability to compete effectively may be adversely affected by
the ability of these competitors to devote greater resources to the sale and
marketing of their products than are available to us. Future technological
advances may result in competitive aircraft with improved characteristics and
capabilities that could adversely affect our business. Our aircraft may also
compete with used aircraft that become available in the resale market at prices
sufficiently lower to offset deficits in performance, if any, as compared to our
aircraft.

Reliance on single source suppliers; problems with supplies could reduce revenue
or increase costs.

We are dependent on certain suppliers of products in order to manufacture our
aircraft. Should our ability to obtain the requisite components be limited for
any lengthy period of time or the cost of the components increase, our ability
to produce and sell aircraft could be materially and adversely affected.
Securing acceptable pricing and terms from suppliers of the bankrupt MACorp has
been difficult because of financial difficulties caused by bankruptcy and damage
to the reputation of MACorp as a customer. In addition, the possible failure of
suppliers or subcontractors to meet our performance specifications, quality
standards or delivery standards or schedules could have a material adverse
effect on our operations. Moreover, our ability to significantly increase our
production rate could be limited by the ability or willingness of key suppliers
to increase their delivery rates; and, over time, the prices to obtain materials
and components may change and a number of suppliers may need to be replaced. Our
inability to obtain supplies to manufacture our products would have a material
adverse effect on our business prospects, operations and financial condition.

Insurance and product liability exposure increased premiums and damage awards
could increase costs.

Because the failure of an aircraft manufactured by us or any other mishap
involving such an aircraft may result in physical injury or death to the
occupants of the aircraft or others, we could be subject to lawsuits involving
product liability claims, which lawsuits may involve claims for substantial
sums. Although we have obtained product liability insurance, such insurance is
expensive and subject to various coverage exclusions and may not be obtainable
by us in the future on acceptable terms or at all. Further, should we become
involved in product liability litigation, the expenses and damages awarded could
be large, and the scope of any coverage may be inadequate. . Moreover, in light
of our current financial situation, any judgment against us in excess of any
available insurance could have a material adverse effect on our available
working capital and could cause us to have to cease operations or seek
protection under federal bankruptcy laws, or otherwise. Increased insurance
costs and/or liability costs could require an increase in the price of our
aircraft and therefore could have a negative impact on sales.


                                       8
<PAGE>

Fluctuations in quarterly operating results may be caused by large unit prices.

We expect to 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 due to, for example, unanticipated
shipment re-scheduling or cancellations, supplier delays in the delivery of
component parts or unexpected manufacturing difficulties could have a material
and adverse effect on our financial position and results of operations for that
quarter.

Risks of international operations, including changes in tariffs and duties and
currency exchange losses, may increase costs.

We also intend to market and sell our aircraft to foreign customers.
Accordingly, we will be subject to all of the risks inherent in international
operations, including work stoppages, transportation delays and interruptions,
political instability or conflict between countries in which we may do business,
foreign currency fluctuations, economic disruptions, differences in
airworthiness and certification standards imposed by foreign authorities, the
imposition of tariffs and import and export controls, changes in governmental
policies (including United States trade policy) and other factors, including
other foreign laws and regulations, which could have an adverse effect on our
business. With respect to international sales that are denominated in U.S.
dollars, an increase in the value of the U.S. dollar relative to foreign
currencies can increase the effective price of, and reduce demand for, our
products relative to competitive products priced in the local currency. These
international trade factors may, under certain circumstances, materially and
adversely impact demand for our products or our ability to sell aircraft in
particular countries or deliver products in a timely manner or at a competitive
price, which in turn may have an adverse impact on our relationships with its
customers. In addition, foreign certification or equivalent approval is required
prior to importing an aircraft into a foreign country, and we may not receive
such certification or equivalent approval in any country. Our success will
depend in part upon our ability to obtain and maintain foreign certifications or
equivalent approvals and manage international marketing, sales and service
operations.

Dependence on key personnel; failure to hire or retain personnel could result in
a reduction of revenues and earnings.

The results of our operations will depend in large part on the skills and
efforts of our executive team and our skilled factory workers. Our future
success will depend to a significant extent on our ability to hire certain other
key employees and additional skilled factory workers on a timely basis.
Competition for highly skilled business, product development, technical and
other personnel is intense, and there can be no assurance that we will be
successful in recruiting new personnel or in retaining our existing personnel.
We will experience increased costs in order to retain and attract skilled
employees. Our failure to attract additional qualified employees on a timely
basis or to retain the services of key personnel would have a material adverse
effect on our operating results and financial condition.

Planned growth may be limited by constraints on human and financial resources.

We significantly expanded our operations in 2005 which placed a significant
strain on our limited personnel, financial and other resources. We continue to
develop the manufacturing capabilities of our Mooney subsidiary and to
manufacture Mooney aircraft. Our efforts to conduct manufacturing activities may
not be successful, and we may not be able to satisfy commercial scale production
requirements on a timely and cost-effective basis We may not be able to find
qualified personnel or be able to manage this larger organization successfully.
We may also seek to acquire additional aircraft product lines that will place
additional demands on our limited resources.

Limitation on officers' and directors' liabilities under Delaware law may reduce
damages available for breach of duty by directors.

Pursuant to our certificate of incorporation, and as authorized under applicable
Delaware law, our directors and officers are not liable for monetary damages for
breach of fiduciary duty, except (i) in connection with a breach of the duty of
loyalty, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for dividend
payments or stock repurchases illegal under Delaware law or (iv) for any
transaction in which a director has derived an improper personal benefit. These
provisions may limit the ability of our stockholders to obtain damages from our
directors, either directly or on a derivative basis, for breach of fiduciary
duty.

Possibility of dilution arising from shares available for future sale may result
in lower stock prices.

Future sales of common stock by existing stockholders pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or otherwise,
could have an adverse effect on the price of our securities. As of December 31,
2005, Mooney had 10,631,071 outstanding shares of Common Stock, plus loans
issued under various agreements convertible into shares of common stock. Sales
of common stock, or the possibility of such sales, in the public market may
adversely affect the market price of the securities offered hereby.


                                       9
<PAGE>

Our common stock trades on the OTC Bulletin Board, which may result in reduced
volume of trading and increased volatility in the market price of our common
stock.

Our common stock trades on the OTC Bulletin Board an exchange operated by
NASDAQ. Consequently, the liquidity of our securities is less than if it was
listed on an exchange, not only by the number of securities which can be bought
and sold, but also through delays in the timing of the market transactions,
reductions in the number and quality of security analysts' and the news media's
coverage of us, and volatility in the market price of our common stock.

No dividends.

We have paid no dividends to our stockholders since our inception and do not
plan to pay dividends in the foreseeable future. We intend to reinvest earnings,
if any, in the development and expansion of our business.

Volatility of stock market.

The stock market from time to time experiences significant price and volume
fluctuations, some of which are unrelated to the operating performance of
particular companies. We believe that a number of factors can cause the price of
our common stock to fluctuate, perhaps substantially. These factors include,
among others:

      o     Announcements of financial results and other developments relating
            to our business;
      o     Changes in the general state of the economy; and
      o     Changes in market analyst estimates and recommendations for our
            common stock.

Employees

As of December 31, 2005, we had 378 full time and 6 part time employees.

Item 2. Facilities

We are currently leasing a 353,634 square feet building complex located in
Kerrville, Texas at a monthly rent of $1,434 with set increases every 10 years.
The lease commenced on March 1, 2004 and expires on September 2033. We leased an
additional 34,400 square feet in 2005 for an additional monthly rental of
$2,265. This rent remains level with the same expiration date as the main
facility lease.

Item 3. Legal Proceedings

All legal proceedings that arose prior to June 10, 2004 were discharged in
bankruptcy.

Transfer and Re-acquisition of MAC Shares

During the second quarter of 2004, the Company defaulted on approximately
$21,000,000 of its secured debentures. The debentures were secured by the assets
and outstanding capital stock of the Company's wholly-owned subsidiary, Mooney
Airplane Company. On May 28, 2004, in lieu of foreclosure by the secured
debenture holders and to preserve the value of MAC as a going concern, the
Company transferred its shares in MAC to Allen Holding & Finance Ltd., as agent
for the secured debenture holders pursuant to the terms of a stock purchase
agreement. On December 14, 2004, pursuant to the terms of the Company's Amended
Plan of Reorganization approved by the Bankruptcy Court, the Company reacquired
the MAC shares from Allen in exchange for 5,000,000 shares of common stock to be
issued pursuant to the Company's Amended Plan of Reorganization (see "Bankruptcy
Proceedings" below).


                                       10
<PAGE>

Bankruptcy Proceedings

On June 10, 2004 the Company filed a voluntary petition in the Bankruptcy Court
pursuant to Chapter 11 of Title 11 of the U. S. Code. On December 14, 2004 the
Bankruptcy Court confirmed the Company's Amended Plan of Reorganization, which
has been fully executed by the Company. On May 5, 2005, the Company received a
full discharge pursuant to a final decree issued by the Bankruptcy Court closing
the bankruptcy case.

The Amended Plan of Reorganization approved by the Bankruptcy Court included the
following provisions:

      1.    The Company was authorized to issue up to 50,000,000 shares of new
            common stock.

      2.    On the effective date of the plan, December 14, 2004, the Company's
            common and preferred stockholders, general unsecured creditors and
            Allen Holding and Finance Ltd. would receive common stock in the
            reorganized Company as follows:

            Common stockholders                        200,000              (2)%

            Preferred stockholders                     200,000              (2)%

            General unsecured creditors              4,597,773             (46)%

            Allen Holding & Finance Ltd.             5,000,000             (50)%
                                                 -------------   -------------
                                                     9,997,773            (100)%

            General unsecured creditor claims included approximately $21,000,000
            of secured debentures and approximately $10,000,000 of secured debt
            issued by MAC and guaranteed by the Company. In exchange for
            5,000,000 shares of common stock, Allen agreed to transfer the MAC
            shares back to the Company. The secured debentures continued to be
            secured by MAC's outstanding capital stock and assets. All allowed
            administrative expenses were paid in cash in full.

      3.    The $21,000,000 of secured debentures were convertible into
            9,426,341 shares of common stock until October 15, 2005. In
            addition, $9,350,000 of secured debt issued by MAC is convertible
            into 4,711,712 shares of common stock.

All newly issued or newly issuable shares of the Company are free trading under
Rule 3a (9), except that none could be traded until March 15, 2005 and then only
10% of the holder's shares could be traded each month thereafter. This
restriction has now expired. The Company realized $6,183,000 of extraordinary
gain from debt forgiveness in 2004 as a result of the discharge in bankruptcy of
some of its debts.

In connection with the implementation of its Plan of Reorganization, the
Company's Board of Directors approved a reverse stock split and exchange of
3,223 old shares of common stock for one share of new common stock.

Legal Matters

The company has the following legal matters pending.

On March 28, 2005, Milisa K. Riser, M.D., Administrator of the Estate of
Franklin M. Rizer, M.D. filed a complaint in the Court of Common Pleas of
Trumbull County in Warren, Ohio against Mooney Aerospace Group Limited, its
wholly-owned subsidiary, Mooney Airplane Company, Inc. and others. The plaintiff
has asserted claims of strict liability, negligence and breach of warranty and
is seeking compensatory and punitive damages in connection with an airplane
crash in which Mr. Rizer died. The case is in the early stages of discovery and
while the Company believes that it has meritorious defenses, no assurance can be
given of a favorable outcome. In the event of an unfavorable outcome, some of
the damages may not be covered by insurance. If insurance coverage is limited or
not available or if the damages significantly exceed the amount of insurance
that is available, an unfavorable outcome would have a material adverse effect
on the Company's operating results and financial condition.

A lawsuit is pending in the Circuit Court of Clinton County, Michigan; Chad
Collins and Colleen Denise Collins, Plaintiffs, v. Mooney Aircraft Corporation,
Mooney Airplane Company, Inc., et al., involving a breach of warranty and bodily
injury claim for an aircraft purchased in 2001, prior to the Mooney Airplane
Company Inc. asset purchase. The likelihood of an adverse judgment is remote.

Two consolidated lawsuits are pending in the Civil District court of the Parish
of New Orleans, LA.; Lester A. Bautista, et al., Plaintiffs, V. Mooney Airplane
Company, Inc. The case involves an aircraft purchased in 1992, prior to Mooney
Airplane Company, Inc.'s asset purchase. The likelihood of an adverse judgment
is remote.

Two lawsuits are pending (i) in the U.S. District Court of the Southern District
of New York; Alfreda Smith Ovesen, Personal representative of Svend A. Ovesen
and Crucian International, Inc. v. Mitsubishi Heavy Industry Ltd. Et al., and
(ii) Alfreda Smith Ovesen, Personal representative of Svend A. Ovesen and
Crucian International, Inc. v. Mitsubishi Heavy Industry Ltd. involving an MU-2
purchased in 1972. The likelihood of an adverse judgment is remote.


                                       11
<PAGE>

A lawsuit entitled Advance Aerodynamics & Structures, Inc. et al., v. AVAQ
Group, Inc. and Paul S. Dopp was filed in the Western District of Texas, San
Antonio Division. The action alleges affirmative claims for declaratory relief
made by the company and two of its present or former officers against defendants
for alleged claims arising out of the acquisition of the assets of Mooney
Aircraft Corporation. Judgment was rendered denying all claims. Paul Dopp
subsequently filed pleadings in the Mooney Aircraft Corporation chapter 7
bankruptcy case in San Antonio. The bankruptcy court denied the claims; however,
in a letter dated August 26, 2004, the court referred the allegations of Paul S.
Dopp to the appropriate governmental agencies for investigation. There has been
no response by the governmental agencies and the claims have not further
materially changed.

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

None.

                                     PART II

Item 5. Market for the Company's Common Equity, Related Stockholder Matters and
        Small Business Issuer Purchases of Equity Securities.

Since December 15, 2004, our common stock has been traded on the NASD Electronic
Bulletin Board under the symbol "MNYG". Prior to December 15, 2004, our common
stock was traded on the NASD Electronic Bulletin Board under the symbol "MASG".
The following table sets forth the range of high and low bid quotations for each
of the prior two fiscal years. Bid quotations for 2004 have been adjusted to
reflect the 3,223 to 1 reverse stock split on December 14, 2004. The quotations
represent inter-dealer quotations without adjustment for retail mark-ups,
markdowns or commissions and may not represent actual transactions.

                                                      High              Low

1st Quarter 2004                                     $70.91           $42.22
2nd Quarter 2004                                     $15.47           $ 1.93
3rd Quarter 2004                                     $29.01           $ 1.93
4th Quarter 2004 (prior to December 15, 2004)        $ 5.16           $ 3.55
4th Quarter 2004 (after December 14, 2004)           $ 0.00           $ 0.00
1st Quarter 2005                                     $ 5.00           $ 1.73
2nd Quarter 2005                                     $ 2.16           $ 1.00
3rd Quarter 2005                                     $ 1.40           $ 0.80
4th Quarter 2005                                     $ 0.95           $ 0.52

As of December 31, 2005, there were 258 shareholders of record of our common
stock. This does not include shares held in street names.

Item 6. Management's Discussion and Analysis or Plan of Operation.

This Amended Annual Report on Form 10-KSB reflects changes resulting from the
restatement of our 2004 financial statements. We have restated our 2004
financial statements to (1) properly reflect the transfer of Mooney Airplane
Company, Inc. ("MAC") to Allen Holding & Finance Ltd. ("Allen") in May 2004 and
our subsequent re-acquisition of MAC from Allen in December 2004; (2) correct an
error in the calculation of the gain from the forgiveness of debt in connection
with our emergence from bankruptcy in December 2004 and revise our disclosures
related thereto; (3) correct amounts presented in the Consolidated Statement of
Stockholders' Deficiency and footnotes to the consolidated financial statements;
and (4) correct 2004's high and low stock prices set forth in Part II, Item 5.

Forward Looking Statements

This Amended Annual Report on Form 10-KSB 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 them 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 Amended Annual Report on Form 10-KSB 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.


                                       12
<PAGE>

General

On February 6, 2002 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. 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"). 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 one of the world's leading suppliers of high performance single
engine general aviation aircraft primarily serving business and owner-flown
markets. MACorp produced over 11,000 aircraft since its founding in 1947, and
presently has over 7,000 aircraft in operation in the US alone. We acquired
substantially all of MACorp's assets and have returned to full production of the
Mooney aircraft line. MACorp's assets are held by our wholly owned subsidiary,
Mooney Airplane Company. On July 23, 2002, we changed our name to Mooney
Aerospace Group, Ltd.

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 not less than a 10% deposit prior to 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.

During 2006 we intend to focus our efforts on the following:

      Streamlining our capital structure and strengthening our balance sheet

      Enhancement and aggressive implementation of our marketing program

      Reduction of costs to increase profit margins

      Product development

In 2002 MAC announced that we had received a Federal Aviation Administration
(FAA) production certificate for the Ovation2 (Mooney M20R) and the Bravo2
(Mooney M20M).

During 2002 we also 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 enhances our support to Mooney owners and
provides us with additional business opportunities.

In December 2004 we were granted the use of the certification of the Garmin
G1000 for both the Ovation2 GX and Bravo GX models.

We generated $42,083,000 in operating revenues for the year ended December 31,
2005 from the sale of aircraft and spare parts, and incurred a net loss during
the same period of $13,553,000. We believe we will continue to experience losses
until such time as we attain a commercial scale for the production and sale of
our aircraft. No assurance can be made that we will be able to attain the
necessary scale in the foreseeable future that will allow us to generate revenue
and profits sufficient to maintain its operations without other sources of
financing. We have retained the law firm Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. and the financial advisory firm Altman and Company LLC to assist us
in evaluating our capital structure and strengthening our balance sheet.

Liquidity and Capital Resources

At December 31, 2005, we had negative working capital of $34,380,000 and a
stockholders' deficiency of $35,950,000. Since our inception in January 1990, we
have experienced continuing negative cash flow from operations, which has
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.


                                       13
<PAGE>

We expect to continue to incur losses until such time as we increase our
production to planned levels and increase 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 MAC'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 stockholder loans and
the issuance of debentures and notes payable. At December 31, 2005, the Company
had $19.5 million of Secured Debenture Notes ("Debenture Notes") outstanding.
The Debenture Notes are due on the third anniversary of the date the Debenture
Notes were issued which is either June 16, 2006 or November 7, 2007. The
Debenture Notes accrue interest at 8% payable at maturity. Pursuant to the terms
of the Company's Amended Plan of Reorganization approved by the Bankruptcy Court
on December 14, 2004, the Debenture Notes were convertible into the Company's
common stock. The conversion right expired on October 15, 2005. In addition,
pursuant to the Amended Plan of Reorganization, our obligation to pay certain
unsecured notes (consisting of principal and interest) that were outstanding on
June 10, 2004 and the interest that had accrued on the Debenture Notes through
June 10, 2004 was discharged.

On November 13, 2003, we closed a long-term loan with Business Loan Express
("BLX"). This loan is guaranteed by the U. S. Department of Agriculture Business
and Industry loan program. This loan is for $5,000,000 to MAC and is secured by
many of the assets of the Company, with all unpaid principal and interest due on
November 1, 2028.

In 2004 we obtained a revolving loan secured by a purchase money security
agreement from Alpha Capital Aktiengesellschaft, Bristol Investments Fund Ltd.,
Edward Turin, MM&CTW Foundation Inc., Renaissance Development Holdings
International, Ltd., Taria Inc., and TRW Holdings Party Ltd. to Mooney Airplane
Company Inc. as borrower in the amount of $6,250,000 to purchase parts and
materials for manufacture of Mooney airplanes. The security agreement was
amended to state, among other things, that the maximum amount of the loan shall
not exceed seven million five hundred thousand dollars ($7,500,000). The balance
of this loan as of December 31, 2005 was $6,250,000. The interest being accrued
on this loan is at 8% per annum. This note is convertible into shares of the
Company's common stock at $2.22 per share.

In 2004 we obtained additional financing in the amount of $3,100,000 referred to
as "Airplane Notes" from the same parties as the revolving loan. These notes
bear interest at 8% per annum and mature November 7, 2007. The balance of this
loan as of December 31, 2005 was $3,100,000.

In 2004 we also obtained additional financing referred to as the Secured
Promissory Notes in the principal amount of $9,000,000 of which $3,930,000 was
still outstanding at December 31, 2005. These notes were funded by the same
parties as listed for the revolving loan. These notes bear interest at 17.5% per
annum and provided for a maturity date of November 7, 2006 callable on March 7,
2005. They were called on that date and the Company is now in default on the
payment of this obligation. Negotiations between the Company and the lenders to
cure the default are ongoing.

During 2004, we agreed to pay Libra Finance, S.A. a fee of $986,000 in
connection with certain financing transactions. The fee is evidenced by a
non-interest bearing promissory note which was due on February 7, 2005. This
note is in default. The Company is in the process of renegotiating the terms of
the note. Should this note not be refinanced, management has no other option to
cure the default.

On March 8, 2005 we executed a promissory note in favor of Guarantee & Finance
Inc. in the amount of $1,000,000 due and payable on April 5, 2005. The stated
interest rate on the note is 12% but increased to 17% when we failed to repay
the note. This note is in default. The Company is in the process of
renegotiating the terms of the note. Should this note not be refinanced,
management has no other option to cure the default.

During 2005, our stockholders loaned us $9,684,000. The terms of these loans are
in the process of being determined. No interest has been recorded on these
loans. Therefore, any interest payable will increase our net loss and our
stockholders' deficit.

Our current cash balance, along with amounts available to us under the revolving
loan, will not be sufficient to meet our operating needs for the next 12 months.
We believe additional financing may be obtained either through additional stock
issuances or debt financing provided by certain private parties.

Critical Accounting Policies

Our consolidated financial statements 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.


                                       14
<PAGE>

Revenue Recognition - As a routine matter aircraft are paid on delivery date. 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.

Inventory Obsolescence -. We provide a general inventory excess and obsolescence
reserve for any portion of any inventory item valued at cost that has not been
used for three years. This allowance has been reducing over time as sales
volumes have been increasing and we anticipate that trend to continue. However,
the significant model change occasioned by the introduction of the Garmin G1000
equipped GX at the end of 2004 together with the reality that none of the
previous traditionally equipped DX models were ordered in 2005 resulted in
management's decision to specifically reserve for DX equipment on hand. As of
January 2006, DX models will only be produced on a special order basis and not
offered as a general option. During the quarter ended June 30, 2005, the Company
recorded a specific reserve of $250,000 representing 9.5% of the cost of DX
equipment on hand. There are no other costs associated with the discontinuance
of the DX model production.

Valuation of Inventory - Inventory consists of raw materials, work in process
and finished goods and is stated at the lower of cost or market.

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, 2005 consolidated financial statements contained elsewhere is this
Form 10-KSB.

Results of Operations

During the second quarter of 2004, the Company defaulted on approximately
$21,000,000 of its secured debentures. The debentures were secured by the assets
and outstanding capital stock of the Company's wholly-owned subsidiary, Mooney
Airplane Company. On May 28, 2004, in lieu of foreclosure by the secured
debenture holders and to preserve the value of MAC as a going concern, the
Company transferred its shares in MAC to Allen Holding & Finance Ltd., as agent
for the secured debenture holders pursuant to the terms of a stock purchase
agreement. On December 14, 2004, pursuant to the terms of the Company's Amended
Plan of Reorganization approved by the Bankruptcy Court, the Company reacquired
the MAC shares from Allen in exchange for 5,000,000 shares of common stock. The
accompanying consolidated financial statements for the year ended December 31,
2005 include the accounts of the Company MAC. The financial statements for the
year ended December 31, 2004 include the accounts of MAC for the periods January
1, 2004 through May 27, 2004 and December 14 through December 31 on a
consolidated basis. The accounts of MAC for the period May 28, 2004 through
December 13, 2004 are included on a combined basis. All inter-company accounts
and transactions have been eliminated.

Year ended December 31, 2005 vs. December 31, 2004

Net sales for the year ended December 31, 2005, increased by $22,769,000 or
118%, from $19,314,000 for the year ended December 31, 2004, compared to
$42,083,000 for the same period in 2005. During the year ended December 31,
2005, we sold 85 airplanes as compared to the sale of 36 airplanes for the year
ended December 31, 2004.

Cost of sales for the year ended December 31, 2005 increased by $21,561,000 or
123%, from $17,553,000 for the year ended December 31, 2004, compared to
$39,114,000 for the year ended December 31, 2005. The increase in cost of sales
is related to the increase in aircraft sales, increased sale of used airplanes,
increased sales in service parts and the service center. We have the capacity to
produce more airplanes than have been produced in the past thereby reducing the
fixed manufacturing cost 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 year ended December 31, 2005 increased by
$482,000 or 64%, from $748,000 for the year ended December 31, 2004, compared to
$1,230,000 for the year ended December 31, 2005. The significant increase is due
to the change in avionics with the introduction of the G1000 glass panel.
Additional projects were the air bag restraint system, changes in propellers,
expanded fuel tank and recasting of the control wheel.

Selling and support expenses for the year ended December 31, 2005 increased by
$490,000, or 11%, from $4,430,000 for the year ended December 31, 2004, compared
to $4,920,000 for the year ended December 31, 2005. The increase is related to
an increase of marketing and sales personnel, increased advertising, MTR
commissions, flight training and the increase in aircraft sales.

General and administrative expenses for the year ended December 31, 2005
increased by $1,865,000 or 41%, from $4,538,000 for the year ended December 31,
2004, compared to $6,403,000 for the year ended December 31, 2005. The increase
is due to an increase in employee compensation, consultant fees expense,
bankruptcy settlement cost and financing cost.

Other income (expense) for the year ended December 31, 2005 changed by $210,000
from $-0- for the year ended December 31, 2004, compared to $210,000 for the
year ended December 31, 2005. The change from 2004 to 2005 primarily relates to
one-time expenses related to recommencement of investor relations activities and
changes in the structure of the Company's board of directors.


                                       15
<PAGE>

Amortization of debt issue costs and discounts for the year ended December 31,
2005 increased by $5,000 or from $-0- for the year ended December 31, 2004,
compared to $5,000 for the year ended December 31, 2005. There are no remaining
debt discounts to amortize.

Interest expense for the year ended December 31, 2005, increased by $1,638,000,
or 80%, from $2,044,000 for the year ended December 31, 2004, compared to
$3,682,000 for the year ended December 31, 2005. Under the terms of the Amended
Plan of Reorganization approved by the Bankruptcy Court on December 14, 2004,
interest on the Company's secured and unsecured notes was discharged as of June
10, 2004. Consequently, 2005 included a full year of interest expense on the
Company's and unsecured notes compared to 2004.

Cash Flows

Cash used in operating activities for the year ended December 31, 2005,
decreased by $9,339,000 as compared to the same period in 2004, due principally
to decreases in accounts receivable and inventory partially offset by an
increase in accounts payable in 2005 versus an increase in inventory in the
amount of $6,390,000 in 2004.

Mooney Airplane Company is the Company's 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 year ended December 31, 2005,
increased by $709,000 as compared to the same period in 2004. This was primarily
for premises improvements of MAC.

Cash provided by financing activities for the year ended December 31, 2005,
decreased by $6,936,000 as compared to the same period in 2004. During the 2005
period, the Company borrowed through short term debt to fund working capital
requirements of MAC.

Item 7. Financial Statements

See "Index To Consolidated Financial Statements" beginning on Page F-1.

Item 8. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

Change in Registrant's Certifying Accountant

On September 23, 2004, the Mooney Aerospace Group, Ltd, (the "Company"),
notified Stonefield Josephson, Inc. ("Stonefield"), its independent public
accountants, that the Company was terminating its services, effective as of that
date. On September 16, 2004, the Company engaged Bernstein & Pinchuk LLP ("B&P")
as its principal independent accountant. This decision to dismiss Stonefield and
engage B&P was taken upon the unanimous approval of the board of directors of
the Company.

During the fiscal year ended December 31, 2004 through September 15, 2004 , (i)
there were no disagreements between the Company and Stonefield on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of Stonefield
would have caused Stonefield to make reference to the matter in its reports on
the Company's financial statements, and (ii) Stonefield's report on the
Company's financial statements did not contain any other adverse opinion,
disclaimer of opinion, or modification or qualification of opinion except that
Stonefield's opinion in its report on the Company's financial statements for the
year ended December 31, 2003 expressed substantial doubt with respect to the
Company's ability to continue as a going concern as a result of incurred net
losses and negative cash flows from operations since its inception, working
capital deficit and stockholders' deficit. During the fiscal year ended December
31, 2004 through September 15, 2004, there were no reportable events as the term
is described in Item 304(a)(1)(iv) of Regulation S-B.

During the fiscal year ended December 31, 2004 the Company has not consulted
with B&P regarding either:

1.    the application of accounting principles to any specified transaction,
      either completed or proposed, or the type of audit opinion that might be
      rendered on the Company's financial statements, and neither a written
      report was provided to the Company nor oral advice was provided that B&P
      concluded was an important factor considered by the Company in reaching a
      decision as to the accounting, auditing or financial reporting issue; or

2.    any matter that was either subject of disagreement or event, as defined in
      Item 304(a)(1)(iv)(A) of Regulation S-B and the related instruction to
      Item 304 of Regulation S-B, or a reportable event, as that term is
      explained in Item 304(a)(1)(iv)(A) of Regulation S-B

Retention of B&P was approved by the Bankruptcy Court. There were no
disagreements on accounting, auditing or financial disclosures with the previous
or present auditors.


                                       16
<PAGE>

Item 8 a. Controls and Procedures

As required by SEC rules, we have evaluated the effectiveness of the design and
operation of the Company's 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 its management, including the
principal executive officer and principal financial officer. Based on this
evaluation, the Company has concluded that the design and operation of our
disclosure controls and procedures are not effective. This determination was
made due to the following factors:

      o     the number of employees of the Company has increased from 168 at the
            start of the 2003 fiscal year to 378 at the end of 2005, and
      o     the executive management of the Company was replaced during 2004.

It is therefore the belief of the management of the Company that the internal
controls needed to be reevaluated and updated to meets its current needs.
However, there is no evidence that any material misstatements were made by the
Company due to the need to update its internal controls. The specific weakness
found involved the segregation of duties within the Company's finance
department. Accordingly, the Company began reorganizing the functions of the
finance department during 2005 and will continue this process during 2006. In
addition, the Company plans on retaining outside consultants with expertise in
internal controls to assist with the update and implementation of control
procedures. Disclosure controls and procedures are our controls and other
procedures that 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.

Item 8 b. Other Matters Subject to Disclosure

None.

Item 9: Directors, Executive Officers, Promoters and Control Persons, Compliance
        with Section 16(a) of the Exchange Act

Directors, Executive Officers and Significant Employees

As of April 17, 2006, our current directors, executive officers and significant
employees are as follows:

Name                    Age     Positions Held

Steve Karol             51      Chairman of the Board of Directors
Gretchen L. Jahn        54      President, Chief Executive Officer and Director
Dr. Herbert Cordt       59      Director
Solomon Mayer           51      Director
David Schlaff           27      Director
Sam Rothman             51      Director
Tom Gray                56      Director
James Wilcox            57      Director
Barry Hodkin            51      Chief Financial Officer, Secretary and Treasurer
David Copeland (1)      44      Vice President Sales and Marketing
Alan Nitchman (1)       63      Vice President Customer Support

(1)   Messrs. Copeland and Nitchman are included herein because they are
      considered to be significant employees.

Directors serve until the next annual meeting or until their successors are
elected or appointed. All officers are appointed by and serve at the discretion
of the board of directors, although Ms. Jahn has entered into an employment
agreement. See "Management Employment Agreements." There are no family
relationships between any of our directors and executive officers.


                                       17
<PAGE>

Steven E. Karol
Mr. Karol was elected to the Board of Directors in July 2005 and was elected
Chairman of the Board of Directors in January 2006. Mr. Karol is the Managing
Partner of Watermill Group which is comprised of Watermill Advisors and
Watermill Ventures, providers of investment capital and strategic and other
advisory services. In addition, Mr. Karol is the Chairman of the Board and Chief
Executive Officer of HMK Enterprises, Inc., a privately-held investment company.
He is a member of the Board of Directors of Inter-Tel Inc. (INTC) and
StockerYale, Inc. (STKR). Mr. Karol received a B.S. in social psychology from
Tufts University in 1976 and completed the President's Program on Leadership at
Harvard University's Graduate School of Business Administration in 1997.

Gretchen L. Jahn
Ms. Jahn has been Chief Executive Officer of Mooney Aerospace Group, Ltd. and a
Director since July 2005. From October 2004 to the present, Ms. Jahn has been
the Chief Executive Officer of Mooney Airplane Company, Inc., a wholly owned
subsidiary of the Company. From October 2003 to October 2004, Ms. Jahn served as
the President and as a member of the Board of Directors of Knotridge
Corporation. In August 1995, Ms. Jahn founded Aegis Analytical Corporation, and
from August 1995 to October 2003, Ms. Jahn served as the President, Executive
Vice President and Chief Executive Officer and from August 1995 to March 2004,
she served as a member of the Board of Directors. Ms. Jahn serves on the Board
of Directors of the Air Race Classic, Inc. Ms. Jahn received a B.A. in
psychology (cum laude) from Lawrence University in 1973. Ms. Jahn received a
M.A. in experimental psychology from the University of Colorado in 1975.

Dr. Herbert Cordt
Dr. Cordt was elected to the Board of Directors on July 28, 2005. From January
2002 to July 2005, Dr. Cordt served as a Chairman of Mobiltel EAD, a Bulgarian
company. From September 1992 to the present, Dr. Cordt has been the Managing
Partner of Cordt & Partner GmbH. Dr. Cordt received a LLD. from the University
of Vienna in 1970 and a MSFS from Georgetown University in 1974.

Solomon Mayer
Mr. Mayer is a member of the board and audit committee. For more than five years
prior to joining the board, Mr. Mayer acted as an independent investment manager
and entrepreneur. His professional focus is in marketing. He was appointed to
the board in April 2002.

David Schlaff
Mr. Schlaff was elected to the Board of Directors on July 28, 2005. From 2004 to
present, Mr. Schlaff has been employed by LH Financial Services Corp. as a
Financial Advisor. From 2002 to 2004, Mr. Schlaff was employed as a Junior
Analyst with Forstmann-Leff Associates Inc. Mr. Schlaff received his B.A. in
business administration from the Interdisiplinary Center Herziliya in 2001.

Sam Rothman
Mr. Rothman was appointed to the board in December 2001. He was elected Chairman
of the Board on August 19, 2002. Mr. Rothman has been self-employed in real
estate and security investments during the past five years.

Tom Gray
Mr. Gray was elected to the Board of Directors on July 28, 2005. From February
2004 to present, Mr. Gray has served as the Managing Director of Mooney Airplane
Company, Inc., a wholly owned subsidiary of the Company. From 2001 to the
present, Mr. Gray has served as the President of Telecom Expert Group. From July
2000 to the present, Mr. Gray has served as the President of Thomas H. Gray Inc.
From August 2000 to April 2001, Mr. Gray served as President of the Business
Unit of FLAG Telecom Ltd. From February 2000 to July 2000, Mr. Gray served as
the Chief Executive Officer of iTravelPartners and approximately one year
subsequent to his departure iTravelPartners filed Articles of Dissolution with
the State of Florida whereby the company sold its assets and dissolved. Mr. Gray
has a consulting contract with the company that is effective from January 1,
2005 to December 31, 2006 Mr. Gray received his B.A. and his M.A. in History
from Loyola University of Chicago in 1969 and 1975 respectively. Mr. Gray
received his MBA from the Keller Graduate School of Management in 1985. Mr. Gray
resigned as a director of the Company on May 1, 2006.

James Wilcox
Mr. Wilcox was elected to the Board of Directors on March 7, 2006. Mr. Wilcox is
the founder and Principal of Pivotal Strategies, Inc., a firm providing interim
executive management services to smaller and middle market businesses during
periods of corporate transition. Since 2004, he has also served as an
Executive-in-Residence at Watermill Ventures and is a member of its Investment
Committee. Prior to establishing Pivotal Strategies, Mr. Wilcox held a number of
executive management positions. From 1998 to 1999 he served as CFO of Key
Components, Inc., a holding company for a number of industrial manufacturers.
From 1992 to 1998 he was with Systems Engineering and Manufacturing Corp., a
manufacturer of custom engineered electroplating equipment and waste treatment
systems, where he held a number of executive positions including Chief Financial
Officer, Chief Operating Officer and Chief Executive Officer. Mr. Wilcox
received his B.A. in Economics from Ursinus College, his M.S. in Accounting from
Northeastern University and he is also a CPA.


                                       18
<PAGE>

Barry Hodkin
From March 2005 to the present, Mr. Hodkin has been the Chief Financial Officer
of Mooney Airplane Company, Inc., a wholly owned subsidiary of the Company. From
March 2004 to March 2005, Mr. Hodkin served as the Chief Operating Officer of
Mooney Airplane Company, Inc. From October 2002 to March 2004, Mr. Hodkin was
the President and Chief Financial Officer of Strojkov Engineering. From March
2001 to October 2002, Mr. Hodkin was the Executive Vice President and Chief
Financial Officer of Superstav, a construction equipment manufacturer. From
February 2000 to March 2001, Mr. Hodkin was the Managing Director and General
Manager of Fermec International, a construction equipment manufacturer. Mr.
Hodkin received a B.A. (with honors) in accounting and financial control from
Lancaster University, Lancaster, England in 1977.

David Copeland
From May 2004 to the present, Mr. Copeland has been Vice President Sales and
Marketing of Mooney Airplane Company, Inc., a wholly owned subsidiary of the
Company. From 2000 to 2004, Mr. Copeland was Vice President, Worldwide Sales and
Marketing of Raytheon Aircraft Company.

Alan Nitchman
Mr. Nitchman has been Vice President Customer Support for Mooney Airplane
Company, Inc., a wholly owned subsidiary of the Company since January 2005. From
1997 to 2005, Mr. Nitchman was Executive Vice President and Chief Operating
Officer of Elliot Aviation, Inc., a provider of corporate aviation support
services for the light to medium turbo-prop and jet aviation markets.

Board Committees

At April 17, 2006, committees of the Board of Directors were as follows:

Audit Committee
The Company has an Audit Committee consisting of Messrs. Wilcox (Chairman),
Karol and Mayer. Mr. Wilcox is a "financial expert" as defined by SEC rules.

Governance Committee
The Company's Governance committee is comprised of Messrs. Cordt (Chairman),
Gray and Mayer. Mr. Gray resigned as a director of the Company and member of the
Governance Committee on May 1, 2006.

Finance Committee
The Company's Finance Committee is comprised of Messrs. Karol (Chairman), Cordt,
Schlaff and Rothman.

Compensation Committee
The Company's Compensation Committee is comprised of Messrs. Karol (Chairman),
Mayer and Schlaff.

Code of Ethics

The Company has adopted a Code of Ethics.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our officers,
directors, and persons who beneficially own more than 10% of our common stock to
file reports of securities ownership and changes in such ownership with the
Securities and Exchange Commission ("SEC"). Officers, directors and others who
own greater than 10% beneficial owners are also required by rules promulgated by
the SEC to furnish us with copies of all Section 16(a) forms they file.

Based solely upon a review of the copies of such forms furnished to us, or
written representations that no Form 5 filings were required, we believe that
during the fiscal year ended December 31, 2005, there was compliance with all
Section 16(a) filing requirements applicable to our officers, directors and
other with greater than 10% beneficial owners.


                                       19
<PAGE>

Item 10: Executive Compensation

The following table sets forth information the remuneration of our chief
executive officer, our most highly compensated executive officers and
significant employees who earned in excess of $100,000 per annum during any part
of our last three fiscal years:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                Annual Compensation                  Long Term Compensation
                              ---------------------------------------------   -------------------------------------
                                                                                        Awards             Payouts
                                                                              --------------------------   --------
                                                                  Other                    Securities
         Name and                                                 Annual      Restricted    Underlying       LTIP        All Other
         Principal                      Salary      Bonus      Compensation     Stock      Options/SAR'S    Payouts    Compensation
       Position (1)           Year       ($)         ($)           ($)         Award($)         (#)           ($)           ($)
       ------------           ----     -------     --------    ------------   ----------   -------------    -------    ------------
<S>                           <C>      <C>         <C>          <C>                <C>           <C>           <C>      <C>
Gretchen L Jahn,              2005     $200,000    $ 33,000           --           --            --            --       $    867 (3)
    President and CEO         2004     $ 37,692    $    -0-           --           --            --            --       $ 10,700 (3)
                              2003           --          --           --           --            --            --             --

Barry Hodkin,                 2005     $125,000    $ 50,000           --           --            --            --             --
    Chief Financial Officer   2004     $134,686    $    -0-           --           --            --            --       $ 17,126 (3)
                              2003           --          --           --           --            --            --             --

David Copeland,               2005     $175,000    $295,250           --           --            --            --             --
    Vice President Sales      2004     $113,077    $105,500           --           --            --            --             --
      and Marketing           2003           --          --           --           --            --            --             --

Alan Nitchman,                2005     $122,596    $ 50,000           --           --            --            --             --
    Vice President            2004           --          --           --           --            --            --             --
      Customer Support        2003           --          --           --           --            --            --             --

J. Nelson Happy,              2005     $136,807          --           --           --            --            --       $464,000 (4)
    Former President &        2004     $207,693          --      $29,489           --            --            --             --
       Chief Financial        2003     $200,000          --           --           --            --            --             --
       Officer(2)
</TABLE>

(1)   Messrs. Copeland and Nitchman are not deemed to be executive officers of
      the Company but have been included herein as significant employees.

(2)   Mr. Happy resigned effective July 24, 2005.

(3)   Amount represents relocation and temporary living expenses incurred by
      employee and reimbursed by the Company pursuant to the terms of the
      employee's employment agreement.

(4)   Represents amounts payable to Mr. Happy at the time of his separation from
      the Company pursuant to the terms of his separation agreement.


                                       20
<PAGE>

                       Options/SAR Grants Last Fiscal Year

                                      NONE

                                Individual Grants

                                      NONE

Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values

                                      NONE

Compensation of Directors

The Company's formal Board of Director Compensation Plan provides for an annual
Director fee, annual Committee member and chair fees and Board and Committee
meeting fees. The annual Board member compensation is $20,000 per annum, an
additional $7,500 for the chairman, Committee member fees of $4,000 to $6,000
and meeting fees of $1,000 per meeting. Mr. Wilcox is paid $10,000 per month and
$1,000 for each meeting attended. The fees paid to Mr. Wilcox are in lieu of the
fees set forth in the Board of Director Compensation Plan. Reasonable and
ordinary expenses incurred are reimbursable to the members. Messrs. Schlaff and
Gray and Ms. Jahn are not compensated for their services as directors.

Management Employment Contracts

The Company has entered into employment agreements with Ms. Jahn and Messrs.
Hodkin, Copeland and Nitchman. In general, the terms of the employment
agreements provide for the payment of a base salary an annual bonus and future
potential equity awards tied to the achievement of profitability as reflected in
the Company's business plan.


                                       21
<PAGE>

Item 11: Security Ownership of Certain Beneficial Owners and Management and
         Related Stockholder Matters.

The following table sets forth certain information regarding our common stock
beneficially owned on March 31, 2006 by (i) each person who is known by us to
own beneficially or exercise voting or dispositive control over 5% or more of
our Common Stock, based upon Schedule 13D and Schedule 13G filings as made with
the SEC, (ii) each Director and (iii) all executive officers and directors as a
group. Except as otherwise indicated, all stockholders have sole voting and
investment power with respect to the shares listed as beneficially owned by
them, subject to the rights of spouses under applicable community property laws.

                                              Number of            Percentage of
      Name and Address                         Common                Beneficial
    Of Beneficial Owner                        Shares                Ownership

Allen Holding & Finance Ltd.                 4,925,000                33.180%
Alpha Capital AG                             3,057,616 (1)            22.740%
Esquire Trade & Finance Inc.                   471,263                 3.180%
Guaranty & Finance Corporation                 319,798                 2.150%
Libra Finance S.A.                             104,780                 0.710%
Renaissance Development Holdings               917,456 (2)             6.820%
TRW Holdings PTY. Limited                      362,858 (3)             2.700%
Tusk Investments                               828,182                 5.580%
All directors and officers as
  a group (4 persons)(4)                        22,215                 0.003%

(1)   Includes 2,089,554 shares of common stock issuable upon conversion of
      secured promissory notes.

(2)   Includes 367,874 shares of common stock issuable upon conversion of
      secured promissory notes.

(3)   Includes 179,028 shares of common stock issuable upon conversion of
      secured promissory notes.

(4)   Directors are paid cash compensation for their services on the Board of
      Directors. The 22,215 shares of common stock consist of 7,823 shares owned
      by Solomon Mayer and 14,392 shares owned by Sam Rothman.

Except as otherwise indicated, the address of each principal stockholder is c/o
Mooney Aerospace Group, Ltd. at 165 Al Mooney Road North, Kerrville, TX 78028.
We believe that all persons named have sole voting power, subject to community
property laws where applicable.

All beneficial owners showing a percentage ownership of 9.99% are restricted by
a stipulated ownership restriction. Their investment if totally converted would
exceed this restriction.

On August 11, 2006, a single Schedule 13D filing was made by Allen Holding &
Finance Ltd., Alpha Capital Aktiengesellschaft, Esquire Trade & Finance Inc. and
Tusk Investments Ltd. (the "13D Filing"). The 13D Filing confirmed that each of
Allen Holding & Finance Ltd., Esquire Trade & Finance Inc. and Tusk Investments
Ltd. continued to maintain their share ownership as set forth above but that
Alpha Capital Aktiengesellschaft now owns 6,695,335 shares of common stock,
including 5,727,273 shares issuable upon conversion of outstanding convertible
debt. The 13D Filing also indicates that "the filing persons, some of whom hold
debt of the Issuer, have agreed to cooperate in an effort to attempt to cause
the company to be privatized and its indebtedness to be recapitalized." In a
letter issued in September 2004, Allen Holding & Finance Ltd. indicated that it
was owned by a company which also beneficially owned a majority interest in
Esquire Trade & Finance Inc. and an unspecified interest in Alpha Capital
Aktiengesellschaft.


                                       22
<PAGE>

Item 12. Certain Relationships and Related Party Transactions.

Tom Gray, a director and former Managing Director of MAC, through Thomas H. Gray
Inc., dba Telecom Expert Group ("TEG") provides various business and information
technology consulting services to the Company. During 2005 and 2004, MAC
incurred fees of $195,712 and $654,920 to TEG for consulting services.

During 2005, the Company borrowed $9,684,000 from one of its stockholders, Alpha
Capital AG. The terms of the loan including interest rate and maturity date are
in the process of being determined. No interest has been recorded on the loan.
Any interest payable on the loan will increase our net loss and our
stockholders' deficiency.

During 2005, Gretchen Jahn, the Company's President and Chief Executive Officer,
purchased an Ovation 2 GX from the Company at full list price. The Company
subsequently leased the airplane from Ms. Jahn upon normal commercial terms.
Under the terms of the lease, the Company is responsible for insurance and
maintenance.

                                     PART IV

Item 13: Exhibits List

(a) The following exhibits are submitted herewith:

The following exhibits are filed or incorporated by reference as part of this
Registration Statement.

      Exhibit     Description
      No.

(1)   2.1         Agreement of Merger dated July 16, 1996 between Advanced
                  Aerodynamics and Structures, Inc., California Corporation, and
                  Advanced Aerodynamics & Structures, Inc., a Delaware
                  corporation
(15)  2.2         Order of the U.S. Bankruptcy Court dated March 18, 2002 re
                  Mooney Aircraft Corporation
(15)  2.3         Asset Purchase Agreement by and between the Company and Mooney
                  Aircraft Corporation dated March 18, 2002
(15)  2.4         First Amendment to Asset Purchase Agreement by and between the
                  Company and Mooney Aircraft Corporation dated March 19, 2002
(1)   3.1         Certificate of Incorporation
      3.2         Bylaws as amended on August 19, 2002
(1)   3.3         Amended and Restated Certificate of Incorporation
(10)  3.4         Amendment to the Certificate of Incorporation
(19)  3.5         Amendment to the Certificate of Incorporation
(7)   3.6         Certificate of Designation
(8)   3.7         Amendment to Certificate of Designation
(15)  3.8         Certificate of Incorporation for Mooney Airplane Company, Inc.
                  (a wholly-owned subsidiary)
(15)  3.9         Certificate of Amendment of Certificate of Incorporation for
                  Mooney Airplane Company, Inc. (a wholly-owned subsidiary)
(19)  3.10        Bylaws as amended on July 22, 2002 for Mooney Airplane
                  Company, Inc. (a wholly-owned subsidiary)
(1)   4.1         Specimen Certificate of Class A Common Stock
(1)   4.2         Warrant Agreement (including form of Class A and Class B
                  Warrant Certificates)
(1)   4.3         Form of Underwriter's Unit Purchase Option
(6)   4.5         Form of March 2000 Common Stock Purchase Warrant to be issued
                  to the Series A Preferred Stock Subscribers and Placement
                  Agents
(6)   4.6         Form of Special Common Stock Purchase Warrant to be issued to
                  the Series A Preferred Placement Agent
(6)   4.7         Form of Funds Escrow Agreement related to the March 2000
                  Subscription Agreement
(7)   4.8         Private Equity Line of Credit Agreement, dated August 15,
                  2000, between the Company and certain Investors
(7)   4.9         Registration Rights Agreement between the Company and the
                  investors participating in the Private Equity Line of Credit
                  Agreement
(7)   4.10        Form of Warrant issued in connection with Private Equity Line
                  of Credit Agreement


                                    23
<PAGE>

(8)   4.11        Waiver Agreement between the Registrant and the Series A
                  Preferred Stock Subscribers
(8)   4.12        Form of March 27, 2001, Subscription Agreement between the
                  Registrant and the 5% Secured Convertible Note Subscribers
(8)   4.13        Form of March 27, 2001, Secured Convertible Note between the
                  Registrant and the 5% Secured Convertible Note Subscribers
(8)   4.14        Form of March 27, 2001, Common Stock Purchase Warrant to be
                  issued to the 5% Secured Convertible Note Subscribers
(8)   4.15        Form of March 27, 2001, Collateral Agent Agreement between the
                  Collateral Agent and the 5% Secured Convertible Note
                  Subscribers
(8)   4.16        Form of March 27, 2001, Security Agreement between the
                  Registrant and the Collateral Agent
(11)  4.18        Form of June 27, 2001, Subscription Agreement ("SA") and Form
                  of Note (Exhibit A to the SA) and Form of Warrant (Exhibit D
                  to the SA)
(9)   4.19        Form of October 26, 2001 Subscription Agreement ("SA") and
                  Form of Secured Note (Exhibit A to the SA) and Form of Warrant
                  (Exhibit D to the SA)
(9)   4.20        Form of October 26, 2001 Security Agreement
(9)   4.21        Form of October 26, 2001 Lockup Agreement
(9)   4.22        Form of October 26, 2001 Put Agreement
(12)  4.23        Secured Tranche A Promissory Note for $500,000, dated January
                  29, 2002, issued to Congress Financial Corporation
                  (Southwest), as executed 12)
      4.24        Secured Tranche B Promissory Note for $2,500,000, dated
                  January 29, 2002, issued to Congress Financial Corporation
                  (Southwest), as executed
(12)  4.26        Limited Recourse Secured Tranche D Promissory Note for
                  $5,714,408.71, dated January 29, 2002, issued to Congress
                  Financial Corporation (Southwest), as executed
(13)  4.27        January 30, 2002 Subscription Agreement and Form of Secured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under October 26, 2002 Subscription
                  Agreement
(13)  4.28        Notice of Put, Officer's Certificate and Modification of Put
                  Agreement Terms for the Put dated January 30, 2002
(13)  4.29        January 30, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement)
(14)  4.30        March 26, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under January 30, 2002 Subscription
                  Agreement
(16)  4.31        April 11, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under January 30, 2002 Subscription
                  Agreement
(19)  4.32        May 16, 2002 Subscription Agreement and Form of Unsecured Note
                  (Exhibit A to the Subscription Agreement) and Form of Warrant
                  (Exhibit D to the Subscription Agreement)
(19)  4.33        June 5, 2002 Subscription Agreement and Form of Unsecured Note
                  (Exhibit A to the Subscription Agreement) and Form of Warrant
                  (Exhibit D to the Subscription Agreement) for subsequent
                  closing under May 16, 2002 Subscription Agreement)
(19)  4.34        June 10, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under May 16, 2002 Subscription Agreement
(19)  4.35        June 18, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under May 16, 2002 Subscription Agreement
(19)  4.36        June 28, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement) for
                  subsequent closing under May 16, 2002 Subscription Agreement
(19)  4.37        July 10, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement)
(19)  4.38        Waiver and Agreement of Amendment
(20)  4.39        July 31, 2002 Subscription Agreement and Form of Unsecured
                  Note (Exhibit A to the Subscription Agreement) and Form of
                  Warrant (Exhibit D to the Subscription Agreement)
(1)   10.1        Form of Indemnification Agreement
(2)   10.2        Amended 1996 Stock Option File
(1)   10.3        Employment Agreement dated as of May 1, 1996 between the
                  Company and Dr. Carl L. Chen
(15)  10.4        Severance Agreement and Warrant Agreement, each between the
                  Company and Dr. Carl L. Chen
(2)   10.5        Lease dated December 19, 1996 between Olen Properties Corp., a
                  Florida corporation, and the Company
(3)   10.6        Standard Sublease dated June 27, 1997 with Budget Rent-a-Car
                  of Southern California
(3)   10.8        Standard Industrial/Commercial Multi-Tenant Lease-Gross dated
                  March 12, 1997 with the Golgolab Family Trust
(5)   10.9        Loan Agreement dated as of August 1, 1997 between the Company
                  and the California Economic Development Authority
(5)   10.10       Indenture of Trust dated as of August 1, 1997 between the
                  Company and the California Economic Development Authority and
                  First Trust of California, National Association
(4)   10.11       Official Statement dated August 5, 1997
(5)   10.12       Letter of Credit issued by The Sumitomo Bank, Limited
(5)   10.13       Reimbursement Agreement dated as of August 1, 1997 between the
                  Company and the Sumitomo Bank, Limited
(5)   10.14       Purchase Contract dated August 1, 1997 by and among Rauscher
                  Pierce Refnes, Inc., the California Economic Development
                  Authority and the Treasurer of the State of California, and
                  approved by the Company
(5)   10.15       Remarketing Agreement dated as of August 1, 1997 between the
                  Company and Rauscher Pierce Refnes, Inc.
(5)   10.16       Blanket Letters of Representations of the California Economic
                  Development Authority and First Trust of California, National
                  Association
(5)   10.17       Tax Regulatory Agreement dated as of August 1, 1997 by and
                  among the California Economic Development Authority, the
                  Company and First Trust of California, National Association


                                    24
<PAGE>

(5)   10.18       Custody, Pledge and Security Agreement dated as of August 1,
                  1997 between the Company and The Sumitomo Bank, Limited
(5)   10.19       Investment Agreement dated August 5, 1997 by and between the
                  Company and the Sumitomo Bank, Limited
(5)   10.20       Specimen Direct Obligation Note between the Company and the
                  Sumitomo Bank, Limited
(4)   10.21       Lease Agreement dated October 17, 1997 between the Company and
                  the City of Long Beach
(4)   10.22       Construction Agreement dated October 29, 1997 between the
                  Company and Commercial Developments International/West
(12)  10.23       Assignment and Assumption Agreement between Advanced
                  Aerodynamics and Structures, Inc. and Congress Financial
                  Corporation (Southwest), dated January 29, 2002, as executed
(12)  10.24       Collateral Assignment of Debt and Security Agreements between
                  Advanced Aerodynamics and Structures, Inc. and Congress
                  Financial Corporation (Southwest), dated January 29, 2002, as
                  executed
(17)  10.25       Roy Norris Employment Agreement
(17)  10.26       Dale Ruhmel Employment Agreement
(17)  10.27       L. Peter Larson Employment Agreement
(17)  10.28       J. Nelson Happy Employment Agreement
(17)  10.29       Exhibit 1 to Employment Agreements
(19)  10.30       Nicolas Chabbert Employment Agreement
(19)  10.31       2002 Stock Option Plan
(20)  10.32       Audit Committee Charter adopted July 22, 2002
(21)  10.33       Amended Disclosure Statement
(22)  10.34       Amended Plan of Reorganization
(23)  10.35       Confirmation Order December 2004
(24)  10.36       Specimen Certificate of Common Stock
(25)  10.37       Contract for Thomas H Gray Inc., and Illinois subchapter S
                  Corporation doing business as (dba) Telecom Expert Group, FEIN
                  36-4315031.
(26)  31.1        Certification Pursuant to 18 U. S. C. Section 1350, as Adopted
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(26)  32.1        Certification Pursuant to 18 U. S. C. Section 1350, as Adopted
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


                                    25
<PAGE>

Item 14. Principal Accountant Fees and Services.

Bernstein & Pinchuk LLP were our principal accountants for the years ended
December 31, 2005 and 2004. Bernstein & Pinchuk has billed us the
following amounts for audit fees, audit-related fees, tax fees and all
other fees for 2005 and 2004:

                                                    2005               2004
                                                 ---------          ---------
Audit fees                                       $ 104,975          $ 109,550
Audit-related fees                                      --                 --
Tax fees                                                --              3,000
All other fees                                          --                 --

The amounts shown for tax fees represent the amounts billed for preparation of
the Company's consolidated tax returns.

The Audit Committee's policy is to pre-approve all audit, audit-related,
non-audit, tax and other fees to be paid to the Company's independent registered
public accounting firm. Each service provided is generally subject to a budget.


                                    26
<PAGE>

                                SIGNATURES

      In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized, on the 31st day of August, 2006.

                                       MOONEY AEROSPACE GROUP, LTD.


                                       By: /s/ Gretchen L. Jahn
                                           -------------------------------------
                                           Gretchen L. Jahn
                                           President and Chief Executive Officer


      In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


      Signature                          Title                        Date
------------------------     --------------------------------    ---------------

  /s/ Gretchen L. Jahn       President and Chief Executive       August 31, 2006
------------------------     Officer, Director
     Gretchen L. Jahn        (Principal Executive Officer)

                             Chief Financial Officer,
  /s/ Barry Hodkin           Secretary and Treasurer,            August 31, 2006
------------------------     (Principal Financial Officer and
     Barry Hodkin            Principal Accounting Officer)

  /s/ Herbert Cordt          Director                            August 31, 2006
------------------------
     Herbert Cordt

  /s/ Steven E. Karol        Director                            August 31, 2006
------------------------
     Steven E. Karol

  /s/ Solomon Mayer          Director                            August 31, 2006
------------------------
     Solomon Mayer

                             Director                            August __, 2006
------------------------
     Sam Rothman

                             Director                            August 31, 2006
------------------------
     David Schlaff

  /s/ James D. Wilcox        Director                            August 31, 2006
------------------------
     James D. Wilcox


                                    27
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary

                        Consolidated Financial Statements

                                Table of Contents


                                                                            Page

Report of Independent Registered Public Accounting Firm                      29
Consolidated Financial Statements:
      Balance Sheet                                                          30
      Statements of Operations                                               31
      Statements of Stockholders' Deficiency                                 32
      Statements of Cash Flows                                               34
      Notes to Consolidated Financial Statements                             35


                                    28
<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Mooney Aerospace Group, Ltd.
Kerrville, Texas

We have audited the accompanying balance sheets of Mooney Aerospace Group, Ltd.
and subsidiary as of December 31, 2005, and the related statements of
operations, stockholders' equity, and cash flows for each of the two 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 audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about 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. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2005 and the results of its operations and its cash flows for each of the two
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has incurred significant losses from operations since its inception and
has a working capital deficiency. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. Management's plans in
regard to these matters are also described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

The consolidated balance sheet at 2005 and the consolidated statements of
operations, changes in stockholders' deficiency, cash flows and related footnote
disclosures for 2004 are restated to reflect a change in the method of
accounting for the transfer of the Company's wholly owned subsidiary, Mooney
Airplane Company, Inc., to Allen Holding & Finance Ltd. in May 2004 and the
subsequent re-acquisition of MAC from Allen in December 2004 and to correct an
error in the calculation of the gain from the forgiveness of debt in connection
with the emergence from bankruptcy in December 2004. These matters are further
described in Note 1.


/s/ Bernstein & Pinchuk LLP

Certified Public Accountants


New York, New York

March 24, 2006, except for the change in the method of
accounting for the transfer and re-acquistion of Mooney
Airplane Company, Inc. disclosed in Note 1, Transfer and
Re-acquisition of MAC Shares and the correction of an error
disclosed in Note 1, Restatement - Correction of an Error,
and its effect on the gain on forgiveness of debt and
earnings per share on the Consolidated Statement of
Operations, and the Consolidated Statement of Cash Flows for
the year ended December 31, 2004, and the related cumulative
effect on the equity section of the Balance Sheet as of
December 31, 2005, as to which the date is July 25, 2006.


                             29
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary
                           Consolidated Balance Sheet
                                December 31, 2005

<TABLE>
<CAPTION>
                                                                         (Restated)
                                                                            2005
                                                                       --------------
<S>                                                                    <C>
                                     ASSETS

Current Assets
      Cash and cash equivalents                                        $      637,000
      Accounts receivable                                                     393,000
      Other receivables                                                       636,000
      Inventory                                                            13,910,000
      Prepaid expenses and other current assets                             1,794,000
                                                                       --------------
         Total current assets                                              17,370,000
                                                                       --------------

Property and Equipment - at cost, net of accumulated
  depreciation and amortization                                             4,529,000

Trade Name                                                                  1,802,000
Other Assets                                                                  243,000
                                                                       --------------
                                                                            6,574,000
                                                                       --------------
                                                                       $   23,944,000
                                                                       ==============

                    LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current Liabilities
      Accounts payable                                                 $    1,289,000
      Accrued taxes and expenses                                            3,713,000
      Accrued interest and penalties                                        4,873,000
      Notes payable, current portion                                        6,407,000
      Note payable, revolver                                                6,250,000
      Loans from stockholders                                               9,684,000
      Secured debentures                                                   19,534,000
                                                                       --------------
Total current liabilities                                                  51,750,000
                                                                       --------------

Notes Payable                                                               7,879,000

Environmental Cleanup Liability                                               265,000

Stockholders' Deficiency
      Common stock, $0.0001 par value; 50,000,000 shares authorized;
        shares issued and outstanding 10,631,071                                1,000
      Additional paid in capital                                          117,771,000
      Accumulated deficit                                                (153,722,000)
                                                                       --------------
                                                                          (35,950,000)
                                                                       --------------
                                                                       $   23,944,000
                                                                       ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       30
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary
                      Consolidated Statements of Operations
                     Years Ended December 31, 2005 and 2004
          (Combined as to the operations of Mooney Airplane Company for
                  the period May 28, 2004 to December 13, 2004)

<TABLE>
<CAPTION>
                                                                          (Restated)
                                                           2005              2004
                                                      --------------    --------------
<S>                                                   <C>               <C>
Net Sales                                             $   42,083,000    $   19,314,000

Cost of Sales                                             39,114,000        17,553,000
                                                      --------------    --------------

Gross Margin                                               2,969,000         1,761,000
                                                      --------------    --------------

Operating Expense
      Research and development expenses                    1,230,000           748,000
      Selling and support expenses                         4,920,000         4,430,000
      General and administrative expenses                  6,403,000         4,538,000
                                                      --------------    --------------

                                                          12,553,000         9,716,000
                                                      --------------    --------------

Loss from Operations                                      (9,584,000)       (7,955,000)
                                                      --------------    --------------

Other Income (Expense)
      Interest income                                          1,000             2,000
      Other income (expense), net                           (210,000)               --
      Amortization of debt issue costs and discount           (5,000)               --
      Interest expense                                    (3,682,000)       (2,044,000)
      Gain on sale of fixed asset                            (73,000)           51,000
Reorganization Items
      Settlement charges                                          --        (2,321,000)
      Professional fees                                           --        (1,236,000)
      Gain on forgiveness of debt                                 --         6,183,000
                                                      --------------    --------------

                                                          (3,969,000)          635,000
                                                      --------------    --------------

Loss Before Provision for Income Taxes                   (13,553,000)       (7,320,000)

Provision for Income Taxes                                        --                --
                                                      --------------    --------------

Net Loss                                              $  (13,553,000)   $   (7,320,000)
                                                      ==============    ==============

Net Loss Per Share - Basic and Diluted                $        (1.30)   $        (0.73)
                                                      ==============    ==============

Weighted Average Shares Outstanding
      Basic                                               10,457,556         9,998,000
                                                      ==============    ==============

      Diluted                                             10,457,556         9,998,000
                                                      ==============    ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       31
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary
               Consolidated Statement of Stockholders' Deficiency
          (Combined as to the operations of Mooney Airplane Company for
                  the period May 28, 2004 to December 13, 2004)

<TABLE>
<CAPTION>
                                                           Preferred Stock
                                                               Series A                     Common Stock
                                                     ----------------------------    ---------------------------
                                                        Shares          Amount          Shares         Amount
                                                     ------------    ------------    ------------   ------------
<S>                                                  <C>             <C>             <C>            <C>
Balance, December 31, 2003                                 25,968    $  2,082,000              --   $         --

Conversion of preferred stock to Class A                   (8,352)       (321,000)             --             --
Conversion of debentures to Class A                            --              --              --             --
Conversion of accrued interest to Class A                      --              --              --             --
Issuance of common stock for professional services             --              --              --             --
                                                     ------------    ------------    ------------   ------------

Balance prior to bankruptcy reorganization                 17,616       1,761,000              --             --
Plan of Reorganization                                    (17,616)     (1,761,000)      4,997,773          1,000
Transfer of Mooney Airplane Co.                                --              --              --             --
Re-acquisition of Mooney Airplane Co.                          --              --       5,000,000             --
Net loss                                                       --              --              --             --
                                                     ------------    ------------    ------------   ------------
Balance, December 31, 2004 (Restated)                          --              --       9,997,773          1,000
Conversion of debentures to common                             --              --         627,298             --
Issuance of common stock for professional services             --              --           6,000             --
Net loss                                                       --              --              --             --
                                                     ------------    ------------    ------------   ------------

Balance, December 31, 2005 (Restated)                          --    $         --      10,631,071   $      1,000
                                                     ============    ============    ============   ============

<CAPTION>
                                                            Common Stock
                                                               Class A                         Class B
                                                     ----------------------------    ---------------------------
                                                        Shares          Amount          Shares          Amount
                                                     ------------    ------------    ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>
Balance, December 31, 2003                            457,402,542    $     46,000       1,013,572    $         --

Conversion of preferred stock to Class A               23,271,576           2,000              --              --
Conversion of debentures to Class A                    83,972,946           8,000              --              --
Conversion of accrued interest to Class A              15,821,497           2,000              --              --
Issuance of common stock for professional services     64,110,453           6,000              --              --
                                                     ------------    ------------    ------------    ------------

Balance prior to bankruptcy reorganization            644,579,014          64,000       1,013,572              --
Plan of Reorganization                               (644,579,014)        (64,000)     (1,013,572)             --
Transfer of Mooney Airplane Co.                                --              --              --              --
Re-acquisition of Mooney Airplane Co.                          --              --              --              --
Net loss                                                       --              --              --              --
                                                     ------------    ------------    ------------    ------------
Balance, December 31, 2004 (Restated)                          --              --              --              --
Conversion of debentures to common                             --              --              --              --
Issuance of common stock for professional services             --              --              --              --
Net loss                                                       --              --              --              --
                                                     ------------    ------------    ------------    ------------

Balance, December 31, 2005 (Restated)                          --    $         --              --    $         --
                                                     ============    ============    ============    ============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       32
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary
               Consolidated Statement of Stockholders' Deficiency
          (Combined as to the operations of Mooney Airplane Company for
                  the period May 28, 2004 to December 13, 2004)

<TABLE>
<CAPTION>
                                                                             Common Stock
                                                     ---------------------------------------------------------------
                                                               Class E-1                        Class E-2
                                                     ------------------------------   ------------------------------
                                                         Shares           Amount          Shares          Amount
                                                     -------------    -------------   -------------    -------------
<S>                                                  <C>              <C>             <C>              <C>
Balance, December 31, 2003                               4,000,000    $          --       4,000,000    $          --

Conversion of preferred stock to Class A                        --               --              --               --
Conversion of debentures to Class A                             --               --              --               --
Conversion of accrued interest to Class A                       --               --              --               --
Issuance of common stock for professional services              --               --              --               --
                                                     -------------    -------------   -------------    -------------

Balance prior to bankruptcy reorganization               4,000,000               --       4,000,000               --
Plan of Reorganization                                  (4,000,000)              --      (4,000,000)              --
Transfer of Mooney Airplane Co.                                 --               --              --               --
Re-acquisition of Mooney Airplane Co.                           --               --              --               --
Net loss                                                        --               --              --               --
                                                     -------------    -------------   -------------    -------------

Balance, December 31, 2004 (Restated)                           --               --              --               --
Conversion of debentures to common                              --               --              --               --
Issuance of common stock for professional services              --               --              --               --
Net loss                                                        --               --              --               --
                                                     -------------    -------------   -------------    -------------

Balance, December 31, 2005 (Restated)                           --    $          --              --    $          --
                                                     =============    =============   =============    =============

<CAPTION>
                                                      Additional
                                                        Paid-in        Accumulated
                                                        Capital          Deficit           Total
                                                     -------------    -------------    -------------
<S>                                                  <C>              <C>              <C>
Balance, December 31, 2003                           $  96,360,000    $(140,964,000)   $ (42,476,000)

Conversion of preferred stock to Class A                   319,000               --               --
Conversion of debentures to Class A                      1,930,000               --        1,938,000
Conversion of accrued interest to Class A                  548,000               --          550,000
Issuance of common stock for professional services         281,000               --          287,000
                                                     -------------    -------------    -------------

Balance prior to bankruptcy reorganization              99,438,000     (140,964,000)     (39,701,000)
Plan of Reorganization                                  25,048,000            1,000       23,225,000
Transfer of Mooney Airplane Co.                         (4,258,000)       4,258,000               --
Re-acquisition of Mooney Airplane Co.                   (3,856,000)       3,856,000               --
Net loss                                                        --       (7,320,000)      (7,320,000)
                                                     -------------    -------------    -------------

Balance, December 31, 2004 (Restated)                  116,372,000     (140,169,000)     (23,796,000)
Conversion of debentures to common                       1,392,000               --        1,392,000
Issuance of common stock for professional services           7,000               --            7,000
Net loss                                                        --      (13,553,000)     (13,553,000)
                                                     -------------    -------------    -------------

Balance, December 31, 2005 (Restated)                $ 117,771,000    $(153,722,000)   $ (35,950,000)
                                                     =============    =============    =============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       33
<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary
                      Consolidated Statements of Cash Flows
                     Years Ended December 31, 2005 and 2004
          (Combined as to the operations of Mooney Airplane Company for
                  the period May 28, 2004 to December 13, 2004)

<TABLE>
<CAPTION>
                                                                                      (Restated)
                                                                       2005              2004
                                                                  --------------    --------------
<S>                                                               <C>               <C>
CASH FLOW FROM OPERATING ACTIVITIES:
      Net loss                                                    $  (13,553,000)   $   (7,320,000)
      Adjustment to reconcile net loss to net cash
        used in operating activities:
              Extraordinary gain on forgiveness of debt                       --        (6,183,000)
              Non-cash professional service expense                        7,000                --
              Depreciation and amortization expense                      940,000           819,000
              Income from disposition of property and equipment               --           (51,000)
              Environmental cleanup accrual                             (115,000)          381,000

      Changes in operating assets and liabilities:
         Accounts receivable                                           1,175,000        (1,440,000)
         Other receivables                                             1,010,000        (1,646,000)
         Inventory                                                     1,146,000        (6,390,000)
         Prepaid expenses and other current assets                    (1,402,000)          208,000
         Other assets                                                    158,000          (401,000)
         Accounts payable                                               (862,000)          410,000
         Accrued expenses                                              1,080,000          (489,000)
         Accrued interest                                              3,194,000         1,920,000
         Accrued warrant liability                                       170,000           164,000
         Accrued taxes payable                                            51,000           286,000
         Accrued used aircraft trade in liability                       (416,000)          416,000
         Accrued legal and audit                                              --             5,000
         Deferred revenue                                             (1,376,000)        1,595,000
                                                                  --------------    --------------
              Net cash used in operating activities                   (8,793,000)      (18,132,000)
                                                                  --------------    --------------

CASH FLOW FROM INVESTING ACTIVITIES:
      Purchase of property and equipment                              (1,628,000)         (818,000)
      Proceeds from disposition of property and equipment                152,000            51,000
                                                                  --------------    --------------
              Net cash used in investing activities                   (1,476,000)         (767,000)
                                                                  --------------    --------------

CASH FLOW FROM FINANCING ACTIVITIES:
      Proceeds from issuance of notes payable-net                      1,170,000        27,574,000
      Proceeds from stockholder loans                                  9,684,000                --
      Payment for debt issue costs                                            --           379,000
      Payments on notes payable                                               --       (10,177,000)
      Notes payable related party                                         (7,000)            7,000
                                                                  --------------    --------------
              Net cash provided by financing activities               10,847,000        17,783,000
                                                                  --------------    --------------

NET INCREASE (DECREASE) IN CASH AND
  CASH EQUIVALENTS                                                       578,000        (1,116,000)

CASH AND CASH EQUIVALENTS, Beginning of year                              59,000         1,175,000
                                                                  --------------    --------------

CASH AND CASH EQUIVALENTS, End of year                            $      637,000    $       59,000
                                                                  ==============    ==============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
      Interest paid                                               $      391,000    $      414,000
                                                                  ==============    ==============
      Income taxes paid                                           $           --    $           --
                                                                  ==============    ==============
</TABLE>

   The accompanying notes are an integral part of these financial statements.


                                       34
<PAGE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

During the year ended December 31, 2005, the Company: 1) converted $1,392,000 of
Secured convertible debentures into 627,293 shares of Common stock valued at
$1,392,590 and 2) issued 6,000 shares of Common stock valued at $6,900 in
settlement of professional services.

During the year ended December 31, 2004, the Company: 1) converted 8,352 shares
of Series A preferred stock into 23,271,576 shares of Class A common stock
valued at $321,000, 2) converted $1,938,000 of convertible debentures into
83,972,946 shares of Class A common stock, 3) converted $550,000 of accrued
interest into 15,821,497 shares of Class A common stock, 4) issued 64,110,453
shares of Class A common stock in settlement of $287,000 of professional
services. In addition, during the year ended December 31, 2004, the Company
consummated a reverse split of the Class A common stock into a new issue of
common stock per the Amended Plan of Reorganization. There was a conversion of
644,579,000 shares of Class A common stock into 200,000 shares of the new issue
of common stock.

Note 1 - Organization and Significant Accounting Policies

Organization and Line of Business

Mooney Aerospace Group, Ltd., formerly known as Advanced Aerodynamics &
Structures, Inc. (the "Company" or "Mooney"), was incorporated under the laws of
the State of California on January 26, 1990. In July 1996, the Company
reincorporated by merging into a newly formed corporation in Delaware. Upon
approval of the Company's Board of Directors and the State of Delaware, the
Company, on July 23, 2002, changed its the name from Advanced Aerodynamics &
Structures, Inc. to Mooney Aerospace Group, Ltd. The consolidated financial
statements as of December 31, 2003 and for the two years then ended have been
adjusted to reflect this name change.

On April 19, 2002, the Company completed the acquisition of certain assets and
the assumption of certain liabilities of Mooney Aircraft Corporation ("MACorp")
out of bankruptcy through its newly formed and wholly owned subsidiary, Mooney
Airplane Company ("MAC"), for approximately $9,881,000 (see Note 2). MACorp was
an operating company that had a long history of generating revenue.

After the acquisition, the Company's business operations included (i) the design
and manufacture of four-place, single-engine, retractable gear aircraft, (ii)
sale of spare parts for Mooney aircraft, (iii) manufacture of aircraft
components for other aerospace companies, and (iv) service and repair of
aircraft. Aircraft sales, both domestic and international, are largely through a
Mooney Marketing Center distribution system. Spare parts are sold worldwide
through a Mooney service center distribution system. The manufacture of aircraft
components and the Company's service and repair of aircraft are primarily
domestic operations.

Since its inception in 1990 to June 30, 2002, the Company was in the development
stage, in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 7 and had accumulated a deficit while in the development stage of
$99,216,000. Effective July 1, 2002, the Company was no longer considered to be
in the development stage due to its acquisition of MACorp's assets and business.

Basis of Presentation

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 has incurred a cumulative net loss of $153,722,000 as of December 31,
2005. The Company also has a working capital deficiency of $34,380,000 as of
December 31, 2005.

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.


                                       35
<PAGE>

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

a)    The Company's management team has developed a financial plan to address
      its working capital requirements. The plan will substantially improve the
      Company's ability to meet its working capital requirements throughout the
      year ended December 31, 2006. The plan includes obtaining additional short
      term funding for increased working capital consistent with the planned
      growth of the Company.

b)    The Company is in default of agreements covering approximately $5.9
      million of indebtedness. Management is negotiating with its lenders to
      cure the defaults. In addition, management has retained special legal
      counsel and a financial advisory firm to assist the Company in evaluating
      its capital structure and strengthening its balance sheet. During 2005,
      the Company's stockholders loaned the Company approximately $9.7 million
      to fund its operations.

Principles of Consolidation

On May 28, 2004, the Company transferred the shares in its wholly-owned
subsidiary, Mooney Airplane Company ("MAC") to Allen Holding & Finance Ltd.
("Allen") pursuant to the terms of a stock purchase agreement. The Company
re-acquired the MAC shares from Allen on December 14, 2004 pursuant to the terms
of an Amended Plan of Reorganization approved by the U.S. Bankruptcy Court for
the District of Delaware (the "Bankruptcy Court"). The accompanying consolidated
financial statements for the year ended December 31, 2005 include the accounts
of the Company MAC. The financial statements for the year ended December 31,
2004 include the accounts of MAC for the periods January 1, 2004 through May 27,
2004 and December 14 through December 31 on a consolidated basis. The accounts
of MAC for the period May 28, 2004 through December 13, 2004 are included on a
combined basis. All inter-company accounts and transactions have been
eliminated. See "Transfer and Re-acquisition of MAC Shares" below.

Restatement of 2004's Consolidated Financial Statements

Subsequent to the issuance of our consolidated financial statements for the year
ended December 31, 2004, we reviewed the accounting principles originally
applied in accounting for the transfer and re-acquisition of Mooney Airplane
Company and concluded it was inappropriate to consolidate the assets,
liabilities, operating results and cash flows of MAC for the period May 28, 2004
to December 14, 2004 since MAC was not a wholly-owned subsidiary (see
"Principles of Consolidation"). As a result of our review we have restated our
financial statements for the year ended December 2004 to include (1) on a
consolidated basis the results of operations and cash flows of MAC for the
periods that MAC was a wholly-owned subsidiary (January 1, 2004 to May 27, 2004
and December 14 to December 31, 2004) and (2) on a combined basis MAC's results
of operations and cash flows for the period that MAC was not a wholly-owned
subsidiary (May 28, 2004 to December 13, 2004). During the course of our review
we discovered the gain that resulted from the forgiveness of debt in connection
with the Company's emergence from bankruptcy in December 2004 had been
calculated incorrectly. The effect of these changes was to increase 2004's net
income by $5,150,000, reduce additional paid in capital by $5,150,000 and reduce
our accumulated deficit by $5,150,000 as shown below:

      Consolidated Statements of Operations:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                                                2005              2004
                                                           -------------     -------------
<S>                                                        <C>               <C>
      Net income (loss) prior to restatement               $ (13,553,000)    $ (12,470,000)
      Correction of gain from forgiveness of debt                     --         5,150,000
                                                           -------------     -------------

      Net income (loss) - Restated                         $ (13,553,000)    $  (7,320,000)
                                                           =============     =============

      Net income (loss) per share prior to restatement     $       (1.30)    $       (1.25)
      Correction of gain from forgiveness of debt                     --              0.52
                                                           -------------     -------------

      Net income (loss) per share - Restated               $       (1.30)    $       (0.73)
                                                           =============     =============
</TABLE>


                                       36
<PAGE>

      Consolidated Balance Sheets:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                            2005              2004
                                                        -------------    -------------
<S>                                                     <C>              <C>
      Additional paid-in capital prior to restatement   $ 131,035,000    $ 129,636,000
      Transfer and re-acquisition of MAC                   (8,114,000)      (8,114,000)
      Correction of gain from forgiveness of debt          (5,150,000)      (5,150,000)
                                                        -------------    -------------

      Additional paid-in capital - Restated             $ 117,771,000    $ 116,372,000
                                                        =============    =============

      Accumulated deficit prior to restatement          $(166,986,000    $(153,433,000)
      Transfer and re-acquisition of MAC                    8,114,000        8,114,000
      Correction of gain from forgiveness of debt           5,150,000        5,150,000
                                                        -------------    -------------

      Accumulated deficit - Restated                    $(153,722,000)   $(140,169,000)
                                                        =============    =============
</TABLE>

See "Bankruptcy Proceedings" below and Note 8, "Stockholders' Deficiency".

Use of Estimates

The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting periods. As of
December 31, 2005 and 2004, the Company used estimates in determining the
realization of its accounts receivable, inventory and its intangible assets.
Actual results could differ from these estimates.

Fair Value of Financial Instruments

For certain of the Company's financial instruments, including cash, accounts
receivable, inventory, other current assets, accounts payable, accrued expenses,
accrued interest and advanced deposits, the carrying amounts approximate fair
value due to their short maturities. The amounts shown for convertible
debentures and notes payable also approximate fair value because current
interest rates and terms offered to the Company for similar debt are
substantially the same.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company defines cash
equivalents as all highly liquid debt instruments purchased with a maturity of
three months or less, plus all certificates of deposit.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash and accounts receivables. The Company places its
cash with high quality financial institutions and at times may exceed the FDIC
$100,000 insurance limit. The Company extends credit based on an evaluation of
the customer's financial condition, generally without collateral.

Approximately 50% of new aircraft sales are made through three authorized
dealers. In 2005, approximately 30% of our new plane sales were through one
dealer, Premier Aircraft Sales, Inc. Exposure to losses on receivables is
principally dependent on each customer's financial condition. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses, as required.

Inventory

Inventory consists of raw materials, work in process and finished goods and is
stated at the lower of cost or market. We provide a general inventory excess and
obsolescence reserve for any portion of any inventory item that has not been
used for three years.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives of 5-10 years for
machinery and equipment and 3-5 years for office furniture and equipment.
Leasehold improvements are amortized over the shorter of their estimated useful
lives or the term of the lease.

Expenditures for maintenance and repairs are charged to operations as incurred
while renewals and betterments are capitalized. Gains and losses on disposals
are included in the results of operations.


                                       37
<PAGE>

Trade Name

Trade name consists of the value assigned to the Mooney name and so-called
"type" and "production" certificates issued by the Federal Aviation
Administration that were acquired as part of the Mooney purchase, as described
in Note 2. The Company evaluates its trade name each balance sheet date, based
principally on a market capitalization approach, to determine whether events and
circumstances have occurred that indicate possible impairment. If there are
indications of impairment, the trade name will be written down to its estimated
fair value.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are analyzed for impairment whenever
events or changes in circumstances indicate that the related carrying amounts
may not be recoverable. The Company evaluates at each balance sheet date whether
events and circumstances have occurred that indicate possible impairment. If
there are indications of impairment, the Company will use future undiscounted
cash flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are recoverable. In the event such cash flows are
not expected to be sufficient to recover the recorded asset values, the assets
will be written down to their estimated fair value. Long-lived assets to be
disposed of are reported at the lower of carrying amount or fair value of the
asset less cost to sell.

Stock Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation. The Company uses the
fair value method for options granted to non-employees. There were no stock
based compensation awards in 2005 or 2004.

Advanced Deposits

The Company has a policy that requires a deposit of no less than $10,000 for the
purchase of airplanes manufactured by MAC.

Revenue Recognition

Revenue Recognition - As a routine matter aircraft are paid for prior to
delivery date. Manufacturers Trade Representatives "MTR"'s are occasionally
granted short term (less than 30 days) credit 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.

Advertising and Marketing Costs

The Company expenses costs of advertising and marketing as incurred. Advertising
and marketing expense for the years ended December 31, 2005 and 2004 amounted to
$1,550,644 and $1,371,000, respectively.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes are provided on the liability
method whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.


                                       38
<PAGE>

Earnings Per Share

The Company reports earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is computed by dividing
income (loss) available to common shareholders by the weighted average number of
common shares available. Diluted earnings (loss) per share is computed similar
to basic earnings (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Diluted earnings (loss) per share has not been presented
since the effect of the assumed conversion of options and warrants to purchase
common shares would have an anti-dilutive effect. The following potential common
shares have been excluded from the computation of diluted net loss per share for
the year ended December 31, 2005 because the effect would have been
anti-dilutive:

                                                     2005          2004
                                                 -----------   -----------

      Conversion of notes payable                  4,711,712     4,711,712
      Conversion of convertible debentures                --     9,426,341
                                                 -----------   -----------

                                                   4,711,712    14,138,053
                                                 ===========   ===========

Comprehensive Loss

SFAS No. 130, "Reporting Comprehensive Loss," establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. For the years ended December 31, 2005 and 2004, the
Company did not have items that represented other comprehensive income and,
accordingly, a statement of comprehensive loss has not been included herein.

Research and Development

All costs incurred in the design, testing, and certification of aircraft being
developed by the Company (including costs of in-process research and development
acquired) are expensed as incurred.

Warranty

A warranty period of three years is provided for each aircraft sold.
Periodically, the recorded warranty liability is evaluated with consideration
given to actual warranty expense incurred on a historical basis, the volume of
products still under warranty, and the warranty period remaining for those
products.

Product Liability

An accrual is provided for product liability expenses on manufactured products.
Periodically, the recorded product liability accrual is evaluated with
consideration given to actual product liability expenses, the number of product
liability claims still outstanding, the severity of the alleged and actual
damages specified in each claim, and the likelihood that actual expenses will be
incurred on each claim. Product liability, if any, is included in accrued
expenses.

Environmental Remediation Costs

Expenses associated with environmental remediation obligations are accrued when
such losses are probable and reasonably estimable. Accruals for estimated
expenses from environmental remediation obligations generally are recognized no
later than completion of the remedial feasibility study. Such accruals are
adjusted as further information develops or circumstances change. Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value.

Recently Issued Accounting Pronouncements

In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS
No. 151, "Inventory Costs, an amendment of Accounting Research Bulletin (ARB)
No. 43, Chapter 4," (SFAS No. 151) which is the result of its efforts to
converge U.S. accounting standards for inventories with International Accounting
Standards. SFAS No. 151 requires abnormal amounts of idle facility expense,
freight, handling costs and wasted material or spoilage to be recognized as
current-period charges. It also requires that allocation of fixed production
overheads to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this statement are effective for
inventory costs incurred during fiscal years beginning after June 15, 2005. The
Company has adopted the provisions of SFAS No. 151 effective January 1, 2006.
Adoption of SFAS No. 151 is not expected to have a material effect on the our
cash flows or operating results.

In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" (SFAS No. 123R), which replaces SFAS No. 123 and supersedes APB Opinion
No. 25, "Accounting for Stock Issued to Employees." SFAS No. 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values. That
cost will be measured based on the fair value of the equity or liability
instruments issued. Under SFAS No. 123R, the Company must determine the
appropriate fair value model to be used for valuing share-based payments, the
amortization method for compensation cost and the transition method to be used
at date of adoption. SFAS No. 123R is effective for the Company on January 1,
2006. The Company will apply SFAS No. 123R to all future share-based payments to
employees using the modified prospective transition method without restatement
of prior periods.


                                       39
<PAGE>

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, "Accounting for
Conditional Asset Retirement Obligations--an Interpretation of FASB Statement
No. 143." This Interpretation clarifies that the term conditional asset
retirement obligation as used in SFAS No. 143 refers to a legal obligation to
perform an asset retirement activity in which the timing and/or method of
settlement are conditional on a future event that may or may not be within the
control of the entity. FIN 47 requires an entity to recognize a liability for
the fair value of a conditional asset retirement obligation if the fair value of
the liability can be reasonably estimated. We adopted the provisions of this
Interpretation on December 31, 2005. The adoption of this Interpretation did not
have a material impact on our cash flows or operating results.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3" (SFAS
No. 154). Previously, APB No. 20, "Accounting Changes" and SFAS No. 3 "Reporting
Accounting Changes in Interim Financial Statements" required the inclusion of
the cumulative effect of changes in accounting principle in net income of the
period of the change. SFAS No. 154 requires companies to recognize a change in
accounting principle, including a change required by a new accounting
pronouncement when the pronouncement does not include specific transition
provisions, retrospectively to prior periods' financial statements. SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005. In the event of a voluntary accounting
principle change after January 1, 2006, the Company will adhere to the guidance
in SFAS No. 154.

Transfer and Re-acquisition of MAC Shares

During the second quarter of 2004, the Company defaulted on approximately
$21,000,000 of its secured debentures. The debentures were secured by the assets
and outstanding capital stock of the Company's wholly-owned subsidiary, Mooney
Airplane Company. On May 28, 2004, in lieu of foreclosure by the secured
debenture holders and to preserve the value of MAC as a going concern, the
Company transferred its shares in MAC to Allen Holding & Finance Ltd., as agent
for the secured debenture holders pursuant to the terms of a stock purchase
agreement. On December 14, 2004, pursuant to the terms of the Company's Amended
Plan of Reorganization approved by the Bankruptcy Court, the Company reacquired
the MAC shares from Allen in exchange for 5,000,000 shares of common stock to be
issued pursuant to the Company's Amended Plan of Reorganization (see "Bankruptcy
Proceedings" below). The transfer and re-acquisition of MAC has been accounted
for as an exchange between entities under common control and no gain or loss has
bee recognized in the Company's consolidated statement of operations for the
twelve months ended December 31, 2004. At May 28, 2004, MAC's assets exceeded
its liabilities by $4,258,000. This amount was charged to additional paid-in
capital. When it was re-acquired on December 14, 2004, MAC's liabilities
exceeded its assets by $3,856,000 which was also charged to additional paid-in
capital.

The accompanying financial statements for the year ended December 31, 2004
include MAC's results of operations for the period May 28, 2004 through December
13, 2004 as follows:

                                                            For the Period
                                                             May 28, 2004
                                                                Through
                                                           December 13, 2004
                                                           -----------------

      Net Sales                                              $   5,698,000
      Cost of Sales                                              7,200,000
                                                             -------------

      Gross Margin                                              (1,502,000)
      Operating Expenses                                         6,011,000
                                                             -------------

      Loss from Operations                                      (7,513,000)
      Other Income (Expense)                                      (601,000)

      Income (Loss) Before Provision for Income Taxes           (8,114,000)
      Provision for Income Taxes                                        --
                                                             -------------

      Net Income (Loss)                                      $  (8,114,000)
                                                             =============

Bankruptcy Proceedings

On June 10, 2004 the Company filed a voluntary petition in the Bankruptcy Court
pursuant to Chapter 11 of Title 11 of the U. S. Code. On December 14, 2004 the
Bankruptcy Court confirmed the Company's Amended Plan of Reorganization, which
has been fully executed by the Company. On May 5, 2005, the Company received a
full discharge pursuant to a final decree issued by the Bankruptcy Court closing
the bankruptcy case.


                                       40
<PAGE>

The Amended Plan of Reorganization approved by the Bankruptcy Court included the
following provisions:

      1.    The Company was authorized to issue up to 50,000,000 shares of new
            common stock.

      2.    On the effective date of the plan, December 14, 2004, the Company's
            common and preferred stockholders, general unsecured creditors and
            Allen Holding and Finance Ltd. would receive common stock in the
            reorganized Company as follows:

            Common stockholders                          200,000            (2)%

            Preferred stockholders                       200,000            (2)%

            Unsecured general creditors                4,597,773           (46)%

            Allen Holding & Finance Ltd.               5,000,000           (50)%
                                                     -----------   -----------

                                                       9,997,773          (100)%
                                                     ===========   ===========

            Unsecured general creditor claims included approximately $21,000,000
            of secured debentures and approximately $10,000,000 of secured debt
            issued by MAC and guaranteed by the Company. In exchange for
            5,000,000 shares of common stock, Allen agreed to transfer the MAC
            shares back to the Company. The secured debentures continued to be
            secured by MAC's outstanding capital stock and assets. All allowed
            administrative expenses were paid in cash in full.

      3.    The $21,000,000 of secured debentures were convertible into
            9,426,341 shares of common stock until October 15, 2005. In
            addition, $9,350,000 of secured debt issued by MAC is convertible
            into 4,711,712 shares of common stock.

All newly issued or newly issuable shares of the Company are free trading under
Rule 3a (9), except that none could be traded until March 15, 2005 and then only
10% of the holder's shares could be traded each month thereafter. This
restriction has now expired. The Company realized $6,183,000 of extraordinary
gain from debt forgiveness in 2004 as a result of the discharge in bankruptcy of
some of its debts.

In connection with the implementation of its Plan of Reorganization, the
Company's Board of Directors approved a reverse stock split and exchange of
3.223 old shares of common stock for one share of new common stock.

Note 2 - Acquisitions

The Company acquired Mooney Aircraft Corporation's ("MACorp") assets out of
bankruptcy. Historically, MACorp produced top of the line, single engine piston
airplanes including the Eagle, the Ovation 2, and the Bravo, which are
considered to be performance leaders in the four-passenger single engine
aircraft market. MACorp is located in Kerrville, Texas. On February 6, 2002, the
U.S. Bankruptcy Court in San Antonio, Texas, approved an operating agreement
which allowed the Company to manage MACorp while a plan of reorganization was
prepared for approval. MACorp had operated under the protection of Chapter 11
bankruptcy since July 2001.

On February 8, 2002, the Company purchased Congress Financial Corporation's
position (the "Congress Position") as senior secured creditor for MACorp. Under
the terms of the Assignment and Assumption Agreement, the purchase price paid by
the Company in connection with the acquisition of the Congress Position was
$8,000,000 with $3,500,000 paid in cash and $4,500,000 payable in secured notes.
Each note is secured by substantially all the assets acquired from MACorp. As
additional security for the Company's compliance with the fulfillment of its
obligations pursuant to the Assignment and Assumption Agreement and the
acquisition notes, the Company delivered to Congress Financial Corporation a
Limited Recourse Secured Promissory Note for $5,700,000. This note was a
contingent note, payable only in the event that the Company defaulted under the
terms of the original acquisition notes. In November 2003, all of the Congress
Financial Corporation notes were paid in full and, as of December 31, 2003, the
Company had no obligations to Congress Financial Corporation.

On March 18, 2002, the bankruptcy court approved the sale of MACorp's assets to
the Company, which was completed on April 19, 2002. On April 19, 2002, the
Company completed the acquisition of certain assets and the assumption of
certain liabilities of MACorp through its newly formed and wholly owned
subsidiary, MAC, for approximately $9,881,000. Of the total consideration paid,
approximately $4,082,000 was in cash, of which, $3,500,000 was paid directly to
Congress; $4,500,000 was in the form of notes payable to Congress; 3,260,871
shares of Class A Common Stock were issued with a fair value of $900,000, and
warrants to purchase 3,623,189 shares of Class A Common Stock were issued with a
fair value of $399,000. Assets purchased included trade name, inventory and
property, and equipment, and totaled $1,802,000, $4,833,000 and $5,193,000
respectively. Liabilities assumed totaled $1,947,000.

This transaction was accounted for by the purchase method of accounting, as
required by SFAS No. 141, "Business Combinations", and accordingly, the purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon the estimated fair values at the date of acquisition. The allocation
is preliminary, and may be adjusted upon the completion of an appraisal of the
property and equipment and other future analysis during the allocation period,
not to exceed one year.


                                       41
<PAGE>

Note 3 - Inventory

Inventory at December 31, 2005 consisted of the following:

Raw materials and purchased parts                                    $ 4,957,000
Work-in-process                                                        4,834,000
Semi finished manufactured components                                  3,617,000
Finished goods                                                         1,242,000
                                                                     -----------

                                                                      14,650,000
Less allowances                                                          740,000
                                                                     -----------

                                                                     $13,910,000
                                                                     ===========

Note 4 - Property and Equipment

Property and equipment consisted of the following at December 31, 2005:

Cost:
   Experimental aircraft                                             $   654,000
   Office furniture and equipment                                      2,050,000
   Machinery and equipment                                             4,581,000
   Buildings and improvements                                            253,000
   Motor vehicles                                                         57,000
                                                                     -----------
                                                                       7,595,000
Less  accumulated depreciation                                         3,066,000
                                                                     -----------
                                                                     $ 4,529,000
                                                                     ===========

Note 5 - Notes Payable

Notes payable at December 31, 2005 consisted of the following:

Note payable to BLX Commercial Capital, LLC                          $ 4,843,000
17.5% Notes payable                                                    3,930,000
8% Notes payable                                                       3,100,000
Note payable to Guarantee & Finance, Inc.                              1,000,000
Note payable to Libra Finance S.A.                                       986,000
Note payable to insurance company                                        388,000
Notes payable-bank                                                        39,000
                                                                     -----------

                                                                      14,286,000
Less current maturities                                                6,407,000
                                                                     -----------

                                                                     $ 7,879,000
                                                                     ===========

The note payable to BLX Commercial Capital, LLC bears interest at prime plus 2%
and is collateralized by substantially all of the Company's assets. The note is
guaranteed by the U.S. Department of Agriculture under its Business and Industry
Guaranteed Loan Program. Payments of $32,516, including principal and interest,
are due monthly through October 2028. All unpaid principal and interest is due
on November 1, 2028.

The 17.5% notes payable are secured by substantially all of the Company's assets
and bear interest at 17.5% per annum. The notes were called pursuant to their
terms on March 7, 2005. The Company is in default on the payment of the notes
and is negotiating with the lender to cure the default.

The 8% notes payable are secured by work-in-process inventory. The notes bear
interest at 8% per annum and are due on November 7, 2007.

The note payable to Guarantee & Finance, Inc. was due April 5, 2005. The note
has a stated rate of interest of 12% per annum that increased to 17% when we
failed to repay the note. The Company is in default on the payment of the note
and is negotiating with the lender to cure the default.


                                       42
<PAGE>

The note payable to Libra Finance, S.A. is non-interest bearing and was due on
February 7, 2005. The note is currently in default. The Company is in the
process of negotiating with the lender to cure the default.

The note payable to the insurance company represents the unpaid premium on the
Company's insurance policies. The note matures in 2006.

The notes payable-bank relate to the purchase of two automobiles. Interest on
the notes varies between 4.74% and 5.49% per annum. Payments of principal and
interest are due monthly on both notes. The notes mature in 2009.

Principal payments on notes payable are due as follows:

                     Year Ending
                     December 31,                   Amount
                     ------------                -----------

                        2006                     $ 6,407,000
                        2007                       3,209,000
                        2008                         111,000
                        2009                         116,000
                        2010                         122,000
                        Thereafter                 4,321,000
                                                 -----------

                                                 $14,286,000
                                                 ===========

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 related parties, pursuant to an
Amended and Restated Loan and Purchase Money Security Agreement. The amount of
this loan was increased to a maximum of $7,500,000 with a balance as of December
31, 2005 of $6,250,000. The revolving loan has a term of three (3) years and
bears interest at a rate of 8% 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. In connection with this revolving loan, the Company was required
to pay a commitment fee of $400,000 payable in shares of the Company's common
stock. These shares were issued in 2004.

Note 7 - Secured Debentures

At December 31, 2005, the Company had $19,534,000 of secured debentures
outstanding. The secured debentures are due on the third anniversary of the date
the debentures were issued which is either June 16, 2006 or November 7, 2007.
The debentures accrue interest at 8% payable at maturity. The Company was unable
to repay the secured debentures that were due June 16, 2006 and is therefore in
default.

The Secured Debentures were convertible into the Company's common stock at $2.22
per share until October 15, 2005 when the conversion right expired.

Due to their beneficial ownership of significant equity interests in the
Company, the debenture holders are considered to be related parties as defined
in Statement of Financial Accounting Standards No. 57, "Related Party
Disclosures". Alpha Capital Aktiengesellschaft, Bristol Investments Fund Ltd.,
Edward Turin, MM&CTW Foundation Inc., Renaissance Development Holdings
International, Ltd., Taria Inc., and TRW Holdings Party Ltd. are the Secured
debenture holders considered to be related parties. Therefore, the Company
accounted for this restructuring consistent with its economic substance, as set
forth in Statement of Financial Accounting Standards No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings". Since the debt holders
had agreed to the restructuring primarily to ensure the Company's continuation
as a going concern thereby protecting their equity interests, the restructuring
was accounted for as an equity transaction and no amounts were charged to
operations. The contribution of the warrants and the forfeiture of the original
beneficial conversion rights were treated as a contribution to capital. The
elimination of the unamortized debt discount in 2004 attributable to these
equity features was similarly treated as an equity distribution to these debt
holders. A summary follows:

Waiver of interest and penalties for
  non-registration of securities                                 $    7,420,000
Contribution of warrant rights, at net
  book value of warrant liability at date
  of restructuring                                                      880,000
Elimination of unamortized discount at date
  of restructuring, accounted for as a
  distribution of rights to equity holders                          (17,070,000)
                                                                 --------------
Net distribution to related parties at date
  of restructuring                                               $   (8,770,000)
                                                                 ==============


                                       43
<PAGE>

On June 10, 2004 the company filed a petition seeking reorganization under
Chapter 11 of the U.S. Bankruptcy Code and as a result all debentures holders
except the secured debenture holders were issued stock for their debentures. The
Secured debenture holders will be paid cash at maturity for the interest accrued
from June 10, 2004 until the maturity date of their note.

Note 8 - Stockholders' Deficiency

Common Stock

Prior to December 14, 2004, the Company had four classes of common stock issued
and outstanding, A, B, E-1 and E-2. Pursuant to the terms of the Company's
Amended Plan of Reorganization (see "Bankruptcy Proceedings" in Note 1), the
644,579,014 shares of Class A common stock outstanding on December 14, 2004 were
exchanged for 200,000 shares of new common stock and all Class B, E-1 and E-2
shares were cancelled. The exchange of Class A common shares for new common
shares was effected by means of a 3,223 for 1 reverse stock split of the old
common stock approved by the Company's Board of Directors. The $64,000 par value
attributable to the Class A shares that were exchanged was moved to additional
paid-in capital. As of December 31, 2005, the Company has one class of common
stock. The holder of each outstanding share of Common Stock is entitled to one
vote.

Preferred Stock

Pursuant to the terms of the Company's Amended Plan of Reorganization, the
17,616 shares of Series A Preferred Stock outstanding on December 14, 2004 were
exchanged for 200,000 shares of new common stock. The $1,761,000 stated value
attributable to the Series A Preferred Stock was moved to additional paid-in
capital.

Common Stock Issued Pursuant to the Amended Plan of Reorganization

Pursuant to the terms of the Company's Amended Plan of Reorganization approved
by the Bankruptcy Court, the Company issued 5,000,000 shares of its new common
stock to Allen Holding & Finance, Ltd., agent for the Company's secured
debenture holders, to re-acquire the shares of Mooney Airplane Company that were
previously transferred to Allen. The Company also issued 4,597,773 shares of new
common stock to general unsecured creditors. The shares issued to general
unsecured creditors included 3,809,590 new shares issued to the Company's
secured debenture holders and related entities (deemed by the Bankruptcy Court
to be general unsecured creditors) in exchange for the forgiveness of
liabilities totaling $18,802,000 and 788,183 new shares issued to other general
unsecured creditor in exchange for the forgiveness of liabilities totaling
$9,738,000. The 788,183 new shares were valued at $4.51 per share based upon the
last reported stock price of the Company's common stock on December 14, 2004.
The difference between the aggregate value of the stock issued and the
liabilities forgiven was $6,183,000 and has been reported as a gain on
forgiveness of debt in our consolidated statement of operations for the year
ended December 31, 2004. The secured debenture holders and entities related to
them are considered to be related parties. As a result, the 3,809,590 new shares
issued to them were valued at an amount equal to the liabilities that were
forgiven ($18,802,000) and no gain or loss was recognized.

Note 9 - Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2005 are as
follows:

Deferred tax assets:
      Federal net operating loss                            $  47,774,000
      Research & development credits                            1,126,000
      Depreciation                                                340,000
      Other                                                        92,000
                                                            -------------
                                                            $  49,332,000
      Valuation allowance                                     (49,332,000)
                                                            -------------
         Net                                                $          --
                                                            =============

The valuation allowance increased by $3,874,000 during 2005.

At December 31, 2005, the Company had federal net operating loss ("NOL")
carry-forwards of approximately $140,512,000. Federal NOL's carry-forwards
would, if unused, expire in varying amounts in the years 2006 through 2025.

At December 31, 2005, the Company had federal research and development ("R&D")
credit carry-forwards of approximately $1,126,000.


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<PAGE>

The reconciliation of the effective income tax rate to the federal statutory
rate for the years ended December 31, 2005 and 2004 is as follows:

                                                   2005         2004
                                                  ------       ------
Federal income tax rate                            (34.0)%      (34.0)%
State tax, net of federal benefit                   (6.0)%       (6.0)%
Increase in valuation allowance                     40.0%        40.0%
                                                  ------       ------
Effective income tax rate                            0.0%         0.0%
                                                  ======       ======

Utilization of the net operating loss and tax credit carry-forwards is subject
to significant limitations imposed by the change in control provisions of
Section382 of the Internal Revenue Code. A significant portion of the NOL may
expire before it can be utilized.

Note 10 - Commitments and Contingencies

Litigation

The company has the following legal matters pending.

On March 28, 2005, Milisa K. Riser, M.D., Administrator of the Estate of
Franklin M. Rizer, M.D. filed a complaint in the Court of Common Pleas of
Trumbull County in Warren, Ohio against Mooney Aerospace Group Limited, its
wholly-owned subsidiary, Mooney Airplane Company, Inc. and others. The plaintiff
has asserted claims of strict liability, negligence and breach of warranty and
is seeking compensatory and punitive damages in connection with an airplane
crash in which Mr. Rizer died. The case is in the early stages of discovery and
while the Company believes that it has meritorious defenses, no assurance can be
given of a favorable outcome. In the event of an unfavorable outcome, some of
the damages may not be covered by insurance. If insurance coverage is limited or
not available or if the damages significantly exceed the amount of insurance
that is available, an unfavorable outcome would have a material adverse effect
on the Company's operating results and financial condition.

A lawsuit is pending in the Circuit Court of Clinton County, Michigan; Chad
Collins and Colleen Denise Collins, Plaintiffs, v. Mooney Aircraft Corporation,
Mooney Airplane Company, Inc., et al., involving a breach of warranty and bodily
injury claim for an aircraft purchased in 2001, prior to Mooney Airplane Company
Inc. asset purchase. The likelihood of an adverse judgment is remote.

Two consolidated lawsuits are pending in the Civil District court of the Parish
of New Orleans, LA.; Lester A. Bautista, et al., Plaintiffs, V. Mooney Airplane
Company, Inc. The case involves an aircraft purchased in 1992, prior to Mooney
Airplane Company, Inc.'s asset purchase. The likelihood of an adverse judgment
is remote.

Two lawsuits are pending (i) in the U.S. District Court of the Southern District
of New York; Alfreda Smith Ovesen, Personal representative of Svend A. Ovesen
and Crucian International, Inc. v. Mitsubishi Heavy Industry Ltd. Et al., and
(ii) Alfreda Smith Ovesen, Personal representative of Svend A. Ovesen and
Crucian International, Inc. v. Mitsubishi Heavy Industry Ltd. involving an MU-2
purchased in 1972. The likelihood of an adverse judgment is remote.

A lawsuit entitled Advance Aerodynamics & Structures, Inc. et al., v. AVAQ
Group, Inc. and Paul S. Dopp was filed in the Western District of Texas, San
Antonio Division. The action alleges affirmative claims for declaratory relief
made by the company and two of its present or former officers against defendants
for alleged claims arising out of the acquisition of the assets of Mooney
Aircraft Corporation. Judgment was rendered denying all claims. Paul Dopp
subsequently filed pleadings in the Mooney Aircraft Corporation chapter 7
bankruptcy case in San Antonio. The bankruptcy court denied the claims; however,
in a letter dated August 26, 2004, the court referred the allegations to the
appropriate governmental agencies for investigation. There has been no response
by the governmental agencies and the claims have not further materially changed.

Note 11 - Employee Benefits

The Company has a 401(k) Plan for its employees. For the years ended December
31, 2005 and 2004, the Company did not make any contributions to the Plan.

Note 12 - Related Party Transactions

Tom Gray, a former director and former Managing Director of MAC, through Thomas
H. Gray Inc., dba Telecom Expert Group ("TEG") provides various business and
information technology consulting services to the Company. During 2005 and 2004,
MAC incurred fees of $195,712 and $654,920 to TEG for consulting services.


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<PAGE>

During 2005, the Company borrowed $9,684,000 from one of its stockholders, Alpha
Capital AG. The terms of the loan including interest rate and maturity date are
in the process of being determined. No interest has been recorded on the loan.
Any interest payable on the loan will increase our net loss and our
stockholders' deficiency.

During 2005, Gretchen Jahn, the Company's President and Chief Executive Officer,
purchased an Ovation 2 GX from the Company at full list price. The Company
subsequently leased the airplane from Mr. Jahn upon normal commercial terms.
Under the terms of the lease, the Company is responsible for insurance and
maintenance.

Note 13 - Subsequent Event

In January 2006, the Company was approved for a non-interest bearing Texas
Agricultural Loan in the amount of $750,000. No amounts have been drawn against
the loan. When drawn, loan proceeds will be used for plant improvements.


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