<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                  FORM 10-KSB

               [X]  ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended December 31, 2001

               [_]  TRANSITION REPORT PURSUANT TO SECTION 13 or
                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 000-21749

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
          (Name of Small Business Issuer as specified in its charter)

              DELAWARE                                       95-4257380
  (State Or Other Jurisdiction Of                         (I.R.S. Employer
   Incorporation Or Organization)                        Identification No.)

              3205 LAKEWOOD BOULEVARD, LONG BEACH, CALIFORNIA 90808
              (Address Of Principal Executive Offices) (Zip Code)

                                 (562) 938-8618
              (Registrant'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

                Class A Common Stock, par value $.0001 per share

            Class A Warrants and the underlying Class A Common Stock,
                par value $.0001 per share, and Class B Warrants

            Class B Warrants and the underlying Class A Common Stock,
                           par value $.0001 per share

     Check whether the Registrant: (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 [_]

     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosures will be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K-
SB or any amendment to this Form 10-K-SB [_]

     The Registrant generated no operating revenues for the fiscal year ended
December 31, 2001.

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant based upon the closing sales price of its common stock as of
March 31, 2002 on the Over the Counter Bulletin Board was $15,154,680. For
purposes of this computation, it has been assumed that the shares beneficially
held by directors and officers of Registrant were "held by affiliates"; this
assumption is not to be deemed to be an admission by such persons that they are
affiliates of Registrant.

     As of March 31, 2002, the Registrant had 43,142 outstanding shares of
Series A 5% Cumulative Convertible Preferred Stock; 55,623,743 shares of Class A
Common Stock; 1,900,324 shares of Class B Common Stock; 4,000,000 shares of
Class E-1 Common Stock and 4,000,000 shares of Class E-2 Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of Registrant's Proxy Statement relating to its 2002 Annual
Meeting of Shareholders are incorporated by reference in Part III of this
report.

     Specified exhibits are listed in Part III of this report at page 22.

          Transitional Small Business Disclosure Format: Yes [_] No [X]

================================================================================

<PAGE>




                    ADVANCED AERODYNAMICS & STRUCTURES, INC.

                              CROSS-REFERENCE SHEET

         The following items in Part III of Registrant's Annual Report on Form
10-KSB for its fiscal year ended December 31, 2001, are incorporated herein by
reference to Registrant's Proxy Statement and appear therein under the section
headings indicated below:

<TABLE>
<CAPTION>

   Item                          Form Heading                                        Section Heading
-----------      ----------------------------------------------      -------------------------------------------------
<S>              <C>                                                 <C>
    9.           Directors, Executive Officers Promoters and         Proxy Statement - Election of Directors -
                 Control Persons; Compliance with                    Information with respect to Nominees, Directors
                 Section 16(a) of the Exchange Act                   and Executive Officers

   10.           Executive Compensation                              Proxy Statement - Management - Compensation of
                                                                     Executive Officers

   11.           Security Ownership of Certain Beneficial            Proxy Statement - Principal Stockholders
                 Owners and Management

   12.           Certain Relationships and Related                   Proxy Statement - Management - Certain
                 Transactions                                        Relationships and Related Transactions
</TABLE>



                                       2

<PAGE>

         Certain statements contained in this report, including, but not limited
to, statements concerning our future cash and financing requirements, our
ability to raise additional capital, our ability to obtain market acceptance of
our aircraft, our ability to obtain regulatory approval for our aircraft, and
the competitive market for sales of small business aircraft and other statements
contained herein regarding matters that are not historical facts, are
forward-looking statements: actual results may differ materially from those set
forth in the forward-looking statements, which statements involve risks and
uncertainties, including without limitation those risks and uncertainties set
forth in our Registration Statement on Form SB-2 (333-12273) and any subsequent
Registration Statements filed by us under the Securities Act of 1933, as
amended, under the heading "Risk Factors."

                                     PART I

ITEM 1.       BUSINESS

OVERVIEW

         We are a development stage enterprise organized in 1990 to design,
develop, manufacture and market general aviation aircraft. We began development
of the Jetcruzer 450 in 1990. The Jetcruzer 450 is a non-pressurized,
single-engine aircraft powered by a Pratt & Whitney propjet engine which
obtained the FAA type certificate approval in 1994. We later decided to amend
the type certificate to develop a stretched and pressurized version of the 450
called the Jetcruzer 500 for commercial sale. Research and development expenses
increased in 2001 as we accelerated the development of the Jetcruzer 500.

         At the end of 2001, we recognized that a unique opportunity exists in
the general aviation industry today. As a result of the concurrence of these
three factors: (1) reduction of product-liability exposure as a result of the
passage of General Aviation Revitalization Act of 1994, (2) the availability of
several top of the line general aviation product lines as a result of the recent
recession and changes in the strategic direction by general aviation aircraft
manufacturers, and (3) deteriorating comfort and convenience of airline travel,
an opportunity has been created for the formation of a new general aviation
company whose products offer an alternative to business travel by airline for
executives of small- to medium-sized businesses and high net worth individuals.

         We have hired a management team with significant experience in turning
around general aviation manufacturing companies in order to take advantage of
current opportunities. The new management team has already taken the first step
in our strategy by acquiring the assets of Mooney Aircraft Corporation. Mooney
produced high-performance, single-piston engine aircraft for more than 50 years
and are currently recognized as the highest performance piston engine aircraft
in commercial production. Over 10,000 Mooney aircraft are in operation around
the world. We plan to pursue acquisition of other complementary general aviation
product lines and development programs as they become available.

         The new management team also immediately instituted a technical review
of the Jetcruzer 500 program. This review revealed that the Jetcruzer 500 was
overweight, was not achieving its speed goals, and had a center of gravity
problem with fuel burn. Additionally, subsequent noise tests determined the
aircraft could not meet current federal guidelines for external noise levels.
Accordingly, significant spending on the Jetcruzer program was suspended, and we
will review how best to capitalize on the completed development work.

                                       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 powerplant 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 fewer than ten major manufacturers of general
aviation aircraft based in the United States. Piston aircraft make up the
numerical majority of aircraft delivered by these manufacturers, whereas
propjets and jet aircraft account for the majority of billings. Aircraft
deliveries by United States manufacturers have increased consistently with sales
generating approximately $3.1 billion in 1996, $4.7 billion in 1997, $5.9
billion in 1998, $7.8 billion in 1999, $8.6 billion in 2000 and $8.7 billion in
2001.

STRATEGY

General

         An opportunity exists in the general aviation industry today to create
a new general aviation company composed of the best of existing aircraft models
produced today and available for acquisition either as a result of depressed
financial conditions or due to a desire by their manufacturers to exit the
industry. Also, in 1994, the passage of the General Aviation Revitalization Act
of 1994 ("GARA") has resulted in the reduction of product liability exposure of
general aviation aircraft manufacturers. Finally, airline travel has steadily
become a less desirable means of travel for the business traveler due to the
airlines' adoption of a hub-and-spoke system significantly extending the time
and reducing the convenience of airline travel to destinations without major
terminal facilities. The events of September 11, 2001, have caused increased
security measures to be implemented that cause further travel delays and
inconvenience to business travelers.

         As a result of the concurrence of these three factors: (1) reduction of
product liability exposure as a result of the passage of GARA , (2) the
availability of several top of the line general aviation product lines as a
result of the recent recession and changes in the strategic direction by general
aviation aircraft manufacturers, and (3) the deteriorating comfort and
convenience of airline travel, a unique opportunity has been created for the
formation of a new general aviation company whose products offer an alternative
to business travel by airline for executives of small- to medium-sized
businesses and high net worth individuals.

                                       4

<PAGE>

         We intend to build such a new general aviation company through two
major strategies, as follows:

                . The acquisition and manufacture of the "best of breed"
                  existing models from aircraft manufacturers who desire to exit
                  the general aviation manufacturing business or are under
                  financial duress. Only aircraft models that are considered
                  best in their class and fit together as a coherent product
                  line are being considered.

                . Development of new, small jet and turboprop aircraft (4 to 6
                  passengers), offering high performance and high safety of
                  flight, coupled with purchase and operating costs
                  substantially below currently available models that will be
                  attractive to individuals and small- to medium-size companies
                  who have not previously considered private aircraft as an
                  alternative to airline travel.

         Advanced Aerodynamics & Structures, Inc., now doing business as Mooney
Aerospace Group, Ltd., and sometimes referred to as the "Company", has already
taken the first step in this strategy by agreeing to acquire substantially all
of the assets of the Mooney Aircraft Corporation ("Mooney") at a federal
bankruptcy auction in San Antonio, Texas on March 18, 2002, and through the
provisions of an Asset Purchase Agreement with the general unsecured creditors
committee. The Mooney Aircraft Corporation produced high-performance,
single-piston engine aircraft for more than 50 years. Mooney aircraft have
always been recognized as the highest performance piston engine aircraft in
commercial production and have a wide following. Over 10,000 Mooney aircraft are
in operation around the world. Mooney was producing three models when it filed
for bankruptcy in July 2001.

         Mooney was operated after its bankruptcy filing by a skeleton staff
that primarily focused on supplying spare parts and technical service to its
customer base. We have formed a new company to own and operate the assets being
acquired from Mooney. This wholly-owned subsidiary is named Mooney Airplane
Company, Inc. We will be formally changing our name to Mooney Aerospace Group,
Ltd.

         We intend to establish full production of the Mooney line of aircraft,
which will consist of three models, the Eagle 2, Ovation 2, and the Bravo at our
manufacturing facility in Kerrville, Texas. As we acquire additional aircraft
product lines, it is our intention to produce those models at the Kerrville
manufacturing facility as well.

         We plan to profitably operate Mooney Airplane Company, Inc. by
eliminating significant amounts of overhead, reducing manufacturing costs, and
by instituting a new approach for sales and distribution of the aircraft. An
increase in these costs led to Mooney's Chapter 11 bankruptcy in July of 2001.

         We have hired a management team with significant experience in turning
around general aviation manufacturing companies in order to achieve these goals.
Roy Norris, President & CEO, is the former President of Raytheon Aircraft
Company, a major producer of general aviation aircraft. Pete Larson, CFO, is the
former CFO of Cessna Aircraft Company and had significant experience in turning
around Cessna's financial performance. Dale Ruhmel, Executive Vice President for
Operations and Engineering, is the former head of Advanced Design and Technical
Services for Cessna Aircraft Company and an industry-recognized expert in small
aircraft design and certification. The combined experience of this management
team will provide the necessary knowledge to make the required changes to bring
Mooney back to profitability.

         We continue to investigate the acquisition of other top of the line
general aviation product lines that will be complementary to the Mooney line.
Negotiations are underway with one major manufacturer,

                                       5

<PAGE>

which may lead to the purchase of that manufacturer's line of piston engine
aircraft. We are also in negotiations with Century Aerospace, Inc. for the
acquisition of the rights to complete the development and construction of the
Century Jet, a small six passenger micro-jet with attractive cost advantages
over existing small jet aircraft. We plan to pursue acquisition of other
complementary general aviation product lines and development programs as they
become available.

Manufacturing

         We will manufacture all aircraft products for both Mooney and any
future-acquired lines in Kerrville, Texas, at the location of Mooney's existing
manufacturing facilities. Mooney has a favorable long-term lease on both land
and buildings at the Kerrville Airport, which makes Kerrville a
financially-attractive location to build aircraft. As many as 700 aircraft per
year have been produced in this facility, and it should provide the space
required for our future production plans.

         Additionally, the Kerrville area has an experienced aerospace labor
work force developed over the many years Mooney has produced aircraft in this
location. There are no other aircraft manufacturers in the immediate area, so
competition for experienced workers is minimal. Texas is a "right to work" state
and the Mooney workforce has never been unionized, which results in lower wage
costs. Labor to supply the needs for long-term growth is available in nearby San
Antonio.

         We plan to greatly simplify the manufacturing process used at Mooney by
eliminating inappropriate levels of computer control. The Mooney aircraft is a
simple and straightforward aircraft to build and the overuse of MRP/ERP type
manufacturing control systems led to an increase in hours to build as opposed to
the desired decrease. We plan to make appropriate use of these computer tools.

         The layout of the production line offers another opportunity for
reducing man-hours. Additionally, Mooney previously had an adverse
indirect-labor to direct-labor ratio, which is being corrected as we restart
operations. Lack of sufficient funding under the prior ownership was a cause of
cost growth. Irregular and excessive vendor payments caused disruptions in
material deliveries which impacted the production line, requiring installations
to be done out of station and out of sequence. Vendors were not inclined to give
best pricing terms under these conditions. We plan to enter into long-term
supply agreements to reduce raw material and purchased component costs.

         We have hired Jack Jansen as President and COO for Mooney Airplane
Company, Inc. He ran manufacturing at Mooney from 1992-1994 and also was head of
manufacturing for another major general aviation manufacturer, Piper Aircraft
Company, building aircraft similar to Mooney aircraft.

Sales And Marketing

         Sales Strategy
         --------------

         We plan to adopt a multifaceted method of sales that will capitalize on
agents for international sales and direct sales domestically. We will have two
showrooms and will station company salespersons in five select areas. We plan to
reset the price value equation for single-engine piston-powered aircraft and
gain market share through aggressive marketing and advertising emphasizing the
high performance capabilities of Mooney aircraft, new lower pricing, and high
safety. We intent to use new marketing channels, such as in-house sales from an
attractive showroom coupled with salespersons located in major market areas. We
believe that new lower prices coupled with high performance capabilities of
Mooney aircraft will allow us to compete successfully in our market area.

                                       6

<PAGE>

         Domestic Sales
         --------------

         We will adopt a new direct sales program from our California and Texas
locations combined with five company salespersons located in select cities of
the U.S.

         We will advertise nationwide and provide one telephone number to call,
one website to view, and two showrooms from which to sell. Far fewer
salespeople, at significantly less salary and much lower commissions, are
required for this approach. The salespeople will concentrate on one product line
of aircraft only and refine the sale to a high level in a short time. Used
aircraft sales or other lines of aircraft that have previously been sold by the
dealer do not distract them. The vice president of sales, sales managers and
other key individuals are located in the same building allowing immediate
answers to sales questions or problems. If a sale cannot be completed, the
salesperson has access to years of experience by calling in the sales managers
who are in the building to assist at any time.

         We believe that this method is ideal for high-volume sales in today's
fast-paced market environment. The vast majority of sales will be from two major
outlets, the current facility showroom at the Long Beach airport and from the
factory in Texas. Many customers will have a very short trip to see a new
Mooney, as the highest concentration of domestic aircraft sales are located in
California and Texas.

         International Sales
         -------------------

         We plan to appoint a series of international agents who will represent
us in key international markets. These agents will be selected from experienced
international dealers and salespersons residing in the country of
responsibility. We will use the services of a consultant, Al Stauffer,
previously head of international sales for both Piper and Mooney, to identify
key candidates and make appropriate introductions. 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.

New Product Development Programs

         Currently we have only one new aircraft product under development, the
Jetcruzer 500, a six passenger, turboprop-powered design employing a forward
canard and rear-mounted wing in a pusher configuration. The unusual design was
chosen in an attempt to produce a stall-resistant design with high speed and low
operating and acquisition costs.

         In January 2002, our board of directors brought in a new management
team to replace former management due to continuing delays in the Jetcruzer
program. The new management team immediately instituted a technical review of
the Jetcruzer 500 program to ascertain the reasons for these delays and the
status of the aircraft. This review revealed that the Jetcruzer 500 was
overweight, was not achieving its speed goals, and had a center of gravity
problem with fuel burn. Additionally, subsequent noise tests determined the
aircraft could not meet current federal guidelines for external noise levels.

         Accordingly, our board of directors resolved on March 26, 2002, that
significant spending on the Jetcruzer program should be suspended and that we
should review new technologies which might increase the viability of the program
and how best to capitalize on the existing development work associated with the
Jetcruzer program. Options to be considered by management include a restart of
the Jetcruzer program at a later date, use of JetCruzer flight and test data to
launch a new development activity and the sale of the program to another
company.

         We are currently in negotiations with the Century Aerospace
Corporation, Inc. for the acquisition of the exclusive rights to build the
Century Jet, a six passenger micro-jet that has significantly lower

                                       7

<PAGE>

operating and acquisition costs compared to competitive models. The aircraft has
completed preliminary design and wind-tunnel testing. Should we acquire the
manufacturing rights, we must complete the design and certification of the
aircraft. We will focus our attention on the Century Jet once we have
re-established production of the Mooney line.

         We continue to evaluate the acquisition of other general aviation
development programs for aircraft complementary to the Mooney line and to
investigate internal development programs.

SUPPLIERS

         We rely on various suppliers of materials and components which are
necessary to manufacture our aircraft. Our aircraft will utilize engines,
propellers and avionics provided by outside manufacturers. These suppliers also
produce equipment for other aircraft manufacturers. The Mooney models use
engines manufactured by Teledyne Continental and engines, propellers and
governers manufactured by Textron. We have contractual agreements for these
products with both Teledyne and Textron.

         The failure of suppliers or subcontractors to meet our performance
specifications, quality standards, delivery standards or schedules could have a
material adverse effect on our operations. Moreover, our ability to increase our
production rate on the reopened Mooney production line could be limited by the
ability or willingness of our key suppliers to increase their delivery rates.

COMPETITION

         We anticipate a very competitive market for each of our products. As
soon as the Mooney assets are acquired, we will complete our pricing and
marketing strategies, as well as our production costs projection. Each of these
influences the nature of our competitive market. When we have such information
in hand, we will have a better idea of the most direct competition for the
various Mooney models. It is anticipated that our competition will be the Cirrus
Models SR20 and SR22, the Lancair Columbia 300, the Socata Models TB-20GT and
TB-21GT and the Commander Models 115 and 115TC. Preliminary analysis of the
performance of these competitors relative to the price indicate that we may have
an ability to substantially increase delivery volumes and gross profits over
historical Mooney results through the cost-reduction activities we have
identified, coupled with more aggressive pricing.

PRODUCT LIABILITY AND INSURANCE

         The failure of an aircraft, or any component part thereof, manufactured
by usor any other mishap involving such an aircraft may result in physical
injury or death to the occupants of the aircraft or others, and damage or
destruction of the aircraft itself, and therefore, we could be subject to
lawsuits involving product liability claims. We have obtained product-liability
insurance for the Jetcruzer 500 aircraft but do not intend to renew it at this
time for coverage of that product. We intend to obtain product-liability
insurance for Mooney aircraft before the delivery of any newly-manufactured
aircraft. Such insurance is expensive and subject to various exclusions. Since
the events of September 11, 2001, product-liability insurance for manufacturers
of general aviation aircraft has become less available and more costly.

         There can be no assurance that coverage will be available to us on
acceptable terms or at all. Although we believe we will be able to obtain the
necessary product liability insurance, we do not know what limits of coverage
will apply. 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. We have obtained other insurance as needed, including
flight-test insurance for our pilots and aircraft used during the FAA
certification process.

                                       8

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GOVERNMENT REGULATION

         The manufacture of aircraft is subject to extensive regulation by the
FAA. Both the finished product and the process of manufacturing itself must be
certified by the FAA, as must the type design. Failure to obtain or maintain all
required FAA certifications would have a material adverse effect on our
operations.

         FAA CERTIFICATION
         -----------------

         For an aircraft model to be manufactured for sale, the FAA must issue a
type certificate and production certificate for that model; for an individual
aircraft to be operated, the FAA must issue an airworthiness certificate for
that aircraft. Type certificates are issued by the FAA when an aircraft model is
determined to meet applicable performance, safety, environmental, and other
technical criteria. In the case of aircraft such as the Jetcruzer which have one
or more unconventional design characteristics for which there are no applicable
criteria, such criteria are developed and applied in the course of the type
certification process. More stringent airworthiness criteria and additional
equipment requirements become applicable if the aircraft will be used in
commercial passenger operations, whether on-demand, charter or scheduled. We are
purchasing the type certificates for the Mooney line of aircraft as part of the
Mooney acquisition. We have obtained a type certificate from the FAA for the
Jetcruzer 450. This type certificate will need to be amended to include the
Jetcruzer 500 should we resume active development of the program.

         Obtaining an amended FAA type certificate can be difficult, costly, and
time consuming. To date, we have accomplished, among other things, (a) the
filing of an appropriate application with the FAA, (b) development and
submission to the FAA of an appropriate design and substantiating data and
receipt of FAA approval that such design and data comply with applicable FAA
airworthiness standards, (c) development and receipt of FAA approval of a
flight-test plan, and (d) construction of an initial prototype Jetcruzer 500 for
use in flight testing and construction of a flight-test Jetcruzer 500, currently
in flight testing.

         We must accomplish the following before receiving an amendment to our
type certificate for the Jetcruzer 500: (a) successful completion of conformity
inspections requested by the FAA from time to time to ensure compliance of the
aircraft with the type design, (b) completion of the Jetcruzer 500 fuselage for
static tests and the completion of the Jetcruzer 500 for flight tests, (c)
completion of Company flight tests and receipt of precertification approval from
the FAA, (d) completion of additional flight tests under FAA supervision, (e)
development and receipt of FAA approval of an airplane flight manual, and (f)
development and receipt of FAA approval of maintenance and inspection
requirements for the aircraft. As we have decided to suspend the expenditure of
substantial sums on the Jetcruzer 500 program, no assurance can be given that we
will obtain an amended certificate for the Jetcruzer 500.

         Production certificates are issued by the FAA after it determines that
the type certificate holder (or its licensee) has the facilities and
quality-control capability to manufacture aircraft that will meet the design
provisions of the applicable type certificate. When the initial aircraft is
nearly complete, we must have submitted all required materials, including a copy
of the applicable quality assurance manual. The FAA will then review the
materials submitted and the results of its inspections and will either issue a
production certificate or require that we modify our quality assurance manual or
the manufacturing process, or both. While production will not necessarily stop
during the review process, a failure to receive a production certificate would
likely delay the manufacturing process. We may apply for the production
certificate at the same time we have commenced manufacturing of our first
commercially-produced applicable aircraft. We will be applying for the renewal
of production certificates for the Mooney line of aircraft and believe we will
obtain them during 2002.

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<PAGE>

         An airworthiness certificate is issued by the FAA for a particular
aircraft when it is certified to have been built in accordance with
specifications approved under the type certificate for that model. The
airworthiness certificate remains in effect so long as required maintenance,
repairs and upkeep are performed. We will need to renew the airworthiness
certificates for the Mooney line. No assurance can be given that we will obtain
an airworthiness certificate for the Jetcruzer 500.

         There can be no assurance that we will not encounter a delay in
obtaining an amended type certificate or a production certificate for our
planned or existing aircraft models or airworthiness certificates for individual
aircraft. We will also be subject to the risk of modification, suspension or
revocation of any FAA certificate we hold. Such modification, suspension, or
revocation could occur if, in the FAA's judgment, compliance with airworthiness
or safety standards by the Company is in doubt. If the FAA were to suspend or
revoke our type or production certificates 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 regulatory obligation upon us to develop appropriate design
changes. Foreign authorities could impose similar obligations upon us as to
aircraft within their jurisdiction. Any or all of the above occurrences could
expose us to substantial additional costs and/or liability.

         PRODUCT-LIABILITY RISK LIMITATIONS
         ----------------------------------

         In 1994, the United States Congress passed and the President signed 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 deliver our first aircraft,
management believes that GARA will indirectly benefit us immediately, 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 Mooney assets, the Bankruptcy Court's order and the
Asset Purchase Agreement grant us ownership of the Mooney 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 Mooney aircraft or parts
manufactured prior to our acquisition of the Mooney assets. However, we may be
named as a defendant in future lawsuits and may 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 which do require additional certification,
the FAA certification often provides a starting point from which such country
begins its certification process. We intend to begin the certification process
in a foreign country once we have received FAA certification for our aircraft
and have finalized a sale or distributorship of that aircraft in that country.
We have not yet determined which foreign market or markets we will first
address. Priorities in this area will be established by the levels of interest
in our products by dealers and distributors in the various foreign

                                       10

<PAGE>

markets. At this time we are unable to determine Mooney's certification status
in foreign countries. We will attempt to obtain any certifications required for
us to sell Mooney aircraft abroad.

EMPLOYEES

         As of March 31, 2002, we had approximately 60 full-time employees. We
believe that our relations with our employees are good. We are not a party to
any collective bargaining agreement.

ITEM 2.       PROPERTIES

         We have leased approximately ten acres of land located on the Long
Beach Airport in Long Beach, California (the "Ground Lease"). The Ground Lease
term commenced on October 20, 1997, and continues for 30 years with an option to
renew for an additional 10 years. The lease also contains options to lease other
airport properties. The current monthly rent for the Ground Lease is $15,600.
The Ground Lease was assigned to AP-Long Beach Airport LLC in June 1999.

         We retained Commercial Developments International West to design and
build our approximately 200,000 square-foot manufacturing and headquarters
facility (the "New Facility") on the property subject to the Ground Lease. We
moved into the New Facility on November 18, 1998. The total cost for the New
Facility, including its design, construction, licenses, fees and change orders,
was approximately $9,800,000. We believe the New Facility will provide adequate
capacity for our operations for the foreseeable future.

         In June 1999, we sold the New Facility to The Abbey Company and leased
it back. The sale price of the building was $9,800,000, and the term of the
lease is eighteen years plus an option to extend the lease for an additional ten
years. Monthly payments under the terms of our current lease are approximately
$119,620 and escalate annually through June 1, 2007, and will be adjusted
annually beginning June 1, 2009, for changes in the Consumer Price Index. The
rent in the option period following the eighteenth year would be at fair market
rental value.

         We are currently in the process of acquiring substantially all of the
assets of Mooney Aircraft Corporation and information relating to the properties
involved with this acquisition will not be known until the closing of the
transaction.

ITEM 3.       LEGAL PROCEEDINGS

         As of March 31, 2002, there were no material pending legal proceedings
to which we were a party or to which any of our properties were subject.

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

         During the fourth quarter of 2001, a majority shareholder consent was
executed on October 26, 2001, approving an increase in our authorized shares to
625,000,000. The majority consent was executed by shareholders representing
approximately 44,858,085 voting shares.

                                       11

<PAGE>

                                     PART II

ITEM 5.       MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS

         The Company's Class A Common Stock is listed for trading on the Over
the Counter Bulletin Board under the symbol "AASI". The following table sets
forth the range of high and low last sale prices per share for the Class A
Common Stock as quoted on the Over the Counter Bulletin Board, for the periods
indicated.

<TABLE>
<CAPTION>

                       YEAR ENDED DECEMBER 31,
                       2000                                              HIGH              LOW
                       ------------------------------------------        ------------      ------------
                       <S>                                               <C>               <C>
                       First Quarter                                    $6.688            $2.500
                       Second Quarter                                    5.250             2.781
                       Third Quarter                                     3.375             2.000
                       Fourth Quarter                                    2.156              .344

                       YEAR ENDED DECEMBER 31,
                       2001                                              HIGH              LOW
                       ------------------------------------------        ------------      ------------
                       First Quarter                                    $0.687            $0.250
                       Second Quarter                                    0.380             0.190
                       Third Quarter                                     0.332             0.180
                       Fourth Quarter                                    0.290             0.170
</TABLE>

         At March 31, 2002, there were approximately 182 holders of record of
our Class A Common Stock; 4 holders of record of our Class B Common Stock; 5
holders of record of our Class E-1 Common Stock and 6 holders of record of our
Class E-2 Common Stock. We believe that there are significant numbers of
beneficial owners of our Class A Common Stock whose shares are held in "street
name."

         We have not paid cash dividends on our Common Stock and do not
anticipate that we will do so in the near future. Our present policy is to
retain earnings to finance the development of its operations.

         In March 2001, we entered into a consulting agreement to issue a 6%
nondilutable interest in the Company to a group of consultants, three of whom
later became members of our Board of Directors. We issued 845,678 shares of
Class A Common Stock at that time with a fair value of $344,000 in exchange for
consulting services provided. This issuance was made pursuant to Section 4(2)
of the Securities Act of 1933, as amended. In October 2001, this agreement was
amended to increase the nondilutable interest in the Company to be issued to
the consultants to 12%.

ITEM 6.       MANAGEMENT'S DISCUSSION AND ANALYSIS

         Certain statements contained in this report, including, but not limited
to, statements concerning our future cash and financing requirements, our
ability to raise additional capital, our ability to obtain market acceptance of
our aircraft, our ability to obtain regulatory approval for our aircraft, and
the competitive market for sales of small business aircraft and other statements
contained herein regarding matters that are not historical facts, are
forward-looking statements: actual results may differ materially from those set
forth in the forward-looking statements, which statements involve risks and
uncertainties, including without limitation those risks and uncertainties set
forth in our Registration Statement on Form SB-2 (333-12273) and any subsequent
Registration Statements filed by us under the Securities Act of 1933, as
amended, under the heading "Risk Factors."

                                       12

<PAGE>

                               PLAN OF OPERATIONS

         The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto appearing elsewhere in this
report.

GENERAL

         Since 1990, we have been a development-stage enterprise organized to
design, develop, manufacture and market propjet and jet aircraft intended
primarily for business, corporate and government use and have been engaged
principally in research and development of our proposed aircraft. We began our
operations in Burbank, California.

         We have hired a management team with significant experience in turning
around general aviation manufacturing companies in order to take advantage of
current opportunities. The new management team immediately instituted a
technical review of the Jetcruzer 500 program. This review revealed that the
Jetcruzer 500 was overweight, was not achieving its speed goals, and had a
center of gravity problem with fuel burn. Additionally, subsequent noise tests
determined the aircraft could not meet current federal guidelines for external
noise levels. Accordingly, significant spending on the Jetcruzer program was
suspended, and we will review how best to capitalize on the completed
development work.

         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 ("Mooney"). On February 6th, the U.S.
Bankruptcy Court in San Antonio, Texas, approved an operating agreement which
allows us to manage Mooney until a plan of reorganization is approved. Mooney
has operated under the protection of Chapter 11 bankruptcy since July 2001. The
Bankruptcy Court approved the sale of substantially all of the Mooney assets to
us on March 18, 2002. We believe that we will have completed the Mooney asset
acquisition on or about April 16, 2002, as provided in the court's order and the
Mooney Asset Purchase Agreement, each dated March 18, 2002.

         Mooney Aircraft Corporation was the world's leading supplier of high
performance single engine general aviation aircraft primarily serving business
and owner-flown markets. Mooney produced over 10,000 aircraft since its founding
in 1947, and presently has over 8,000 aircraft in operation in the US alone. We
intend to acquire substantially all of Mooney's assets and return to full
production of the Mooney aircraft line. Mooney aircraft's assets will be held by
our wholly-owned subsidiary named Mooney Airplane Company, Inc. We will be
formally changing our name to Mooney Aerospace Group, Ltd.

         We believe the acquisition of Mooney's assets is the first step in our
strategy to become a leading supplier of piston, turboprop and light jet
aircraft for the business and owner-flown general aviation markets. It is our
intention to accomplish this objective through both the acquisition of existing
high quality general aviation product lines and development of revolutionary new
aircraft models. Our goals are to create a dynamic new general aviation company,
return Mooney to full production and create substantial potential for earnings
growth for the Company and its shareholders.

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

                                       13

<PAGE>

         During 2002 and 2003, we intend to focus our efforts on the following
events:

         . The completion of the acquisition of Mooney Aircraft Corporation
           assets.

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

         . Enhancement and aggressive implementation of Mooney's marketing
           program.

         . Analysis and appropriate acquisition of other existing general
           aviation products that will allow us to offer a wide variety
           of products designed to meet potential customers' aviation
           needs.

         We have not generated any operating revenues to date and have incurred
losses from our operating activities including program development costs of
$7,600,000 and $6,300,000 in 2001 and 2000, respectively. We believe we will
continue to experience losses until such time as we attain a sales level of our
aircraft on a commercial scale.

         Our current cash balance, including the additional funding obtained
subsequent to year end described elsewhere (see "Liquidity and Capital
Resources"), has been sufficient to finance our plan of operations and
acquisitions to date. Additional funding will be required and is expected,
either through additional stock issuances or debt financing. If sources of
financing are unavailable, we will have to curtail our plans and will be unable
to pay our obligations to Congress.

RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, certain
operating amounts and results.
<TABLE>
<CAPTION>

                                                                                               Period from
                                                                                             January 26, 1990
                                                                Years Ended December 31       (inception) to
                                                               --------------------------      December 31,
                                                                  2000           2001              2001
                                                             ------------------------------------------------
<S>                                                          <C>             <C>             <C>

Interest and other income                                    $    143,000    $     73,000    $  4,281,000
Research and development, and general and
  administrative expenses                                      (9,884,000)    (12,445,000)    (71,734,000)
Interest expense                                                 (938,000)     (4,969,000)     (9,252,000)
Loss on disposal of assets                                           --              --          (755,000)
Realized loss on sale of investments                              (36,000)           --           (66,000)
Non-recurring expenses                                               --        (3,823,000)     (3,823,000)
Extraordinary loss                                                   --              --          (942,000)
                                                             ------------------------------------------------
Net loss                                                     $(10,715,000)   $(21,164,000)   $(82,291,000)
                                                             ================================================
</TABLE>

         We have not generated any revenues from operations. Our losses have
resulted primarily from expenditures made in connection with the research and
development of the Jetcruzer aircraft and general and administrative activities.
We have decided to suspend the expenditure of substantial sums on the Jetcruzer
500 program. We are considering several options for the program which include a
restart of the Jetcruzer program at a later date, use of JetCruzer flight and
test data to launch a new development activity and the sale of the program to
another company. During 1996 we incurred an extraordinary loss of $942,000,
resulting from the retirement of debt at the time of our December 1996 IPO.


                                       14

<PAGE>

     Interest income consisted primarily of earnings derived from the unused
proceeds of the 1999 sale and leaseback of our 200,000 square foot building.
Interest income aggregated $2,855,000 from inception through December 31, 2001,
$75,000 and $37,000 of which was earned in 2000 and 2001, respectively.

     Research and development expenses have consisted primarily of the costs of
personnel, facilities, materials and equipment required to conduct our
development activities. Such expenses aggregated $45,498,000 from inception
through December 31, 2001. These expenses were incurred to develop the Jetcruzer
450, to obtain a type certificate for the Jetcruzer 450, and to begin the design
of the Jetcruzer 500. Research and development expenses increased in 2001 as we
accelerated the development of the Jetcruzer 500.

     General and administrative expenses have consisted primarily of
administrative salaries and benefits, rent, marketing expenses, insurance and
other administrative costs. Such expenses aggregated $26,236,000 from inception
through December 31, 2001, $3,543,000 and $4,815,000 of which were incurred in
2000 and 2001, respectively. General and administrative expenses have increased
since 2000 primarily due to the addition of personnel and other resources needed
to support increased administrative, marketing, and development activities.

     Non-recurring expenses, which were incurred in the year ended December 31,
2001, consist of the following: a write-off of capitalized tooling costs of
approximately $2,082,000; a write-off of capitalized engineering software of
approximately $723,000; and an accrual of approximately $1,018,000 related to
commitments to purchase specific items from certain vendors. We believe both the
capitalized tooling and software have no future use to us due to the change in
our business strategy and the re-design of our previous major product, the
Jetcruzer 500. The accrual to vendors represents costs incurred by vendors in
the production of items specifically related to the Jetcruzer 500 with no
alternative saleable value to the vendors.

     Interest expense has consisted primarily of interest expended by us for
bank and private financing, including the amortization of debt issue costs and
discounts on convertible debentures. Interest expense aggregated $9,252,000 from
inception through December 31, 2001, $938,000 and $4,969,000 of which were
incurred in 2000 and 2001, respectively.

     We account for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." We have incurred
net losses in each year since our inception and consequently have paid no
federal or state income taxes.

     At December 31, 2001, we had federal and California state tax net
operating loss carryforwards of approximately $76,774,000 and $29,240,000,
respectively, which, if unused, will expire in varying amounts in the years 2002
through 2021. Our ability to use our net operating loss carryforwards to offset
future taxable income may be limited annually if there is a substantial change
of control of our Company. We give no assurance as to the amount of the net
operating loss carryforwards that will be available in future years.

     At December 31, 2001, we had federal and California state research and
development ("R&D") credit carryforwards of approximately $1,356,000 and
$542,000, respectively. The federal R&D credit carryforwards will expire in the
years 2004 through 2009. The state R&D credit carryforwards can be carried
forward indefinitely. These R&D credits are described in more detail in Note 6
of Notes to Financial Statements in Item 7.

LIQUIDITY AND CAPITAL RESOURCES

     At December 31, 2001, we had a working capital deficiency of $4,714,000 and
stockholders' deficiency of $4,574,000. Since our inception in January 1990, we
have experienced continuing negative cash flow from operations, which, prior to
the December 1996 IPO, resulted in our inability to pay certain

                                       15

<PAGE>

existing liabilities in a timely manner. We have financed our operations through
private funding of equity and debt and through the proceeds generated from our
December 1996 initial public offering.

     We expect to continue to incur losses until such time, if ever, as we
commence our production processes and regain market acceptance of our aircraft
at selling prices and volumes which provide adequate gross profit to cover
operating costs and generate positive cash flow. Our working capital
requirements will depend upon numerous factors, including the level of resources
devoted to the scale-up of manufacturing and the establishment of sales and
marketing.

     Our management team has developed a financial plan to address our working
capital requirements. In March 2000, we entered into a subscription agreement
for the sale of up to $10,000,000 of 5% Cumulative Convertible Series A
Preferred Stock, of which we have received net proceeds of $8,265,000 to date.

     In August 2000, we entered into an equity line agreement for the sale of up
to $20,000,000 of Class A Common Stock, of which we received net proceeds of
approximately $2,393,000 through December 31, 2001. Additional drawings are
dependant upon stock market conditions that have prevented further funding under
this equity line.

     On March 27, 2001, we consummated an agreement with certain investors to
provide $4,126,000 through secured convertible debentures. Under the same
agreement, an additional $1,000,000 was provided on July 25, 2001, with the
remaining $2,000,000 to be provided at a later date. Warrants to purchase
10,254,000 shares of common stock at exercise prices ranging from $0.24 to $0.45
were issued under this agreement. On June 27, 2001, we obtained new financing of
$1,000,000 by issuing an unsecured convertible debenture with warrants to
purchase 2,646,000 shares of common stock at an exercise price of $0.22. All of
these debentures are at an interest rate of 5% and are convertible into common
stock at the lesser of $0.25 or 80% of the three lowest closing prices for sixty
trading days prior to the conversion. The term of the debentures and warrants is
five years. All issuances were to accredited investors, as defined by Regulation
D rules issued by the Securities and Exchange Commission under the Securities
Act of 1933. Until such time that the secured debentures are converted, our
interest in our assets is security.

     At December 31, 2001, we were in default on one of the covenants in each of
the above agreements for failure to pay accrued interest on the notes within 10
days of December 31, 2001. Due to the default, we are required to accrue the
interest due at 10%. In accordance with the agreement, we have accrued
approximately $294,000 in interest due these note holders at December 31, 2001.
We have not obtained waivers from the note holders waiving their right to call
the notes due or the payment of outstanding interest, nor has any note holder
elected to redeem their notes outstanding according to the terms of the
Subscription Agreement. Due to the event of default, we have recorded all notes
outstanding as a current liability in the Balance Sheet.

     On October 26, 2001, we received an initial $7,405,000 in net proceeds from
a private placement offering of 8% Secured Convertible Notes along with
warrants to purchase 17,714,000 shares of common stock. The notes were issued in
the principal amount of $7,750,000, less approximately $1,100,000 already
advanced by the note holders prior to the closing date. Both the maturity date
of the notes and the expiration date of the warrants is October 26, 2006. The
first 50% of the warrants may be exercised at a price of $.25 and the remaining
50% may be exercised at $.30. In conjunction with this private placement, we
entered into a Put Agreement with a group of its investors who hold convertible
notes and preferred stock, some of whom participated in the private placement.
We may sell up to an additional $3,000,000 of convertible notes and warrants as
part of this private placement and under the Put Agreement, we have the option
of selling up to an additional $5,000,000 of convertible notes and warrants. Our
right to exercise our option under the Put Agreement expires October 25, 2002.

     We did not register the shares issuable upon conversion within 30 days of
the closing date of the June 27, 2001, financing, or within 60 days of the
October which is a non-registration event pursuant to the Subscription
Agreement. In accordance with the terms of the Subscription Agreement, we have
accrued $115,000 representing liquidation damages due to the note holder as a
result of the non-registration event. Such damages are calculated at an amount
equal to 1% of the principal amount issued per 30 days or part thereof, and 2%
for each 30 days or part thereof, during the pendency of the non-registration
event.

     On February 27, 2002, we completed three financing transactions for total
proceeds of $5,734,000 and incurred financing costs of $184,000. The net
proceeds for these transactions were used to make the cash payment to Congress
described below and to fund current operations. In the first of the three
financing transactions we issued $2,250,000 in 8% Secured Convertible Notes
under the October 26, 2001, private placement in which $3,000,000 was available
to us for additional financing. The notes are convertible after 120 days into
shares of common stock at a conversion price of $.35 or 70% of the
average of the three lowest closing bid prices for our common stock for the
thirty

                                       16

<PAGE>

days prior to conversion. The maturity date of the notes is October 26, 2006.
Attached to the notes were warrants to purchase 4,500,000 shares of our common
stock. The first 50% of the warrants may be exercised after 45 days at a price
of $.25 and the remaining 50% may be exercised at $.30. The expiration date of
the warrants is January 30, 2007.

     In the second of the three financing transactions, we issued $1,329,000 in
8% Unsecured Convertible Notes as part of the October 26, 2001 Put Agreement in
which we had the option to sell up to an additional $5,000,000 in convertible
notes. The notes are convertible after 120 days into shares of common stock
under the same terms as the October 26, 2001 private placement, except that
there is no security involved. The maturity dates of the notes is October 26,
2006. Attached to the Notes were warrants to purchase 2,658,000 shares of our
common stock. The warrants may be exercised under the same terms as the warrants
issued in conjunction with the October 26, 2001, private placement.

     In the third of the three financing transactions, we issued $2,155,000 in
8% Unsecured Convertible Notes as part of a new private placement dated January
30, 2002. The notes are convertible after 120 days into shares of common stock
under the same terms as the October 26, 2001 private placement. The maturity
date of the notes is October 26, 2006. Attached to the notes were warrants to
purchase 4,310,000 shares of our common stock. The warrants may be exercised
under the same terms as the warrants issued in conjunction with the October 26,
2001 private placement.

     On March 26, 2002, we issued $1,450,000 in 8% Unsecured Convertible Notes
in a subsequent closing that was part of the new private placement dated January
30, 2002. The notes are convertible after 120 days into shares of common stock
under the same terms as the October 26, 2001 private placement. The maturity
date of the notes is October 26, 2006. Attached to the notes were warrants to
purchase 2,900,000 shares of our common stock The warrants may be exercised
under the same terms as the warrants issued in conjunction with the October 26,
2001 private placement.

     Our current cash balance, including the additional funding obtained
subsequent to year end described above, has been sufficient to finance our plan
of operations and acquisitions to date. Additional funding will be required and
is expected, either through additional stock issuances or debt financing. If
sources of financing are unavailable, we will have to curtail our plans and will
be unable to pay our obligations to Congress.

     Under the terms of our agreements with Congress, we paid $8,000,000 to
acquire their position as a senior secured creditor. $3,500,000 of the purchase
price was paid in cash and $4,500,000 in secured notes as follows: (1) a Secured
Promissory Note for $500,000, (2) a Secured Promissory Note for $2,500,000, and
(3) a Secured Promissory Note for $1,500,000, each due at various times with
varying schedules for interest payments and the repayment of principal. These
notes are secured by substantially all the assets acquired from Congress.

     As additional security for our compliance with the fulfillment of our
obligations to Congress, there is a Limited Recourse Secured Promissory Note for
$5,700,000. This note is a contingent note, payable in the event that we default
under the payment terms of the other notes. This note is also secured by
substantially all the assets acquired from Congress.

     While there is no assurance that additional financing will be available, we
believe that we have developed a financial plan that, if executed successfully,
will substantially improve our ability to meet our working capital requirements.
However, there can be no assurances that the current timetable for completion of
the development and certification of the aircraft and commencement of production
will not

                                       17

<PAGE>

be delayed. If our estimates prove to be incorrect, or additional sources of
financing prove to be unavailable when and if needed, we will have to curtail
our development plans.

     In November 1998 we moved into our manufacturing and headquarters facility.
The primary financing for this project was our obligation under a loan agreement
related to proceeds of $8,500,000 in the issuance of Industrial Development
Bonds ("IDB") by the California Economic Development Financing Authority (the
"Authority"). We were required to provide cash collateral to the Sumitomo Bank,
Limited (the "Bank") in the amount of $8,500,000 for a stand-by letter of credit
in favor of the holders of the IDBs which was to expire on August 5, 2002, if
not terminated earlier by the Company or the Bank. The IDBs were retired in 1999
and the stand-by letter of credit in favor of the holders of the IDBs was
terminated by us.

     In June 1999, we sold our 200,000 square-foot building to The Abbey Company
and leased it back. The sale price of the building was $9,800,000, and the term
of the lease is eighteen years plus an option to extend the lease for an
additional ten years. Monthly payments under the terms of our current lease are
approximately $119,620 and escalate annually through June 1, 2007, and will be
adjusted annually beginning June 1, 2009, for changes in the Consumer Price
Index. The rent for the option period after the eighteenth year would be at fair
market rental value.

     We lease approximately 10 acres of land located on the Long Beach Airport
in Long Beach, California. The lease commenced on October 20, 1997, and has a
term of 30 years with an option to renew for an additional 10 years. The current
monthly rent is $15,600.

     We had no material capital commitments at December 31, 2001, other than as
discussed elsewhere in this report. We intend to hire a number of additional
employees that will require substantial capital resources. We anticipate that we
will hire up to 200 employees over the next twelve months, including engineers
and manufacturing technicians necessary to produce our aircraft.

SEASONALITY

     We believe our business is not seasonal.

CRITICAL ACCOUNTING POLICIES

     Management's Discussion and Analysis and Plan of Operations discusses our
financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. When we prepare these
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 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. Our actual results may differ from these estimates under
different assumptions or conditions.

     We believe the following critical accounting policies affect our more
significant judgments and estimates used in preparing our financial statements.
(See Note 3 of the Notes to Financial Statements for our Summary of Significant
Accounting Policies.)

                                       18

<PAGE>

Deferred Taxes

     We record a valuation allowance to reduce the deferred-tax assets to the
amount that is more likely than not to be realized. We consider future taxable
income in assessing the need for a valuation allowance. Should we determine that
we are able to realize the deferred tax assets in the future, an adjustment to
the deferred tax assets would increase income in the period such determination
was made.

Revenue Recognition

     We defer the deposits collected on airplane orders until such time that
production will commence. As the production process commences, deposits
collected on sales orders will be recorded as income.

Other Liabilities

     During fiscal year 2001, we recorded an estimate of the liability for
cancelled special orders for manufacturing equipment and inventory for the
Jetcruzer resulting from our actions. Although we do not expect significant
changes, the actual costs may differ from these estimates.

Valuation of Certain Marketable Securities

     We currently classify our investment securities as available-for-sale
securities. Pursuant to SFAS No. 115, such securities are measured at fair
market value in the financial statements with unrealized gains or losses
recorded in other comprehensive income until the securities are sold. However, a
decline in the fair market value below cost that is other than temporary is
accounted for as a realized loss.

Long-lived Assets

     We review the recoverability of our long-lived assets pursuant to SFAS No.
121 whenever significant events or changes occur which might impair the recovery
of recorded costs. Because of the significant delays of the commencement and
production of the Jetcruzer 500, we have written off tooling and software assets
based upon the estimated market value of those assets.

CONVERSION OF PERFORMANCE SHARES

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

                                       19

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS.


                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                          INDEX TO FINANCIAL STATEMENTS

                                                                    Page Number
                                                                   -------------
     Report of Independent Auditors                                     F-1

     Balance Sheet                                                      F-2

     Statement of Operations                                            F-3

     Statement of Stockholders' Deficiency                              F-4

     Statement of Cash Flows                                            F-6

     Notes to Financial Statements                                      F-8



                                       20

<PAGE>

To the Board of Directors
Advanced Aerodynamics & Structures, Inc.

     We have audited the accompanying balance sheet of Advanced Aerodynamics &
Structures, Inc. (a development stage enterprise) as of December 31, 2001, and
the related statements of operations, stockholders' deficiency, and cash flows
for the two years then ended, and for the period from January 26, 1990
(inception) through December 31, 2001. 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 auditing standards generally
accepted in the 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 Advanced Aerodynamics &
Structures, Inc., at December 31, 2001, and the results of its operations and
its cash flows for each of the two years in the period then ended and the period
from January 26, 1990 (inception) through December 31, 2001, in conformity with
accounting principles generally accepted in the United States.

     The accompanying financial statements have been prepared assuming Advanced
Aerodynamics & Structures, Inc. will continue as a going concern. As more fully
described in Note 2, the Company has incurred recurring losses, has an
accumulated deficit and a working capital deficiency at December 31, 2001. 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 2. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.


Ernst & Young LLP


Long Beach, California
March 26, 2002


                                      F-1

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                                  BALANCE SHEET
<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                                    2001
                                                                             ------------------
<S>                                                                             <C>
                                  ASSETS

Current assets:
       Cash and cash equivalents                                                $   681,000
       Debt issuance costs, current portion                                          58,000
       Prepaid expenses and other current assets                                     67,000
                                                                             ------------------
       Total current assets                                                         806,000

Property, plant and equipment, net                                               12,159,000
Investments available-for-sale                                                    1,924,000
Restricted cash                                                                     436,000
Debt issuance costs                                                                 341,000
Other assets                                                                        314,000
                                                                             ------------------
            Total assets                                                        $15,980,000
                                                                             ==================

                 LIABILITIES AND STOCKHOLDERS' DEFICIENCY

Current liabilities:
       Accounts payable                                                         $ 2,087,000
       Other accrued liabilities                                                  1,646,000
       Capital leases, current portion                                              158,000
       Notes payable                                                                389,000
       Convertible debentures, current (net discount of $11,518,000)              1,240,000
                                                                             ------------------
            Total current liabilities                                             5,520,000
Long-term liabilities:
       Capital leases, long-term                                                 12,850,000
       Deferred land lease                                                          369,000
       Deferred revenue                                                           1,815,000
                                                                             ------------------
            Total liabilities                                                    20,554,000
Stockholders' deficiency:
       Preferred Stock, par value $.0001 per share; 5,000,000 shares
            authorized; none issued and outstanding, 100,000 shares
            designated as Series A.                                                       -
       Series A, 5% Cumulative Convertible Preferred Stock, $100 stated
            value per share, 100,000 shares authorized, 46,648 shares
            issued and outstanding                                                3,615,000
       Class A Common Stock, par value $.0001 per share; 625,000,000
            shares authorized; 45,338,850 shares issued and outstanding              37,000
       Class B Common Stock, par value $.0001 per share; 10,000,000 shares
            authorized; 1,900,324 shares issued and outstanding                           -
       Class E-1 Common Stock; par value $.0001 per share; 4,000,000
            shares authorized; 4,000,000 shares issued and outstanding                    -
       Class E-2 Common Stock; par value $.0001 per share; 4,000,000
            shares authorized; 4,000,000 shares issued and outstanding                    -

Warrants to purchase common stock
       Warrants                                                                   6,352,000
       Public Warrants                                                              473,000
       Class A Warrants                                                          11,290,000
       Class B Warrants                                                           4,632,000
Additional paid-in capital                                                       55,631,000
Accumulated other comprehensive loss                                                (29,000)
Deficit accumulated during the development stage                                (86,575,000)
                                                                             ------------------
Total stockholders' deficiency                                                   (4,574,000)
                                                                             ------------------
Total liabilities and stockholders' deficiency                                  $15,980,000
                                                                             ==================
</TABLE>

                 See accompanying notes to financial statements.


                                      F-2

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                             STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>


                                                                                                    Period from
                                                                                                    January 26,
                                                                        Year Ended                      1990
                                                                       December 31,                (inception) to
                                                            --------------------------------        December 31,
                                                                 2000                2001                2001
                                                            ------------        ------------        ------------
<S>                                                         <C>                 <C>                 <C>
  Interest income                                           $     75,000        $     37,000        $  2,855,000
  Other income                                                    68,000              36,000           1,426,000
                                                            ------------        ------------        ------------
                                                                 143,000              73,000           4,281,000
  Cost and expenses:
    Research and development costs                             6,341,000           7,630,000          44,737,000
    General and administrative expenses                        3,543,000           4,815,000          26,236,000
    Loss on disposal of assets                                         -                   -             755,000
    Realized loss on sale of investments                          36,000                   -              66,000
    Interest expense                                             938,000           4,969,000           9,252,000
    In-process research and development acquired                       -                   -             761,000
    Non-recurring expenses                                             -           3,823,000           3,823,000
                                                            ------------        ------------        ------------
                                                              10,858,000          21,237,000          85,630,000
                                                            ------------        ------------        ------------
  Loss before extraordinary item                             (10,715,000)        (21,164,000)        (81,349,000)
  Extraordinary loss on retirement of Bridge Notes                     -                   -            (942,000)
                                                            ------------        ------------        ------------
  Net loss                                                  $(10,715,000)       $(21,164,000)       $(82,291,000)
                                                            ============        ============        ============
  Net loss per share                                              $(1.26)              $(.73)
                                                            ============        ============
  Weighted average number of shares outstanding                9,168,000          30,010,000
                                                            ============        ============
</TABLE>

                 See accompanying notes to financial statements.


                                      F-3

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                      Statement of Stockholders' Deficiency

<TABLE>
<CAPTION>
--------------------------------------------------- --------------------------------------------------------------------------------
                                                                       Common Stock
--------------------------------------------------- --------------------------------------------------------------------------------
                                  Preferred Stock      Class A            Class B          Class E-1         Class E-2
                                  Shares   Amount   Shares    Amount   Shares   Amount   Shares   Amount  Shares   Amount  Warrants
                                ------------------- --------------------------------------------------------------------------------
<S>                             <C>        <C>      <C>       <C>      <C>      <C>      <C>      <C>     <C>      <C>     <C>
Common stock issued at $3.59               $                  $          418,904 $       836,189  $       836,189  $       $
   per share
Common stock issued in
   exchange for in-process
   research and development at
   $.36 per share                                                        201,494         402,988          402,988
Imputed interest on advances
   from stockholder
Conversion of stockholder
   advances                                                              598,011       1,196,021        1,196,021
Conversion of officer loans                                              187,118         374,236          374,236
Stock issued in consideration
   for services in 1994, 1995,
   and 1996 at $.51 per share                                            595,283       1,190,566        1,190,566
Imputed interest on advances
   from stockholder
Net proceeds from initial public
   offering of Units at $4.39
   per share                                        6,000,000  1,000
Net proceeds from exercise of
   over-allotment option at
   $4.55 per share                                    900,000
Warrants issued in connection
   with issuance of Bridge
   Notes at $.79 per share
Net loss from inception to
   December 31, 1996
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1996                        6,900,000  1,000   2,000,000       4,000,000        4,000,000
Adjustment to proceeds from
   initial public offering and
   exercise of overallotment
   option
Net loss
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1997                        6,900,000  1,000   2,000,000       4,000,000        4,000,000
Conversion of Class B to A
   Common Stock                                        99,676            (99,676)
Net loss
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1998                        6,999,676  1,000   1,900,324       4,000,000        4,000,000
Net loss
                                ----------------------------------------------------------------------------------------------------
Unrealized loss on investments
Comprehensive loss
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 1999                        6,999,676  1,000   1,900,324       4,000,000        4,000,000

</TABLE>
<TABLE>
<CAPTION>
                                ----------------------------------------------------------------------------------------------------

                                ----------------------------------------------------------------------------------------------------

                                ----------------------------------------------------------------------------------------------------
                                                                                                          Deficit
                                                                                                        accumulated
                                  Public    Class A    Class B      Additional      Accumulated other    during the
                                 warrants   warrants   warrants   paid-in capital  comprehensive loss development stage    Total
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>         <C>       <C>        <C>                <C>                <C>             <C>
Common stock issued at $3.59    $           $         $          $    7,500,000       $                $               $  7,500,000
   per share
Common stock issued in
   exchange for in-process
   research and development at
   $.36 per share                                                       361,000                                             361,000
Imputed interest on advance
   from stockholders                                                    799,000                                             799,000
Conversion of stockholder                                            10,728,000                                          10,728,000
   advances
Conversion of officer loans                                             336,000                                             336,000
Stock issued in consideration
   for services in 1994, 1995,
   and 1996 at $.51 per share                                         1,507,000                                           1,507,000
Imputed interest on advances
   from stockholder                                                      11,000                                              11,000
Net proceeds from initial public
   offering of Units at $4.39
   per share                            9,583,000    4,166,000       12,566,000                                          26,316,000
Net proceeds from exercise of
   over-allotment option at
   $4.55 per share                      1,707,000      466,000        1,922,000                                           4,095,000
Warrants issued in connection
   with issuance of Bridge
   Notes at $.79 per share     473,000                                                                                      473,000
Net loss from inception to
   December 31, 1996                                                                                        24,328,000   24,328,000
                              ------------------------------------------------------------------------------------------------------
Balance at December 31, 1996   473,000 11,290,000    4,632,000       35,730,000                            (24,328,000)  27,798,000
Adjustment to proceeds from
   initial public offering and
   exercise of overallotment
   option                                                               (78,000)                                            (78,000)
Net loss                                                                                                    (6,625,000)  (6,625,000)
                              ------------------------------------------------------------------------------------------------------
Balance at December 31, 1997   473,000 11,290,000    4,632,000       35,652,000                            (30,953,000)  21,095,000
Conversion of Class B to A
   Common Stock
Net loss                                                                                                   (10,118,000) (10,118,000)
                              ------------------------------------------------------------------------------------------------------
Balance at December 31, 1998   473,000 11,290,000    4,632,000       35,652,000                            (41,071,000)  10,977,000
Net loss                                                                                                    (9,341,000)  (9,341,000)
Unrealized loss on investments                                                           (32,000)                           (32,000)
Comprehensive loss                                                                                                       (9,373,000)
                              ------------------------------------------------------------------------------------------------------
Balance at December 31, 1999   473,000 11,290,000    4,632,000       35,652,000          (32,000)          (50,412,000)   1,604,000

</TABLE>

                                      F-4

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                Statement of Stockholders' Deficiency (continued)

<TABLE>
<CAPTION>
--------------------------------------------------- --------------------------------------------------------------------------------
                                                                 Common Stock
--------------------------------------------------- --------------------------------------------------------------------------------
                                  Preferred Stock        Class A            Class B         Class E-1         Class E-2
                                  Shares  Amount     Shares     Amount   Shares   Amount  Shares    Amount  Shares  Amount  Warrants
                                ------------------- --------------------------------------------------------------------------------
<S>                              <C>      <C>        <C>        <C>      <C>      <C>     <C>       <C>     <C>     <C>   <C>
Net proceeds from issuance of
  preferred stock at $63.08 per
  share                           79,800  $5,034,000            $                  $                $               $     $
Net proceeds from issuance of
  warrants at $1.29 per share                                                                                              2,217,000
Conversion of Preferred Stock to
  Class A                        (10,891)   (687,000)    712,663
Net proceeds from issuance of
  common stock at $0.69 per
  share                                                1,252,160
Net proceeds from issuance of
  warrants at $1.43 per share                                                                                                358,000
Amortization of discount on
  Preferred Stock                            278,000
Amortization of warrants
  attached to common stock
Unrealized gain on investments
Net loss
                                ----------------------------------------------------------------------------------------------------
Comprehensive loss
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 2000      68,909   4,625,000   8,964,499   1,000 1,900,324        4,000,000       4,000,000        2,575,000

Net proceeds from issuance of
  preferred stock at $84.54
  per share                       11,285     978,000
Net proceeds from issuance of
  warrants at $0.06 per share                                                                                                 60,000
Conversion of Preferred Stock
  to Class A                     (33,546) (2,167,000) 16,112,563  16,000
Net proceeds from issuance of
  common stock at $0.17 per
  share                                                5,300,701   5,000
Net proceeds from issuance of
  warrants at $.07 per share                                                                                                 274,000
Amortization of discount on
  Preferred Stock                            179,000
Amortization of warrants
  attached to common stock
Issuance of warrants attached to
  debentures at $.11 per share                                                                                             3,433,000
Beneficial conversion feature
  related to debentures
Conversion of Convertible
  Debentures to Class A                               14,961,087  15,000
Unrealized loss on investments
Net loss
                                ----------------------------------------------------------------------------------------------------
Comprehensive loss
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 2001      46,648  $3,615,000  45,338,850 $37,000 1,900,324 $      4,000,000 $     4,000,000 $     $6,352,000
                                ====================================================================================================






</TABLE>
<TABLE>
<CAPTION>
                                ----------------------------------------------------------------------------------------------------

                                ----------------------------------------------------------------------------------------------------

                                ----------------------------------------------------------------------------------------------------
                                                                                                       Deficit accumulated
                                  Public    Class A    Class B      Additional      Accumulated other     during the
                                 warrants   warrants   warrants   paid-in capital  comprehensive loss  development stage    Total
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>         <C>       <C>        <C>               <C>                <C>               <C>
Net proceeds from issuance of
  preferred stock at $63.08 per
  share                          $        $           $          $   342,000       $                  $   (342,000)    $  5,034,000
Net proceeds from issuance of
  warrants at $1.29 per share                                                                                             2,217,000
Conversion of Preferred Stock to
  Class A                                                            687,000                                                    --
Net proceeds from issuance of
  common stock at $0.69 per
  share                                                              863,000                                                863,000
Net proceeds from issuance of
  warrants at $1.43 per share                                                                                               358,000
Amortization of discount on
  Preferred Stock                                                                                         (278,000)             --
Amortization of warrants
  attached to common stock                                            45,000                               (45,000)             --
Unrealized gain on investments                                                       32,000                                  32,000
Net loss                                                                                               (10,715,000)     (10,715,000)
                                ----------------------------------------------------------------------------------------------------
Comprehensive loss                                                                                                      (10,683,000)
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 2000      473,000  11,290,000  4,632,000  40,549,000                           (64,752,000)        (607,000)

Net proceeds from issuance of
  preferred stock at $84.54
  per share                                                          170,000                              (194,000)         954,000
Net proceeds from issuance of
  warrants at $.06 per share                                                                                                 60,000
Conversion of Preferred Stock
  to Class A                                                       2,318,000                              (183,000)         (16,000)
Net proceeds from issuance of
  common stock at $0.17 per
  share                                                            1,237,000                                              1,242,000
Net proceeds from issuance of
  warrants at $.07 per share                                                                                                274,000
Amortization of discount on
  Preferred Stock                                                                                         (163,000)          16,000
Amortization of warrants
  attached to common stock                                           119,000                              (119,000)
Issuance of warrants attached to
  debentures at $.11 per share                                                                                            3,443,000
Beneficial conversion feature
  related to debentures                                            9,674,000                                              9,674,000
Conversion of Convertible
  Debentures to Class A                                            1,564,000                                              1,579,000
Unrealized loss on investments                                                      (29,000)                                (29,000)
Net loss                                                                                               (21,164,000)     (21,164,000)
                                ----------------------------------------------------------------------------------------------------
Comprehensive loss                                                                                                      (21,193,000)
                                ----------------------------------------------------------------------------------------------------
Balance at December 31, 2001     $473,000 $11,290,000 $4,632,000 $55,631,000       $(29,000)          $(86,575,000)    $ (4,574,000)
                                ====================================================================================================
</TABLE>
                                      F-5

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                             STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                                                                     PERIOD FROM
                                                                                                                      JANUARY 26
                                                                                                                         1990
                                                                                        YEAR-ENDED DECEMBER 31,       (INCEPTION)
                                                                                    ------------------------------  TO DECEMBER 31,
                                                                                         2000            2001            2001
                                                                                    ------------------------------------------------
<S>                                                                                  <C>             <C>             <C>
OPERATING ACTIVITIES:
   Net loss                                                                          $(10,715,000)   $(21,164,000)   $(82,291,000)
   Adjustments to reconcile net loss to net cash used in operating activities:
    Noncash stock compensation expense                                                       --              --         1,207,000
    Noncash professional service expense                                                     --           344,000         344,000
    Noncash interest expense                                                                 --           211,000         547,000
    Amortization of discount on convertible debentures                                       --         2,158,000       2,158,000
    Amortization of debt issue costs                                                         --            73,000          73,000
    Cost of in-process research and development acquired                                     --              --           761,000
    Imputed interest on advances from stockholder                                            --              --           810,000
    Interest income from restricted cash invested                                            --              --          (474,000)
    Extraordinary loss on retirement of bridge notes                                         --              --           942,000
    Depreciation and amortization                                                       1,148,000       1,692,000       6,465,000
    Loss on disposal of assets                                                               --         2,805,000       3,560,000
    Realized loss on sale of investments                                                   36,000            --            66,000
    Changes in operating assets and liabilities:
       Decrease in prepaid expenses and other current assets                                7,000           2,000         106,000
       Increase in other assets                                                           (12,000)       (109,000)       (315,000)
       Increase in accounts payable                                                     1,002,000         694,000         699,000
       Increase in accrued liabilities                                                    145,000       1,330,000       3,121,000
       Increase in deferred revenue                                                        70,000          45,000       1,605,000
                                                                                    ------------------------------------------------
Net cash used in operating activities                                                  (8,319,000)    (11,919,000)    (60,616,000)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Increase in construction in progress                                                      --              --          (446,000)
   Proceeds from insurance claims upon loss of aircraft                                      --              --            30,000
   Proceeds from sales of assets                                                             --              --         9,803,000
   Capital expenditures                                                                (2,276,000)        (82,000)     (8,201,000)
   Purchase of certificate of deposit                                                        --              --        (1,061,000)
   Proceeds from redemption of certificate of deposit                                        --              --         1,061,000
   Purchase of investments                                                             (2,626,000)     (2,881,000)    (39,227,000)
   Proceeds from maturities of investments in bonds                                          --           653,000       1,481,000
   Proceeds from sale of investments                                                    4,950,000         304,000      35,756,000
   Restricted cash from long-term debt                                                       --              --        (8,095,000)
   Increase in restricted cash                                                           (405,000)        (31,000)       (436,000)
                                                                                    ------------------------------------------------
Net cash used in investing activities                                                    (357,000)     (2,037,000)     (9,335,000)
                                                                                    ------------------------------------------------

FINANCING ACTIVITIES:
   Adjustment to net proceeds from initial  public  offering and exercise of
    over allotment option                                                                    --              --           (78,000)
   Proceeds from long-term debt                                                              --              --         8,500,000
   Restricted cash collateral for long-term debt                                             --              --        (8,500,000)
   Proceeds from issuance of convertible preferred stock                                5,034,000         954,000       5,988,000
   Proceeds from issuance of convertible debentures                                          --         9,798,000       9,798,000
   Proceeds from issuance of warrants                                                   2,217,000       3,777,000       5,994,000
   Advances from stockholder                                                                 --              --        10,728,000
   Proceeds from issuance of common stock                                               1,221,000         898,000       9,619,000
   Net proceeds from initial public offering and exercise of over-allotment option           --              --        30,411,000
   Net proceeds from bridge financing                                                        --         1,100,000       7,295,000
   Net proceeds from loans from officers                                                     --              --           336,000
   Payments on capital lease obligations                                                 (281,000)       (378,000)       (934,000)
   Payments on promissory notes                                                              --          (425,000)       (425,000)
   Repayment of bridge financing                                                             --        (1,100,000)     (8,100,000)
                                                                                    ------------------------------------------------
Net cash provided by financing activities                                               8,191,000      14,624,000      70,632,000
                                                                                    ------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                     (485,000)        668,000         681,000
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                          498,000          13,000            --
                                                                                    ------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                           $     13,000    $    681,000    $    681,000
                                                                                    ================================================
</TABLE>


                                      F-6

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)

                       STATEMENT OF CASH FLOWS (continued)

<TABLE>
<CAPTION>

                                                                                                          PERIOD FROM
                                                                                                           JANUARY 26
                                                                                                              1990
                                                                                                           (INCEPTION)
                                                                             YEAR-ENDED DECEMBER 31,     TO DECEMBER 31,
                                                                         ------------------------------------------------
                                                                              2000            2001            2001
                                                                         ------------------------------------------------
<S>                                                                       <C>             <C>             <C>

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest                                                    $1,190,000      $1,256,000      $ 4,422,000
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   Stockholder advances converted to common stock                                                         $10,728,000
   Loans from officer converted to common stock                                                           $    36,000
   Common stock issued for noncash consideration and compensation                                         $ 1,507,000
   Liabilities assumed from ASI                                                                           $   400,000
   Common stock issued for in-process research and development acquired                                   $   361,000
   Assets acquired with a note                                                            $  814,000      $   814,000
   Assets acquired under capital leases                                   $  433,000      $3,200,000      $13,527,000
   Deposit surrendered as payment for rents due                                                           $    80,000
   Construction in progress acquired with restricted cash                                                 $ 8,578,000
</TABLE>



                                      F-7

<PAGE>

                    ADVANCED AERODYNAMICS & STRUCTURES, INC.
                        (A Development Stage Enterprise)

                          NOTES TO FINANCIAL STATEMENTS

         1.  BUSINESS STRATEGY

               Advanced Aerodynamics & Structures, Inc. (the "Company" or
               "AASI") was incorporated in California on January 26, 1990. In
               July 1996, the Company reincorporated by merging into a newly
               formed corporation in Delaware. The Company is in the development
               stage of designing a multi-purpose light aircraft. Since its
               inception, the Company has been engaged primarily in research and
               development of its proposed aircraft, the JETCRUZER 500. In June
               1994, the FAA awarded the Company a Type Certificate for the
               JETCRUZER 450, which is a non-pressurized propjet aircraft
               powered by a smaller Pratt & Whitney engine. The Company is
               amending the Type Certificate to remove these limitations in the
               certification of the JETCRUZER 500.

               On January 8, 2002 the Board of Directors elected a new
               management team of experienced aviation executives to refocus the
               Company. The Chief Executive Officer, Dr. Carl Chen, was replaced
               by Roy Norris, former President of Raytheon Aircraft Company.
               Following the reorganization of management, the Company adopted a
               new business strategy of becoming a leading supplier of piston,
               turboprop, and light jet aircraft for the business and
               owner-flown general aviation markets. The Company plans to
               accomplish this through the acquisition of existing high quality
               aviation lines and the development of new aircraft models. The
               Company, under its new management team, conducted a technical
               review of the JETCRUZER 500 program to ascertain the reasons for
               the continued delays in the JETCRUZER 500 program and the actual
               status of the aircraft. This review revealed that the JETCRUZER
               500 was seriously overweight, was not achieving its speed goals,
               and had a serious gravity problem with fuel burn. Additionally,
               subsequent noise tests determined that the aircraft could not
               meet current federal guidelines for external noise levels.
               Accordingly, the Board of Directors suspended significant
               spending on the JETCRUZER 500 program. The Company is currently
               considering several options, which includes a restart of the
               JETCRUZER 500 at a later date, sale of the program to another
               company or use the JETCRUZER flight and test data to launch a new
               development activity.

               As discussed in Note 16, the Company's first step is the
               acquisition of Mooney Aircraft Corporation's ("Mooney") assets
               out of bankruptcy, which was approved by the bankruptcy courts on
               March 18, 2002. It is expected that the deal will close some time
               in April 2002. Mooney is located in Kerrville, Texas. This is an
               important first step in the Company's new strategy to assemble a
               new and vibrant general aviation manufacturer with revolutionary
               newly developed aircraft products using the latest in technology
               and cost effective manufacturing techniques. In connection with
               the acquisition of the Mooney assets, the Company set up a
               wholly-owned subsidiary, Mooney Airplane Company, to acquire
               those assets. In addition, the Board of Directors approved the
               name change of the parent company from Advanced Aerodynamics &
               Structures, Inc. to Mooney Aerospace Group, Ltd.

         2.  FINANCIAL RESULTS AND LIQUIDITY

               To date, the Company has generated no sales revenue and none is
               projected until the Company can begin commercial production of
               their product and regain market acceptance of the aircraft at
               profitable selling prices and volumes. The Company incurred
               program development costs to date of approximately $45,498,000
               and has recorded a cumulative net loss of $(82,291,000). The
               Company's management team has been developing a financial plan to
               address its working capital requirements and believes that if
               executed successfully, the Plan will substantially improve the
               Company's ability to meet its working capital requirements
               throughout the current year. Although the Company has received
               verbal commitments to carry out the acquisition of the

                                      F-8

<PAGE>

               Mooney assets and to complete its business strategy, the
               current working capital is insufficient to meet the Company's
               needs beyond the second quarter of fiscal 2002. These
               conditions raise substantial doubt as to the Company's ability
               to continue as a going concern. These financial statements do
               not include any adjustments that might result from the outcome
               of this uncertainty.

         3.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

               Research And Development Costs

               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.

               Pre-operating Costs

               Pre-operating costs are expensed as incurred.

               Advertising Expense

               Advertising costs are expensed as incurred. Advertising expense
               was $476,000 and $43,000 for the years ended December 31, 2000
               and 2001, respectively.

               Cash and Cash Equivalents

               The Company considers all short-term, highly liquid instruments
               that have original maturities of three months or less and are
               readily convertible to cash to be considered cash equivalents.
               Cash and cash equivalents are held by major financial
               institutions.

               Concentration of Credit Risk

               Financial instruments which potentially subject the Company to
               concentrations of credit risk consist principally of cash, cash
               equivalents, investments available-for-sale, and restricted cash.
               The Company maintains its financial instruments with major
               financial institutions. At times, cash balances held by financial
               institutions were in excess of federal limits. The Company by
               policy, limits the amount of credit exposure to any one financial
               institution, and does not consider itself to have any significant
               concentrations of credit risk.

               Fair Value of Financial Instruments

               The fair value of substantially all financial instruments of the
               Company approximates their carrying value in the aggregate due to
               their short-term maturity and/or prevailing market interest
               rates.

               Long-Term Investments

               The Company's investment strategies consider safety of principal,
               availability of funds and maximum return on investment.
               Management determines the appropriate classification of debt
               securities at the time of purchase and reevaluates such
               designation as of each balance sheet date. Currently all debt
               securities are classified as available-for-sale, as the Company
               intends to sell such securities as necessary to fund operations.
               Such securities are recorded at market value, with unrealized
               gains/losses being recorded in other comprehensive income.

                                      F-9

<PAGE>

               During the year ended December 31, 2001, unrealized losses
               amounted to $29,000 which have been reported in the balance sheet
               and statement of stockholders' deficiency. Long-term investments
               are recorded at market value as determined by the most recently
               traded price of each security at the balance sheet date. When
               securities are sold, the investment account is relieved by use of
               the specific identification method.

               Property, Plant And Equipment

               Property, plant 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, 3-5 years
               for office furniture and equipment and 18 years for the building
               acquired under a capital lease. Leasehold improvements are
               amortized over the shorter of their estimated useful lives or the
               term of the lease. Included in depreciation expense is the
               amortization of assets acquired under capital leases.

               The Company reviews the recoverability of its long-lived assets,
               as required by Statement of Financial Accounting Standards
               ("SFAS") No. 121, Accounting for the Impairment of Long-Lived
               Assets and for Long-Lived Assets to be Disposed Of whenever
               significant events or changes occur which might impair the
               recovery of recorded costs. The measurement of possible
               impairment is either based upon significant losses or on the
               inability to recover the balance of the long-lived asset from
               expected future operating cash flows on an undiscounted basis. If
               an impairment exists, the amount of such impairment is calculated
               based upon the discounted cash flows or the market values as
               compared to the recorded costs.

               Income Taxes

               Income taxes are accounted for under an asset and liability
               approach that requires the recognition of deferred tax assets and
               liabilities for the expected future tax consequences of events
               that have been recognized in the Company's financial statements
               or tax returns. A valuation allowance is established to reduce
               deferred tax assets if it is more likely than not that all or
               some portion of such deferred tax assets will not be realized.

               Deferred Revenue

               Deferred revenue represents advance deposits from customers which
               were paid when the sales order was signed. The Company will
               record these deposits as revenue once the Company has obtained
               its production certificate and commences production of the
               JETCRUZER 500.

               Stock-Based Compensation

               The Company grants stock options with an exercise price equal to
               at least the fair value of the stock at the date of grant. The
               Company has elected to continue to account for its employee
               stock- based compensation plans using an intrinsic value based
               method of accounting prescribed by Accounting Principles Board
               Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
               25) and related Interpretations. Under APB 25, because the
               exercise price of the Company's employee stock options equal or
               exceeds the market price of the underlying stock on the date of
               grant, no compensation expense is recognized.

               Accounting Estimates

               The preparation of financial statements in conformity with
               accounting principles generally accepted in the United States
               requires management to make estimates and assumptions that affect
               the reported amounts of assets and liabilities and disclosure of
               contingent assets and liabilities at the date of the financial
               statements and the reported amounts of revenues and expenses
               during the reporting period. Actual results could differ from
               those estimates.

                                      F-10

<PAGE>

               Accounting Pronouncements

               Impact of Recently Issued Accounting Standards

               In June 2001, the Financial Accounting Standards Board ("FASB")
               issued SFAS No. 141, Business Combinations and SFAS No. 142,
               Goodwill and Other Intangible Assets. SFAS No. 141 is effective
               for any business combinations completed after June 30, 2001 and
               SFAS No. 142 is effective for fiscal years beginning after
               December 15, 2001. Under the new rules, goodwill deemed to have
               indefinite lives will no longer be amortized but will be subject
               to annual impairment tests in accordance with the Statements.
               Other intangible assets will continue to be amortized over their
               useful lives.

               The Company expects to adopt the provisions of SFAS No. 141 and
               SFAS No. 142 on January 1, 2002 and has not yet determined what
               the effect of the adoption of these pronouncements will be on the
               earnings and financial position of the Company.

               In October 2001, the FASB issued SFAS No. 144, Accounting for the
               Impairment or Disposal of Long-Lived Assets, which supersedes
               SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
               and for Long-Lived Assets to be Disposed Of. SFAS No. 144
               addresses financial accounting and reporting for the impairment
               of long-lived assets and for long-lived assets to be disposed of.
               However, SFAS No. 144 retains certain fundamental provisions of
               SFAS No. 121 including recognition and measurement of the
               impairment of long-lived assets to be held and used; and
               measurement of long-lived assets to be disposed of by sale. SFAS
               No. 144 is effective for fiscal years beginning after December
               15, 2001. The Company expects to adopt SFAS No. 144 on January 1,
               2002 and is in the process of assessing the effect of adopting
               this pronouncement.

               Reclassifications

               Certain reclassifications have been made to the 2000 balances to
               conform to the 2001 presentation.

         4.  CONVERTIBLE DEBENTURES

               On March 27, 2001, the Company obtained new financing of up to
               $5,000,000, with an availability of up to an additional
               $3,000,000. The additional amount becomes available after certain
               criteria have been met, as defined in the agreement. The Company
               issued $4,100,000 in Secured Convertible Notes ("Notes" or
               "Debentures") with an interest rate of 5% to accredited
               investors, as defined by Regulation D rules issued by the
               Securities and Exchange Commission under the Securities Act of
               1933. On July 25, 2001, the Company issued an additional
               $1,000,000 in Notes under this agreement. In conjunction with the
               financing, the Company issued an additional $410,000 in Secured
               Convertible Notes as finders fees. As part of the agreement the
               Company also issued warrants to purchase 10,254,000 shares of
               Common stock at an exercise price ranging from approximately $.24
               to $.45 per share. The Company filed a proxy statement and Form
               S-3 Registration Statement as required by the terms of the
               agreement. There is a mandatory redemption requirement at 125% of
               the unpaid principal balance and unpaid interest upon the
               occurrence of default or if the Company is prohibited from
               issuing shares of common stock. Additionally, the Company may put
               the additional notes to the note holders upon meeting certain
               covenants related to the availability of trading of the stock,
               trading volume and market price and other milestones.

               At December 31, 2001, the Company was in default on one of the
               covenants of the agreement for failure to pay accrued interest on
               the notes within 10 days of December 31, 2001. Due to the
               default, the Company is required to accrue the interest due at
               10%. In accordance with the agreement, the Company has accrued
               approximately $242,000 in interest due these note holders at

                                      F-11

<PAGE>

               December 31, 2001. The Company has not obtained waivers from the
               note holders waiving their right to call the notes due or the
               payment of outstanding interest, nor has any note holder elected
               to redeem their notes outstanding according to the terms of the
               Subscription Agreement. Due to the event of default, the Company
               has recorded all notes outstanding as a current liability in the
               Balance Sheet.

               The debentures were issued with various stated conversion prices,
               which resulted in a beneficial conversion feature since the
               effective conversion price was below market at the time of the
               issuances. The discount of $3,345,000, which resulted from these
               transactions, will be amortized over the life of the debentures.
               During the current year, $1,356,000 was amortized to interest
               expense, due to the passage of time and conversions into shares
               of Common Stock.

               On June 27, 2001, the Company obtained new financing of
               $1,000,000, which is separate from that of March 27, 2001,
               described above. The Company issued $1,000,000 in a Convertible
               Note (or "Debenture") with an interest rate of 5% to an
               accredited investor, as defined by Regulation D rules issued by
               the Securities and Exchange Commission under the Securities Act
               of 1933. As part of the agreement, the Company issued warrants to
               purchase 2,646,000 shares of common stock at a purchase price of
               $.22 per share. There is a mandatory redemption requirement at
               125% of the unpaid principal balance and unpaid interest upon the
               occurrence of default or if the Company is prohibited from
               issuing shares of common stock. The Company did not register the
               shares issuable upon conversion within 30 days of the closing
               date which is a non-registration event pursuant to Section 10.4
               of the Subscription Agreement. In accordance with the Section,
               the Company has accrued $115,000 representing liquidation damages
               due to the note holder as a result of the non-registration event.
               Such damages are calculated at an amount equal to 1% of the
               principal amount issued per 30 days or part thereof, and 2% for
               each 30 days or part thereof, during the pendency of the
               non-registration event.

               The debenture was issued with various stated conversion prices,
               which resulted in a beneficial conversion feature since the
               effective conversion price was below market at the time of the
               issuance. The discount of $351,000, which resulted from this
               transaction, will be amortized over the life of the debenture.
               During the current year approximately $36,000 was amortized to
               interest expense. No notes issued under this agreement were
               converted in 2001.

               At December 31, 2001, the Company was in default on one of the
               covenants of the June 27, 2001 agreement for failure to pay
               accrued interest on the notes within 10 days of December 31,
               2001. Due to the default, the Company is required to accrue the
               interest due at 10%. In accordance with the agreement, the
               Company has accrued approximately $52,000 in interest due the
               note holders at December 31, 2001. The Company has not obtained a
               waiver from the note holder waiving his right to call the notes
               due or the payment of the outstanding interest, nor has the note
               holder elected to redeem his notes outstanding according to the
               terms of the Subscription Agreement. Due to the event of default,
               the Company has recorded this note outstanding as a current
               liability in the Balance Sheet.

               On October 26, 2001, the Company obtained new financing of up to
               $10,000,000 with an availability of up to an additional
               $3,000,000, as part of a private placement offering, which is
               separate from that of March 27, 2001 and June 27, 2001. The
               Company issued $7,750,000 in Secured Convertible Notes (or
               "debentures") with an interest rate of 8% to accredited
               investors, as defined by Regulation D rules issued by the
               Securities and Exchange Commission under the Securities Act of
               1933. In conjunction with the financing, the Company issued an
               additional $667,000 in Secured Convertible Notes as finders fees.
               As part of the agreement, the Company issued warrants to purchase
               17,714,000 shares of Common stock. Half of the warrants may be
               exercised at a purchase price of $.25 per share. The other 50%
               may be exercised at $.30 per share. There is a mandatory
               redemption requirement at 125% of the unpaid principal balance
               and unpaid interest upon the occurrence of default or if the
               Company is prohibited from issuing shares of Common stock. The
               Company did not register the shares issuable upon conversion
               within 60 days

                                      F-12

<PAGE>

               of the closing date, which is a non-registration event pursuant
               to Section 10.4 of the Subscription Agreement. In accordance with
               the Section, the Company has accrued $292,000 representing
               liquidation damages due to the note holders as a result of the
               non-registration event. Such damages are calculated at an amount
               equal to 1% of the principal amount issued per 30 days, for the
               first 30 days or part thereof, and 2% for each 30 days or part
               thereof, during the pendency of the non-registration event. The
               Company has recorded the debentures as a current liability.

               In conjunction with the October 26, 2001 private placement, the
               Company entered into a Put Agreement with a group of its
               investors who hold Convertible Notes and Preferred Stock. Under
               the Put Agreement, the Company may sell up to an additional
               $5,000,000 in Convertible Notes and warrants. The Company's right
               to exercise this option expires October 25, 2002.

               The debentures were issued with various stated conversion prices,
               which resulted in a beneficial conversion feature since the
               conversion price was below market at the time of issuance. The
               discount of $5,936,000, which resulted from this transaction,
               will be amortized over the life of the debentures. During the
               current year approximately $210,000 was amortized to interest
               expense due to the passage of time. No notes issued under this
               agreement were converted in 2001. The Company has accrued
               approximately $122,000 in interest at 8% due to the note holders
               at December 31, 2001.

               As of December 31, 2001, various note holders converted a total
               of $2,195,000 of convertible debentures into 14,961,000 shares of
               Class A Common Stock.

               Contractual future repayments of convertible debentures as of
               December 31, 2001 are as follows:

                 2002                                       $    462,000
                 2003                                                 --
                 2004                                          2,879,000
                 2005                                                 --
                 2006                                          9,417,000
                                                            --------------
                                                              12,758,000
                 Less discount on convertible debentures     (11,518,000)
                                                            --------------
                 Convertible debentures, net                $  1,240,000
                                                            ==============

               However, due to the events of default and non-registration events
               previously noted, all notes outstanding have been recorded as a
               current liability.

         5.  PROPERTY, PLANT AND EQUIPMENT

               Property, plant and equipment, net consist of the following:

                Building                                     $13,000,000
                Office furniture and equipment                 1,228,000
                Machinery and equipment                        1,616,000
                                                           --------------
                Gross property and equipment                  15,844,000
                Accumulated depreciation and amortization     (3,685,000)
                                                           --------------
                Property, plant, and equipment               $12,159,000
                                                           ==============

               The Company purchased computer equipment amounting to $814,000
               with a note payable and stated interest at 15.45% which is
               payable monthly. Principal payments amount to $68,000 a month
               through June 2002.

               As described in Note 9, the building is held under a capital
               lease. In addition, included in office furniture and equipment
               and machinery and equipment are assets acquired under capital
               leases in the amount of $306,000 and $39,000, respectively, net
               of $286,000 and $12,000 of accumulated depreciation,
               respectively. The Company did not capitalize any interest during
               the year ended December 31, 2001.

                                      F-13

<PAGE>

         6.  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, 2001 are
               as follows:

                Deferred tax assets:
                Federal net operating loss        $ 26,407,000
                State net operating loss             2,797,000
                Research & development credits       1,978,000
                Other                                  189,000
                                                 -----------------
                Total deferred tax assets           31,371,000

                Valuation allowance                (31,371,000)
                                                 -----------------
                                                  $         --
                                                 =================

               At December 31, 2001, the Company had Federal and California
               state net operating loss ("NOL") carryforwards of approximately
               $76,774,000 and $29,240,000, respectively, Federal NOLs could, if
               unused, expire in varying amounts in the years 2012 through 2021.
               California NOLs, if unused, could expire in varying amounts from
               2002 through 2011.

               At December 31, 2001, the Company had Federal and California
               research and development ("R&D") credit carryforwards of
               approximately $1,356,000 and $542,000, respectively. The Federal
               R&D credit carryforwards will expire beginning in 2004. The
               California R&D credit carryforwards can be carried forward
               indefinitely.

               The provision for income taxes are as follows:

                                                     December 31,   December 31,
                                                        2000           2001
                                                    -------------  -------------
                Deferred:
                  Federal                           $(3,834,000)   $(6,950,000)
                  State                                (416,000)      (987,000)
                                                    -------------  -------------
                    Total deferred                   (4,250,000)    (7,937,000)
                Increase in valuation allowance       4,250,000      7,937,000
                                                    -------------  -------------
                                                    $        --    $        --
                                                    =============  =============

               Utilization of the net operating loss and tax credit
               carryforwards will be subject to an annual limitation if a change
               in the Company's ownership should occur as defined by Section 382
               and Section 383 of the Internal Revenue Code.

               As a result of the Company's operating losses, no income tax
               provision has been recorded in 2000 and 2001.

         7.  LONG-TERM INVESTMENTS

               At December 31, 2001, all long-term investments were classified
               as available-for-sale and were U.S. government debt securities.
               These investments were recorded at fair value. Unrealized losses
               relating to the securities totaled $29,000 during the year ended
               December 31, 2001, and have been included in Accumulated Other
               Comprehensive Loss on the face of the Statement of Stockholders'
               Deficiency.

                                      F-14

<PAGE>

               The contractual maturities of debt securities at December 31,
               2001 are as follows:

                                                           Fair Value
                                                         --------------
               Due in one year or less                     $1,363,000
               Due after one through five years                   --
               Due five through 10 years                      136,000
               Due after 10 years                             425,000
                                                         --------------
                                                           $1,924,000
                                                         ==============


         8.  RELATED PARTY TRANSACTIONS

               In 1995 and through August 1996, an officer of the Company made
               loans to the Company in the aggregate principal amount of
               $562,000 bearing interest at 12% per annum. In May 1996, $336,000
               of such loans were converted into 187,118 shares of Class B
               Common Stock and 374,236 shares each of Class E-1 and Class E-2
               Common Stock. The remaining $226,000 principal amount of these
               loans, together with accrued interest of $36,000, was repaid with
               the proceeds of bridge notes.

               On December 23, 1993, the Company entered into an agreement with
               a stockholder to convert advances from such stockholder
               aggregating $10,478,000 at that date into 584,074 shares of Class
               B Common Stock, and 1,168,148 shares each of Class E-1 and Class
               E-2 Common Stock. The Company issued these shares in June 1996.
               Interest expense was not recorded on these advances subsequent to
               December 23, 1993 due to the intent to convert the advances into
               stockholders' equity. In 1994, the stockholder provided
               additional advances aggregating $250,000, which were converted
               into 13,937 shares of Class B Common Stock and 27,873 shares each
               of Class E-1 and Class E-2 Common Stock in June 1996. Based on
               prevailing market rates, imputed interest of $11,000 in 1996, and
               $810,000 for the period from January 26, 1990 (inception) to
               December 31, 1996 on the advances was charged to expense and
               credited to additional paid-in capital.

               In May 1996, the Company entered into an employment agreement
               with the Company's President, which extends to April 30, 2004 and
               provides for an annual salary of $200,000. If the employment
               agreement is terminated by the Company without cause, the
               President may be entitled to receive up to eighteen months'
               salary as severance payment. In consideration of the termination
               of a previous employment agreement the Company issued 577,823,
               1,155,647 and 1,155,647 shares of Class B, Class E-1 and Class
               E-2 common stock, respectively, to the Company's President. In
               February 2002, the Company entered into a severance agreement
               with the Company's President who resigned effective January 8,
               2002. Based upon the terms of the severance package, the
               President will receive a total of $300,000 paid out through
               2004.

               Also in May 1996, an officer of the Company was awarded 17,460
               shares of Class B Common Stock and 34,919 shares each of Class
               E-1 and Class E-2 Common Stock for services rendered.
               Compensation cost of $31,000 was charged to expense in 1996 based
               on the fair value of the stock awarded by reference to an
               independent appraisal.

               In March 2001, we entered into a consulting agreement to issue a
               6% nondilutable interest in the Company to a group of
               consultants, three of whom later became members of our Board of
               Directors. We issued 845,678 shares of Class A Common Stock at
               that time with a fair value of $344,000 in exchange for
               consulting services provided. In October 2001, this agreement was
               amended to increase the nondilutable interest in the Company to
               be issued to the consultants to 12%.

               In addition, one member of the Board of Directors is also an
               investor in one of the convertible debenture agreements discussed
               in Note 4, and at December 31, 2001 held notes in the principal
               amount of $360,000.


                                      F-15

<PAGE>

         9.  COMMITMENTS AND CONTINGENCIES

               In the ordinary course of business, the Company is generally
               subject to claims, complaints, and legal actions. At December 31,
               2001, the Company is not a party to any action which would have a
               material impact on its financial condition, operations, or cash
               flows.

               The Company leases approximately 10 acres of land located on the
               Long Beach Airport in Long Beach, California. The lease commenced
               on January 14, 1998 and has a term of 30 years with an option to
               renew for an additional 10 year term. The lease also contains
               options to lease other airport properties. The lease contains
               incremental increases which escalate the monthly rent to
               approximately $15,600 after 5 years. The aggregate minimum
               payments under the lease have been included in the table below.

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

               Effective January 1, 2001, the lessor of the building amended the
               payment terms of the lease to include escalating payments through
               June 1, 2008, after which the payments escalate according to
               Consumer Price Index (CPI) increases. As a result of the change
               in payment terms, the cost of the building and the capital lease
               obligation were increased by $3,200,000, increasing the cost
               value of the building to $13,000,000, which approximated fair
               value at the time of the amendment. As the fair value was less
               than the present value of the amended future minimum lease
               payments, the total amount recorded including this adjustment was
               limited to the fair value of the building, as required by SFAS
               No. 13, Accounting for Leases.

               During 2000, the Company entered into a capital lease agreement
               for a new computer system. As required under the agreement, the
               Company purchased certificates of deposit amounting to $405,000.
               These certificates are being used as collateral under the lease,
               and as such, have been recorded as restricted cash in the
               accompanying financial statements.

               Future minimum lease payments applicable to non-cancelable
               operating leases and capital leases as of December 31, 2001, are
               as follows:

<TABLE>
<CAPTION>

                                                                      CAPITAL           OPERATING
                                                                       LEASES             LEASES
                                                                   --------------------------------
                <S>                                                 <C>                <C>
                2002                                                 $1,636,000          $189,000
                2003                                                  1,744,000           187,000
                2004                                                  1,882,000           187,000
                2005                                                  2,051,000           187,000
                2006                                                  2,298,000           187,000
                Thereafter                                           28,407,000         3,948,000
                                                                   --------------------------------
                Net future minimum lease payments                    38,018,000        $4,885,000
                                                                                     ==============
                Amount representing interest                        (25,010,000)
                                                                   --------------
                Present value of minimum lease payments              13,008,000
                Less amount representing the current portion           (158,000)
                                                                   --------------
                                                                    $12,850,000
                                                                   ==============
</TABLE>


                                      F-16

<PAGE>

               The Company incurred rent expense of $180,000 and $173,000, for
               the years ended December 31, 2000 and 2001, respectively.

         10. STOCKHOLDERS' EQUITY

               Upon formation of AASI, an aircraft prototype and related
               proprietary technology were contributed by Aerodynamics and
               Structures, Inc. ("ASI") in exchange for 2,500,764 AASI common
               shares with a fair value of $250,000. In connection with this
               exchange, the Company also assumed ASI's liabilities of
               approximately $400,000. Three other individuals contributed
               technical information in exchange for 1,113,740 AASI common
               shares with a fair value of $111,000. Such technology and
               prototype acquired were immediately expensed as in-process
               research and development. Finally, certain investors contributed
               $7,500,000 in cash in exchange for 7,500,000 shares of
               convertible preferred stock of AASI. ASI was subsequently
               liquidated and its sole asset, investment in AASI common shares,
               was distributed to ASI's stockholders. Upon reincorporation of
               the Company, the Company's aforementioned common and preferred
               shares were converted into approximately 619,588, 1,239,177 and
               1,239,177 shares, respectively, of Class B, Class E-1 and Class
               E-2 Common Stock.

               During 1996 the Company successfully completed its initial public
               offering of 6,900,000 units including exercise of the over
               allotment option. Each unit sold is composed of one share of
               Class A common stock, one class A warrant and one class B
               warrant. The net proceeds of the offering of $30,411,000 were
               used to finance the continued development, manufacture and
               marketing of its product to achieve commercial viability.
               Additionally, in February of 1998 a shareholder of the Company
               converted 99,676 shares of Class B common Stock to 99,676 shares
               of Class A Common Stock. The conversion resulted in an increase
               in Class A Common Stock to 6,999,676 and a decrease in the number
               of outstanding shares of Class B Common Stock to 1,900,324.

               The rights and privileges of holders of Class A, Class B, Class
               E-1 and Class E-2 Common Stock are substantially the same on a
               share-for-share basis, except that: (i) the holder of each
               outstanding share of Class A Common Stock is entitled to one vote
               and the holder of each outstanding share of Class B, Class E-1
               and Class E-2 Common Stock is entitled to five votes; and (ii)
               Class B Common Stock cannot be transferred or sold for thirteen
               months following the effective date of the initial public
               offering, after which time the Class B Common Stock may be
               converted at any time at the option of the holder into one share
               of Class A Common Stock.

               All shares of Class E-1 and Class E-2 Common Stock ("Performance
               Shares") are not transferable or assignable and may be converted
               into shares of Class B Common Stock in the event income before
               provision for income taxes, exclusive of any extraordinary
               earnings or losses, reaches certain targets over the next seven
               years, or if the market price of the Class A Common Stock reaches
               specified levels over the next three years. With respect to
               targeted earnings, Class E-1 Common Stock shares may be converted
               if pretax income exceeds $45.0 million in 2002 and $56.0 million
               in 2003. Class E-2 Common Stock shares may be converted if pretax
               income exceeds, $56.3 million in 2002 or $69.5 million in 2003.
               With respect to market price levels, the Class E-1 Common Stock
               shares may be converted if, commencing 18 months after December
               3, 1996 and ending 36 months thereafter, the bid price of the
               Company's Class A Common Stock averages $18.50 per share for 30
               consecutive business days. Class E-2 Common Stock shares may be
               converted if commencing 18 months after December 3, 1996 and
               ending 36 months thereafter, the bid price of the Company's Class
               A Common Stock averages in excess of $23.00 for 30 consecutive
               business days. All Performance Shares that have not been
               converted by March 31, 2004 may be redeemed by the Company for
               $.01 per share. For accounting purposes, the Performance Shares
               are treated in a manner similar to a variable stock option award.
               As a consequence, a compensation charge will be recorded in an
               amount equal to the then fair value of any Performance Shares
               that are ultimately converted into Class B Common Stock.


                                      F-17

<PAGE>

               Upon the closing of the Initial Public Offering, the Company
               granted to the Underwriter A Unit Purchase Option to purchase up
               to 600,000 Units and previously issued bridge warrants were
               converted into one Class A Warrant ("Public Warrant") which is
               identical in all respects to the Class A Warrant. The fair value
               of the Bridge Warrants ($473,000), together with the cost of
               issuance (approximately $805,000), has been treated as additional
               interest expense over the term of the Bridge Notes. The Units
               issuable upon exercise of the Unit Purchase Option will, when so
               issued, be identical to the Units. The Unit Purchase Option
               cannot be transferred, sold, assigned or hypothecated for three
               years, except to any officer of the Underwriter or member of the
               selling group or their officers. The Unit Purchase Option is
               exercisable during the two-year period commencing three years
               from December 6, 1996 at an exercise price of $6.50 per Unit
               (130% of the initial public offering price) subject to adjustment
               under certain circumstances. The holders of the Unit Purchase
               Option have certain demand and piggyback registration rights.

               The Class A Warrants issued in connection with the Company's
               initial public offering in 1996, entitle the holder to purchase
               one share of Class A Common Stock and one Class B Warrant. Each
               Class B Warrant entitles the holder to purchase one share of
               Class A Common Stock. Class A Warrants and Class B Warrants may
               be exercised at an exercise price of $6.50 and $8.75,
               respectively, at anytime. The warrants originally expired on
               December 3, 2001, but have been extended through May 31, 2002.
               Currently Class A Warrants are subject to redemption by the
               Company, upon 30 days written notice, at a price of $.05 per
               Warrant, if the average closing bid price of the Class A Common
               Stock for any 30 consecutive trading days ending within 15 days
               of the date on which the notice of redemption is given shall have
               exceeded $12.00 per share. Currently Class B Warrants are subject
               to redemption by the Company upon 30 days' written notice, at a
               price of $.05 per warrant, if the average closing bid price of
               the Class A Common Stock for any 30 consecutive trading days
               ending within 15 days of the date on which the notice of
               redemption is given shall exceed $15.00 per share.

               Preferred Stock

               As of December 31, 2001, the Company received $8,265,000 in net
               cash proceeds related to a preferred stock agreement to issue up
               to 100,000 shares of 5% Cumulative Convertible Series A Preferred
               Stock ("Preferred Stock") with a stated value of $100 per share
               and Common Stock Purchase Warrants to purchase Class A Common
               Stock, for the aggregated purchase price of $10 million. The
               Company issued 91,085 shares of Preferred Stock with a stated
               value of $9,108,500 and detachable warrants to purchase 1,082,000
               shares of common stock and paid $843,000 in commissions and legal
               fees. Of the total amount issued to date, 11,285 shares of
               Preferred Stock with a stated value of $1,128,500, and detachable
               warrants to purchase 128,310 shares of common stock were issued
               during the year ended December 31, 2001. The remaining $891,500
               in Preferred Stock funding will not occur until certain criteria
               have been met.

               Additionally, as consideration for the transaction, placement
               warrants to purchase up to 1,688,000 shares of Class A Common
               Stock were issued. Of the amount issued to date, 926,000 were
               issued in the year ended December 31, 2001. Fair values of
               $1,231,000 and $987,000 for the detachable warrants and the
               placement warrants, respectively, were included in stockholders'
               deficiency and were netted as a discount to the Preferred Stock.
               The warrants are exercisable in installments and the terms for
               the placement warrants are similar to the terms of the detachable
               warrants issued with the Preferred Stock. The fair value for
               these warrants was estimated at the dates of grant using a
               Black-Scholes pricing model with the following weighted-average
               assumptions: risk-free interest rates of 4.68% to 6.43%; dividend
               yields of 0%; a volatility factor of .566 to .915 and an expected
               life of the warrants of 3 years.

               The Preferred Stock was issued with various conversion prices.
               This resulted in a beneficial conversion feature since the
               effective conversion price was below market at the time of the
               issuance. The discount on the Preferred Stock of $536,000 was
               immediately amortized to Accumulated Deficit, as the preferred
               stockholders were able to convert to common stock immediately
               upon issuance of the Preferred Stock. Of the total amount
               amortized, $194,000 was amortized in the year ended December 31,
               2001.


                                      F-18

<PAGE>

               Holders of the Preferred Stock are entitled to receive cash
               dividends, payable quarterly and have preferential liquidation
               rights above all other issuances of Common Stock for an amount
               equal to the stated value. The Preferred Stock and unpaid
               dividends are convertible into shares of Common Stock equal to an
               amount determined by the market value at the date of close of the
               common stock, adjusted for changes in the market price prior to
               the conversion. The preferred stockholder does not have voting
               rights. As of December 31, 2001, the Company has dividends in
               arrears for the Preferred Stock totaling $336,000 or $7.20 per
               share.

               As of December 31, 2001, various preferred stockholders converted
               a total of 44,000 shares plus dividends in arrears into
               16,825,000 shares of Class A Common Stock. No warrants have been
               exercised as of December 31, 2001.

               Equity Line Of Credit

               On August 15, 2000, the Company signed a Private Equity Line of
               Credit Agreement ("Equity Line") to sell up to $20,000,000 of
               Common stock over the course of two years. This Equity Line
               enables the Company to request, at the Company's sole discretion,
               that the investors purchase certain amounts of shares every 15
               days at a price equal to 92% or 93% of the market price. Each
               request will be for a minimum of $200,000 and subject to a
               maximum of $1,500,000. Additional drawings on this Equity Line
               are dependent upon stock market conditions. The Company sold a
               total of 5,707,000 shares under the Equity Agreements with a
               total net proceeds of $2,393,000, of which 4,455,000 shares under
               the Equity Agreement were sold for net cash proceeds of
               $1,172,000 as of December 31, 2001.

               In connection with the Equity Line transactions, warrants to
               purchase 4,269,000 shares of Common Stock over the next three
               years, at a stock price as defined in each agreement, were
               issued. The fair value related to these warrants of $632,000 has
               been included in stockholders' equity and no warrants have been
               exercised as of December 31, 2001. The fair value of these
               warrants was estimated on the date of issuance using a
               Black-Scholes pricing model with the following weighted average
               assumptions:

<TABLE>
<CAPTION>

                 Transaction                        Risk-Free   Dividend   Volatility   Expected
                    Date           Exercise Price    Interest     Yield      Factor       Life
                 ---------------   --------------- ----------- ---------- ------------ ----------
                 <S>                 <C>               <C>         <C>        <C>           <C>
                 August 15, 2000     $3.15             6.12%       0%         .855          3
                 May 1, 2001         $.32-$1.20        4.68%       0%         .915          3
</TABLE>

               The Company has reserved approximately 182,000,000 shares of
               Class A Common Stock for future issuance for the following
               conversions: 1,900,000 shares issuable upon the conversion of
               Class B Common Stock currently outstanding; 8,000,000 shares
               issuable upon the conversion of Class E Common Stock; 27,700,000
               shares issuable upon the exercise of purchase warrants; 4,000,000
               shares issuable under the Stock Option Plan, 20,282,000 shares
               issuable upon conversion of the outstanding Preferred Stock,
               33,386,000 shares issuable upon the exercise of the detachable
               warrants and placements warrants, 4,269,000 shares issuable upon
               the exercise or warrants issued in connection with the Equity
               Line and 82,538,000 shares issuable upon conversion of the
               outstanding Convertible Debentures.



                                      F-19

<PAGE>

         11. STOCK OPTIONS

               In July 1996, the Company's Board of Directors approved the Stock
               Option Plan (the "Plan"). The Plan provides for the grant of
               incentive and non-qualified stock options to certain employees,
               officers, directors, consultants, and agents of the Company.
               Under the 1996 Stock Option Plan, the Company may grant options
               with respect to a total of 500,000 shares of Class A Common
               Stock. Subsequent Stock Option Plans were approved in 1998 and
               2000, authorizing the Company to grant additional options for up
               to 2,000,000 shares of Class A Common Stock. Options under the
               1996, 1998 and 2000 Plans are to be granted at not less than fair
               market value, vest in equal annual installments over five years
               and may be exercised for a period of one to 10 years as
               determined by the Board of Directors.

               In April 2001, the Board of Directors approved the 2001 Stock
               Option Plan (the "2001 Plan"). Under the 2001 Plan, the Company
               may grant options with respect to a total of 1,500,000 shares of
               Class A Common Stock. Options under the 2001 Plan are to be
               granted at not less than fair market value, vest in equal annual
               installments over four years and may be exercised for a period of
               one to 10 years as determined by the Board of Directors.

               Transactions under the Stock Option Plans during the year ended
               December 31, 2000 and 2001 are summarized as follows:


                                                                    WEIGHTED
                                                                AVERAGE EXERCISE
                                                       SHARES        PRICE
                                                    ---------- -----------------
                Outstanding at December 31, 1999      588,000        $5.00
                Granted                                  --            --
                Exercised                                --            --
                Canceled                              (74,000)       $5.00
                                                    ----------
                Outstanding at December 31, 2000      514,000        $5.00
                Granted                               878,000        $ .50
                Exercised                                --            --
                Canceled                              (70,000)       $2.43
                                                    ---------- -----------------
                Outstanding at December 31, 2001    1,322,000        $2.15

               The weighted average fair value of options granted during 2001
               was $0.23, per option. The weighted average exercise price for
               2000 and 2001 was $5.00 and $0.50, respectively. The weighted
               average remaining contractual life of options outstanding is 7.06
               years and 8.06 years for 2000 and 2001, respectively. As of
               December 31, 2000 and 2001, 268,000 and 570,500 options were
               exercisable at a weighted average exercise price of $5.00 per
               option. At December 31, 2001, options to purchase 2,297,000
               shares of Class A Common Stock were available for future grants
               under the 1996, 1998, 2000 and 2001 Plans.

               If the Company had elected to recognize compensation cost based
               on the fair value of the options granted at the grant date as
               prescribed by SFAS No. 123, net loss and net loss per share would
               have been increased to the pro forma amounts shown below:

                                                    Years Ended December 31,
                                               ---------------------------------
                                                     2000               2001
                                               ---------------   ---------------
                Pro forma net loss              $(10,936,000)      $(21,365,000)
                Pro forma net loss per share      $(1.24)            $(0.71)


                                      F-20

<PAGE>

               The fair value for these options was estimated at the date of
               grant using a Black-Scholes option pricing model with the
               following weighted-average assumptions: risk-free interest rates
               of 6.81% and 4.89% for 2000 and 2001, respectively, dividend
               yields of 0% for 2000 and 2001; volatility factors of the
               expected market price of the Company's common stock of .863 and
               .915 for 2000 and 2001, respectively, and a weighted average
               expected life of the option of 10 years and 4 years for 2000 and
               2001, respectively.

               The Black-Scholes option valuation model was developed for use in
               estimating the fair value of traded options which have no vesting
               restrictions and are fully transferable. In addition, option
               valuation models require the input of highly subjective
               assumptions including the expected stock price volatility.
               Because the Company's employee stock options have characteristics
               significantly different from those of traded options, and because
               changes in the subjective input assumptions can materially affect
               the fair value estimate, in management's opinion, the existing
               models do not necessarily provide a reliable single measure of
               the fair value of employee stock options.

         12. NON-RECURRING EXPENSES

               During the fourth quarter of fiscal 2001, the Company recorded
               approximately $3,823,000 of non-recurring expenses. These
               expenses were primarily the result of: a write-off of capitalized
               tooling costs of approximately $2,082,000; a write-off of
               capitalized engineering software of approximately $723,000; and
               an accrual of approximately $1,018,000 related to commitments to
               purchase special orders from certain vendors. The Company
               believes the capitalized tooling and engineering software have no
               future use to the Company due to the change in the Company's
               business strategy and the re-design of its major product, the
               JETCRUZER 500. The accrual to vendors represents costs incurred
               by vendors in the production of items specifically related to the
               JETCRUZER 500 with no alternative saleable value to the vendors.

         13. INDUSTRIAL DEVELOPMENT BONDS

               On August 5, 1997, the Company entered into a loan agreement in
               connection with industrial development bonds (IDB) issued by the
               California Economic Development financing Authority. The Company
               has established in the trustee's favor a bank letter of credit
               for the principle amount of $8,500,000 plus 45 days accrued
               interest on the bonds, which is secured by $8,500,000 of Company
               restricted cash. The bonds mature August 1, 2027 at which time
               all outstanding amounts become due and payable. The Company has
               used the proceeds for the IDBs to finance the construction and
               installation of the 200,000 square foot manufacturing facility
               and related manufacturing equipment which the Company moved into
               on November 16, 1998. On June 1, 1999, the Company retired all
               the industrial development bonds using the restricted cash
               previously held as security for the IDB.

         14. BENEFIT PLAN

               The Company has a 401(k) savings plan with a profit sharing
               provision, covering substantially all full time employees. The
               Company may make discretionary contributions to the Plan as
               authorized by the Board of Directors. The Company has not made
               any profit sharing contributions to the Plan.

         15. PER SHARE INFORMATION

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

                                      F-21

<PAGE>
<TABLE>
<CAPTION>

                                                                               2000            2001
                                                                      ---------------- -----------------
                      <S>                                             <C>              <C>
                      Numerator
                      Loss before extraordinary item                    $(10,715,000)     $(21,164,000)
                      Amortization of Discount on Preferred Stock           (620,000)         (361,000)
                      Dividend in Arrears                                   (246,000)         (336,000)
                                                                      ---------------- -----------------
                      Numerator for basic loss per share                $(11,581,000)     $(21,861,000)
                                                                      ================ =================
                      Denominator
                      Weighted average shares of Class B Shares            1,900,000         1,900,000
                      Weighted average shares of Class A Shares            7,268,000        28,110,000
                                                                      ---------------- -----------------
                      Denominator for basic loss per share                 9,168,000        30,010,000
                                                                      ---------------- -----------------
                      Basic loss per share                                    $(1.26)           $(0.73)
                                                                      ================ =================


</TABLE>

         16. SUBSEQUENT EVENTS

               On February 6, 2002 the U.S. Bankruptcy Court in San Antonio,
               Texas, approved an operating agreement, which allows the Company
               to manage Mooney while a plan of reorganization was prepared for
               approval. Mooney has operated under the protection of Chapter 11
               bankruptcy since July 2001.

               On February 8, 2002, the Company purchased Congress Financial
               Corporations position (the "Congress Position") as senior secured
               creditor for Mooney. 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 Congress Corporation. 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
               Corporation a Limited Recourse Secured Promissory Note for
               $5,700,000. This note is a contingent note, payable only in the
               event that the Company defaults under the terms of the original
               acquisition notes.

               On March 18, 2002, the bankruptcy courts approved the sale of
               Mooney's assets to the Company, which is expected to close in
               April 2002. Mooney produces top of the line, single engine piston
               airplanes including the Eagle, the Ovation2, and the Bravo, which
               are the performance leaders in the four-passenger single engine
               aircraft market. For over 50 years, the Company has produced high
               performance piston aircraft, which are considered by many to be
               the "best of breed" in the owner-flown aircraft market. There are
               more than 10,000 Mooney aircraft in operation around the world.

               Additionally, the Company has entered into discussions with
               Century Aerospace Corporation concerning acquisition of the
               rights to manufacture the Century Jet, one of the exciting new
               entrants in the "micro-jet" market. The Century Jet is a
               revolutionary new business jet that could be priced more than
               $1,000,000 below the current least expensive business jet,
               setting a new benchmark for low cost business travel by private
               aircraft and providing a cost effective alternative to airline
               travel for small and medium-sized businesses.

               On February 27, 2002, the Company completed three financing
               transactions for total proceeds of $5,734,000 and incurred
               financing costs of $184,000. The net proceeds of these
               transactions were used to acquire the Congress Position as
               secured creditor for Mooney Aircraft and to fund current
               operations.

               The Company issued $2,250,000 in 8% Secured Convertible Notes
               under the October 26, 2001 placement offering in which $3,000,000
               was available to the Company for additional financing. The Notes
               are convertible after 120 days into shares of Class A Common
               Stock at a conversion

                                      F-22

<PAGE>

               price of $.35 or 70% of the average of the three lowest closing
               bid prices for the Company's Common Stock for the thirty days
               prior to conversion. The maturity date of the Notes is October
               26, 2006. Attached to the Notes were warrants to purchase up to
               4,500,000 shares of the Company's Class A Common Stock. The first
               50% of the warrants may be exercised after 45 days at a price of
               $.25 whereas the remaining 50% of the warrants may be exercised
               at $.30. The expiration date of the warrants is January 30, 2007.

               The Company issued $1,329,000 in 8% Unsecured Convertible Notes
               as part of the October 26, 2001 Put Agreement in which the
               Company had the option to sell up to an additional $5,000,000 in
               Convertible Notes. The Notes are convertible after 120 days into
               shares of Class A Common Stock under the same terms as the
               October 26, 2001 placement offering described above. The maturity
               date of the notes is October 26, 2006. Attached to the Notes were
               warrants to purchase 2,658,000 shares of the Company's Class A
               Common Stock. The warrants may be exercised under the same terms
               as the warrants issued in conjunction with the October 26, 2001
               placement offering described above.

               The Company issued $2,155,000 in 8% Unsecured Convertible Notes
               as part of a new placement offering dated January 30, 2002. The
               Notes are convertible after 120 days into shares of Class A
               Common Stock under the same terms of the October 26, 2001
               placement offering described above. The maturity date of the
               notes is October 26, 2006. Attached to the Notes were warrants to
               purchase 4,310,000 shares of the Company's Class A Common Stock.
               The warrants may be exercised under the same terms as the
               warrants issued in conjunction with the October 26, 2001
               placement.

               On March 26, 2002, the Company issued $1,450,000 in 8% Unsecured
               Convertible Notes in a subsequent closing that was part of the
               new private placement dated January 30, 2002. The notes are
               convertible after 120 days into shares of Class A Common Stock
               under the same terms as the October 26, 2001 private placement.
               The maturity date of the notes is October 26, 2006. Attached to
               the notes were warrants to purchase 2,900,000 shares of our Class
               A Common Stock. The warrants may be exercised under the same
               terms as the warrants issued in conjunction with the October 26,
               2001 private placement.

                                      F-23

<PAGE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     Information regarding directors and executive officers of the Company will
appear in the Proxy Statement of the Annual Meeting of Stockholders and is
incorporated herein by this reference. The Proxy Statement will be filed with
the SEC within 120 days following December 31, 2001.

ITEM 10. EXECUTIVE COMPENSATION

     Information regarding executive compensation will appear in the Proxy
Statement for the Annual Meeting of Stockholders and is incorporated herein by
this reference.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information regarding security ownership of certain beneficial owners and
management will appear in the Proxy Statement for the Annual Meeting of
Stockholders and is incorporated herein by this reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information regarding certain relationships and related transactions will
appear in the Proxy Statement for the Annual Meeting of Stockholders and is
incorporated herein by this reference.


                                       21

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

          (a) EXHIBITS. The exhibits listed below are filed with or incorporated
by reference in this report.

         References to "the Company" refer to Advanced Aerodynamics &
Structures, Inc., now doing business as Mooney Aerospace Group, Ltd. References
to "our Mooney Subsidiary" refer to our wholly-owned subsidiary named Mooney
Airplane Company, Inc. Our Mooney Subsidiary was not formed until March 5, 2002.
It presently has no assets and has not commenced operations.

             Exhibit No.    Description
             -----------    -----------
(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

             2.2            Order of the U.S. Bankruptcy Court dated March 18,
                            2002 re Mooney Aircraft Corporation

             2.3            Asset Purchase Agreement by and between the Company
                            and Mooney Aircraft Corporation dated March 18, 2002

             2.4            First Amendment to Asset Purchase Agreement by and
                            between the Company and Mooney Aircraft Corporation
                            dated March 19, 2002

                            Advanced Aerodynamics & Structures, Inc.
                            ----------------------------------------

(1)          3.1            Certificate of Incorporation

             3.2            Bylaws as amended on March 15, 2002

(1)          3.3            Amended and Restated Certificate of Incorporation

(10)         3.4            Amendment to the Certificate of Incorporation

(7)          3.5            Certificate of Designation

(8)          3.6            Amendment to Certificate of Designation

                            Mooney Airplane Company, Inc.
                            -----------------------------

             3.7            Certificate of Incorporation

             3.8            Certificate of Amendment of Certificate of
                            Incorporation

             3.9            Bylaws as amended on April 1, 2002

(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)          4.4            Form of March 2000 Subscription Agreement between
                            the Registrant and the Series A Preferred Stock
                            Subscribers

(6)          4.5            Form of March 2000 Common Stock Purchase Warrant to
                            be issued to the Series A Preferred Stock
                            Subscribers and Placement Agents

                                       22

<PAGE>

             Exhibit No.    Description
             -----------    -----------
(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

(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)         4.25           Secured Tranche C Promissory Note for $1,500,000,
                            dated January 29, 2002, issued to Congress Financial
                            Corporation (Southwest), as executed


                                       23

<PAGE>

             Exhibit No.    Description
             -----------    -----------
(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

(9)          4.27           The 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)          4.28           The October 26, 2001 Put Agreement

(9)          4.29           The October 26, 2001 Security Agreement

(13)         4.30           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)

(13)         4.31           Notice of Put, Officer's Certificate and
                            Modification of Put Agreement Terms for this Put
                            dated January 30, 2002

(13)         4.32           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)         4.33           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

(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

             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)          10.7           Standard Sublease dated July 16, 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

                                       24

<PAGE>


             Exhibit No.    Description
             -----------    -----------
(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

(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

             23             Consent of Ernst & Young LLP


 (b) REPORTS ON FORM 8-K.

              None.

                                       25

<PAGE>


                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 16, 2002                 ADVANCED AERODYNAMICS & STRUCTURES, INC.


                                      By:   /s/ Roy H. Norris
                                         -------------------------------------
                                         Roy H. Norris
                                         President, Chief Executive Officer, and
                                            Chairman of the Board

     Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Signature                                         Title                                           Date
---------                                         -----                                           ----
<S>                                               <C>                                             <C>

/s/ Roy H. Norris                                 President, Chief Executive                      April 16, 2002
------------------------------------              Officer, and Chairman of the Board
Roy H. Norris


/s/ L. Peter Larson                               Chief Financial Officer and Principal           April 16, 2002
--------------------------------------------      Accounting Officer
L. Peter Larson


/s/ Shalom Babad                                  Director                                        April 16, 2002
------------------------------------
Shalom Babad

/s/ C.M. Cheng                                    Director                                        April 16, 2002
--------------------------------------------
C.M. Cheng

/s/ S.B. Lai                                      Director                                        April 16, 2002
--------------------------------------------
S.B. Lai

/s/ Arie Rabinowitz                               Director                                        April 16, 2002
--------------------------------------------
Arie Rabinowitz

/s/ Robert P. Kaplan                              Director                                        April 16, 2002
--------------------------------------------
Robert P. Kaplan

/s/ Samuel Rothman                                Director                                        April 16, 2002
--------------------------------------------
Samuel Rothman
</TABLE>

                                       26

<PAGE>

                                 EXHIBIT INDEX

         References to "the Company" refer to Advanced Aerodynamics &
Structures, Inc., now doing business as Mooney Aerospace Group, Ltd. References
to "our Mooney Subsidiary" refer to our wholly-owned subsidiary named Mooney
Airplane Company, Inc. Our Mooney Subsidiary was not formed until March 5, 2002.
It presently has no assets and has not commenced operations.

             Exhibit No.    Description
             -----------    -----------
(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

             2.2            Order of the U.S. Bankruptcy Court dated March 18,
                            2002 re Mooney Aircraft Corporation

             2.3            Asset Purchase Agreement by and between the Company
                            and Mooney Aircraft Corporation dated March 18, 2002

             2.4            First Amendment to Asset Purchase Agreement by and
                            between the Company and Mooney Aircraft Corporation
                            dated March 19, 2002

                            Advanced Aerodynamics & Structures, Inc.
                            ----------------------------------------

(1)          3.1            Certificate of Incorporation

             3.2            Bylaws as amended on March 15, 2002

(1)          3.3            Amended and Restated Certificate of Incorporation

(10)         3.4            Amendment to the Certificate of Incorporation

(7)          3.5            Certificate of Designation

(8)          3.6            Amendment to Certificate of Designation

                            Mooney Airplane Company, Inc.
                            -----------------------------

             3.7            Certificate of Incorporation

             3.8            Certificate of Amendment of Certificate of
                            Incorporation

             3.9            Bylaws as amended on April 1, 2002

(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)          4.4            Form of March 2000 Subscription Agreement between
                            the Registrant and the Series A Preferred Stock
                            Subscribers

(6)          4.5            Form of March 2000 Common Stock Purchase Warrant to
                            be issued to the Series A Preferred Stock
                            Subscribers and Placement Agents

<PAGE>
             Exhibit No.    Description
             -----------    -----------
(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

(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)         4.25           Secured Tranche C Promissory Note for $1,500,000,
                            dated January 29, 2002, issued to Congress Financial
                            Corporation (Southwest), as executed

<PAGE>
             Exhibit No.    Description
             -----------    -----------
(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

(9)          4.27           The 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)          4.28           The October 26, 2001 Put Agreement

(9)          4.29           The October 26, 2001 Security Agreement

(13)         4.30           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)

(13)         4.31           Notice of Put, Officer's Certificate and
                            Modification of Put Agreement Terms for this Put
                            dated January 30, 2002

(13)         4.32           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)         4.33           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

(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

             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)          10.7           Standard Sublease dated July 16, 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

<PAGE>

             Exhibit No.    Description
             -----------    -----------
(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

(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

             23             Consent of Ernst & Young LLP

<PAGE>

                         (1)     Incorporated by reference to the Company's
                                 Registration Statement on Form SB-2 (333-12273)
                                 filed on September 19, 1996, declared effective
                                 by the Securities and Exchange Commission on
                                 December 3, 1996.

                         (2)     Incorporated by reference to the Company's
                                 Report on Form 10-KSB filed with the Securities
                                 and Exchange Commission on March 31, 1997.

                         (3)     Incorporated by reference by the Company's
                                 Post-Effective  Amendment No. 1 to Form SB-2
                                 Registration  Statement filed with the
                                 Securities and Exchange  Commission on August
                                 5, 1997.

                         (4)     Filed by paper pursuant to the Company's
                                 request  for a  temporary  hardship exemption
                                 relating to this report.

                         (5)     Incorporated by reference to the Company's
                                 Report on Form 10-QSB filed with the Securities
                                 and Exchange Commission on November 14, 1997.

                         (6)     Incorporated by reference to the Company's
                                 Report on Form 10-KSB for the year ended
                                 December 31, 1999, filed with the Securities
                                 and Exchange Commission on March 30, 2000.

                         (7)     Incorporated by reference to the Company's
                                 Report on Form SB-2 filed with the Securities
                                 and Exchange Commission on September 5, 2000.

                         (8)     Incorporated by reference to the Company's
                                 Report on Form 10-KSB filed with the Securities
                                 and Exchange Commission on April 2, 2001.

                         (9)     Incorporated by reference to the Company's
                                 Report on Form 10-Q filed with the Securities
                                 and Exchange Commission on November 14, 2001.

                         (10)    Incorporated by reference to the Company's
                                 Definitive Information Statement filed with the
                                 Securities and Exchange Commission on November
                                 21, 2001.

                         (11)    Incorporated by reference to the Company's
                                 Registration Statement on Form SB-2 (333-74924)
                                 filed on December 12, 2001, and withdrawn by
                                 the Company on January 24, 2002.

                         (12)    Incorporated by reference to the Company's
                                 Report on Form 8-K filed with the Securities
                                 and Exchange Commission on February 14, 2002.

                         (13)    Incorporated by reference to the Company's
                                 Report on Form 8-K filed with the Securities
                                 and Exchange Commission on March 14, 2002.

                         (14)    Incorporated by reference to the Company's
                                 Report on Form 8-K filed with the Securities
                                 and Exchange Commission on April 10, 2002.