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

                                   FORM 10-KSB
(Mark One)

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

         For the fiscal year ended December 31, 2002

                                       OR

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934 (NO FEE REQUIRED)

         For the transition period from _____ to _____

                          Commission File No. 000-21749

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

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

     LOUIS SCHREINER FIELD, KERRVILLE, TEXAS                   78028
     ---------------------------------------------------------------
     (Address of Principal Executive Offices)                (Zip Code)

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

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

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

                                      Units
                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 issuer: (1) Filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
                                   Yes [ ] No [X]

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

State issuer's revenues for its most recent fiscal year:  $5,173,000.

The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock on May 30, 2003
was $ 2,653,248.

The number of shares outstanding of the issuer's common stock as of May 30, 2003
was 142,078,027.

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



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                                     PART I

ITEM 1. BUSINESS

CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.

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

                                    OVERVIEW


We were organized in 1990 to design, develop, manufacture and market general
aviation aircraft. During 2002 we recognized a unique opportunity and purchased
the assets of Mooney Aircraft Corporation ("MACorp"). MACorp. produced
high-performance, single engine piston aircraft for more that 50 years. Mooney
aircraft are recognized as the highest performance four-place piston engine
aircraft in commercial production. Over 10,000 airplanes have been manufactured,
with over 8,000 now in operation around the world.

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

To take advantage of this opportunity, we have hired an experienced management
team to provide leadership to efficiently manufacture and profitably market the
three Mooney models, the economically priced Ovation, the well-equipped and
moderately priced Ovation 2 DX, and the high performance Bravo DX.

Our sales strategy is based on a direct marketing approach, with the assistance
of Mooney Team Representatives (companies that were former Mooney dealers who
sell our products on a commission basis.) We have implemented this approach
which includes a sales strategy based on four factors: 1) Company sales
representatives with highly successful records of aviation sales, including
Mooney products (they are based in Detroit, Phoenix, and Vero Beach); 2)
Independent sales representatives; 3) two factory sales coordinators in
Kerrville, Texas; and 4) Mooney Team Representatives, ("MTR") who have signed
two year contracts. We plan to have eight MTR, and presently we have four; the
Northeast, based in Bedford, Mass., the Midwest, based in Kansas City, MO.,
Mountain based in Denver, CO., and the Southeast, based in Fort Lauderdale, FL.
We are also appointing international sales representatives to market our
products outside the United States.

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We also serve customers who visit the factory in Kerrville, Texas. Two factory
sales representatives take prospective customers on tours, and provide
demonstration flights when appropriate. Personalized service, including the
tours of our assembly line, has shown to be effective in the sale of our
products.

We are also beginning an advertising program that features the high performance
capability of our airplanes. We have also initiated a high value pricing
structure, whereby we have decreased the price of Mooney products to their 1999
level. This has made the Mooney aircraft the best price-valued airplane in
general aviation.

The new management team also performed a technical review of the company's prior
program, the Jetcruzer 500. Based on this review, we concluded that the
Jetcruzer 500 was not likely to achieve its design objectives at a commercially
reasonable cost. Accordingly, spending on the Jetcruzer 500 program was
suspended, and we are reviewing how best to capitalize on the completed
development work, including the possibility of selling the entire program.


                               INDUSTRY BACKGROUND

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

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

Currently, there are 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, $8.7 billion in 2001 and $7.8
billion in 2002.

                                       4
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                                    STRATEGY

We believe that an opportunity exists in the general aviation industry to create
a company the products of which consists of the best aircraft models produced
today in its class. We have begun to implement this strategy through our
acquisition of MACorp assets at a federal bankruptcy auction in San Antonio,
Texas on April 19, 2002, and through the provisions of an Asset Purchase
Agreement with MACorp's general unsecured creditors committee. We formed a new
company to own and operate these assets, Mooney Airplane Company, Inc. ("MAC").

We have started production of the Mooney line of aircraft, consisting of three
models, the Bravo DX, the Ovation2 DX, and the Ovation. We have hired a
management team with significant experience in managing manufacturing companies,
and we believe that the team can make MAC profitable. In order to achieve our
operating goals, on October 1, 2002, the Board of Directors approved a
resolution to close the Company's facility in Long Beach California. This action
resulted in the write-off of all of the building costs and equipment located
there.

                                  MANUFACTURING

We manufacture all aircraft products for Mooney airplanes in Kerrville, Texas.
We have a favorable long-term lease on both land and buildings at the Kerrville
Airport, which makes Kerrville a financially attractive location to build
aircraft. 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 the Mooney aircraft has been produced in this
location. There are no other aircraft manufacturers in the immediate area, so
competition for experienced workers is minimal. Labor to supply the needs
created by long-term growth is available in nearby San Antonio.


                               MARKET OPPORTUNITY

Historically, Mooney has produced top of the line, single engine piston
airplanes which now include the Ovation, the Ovation 2 and the Bravo which are
widely considered to be the performance leaders in the four-passenger single
engine aircraft market. For over 50 years Mooney has produced high performance
piston aircraft. There are more than 10,000 Mooney aircraft in operation around
the world. We also sell aircraft parts and service to support these aircraft.


DOMESTIC SALES

Through the combination of direct salespeople and MTRs, we have adequately
covered two thirds of the U.S. Before the end of 2003, we plan to sign-up at
least two more MTRs for the west coast.

We have started an advertising campaign nationwide and provide one toll free
telephone number to call and one website to view. The sales manager is located
at the factory in Kerrville, Texas, allowing immediate answers to sales
questions or problems. If a sale cannot be completed, the salesperson has access
to years of experience by calling on the sales manager.

We believe that this method is ideal for sales in today's fast-paced market
environment. The sales process still requires personal contact between the
salespeople and the prospective customers. That is why we do not need to have
salespeople at the factory besides the two coordinators.

                                       5
<PAGE>

INTERNATIONAL SALES

We plan to appoint a series of international agents who will represent us in key
international markets. Most of these agents will be coming from the dealers of
MACorp. Agents will conduct sales by signing international customers to a Mooney
contract and will be paid a commission for their success on a per aircraft
basis, unless they decide to step in-between and buy the aircraft at list-price
less the amount of their commission.

NEW PRODUCT DEVELOPMENT PROGRAMS

We previously had only one new aircraft product under development, the Jetcruzer
500. Based upon a technical review of the Jetcruzer 500 program instituted by
the new management team, it was determined that the plane was not likely to
achieve its design objectives at a commercially reasonable cost. 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 determine how
best to capitalize on the existing development work associated with the
Jetcruzer program. We have decided to consider the sale of the Jetcruzer program
to another company.

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


                                       6
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                                  RISK FACTORS


THIS INVESTMENT HAS A HIGH DEGREE OF RISK. BEFORE YOU INVEST YOU SHOULD
CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS. IF ANY OF THE POSSIBLE EVENTS DESCRIBED BELOW AS
RISKS ACTUALLY OCCUR, OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION
COULD BE HARMED AND THE VALUE OF OUR STOCK COULD GO DOWN. THIS MEANS YOU COULD
LOSE ALL OR A PART OF YOUR INVESTMENT.

PAYMENT OF CONVERTIBLE NOTES ISSUED UNDER VARIOUS SUBSCRIPTION AGREEMENTS COULD
BE DEMANDED AT ANY TIME UNDER THE TERMS OF THE NOTES; DEMAND COULD RESULT IN
INSOLVENCY.

We did not register the shares issuable upon conversion within the various
timelines as stated in the various Subscription Agreements. The timeline ranges
from 30 to 60 days from each transaction's closing date. For the convertible
debenture Subscription Agreements, except for the March 27, 2001 and July 25,
2001 issuances, the failure to register such shares constitutes a
non-registration event. For the June 27, 2001, October 26, 2001, February 27,
2002, March 26, 2002, April 11, 2002 and May 16, 2002 Subscription Agreements,
the non-registration events have become events of default pursuant to the
Subscription Agreements. In accordance with the terms of the Subscription
Agreements, the holders may accelerate the notes and demand immediate repayment
of all principal and interest owed to the notes. We do not have sufficient cash
to comply with a demand for repayment of all the June 2001, October 2001,
February 2002, March 2002, April 2002 and May 2002 notes. If the holders of the
notes were to demand repayment of the principal and interest under such notes,
and we were unable to make such repayment, such holders could take various
actions to accomplish repayment, including, but not limited to, foreclosure on
our assets, virtually all of which were pledged as security for the October 2001
Secured Convertible Notes. Any demand for repayment of the notes would have a
material adverse effect upon us and could jeopardize our ability to continue our
development efforts or to continue operations. There are also liquidation
damages due to the note holders as a result of the non-registration event. Such
damages are calculated from the date of the non-registration event at an amount
equal to 1% of the principal amount issued for the first 30 days or part
thereof, and then 2%, during the pendency of the non-registration event.
However, on May 20, 2002 certain note holders signed a waiver whereby each
holder waived his/her right to call their notes due and deferred payment of the
liquidation damages until conversion or maturity.

The terms for the payment of interest are contained within each transaction's
note agreements; therefore various payment terms may exist under a given
Subscription Agreement. Periodic interest payments are due on all outstanding
notes under each of the following transactions: March 27, 2001, June 27. 2001,
July 25, 2001, October 26, 2001, February 27, 2002, March 26, 2002, and May 16,
2002. All notes issued in other convertible debt financings require the payment
of interest at maturity. The interest payments became due approximately three
months after the initial issuance of the March 2001, June 2001 and July 2001
notes, and for the other notes interest was due on September 30, 2002. None of
this interest has been paid. Pursuant to the terms of the notes, the holders
have the right to call the notes due. However, on May 20, 2002 certain note
holders signed a waiver whereby each holder waived his/her right to call their
notes due and deferred payment of interest, until conversion or maturity.

                                       7
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Our failure to continue the listing of our Class A Common Stock on NASDAQ was a
violation of the terms of our Secured Convertible Notes issued on Match 27, 2001
(the "March 2001 Secured Convertible Notes"). Pursuant to such terms, the
holders of the March 2001 Secured Convertible Notes may accelerate the notes and
demand immediate repayment of all principal and interest owed pursuant to the
notes.

We do not have sufficient cash to comply with a demand for repayment of all the
notes as described above. Any demand for immediate repayment of the notes would
have a material adverse effect upon us and could jeopardize our ability to
continue our development efforts or to continue operations. However, as stated
previously, due to the obtaining of waivers the note holders cannot demand
immediate payment for all notes outstanding.

A DEMAND FOR THE IMMEDIATE REPAYMENT OF THE NOTES PAYABLE TO CONGRESS DUE TO ANY
DEFAULT IN PAYMENT WOULD ADVERSELY AFFECT OUR BUSINESS AND POSSIBLY RESULT IN
FORECLOSURE ON SUBSTANTIALLY ALL OF OUR ASSETS.

Under the terms of our agreements with Congress Financial Corporation
("Congress"), we paid $8,000,000 to acquire their position as a senior secured
creditor in the Mooney Aircraft Corporation bankruptcy. $3,500,000 of the
purchase price was paid in cash and $4,500,000 was paid in secured notes as
follows: (1) a Secured Promissory Note for $500,000 which was repaid in full on
July 29, 2002, (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, we issued 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. The repayment of this note is also secured by substantially all
the assets acquired from Congress.

If sources of additional debt and/or financing are unavailable, we will be
unable to pay our obligations to Congress and will be in default on the notes.
Congress may then accelerate the notes and demand immediate repayment of all
principal and interest owed. We do not have sufficient cash to comply with a
demand for repayment of all the Congress notes. If Congress were to demand
repayment of the principal and interest under such notes, and we were unable to
make such repayment, Congress could take various actions to accomplish
repayment, including, but not limited to, foreclosure on our assets, virtually
all of which were pledged as security for the notes. Any demand for repayment of
the notes would have a material adverse effect upon us and could jeopardize our
ability to continue our development efforts or to continue operations.

RISK OF LOW-PRICE STOCKS, INCLUDING LIMITATIONS ON MARKET LIQUIDITY.

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

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

WE HAVE ACCUMULATED A SUBSTANTIAL DEFICIT; WE HAVE A HISTORY OF LOSSES; WE
EXPECT SUBSTANTIAL FUTURE LOSSES; CONTINUED LACK OF PROFITABILITY COULD LEAD TO
A CESSATION OF OPERATIONS.

To date, we have incurred significant losses. At December 31, 2002, we had an
accumulated deficit of approximately $126,719,000. We have incurred net losses
of $38,822,000 and $22,172,000 in 2002 and 2001, respectively. These losses have
resulted principally from significant costs associated with the development of
the Jetcruzer 500 and the acquisition of Mooney. We expect to incur further
losses due to significant costs associated with manufacturing our aircraft,
maintaining the necessary regulatory approvals, and marketing and selling our
aircraft. There can be no assurance that sales of our aircraft will ever
generate sufficient revenues to fund our continuing operations, that we will
generate positive cash flow from our operations, or that we will attain or
thereafter sustain profitability in any future period. If we do not begin to
generate profits, we may be forced to cease or curtail our operations.

WE WILL NEED ADDITIONAL FINANCING; FAILURE TO OBTAIN FINANCING COULD LEAD TO A
CESSATION OR CURTAILMENT OF OUR OPERATIONS.

We will need to obtain additional financing to continue the production of new
aircraft and spare parts. Failure to obtain such additional financing would have
a material adverse effect on our business and prospects and could require that
we severely limit or cease our operations. Additional financing may not be
available on acceptable terms or at all.

REGULATORY UNCERTAINTY COULD RESULT IN ADDITIONAL COSTS OR LIABILITIES.

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

LIMITED PRODUCT LINE; FLUCTUATIONS IN SALES OF AIRCRAFT MAY RESULT IN PERIODIC
MATERIAL REDUCTIONS IN REVENUE AND PROFITABILITY.

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

                                       9
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WE FACE NUMEROUS COMPETITORS, SOME OF WHICH HAVE GREATER RESOURCES; COMPETITION
MAY IMPROVE OR DEVELOP COMPETITIVE PRODUCTS.

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

RELIANCE ON SINGLE SOURCE SUPPLIERS; PROBLEMS WITH SUPPLIES COULD REDUCE REVENUE
OR INCREASE COSTS.

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

INSURANCE AND PRODUCT LIABILITY EXPOSURE; INCREASED PREMIUMS AND DAMAGE AWARDS
COULD INCREASE COSTS.

Because the failure of an aircraft manufactured by us or any other mishap
involving such an aircraft may result in physical injury or death to the
occupants of the aircraft or others, we could be subject to lawsuits involving
product liability claims, which lawsuits may involve claims for substantial
sums. Although we have obtained product liability insurance, such insurance is
expensive and subject to various coverage exclusions and may not be obtainable
by us in the future on acceptable terms or at all. Further, should we become
involved in product liability litigation, the expenses and damages awarded could
be large, and the scope of any coverage may be inadequate. Increased insurance
costs and/or liability costs could require an increase in the price of our
aircraft and therefore could have a negative impact on sales.

                                       10
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FLUCTUATIONS IN QUARTERLY OPERATING RESULTS MAY BE CAUSED BY LARGE UNIT PRICES.

We expect to derive a substantial portion of our revenues from the sale of a
relatively small number of aircraft. As a result, a small reduction in the
number of aircraft shipped in a quarter due to, for example, unanticipated
shipment re-schedulings or cancellations, supplier delays in the delivery of
component parts or unexpected manufacturing difficulties, could have a material
and adverse effect on our financial position and results of operations for that
quarter.

RISKS OF INTERNATIONAL OPERATIONS, INCLUDING CHANGES IN TARIFFS AND DUTIES AND
CURRENCY EXCHANGE LOSSES, MAY INCREASE COSTS.

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

DEPENDENCE ON KEY PERSONNEL; FAILURE TO HIRE OR RETAIN PERSONNEL COULD RESULT IN
A REDUCTION OF REVENUES AND EARNINGS.

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

PLANNED GROWTH MAY BE LIMITED BY CONSTRAINTS OR HUMAN AND FINANCIAL RESOURCES.

We plan to significantly expand our operations during 2003, which could place a
significant strain on our limited personnel, financial and other resources. We
intend to continue to reestablish the manufacturing capabilities of our Mooney
subsidiary and to manufacture Mooney aircraft. Our efforts to conduct
manufacturing activities may not be successful, and we may not be able to
satisfy commercial scale production requirements on a timely and cost-effective
basis. Our ability to manage this growth, should it occur, would require
significant expansion of our engineering, production, marketing and sales
capabilities and personnel. We may not be able to find qualified personnel to
fill additional engineering, production, and sales and marketing positions or be
able to manage a larger sales and marketing organization successfully. We also
intend to seek to acquire additional aircraft product lines which will place
additional demands on our limited resources.

                                       11
<PAGE>

CONTROL BY INSIDERS AND THE EXISTENCE OF SHARES HAVING DISPROPORTIONATE VOTING
RIGHTS MAY DISCOURAGE ACQUISITION BY MOONEY.

Chairman of the Board Sam Rothman and C.M. Cheng, beneficially own, or have
voting control over, shares of our capital stock representing a significant
portion of the total voting power of our Company. Accordingly, they will
continue to be able to have a significant influence over the election of our
directors and thereby influence the direction of our policies for the
foreseeable future. Furthermore, the disproportionate vote afforded the shares
of Class B Common Stock and Class E Common Stock could also serve to impede or
prevent a change of control of our Company. As a result, potential acquirers may
be discouraged from seeking to acquire control of our Company through the
purchase of Class A Common Stock, which could have a depressive effect on the
market price of our securities.

LIMITATION ON OFFICERS' AND DIRECTORS' LIABILITIES UNDER DELAWARE LAW MAY REDUCE
DAMAGES AVAILABLE FOR BREACH OF DUTY BY DIRECTORS.

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

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK, ANTI-TAKEOVER
PROVISIONS, AND ENHANCED VOTING POWER OF CLASS B COMMON STOCK AND CLASS E COMMON
STOCK MAY DISCOURAGE ACQUISITION AND REDUCE VALUE OF MOONEY.

Our Certificate of Incorporation authorizes the issuance of a maximum of
5,000,000 shares of preferred stock on terms that may be fixed by our Board of
Directors without stockholder action. The terms of any series of preferred
stock, which may include priority claims to assets and dividends and special
voting rights, could adversely affect the rights of holders of the Class A
Common Stock. The issuance of preferred stock could make a possible takeover or
the removal of our management more difficult, discourage hostile bids or control
of our Company in which stockholders may receive premiums for their shares of
Class A Common Stock or otherwise dilute the rights of holders of Class A Common
Stock. In addition, we are subject to Delaware General Corporation Law
provisions that may have the effect of delaying, deferring or preventing certain
changes of control. Furthermore, the disproportionate vote afforded the Class B
Common Stock and Class E Common Stock could also serve to impede or prevent a
change in control of our Company.

POSSIBILITY OF DILUTION ARISING FROM SHARES AVAILABLE FOR FUTURE SALE MAY RESULT
IN LOWER STOCK PRICES.

Future sales of common stock by existing stockholders pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or otherwise,
could have an adverse effect on the price of our securities. As of December 31,
2002, Mooney had outstanding 80,510,761 shares of Class A Common Stock,
debentures issued under various agreements convertible into 1,481,915,414 shares
of Class A Common Stock, warrants issued under various agreements for 75,602,567
shares of Class A Common Stock, 35,889 shares of Series A Preferred Stock,
1,013,572 shares of Class B Common Stock, and 8,000,000 shares of Class E Common
Stock. The shares of Class E Common Stock are not currently transferable and are
subject to redemption by us for a nominal consideration if we do not meet
certain income levels, and are convertible into Class B Common Stock if we do
meet such levels. Sales of Class A Common Stock, or the possibility of such
sales, in the public market may adversely affect the market price of the
securities offered hereby.


                                       12
<PAGE>

OUR CLASS A COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ STOCK MARKET, WHICH
MAY RESULT IN A REDUCED VOLUME OF TRADING AND LOWER STOCK PRICES.

Our Class A Common Stock was de-listed from the NASDAQ Stock Market in April
2001, and it is now traded through the NASD's "Electronic Bulletin Board."
Consequently, the liquidity of our securities has been impacted, not only by the
number of securities which can be bought and sold, but also through delays in
the timing of the transactions, reductions in the number and quality of security
analysts' and the news media's coverage of us, and lower prices for our
securities than might otherwise be attained.

NO DIVIDENDS.

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

VOLATILITY OF STOCK PRICE MAY INCREASE THE NUMBER OF SHARES ISSUABLE UPON
CONVERSION OF PREFERRED STOCK AND CONVERTIBLE NOTES.

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

         o        Announcements of financial results and other developments
                  relating to our business;

         o        Changes in the general state of the economy; and

         o        Changes in market analyst estimates and recommendations for
                  our common stock.

Significant downward fluctuations of the price of our stock may substantially
increase the number of shares of common stock issuable upon conversion of
outstanding Series A Preferred Stock and convertible notes as a result of the
conversion formula, which is tied to the market price of the common stock. The
consequences of decreases in the common stock price are more fully discussed
below under the risk factors set forth below.

THE ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK UPON CONVERSION OF PREFERRED
STOCK MAY CAUSE SIGNIFICANT DILUTION OF EXISTING STOCKHOLDERS' INTERESTS AND
EXERT DOWNWARD PRESSURE ON THE PRICE OF OUR COMMON STOCK.

Significant dilution of existing stockholders' interests may occur if we issue
additional shares of common stock underlying outstanding shares of preferred
stock. As of December 31, 2002, we had 35,889 shares of Series A Preferred Stock
outstanding. The number of shares of common stock issuable upon conversion of
the Series A Preferred Stock would increase if the market price of our Common
Stock decreases, as such conversion is based on a formula pegged to the market
price of the Class A Common Stock. The formula provides, specifically, that the

                                       13
<PAGE>

number of shares of Common Stock issuable upon the conversion of one share of
Series A Preferred Stock is calculated as $100 (plus any accrued and unpaid
dividends on such share) divided by the conversion price. The conversion price
is equal to the lesser of (1) 100% of the average of the closing bid price of
the common stock on the last three trading days before the date of initial
issuance of shares of Series A Preferred Stock, or (2) 90% of the average of the
eight lowest closing bid prices of the common stock during the last 180 trading
days before the date of conversion. Therefore, there is a possibility that the
Series A Preferred Stock may convert to Class A Common Stock at a rate that may
be below the prevailing market price of the Class A Common Stock at the time of
conversion.

EMPLOYEES

As of May 30, 2003, we had 170 full-time employees. None of our employees are
represented by a labor union.


ITEM 2. FACILITIES

We are currently leasing a 418,020 square feet complex located in Kerrville,
Texas at the current monthly rent of $1,434. The lease expires in July 2013.


ITEM 3. LEGAL PROCEEDINGS

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

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

L. Peter Larson was employed as an Executive Vice President and Chief Financial
Officer of Mooney, Dale Ruhmel was Executive Vice President of Engineering and
became Chief Operating Officer. Both plaintiffs had entered into written
employment agreements with the Company on or about January 8, 2002. Plaintiffs
were employed by the Company until the end of October 2002. Plaintiffs claim
that the Company breached their employment agreements by terminating their
employment without good cause and failing to pay severance payments as required
by the agreements. Plaintiffs also claim that at the time of the termination
they were not paid all of their vacation and wages owed as required by the
California Labor Code. Plaintiffs also claim that the Company misrepresented its
intentions to honor the agreements and that plaintiffs relied upon this to their
detriment. There were also allegations of intentional infliction of emotional
distress and slander. The damages sought in the complaint include attorneys
fees, tort damages if defamation or fraud can be proven, contractual damages
(the contract provides for a year's severance if terminated without cause or
notice).

The Company has filed a cross-complaint against the two individuals. The Company
does not believe that any possible negative outcome from this case will have a
material impact in its financial position or results of operations.


                                       14
<PAGE>

WHITEFORD JET WINGS, LTD. V. MOONEY AEROSPACE GROUP, LTD. ET AL., CAL. SUPER.
-----------------------------------------------------------------------------
CT. (LOS ANGELES COUNTY, LONG BEACH DISTRICT), CASE NO. NC033548 (FILED JANUARY
-------------------------------------------------------------------------------
21, 2003)
---------

This case was filed by a company that alleged it had signed an agreement to be
the exclusive regional distributor of Jetcruzer aircraft in Illinois, Indiana,
Kentucky, and Wisconsin, and that it had put down a deposit of $390,000 for the
first 39 aircraft it was to purchase. The suit seeks return of the $390,000
deposit on a variety of theories, including breach of contract, account stated,
and fraud. The primary issue is whether the deposits (which the agreement
provide are non-refundable) must be returned. The Company has recorded as
deferred revenue in the accompanying balance sheet, $390,000 related to this
matter. The Company does not believe that any possible negative outcome from
this case will have a material impact in its financial position or results of
operations.

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

AP Long Beach Airport, LLC ("AP") filed a complaint in the Los Angeles Superior
Court, alleging breach of a Sublease Agreement by the Company for failure to pay
rent. Specifically, AP alleges that AP and the Company entered into a Lease
Agreement for the lease of real property located in Long Beach, California to
the Company for a term of thirty years . AP and the Company later entered into
first an Assignment and Assumption Agreement and then a Sublease Agreement
wherein AP sublet the property to the Company for a term of eighteen years at a
monthly rent of $106,166.67. AP seeks to recover the fair rental value of the
property and base rent pursuant to the Lease and Sublease Agreements in addition
to its attorneys' fees and costs.

Previously, on December 30, 2002, the Company filed suit in the 198th Judicial
District, Kerr County, Texas alleging that the Sublease Agreement was void and
specifically fraudulent transfer, breach of the duty of good faith and fair
dealing, usury and requesting declaratory relief. The Company maintains that
this transaction, although structured as a sale and leaseback, was in reality a
financing transaction in which the interest charged by AP was usurious.

On March 5, 2003, in response to AP's California suit, the Company filed its
Motion to Stay or Dismiss Action ("Motion"). In its Motion, the Company argued
that the California Court should dismiss the action before it because the claims
could more appropriately be resolved in the previously filed, and currently
pending, Texas action initiated by the Company on December 30, 2002, involving
the same parties and the same transaction. In its Motion, the Company sought to
assure the California Court that the Texas Court has jurisdiction over AP and
that the interest of the parties and judicial economy mitigate in favor of
dismissing the California action and allowing the dispute to be resolved by the
Texas Court. In the alternative, the Company requested that the California Court
stay the action filed by AP until the Texas Court has had an opportunity to rule
on AP's Motion to Dismiss the Texas action for lack of personal jurisdiction.

The Company's Motion is currently pending before the Superior Court of Los
Angeles and a hearing has been scheduled for July 8, 2003. The Company does not
believe that any possible negative outcome from this case will have a material
impact in its financial position or results of operations.



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

None.


                                       15
<PAGE>

PART II

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

Our common stock is traded on NASD Electronic Bulletin Board under the symbol
MASG. Prior to July 25, 2002, it traded under the symbol ASSI. The following
table sets forth the range of high and low bid quotations for each of the prior
nine (9) fiscal quarter. The quotations represent inter-dealer quotations
without adjustment for retail mark-ups, mark-downs or commissions and may not
represent actual transactions.


       --------------------------------- -------------------- ------------------
                                                High                  Low
       --------------------------------- -------------------- ------------------
       1st Quarter 2001                         $0.69                 $0.25
       2nd Quarter 2001                         $0.38                $0.19
       3rd Quarter 2001                         $0.33                $0.18
       4th Quarter 2001                         $0.29                $0.17
       1st Quarter 2002                         $0.44                $0.22
       2nd Quarter 2002                         $0.33                $0.20
       3rd Quarter 2002                         $0.24                $0.09
       4th Quarter 2002                         $0.10                $0.03
       1st Quarter 2003                         $0.04                $0.01
       --------------------------------- -------------------- ------------------

As of May 30, 2003, there were 276 shareholders of record of our common stock.
This does not include shares held in street names.

We have never declared dividends or paid any cash dividends on our capital stock
and currently intend to retain all future earnings, if any, for use in the
operation and development of our business. Therefore, you should not expect us
to declare or pay any cash dividends on our Common Stock in the foreseeable
future.


ITEM 6.  MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION

FORWARD LOOKING STATEMENTS

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

GENERAL

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

                                       16
<PAGE>

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

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

In July 2002, Nicolas Chabbert joined the company as Executive Vice President of
Sales & Marketing. Mr. Chabbert is considered an expert in general aviation
sales and marketing, having among his achievements the successful introduction
of the Socata TBM-700 single engine turboprop aircraft to the United States.

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

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

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

         o        Enhancement and aggressive implementation of our marketing
                  program.

         o        Reduction of costs to increase profit margins.

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

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

On August 15, 2002, Mr. Norris announced that he had accomplished the objectives
he established in taking this position, of recruiting a new management team and
setting a new direction for the company, and was submitting his resignation and
turning the company over to those he recruited for that purpose. On August 19,
2002 Mr. L. Peter Larson was named President, Director, Chief Executive Officer
and also retained his previous position as Chief Financial Officer. J. Nelson
Happy, then Executive Vice-President and General Counsel, was named vice
chairman.

                                       17
<PAGE>

On November 1, 2002, Mr. Larson resigned his position and subsequent to that
date, the board of directors terminated Mr. Ruhmel. On November 14, 2002, Mr. J.
Nelson Happy, Executive Vice President-General Counsel was named President and
Chief Financial Officer and continued as vice chairman.

We have generated $5,173,000 in operating revenues for the year ended December
31, 2002 from the sale of aircraft and spare parts sales, and have incurred
losses from our operating activities of $38,822,000 for the year ended December
31, 2002. We believe we will continue to experience losses until such time as we
attain a sales level of our aircraft on a commercial scale. No assurance can be
made that we will be able to attain sales levels of our aircraft in the
foreseeable future that will allow us to generate revenue sufficient to maintain
its operations without other sources of financing.

Our current cash balance, including the additional funding obtained subsequent
to December 31, 2002 has been sufficient to finance our plan of operations. We
are currently seeking to raise additional capital either from individual
investors or from commercial lending institutions, however no firm commitment
exists at the current time. Should this funding be obtained, we believe it, and
the cash generated from our operating activities will be sufficient to meet our
operating needs for the next 12 months. Should this funding not be obtained, we
will have to curtail our plans and will be unable to pay our obligations to
Congress. If we are unable to pay our obligations to Congress, it will have the
ability to take legal action against us under the terms of our various notes
payable to Congress. Legal action taken by Congress could include foreclosure on
all of our assets, which would likely result in cessation of the majority or all
of our operations.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, we had a negative working capital of $27,975,000 and
stockholders' deficiency of $26,002,000. Since our inception in January 1990, we
have experienced continuing negative cash flow from operations, which have
resulted in our inability to pay certain existing liabilities in a timely
manner. We have financed our operations through private funding of equity and
debt and through the proceeds generated from our December 1996 initial public
offering.

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

Our management team has developed a financial plan to address our working
capital requirements. Since early 2001, this has included the issuance of
convertible debentures. The debentures are convertible into shares of Class A
Common Stock at various conversion prices as specified in each transaction's
note agreement. The notes earn interest at the rate stated in the note
agreements and the payment terms vary with each agreement.

                                       18
<PAGE>

The Company's failure to register the appropriate amount of shares to cover
possible conversions as specified within each transaction's Subscription
Agreement, has led to the occurrence of non-registration events. Should such an
event extend beyond 60 days from the date of the transaction closing, each note
holder shall be entitled to damages that are to be paid either in cash or
additional shares of Class A Common Stock, according to the formula specified in
the Subscription Agreement. As of December 31, 2002, the Company has accrued a
total of $4,488,000 in such damages. In addition, a non-registration event does
not constitute an event of default unless such an event continues for 61 or 181
days beyond the transaction closing date, depending upon the terms specified in
the Subscription Agreement. When such an even of default occurs, the note
holders have the right to call the notes due. This is the case for the
transactions from June 2001, October 2001, February 2002, March 2002, April 2002
and May 2002.

The specific circumstances regarding the events of default and non-registration
have been discussed in greater detail within Note 6 of the footnotes to the
financial statements.

Of the total outstanding principal balance of $25,866,000 recorded at December
31, 2002, $17,894,000 has been recorded as short-term, either due to the
maturity date or because of an event of default.

The proceeds raised from the February 2002 transactions were used to make the
cash payment to Congress in our acquisition of the assets of MACorp as described
earlier. 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
throughout the next year. We are currently pursuing other financing to ensure
that we have sufficient funds through the next twelve months. Although our
current cash balance including the additional funding obtained subsequent to
December 31, 2002 have been sufficient to finance our plan of operations to
date, it and expected cash flow from operations will not be sufficient to fund
operations for the next 12 months. Additional funding will be required and is
expected, either through additional stock issuances or debt financing obtained
from certain private parties. If sources of financing are unavailable, we will
have to curtail our plans and will be unable to pay our obligations to Congress.

The following table summarizes the Company's contractual obligations at December
31, 2002.
<TABLE>
<CAPTION>

CONTRACTUAL OBLIGATIONS      2003          2004          2005          2006         2007           TOTAL

<S>                      <C>           <C>           <C>           <C>           <C>           <C>
Convertible debentures   $17,894,000   $ 1,945,000   $        --   $        --   $ 6,027,000   $25,866,000
Notes payable              5,222,000     1,690,000     1,015,000            --            --     7,927,000
Capital leases            12,622,000            --            --            --            --    12,622,000
Operating leases              17,000        17,000        17,000        17,000        17,000        86,000
Employment agreements        350,000       200,000            --            --            --       550,000
                         -----------   -----------   -----------   -----------   -----------   -----------
                         $36,105,000   $ 3,852,000   $ 1,032,000   $    17,000   $ 6,044,000   $47,051,000
                         ===========   ===========   ===========   ===========   ===========   ===========
</TABLE>



                                       19
<PAGE>

CRITICAL ACCOUNTING POLICIES

The Plan of Operations discusses our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. When we prepare these 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. Actual results may
differ from these estimates under different assumptions or conditions.

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

Inventory Obsolescence -- We provide an inventory obsolescence reserve for parts
whose values have been determined to be impaired or whose future utility appears
limited.

For further information regarding the accounting policies that we believe to be
critical accounting policies and that affect our more significant judgments and
estimates used in preparing our financial statements see our December 31, 2002
consolidated financial statements contained elsewhere is this Form 10-KSB.

CONVERSION OF PERFORMANCE SHARES

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

                                       20
<PAGE>

RESULTS OF OPERATIONS

Year ended December 31, 2002 vs. December 31, 2001
--------------------------------------------------

Net sales for the year ended December 31, 2002 increased by $5,173,000 as
compared to the same period in 2001, due to the acquisition of MACorp's assets.
We had no sales prior to this acquisition.

Cost of sales for the year ended December 31, 2002 increased by $4,442,000 as
compared to the same period in 2001, due to the acquisition of MACorp's assets.
There were no cost of sales prior to this acquisition.

Research and development costs for the year ended December 31, 2002 increased by
$601,000 as compared to the same period in 2001, due to research and development
incurred at Mooney Airplane Company. Since the Long Beach, California facility
was closed in the 4th quarter of 2002, we expect the amount spent on research
and development in the future to decrease dramatically.

Selling and support expenses for the year ended December 31, 2002 increased by
$670,000 as compared to the same period in 2001, due to the acquisition of
Mooney Airplane Company. There were no sales and support expenses prior to this
acquisition.

General and administrative expenses for the year ended December 31, 2002
increased by $280,000 as compared to the same period in 2001, due to the
additional overhead incurred at Mooney Airplane Company partially offset by less
general and administrative expenses incurred at the Long Beach location in the
4th quarter of 2002. Since the Long Beach, California facility was closed in the
4th quarter of 2002, we expect our general and administrative expenses in the
future to decrease dramatically.

Non-recurring expenses for the year ended December 31, 2002 increased by
$7,260,000 as compared to the same period in 2001, due to the write off of the
Long Beach building of $10,607,000 and the write off of other fixed assets at
the Long Beach facility of $476,000. In 2001, we wrote off certain tooling costs
and other non-recurring items totaling $3,823,000.

Amortization of debt issue costs and discounts for the year ended December 31,
2002 increased by $2,878,000 as compared to the same period in 2001, due to the
increase of convertible notes issued in 2002 and a full year's amortization of
convertible debentures issued in 2001.

Interest expense for the year ended December 31, 2002 increased by $5,452,000 as
compared to the same period in 2001, due to the increase of debt and the accrual
of penalties for non-registration of shares underlying the convertible
debentures.

Cash used in operating activities for the year ended December 31, 2002 increased
by $1,919,000 as compared to the same period in 2001, due principally to the
combination of an increased net loss of $16,650,000, offset by the amortization
of the discount on convertible debentures of $2,780,000 which is a non-cash
expense and increase on loss on disposal of assets of $8,278,000, which is also
a non-cash expense.

Due to the acquisition of Mooney Airplane Company on April 19, 2002, the changes
in operating assets and liabilities are mainly related to the operations of that
business, including changes in inventory, property and equipment and accounts
payable.


                                       21
<PAGE>

We continue to accrue convertible note interest of non-registration damages and
executive compensation. In 2001 the accruals for the non-registration damages
and the executive compensation did not exist.

Cash used in investing activities for the year ended December 31, 2002 decreased
by $670,000 as compared to the same period in 2001. The Company purchased the
net assets of MACorp. during 2002 for cash of $4,082,000. This was offset by the
sale of investments held to fund the acquisition and operating activities of the
Company.

Cash provided by financing activities for the year ended December 31, 2002
increased by $1,313,000 as compared to the same period in 2001. During 2002
period, the Company continued to issue convertible debt, in lieu of preferred
stock, in order to provide a more attractive offer to investors. The majority of
the notes pay interest at 8% as opposed to the preferred stock which accrues
dividends at 5%.

The increase in proceeds received from the issuance of convertible debentures of
$4,790,000 is mainly due to issuance of additional notes in 2002 to fund the
MACorp acquisition and operating activities. During 2002, we were unable to
utilize the Equity Line due to the continual decline in the stock price.
Previously, the Equity Line had allowed us to demand cash in exchange for common
stock, based upon changes in the market price of the stock.

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
throughout the next year. We are currently pursuing other financing to ensure
that we have sufficient funds through the next twelve months. Although our
current cash balance including the additional funding obtained subsequent to
December 31, 2002 have been sufficient to finance our plan of operations and
acquisitions to date, it and expected cash flow from operations will not be
sufficient to fund operations for the next 12 months. Additional funding will be
required and is expected, either through additional stock issuances or debt
financing obtained from certain private parties. Based upon past experience with
such parties we believe such funding will be forthcoming, however no firm
commitment from such parties currently exists. If sources of financing are
unavailable, we will have to curtail our plans and will be unable to pay our
obligations to Congress.


ITEM 7. FINANCIAL STATEMENTS

SEE "INDEX TO CONSOLIDATED FINANCIAL STATEMENTS" BEGINNING ON PAGE F-1.

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

On March 6, 2003, Ernst & Young LLP ("E&Y") terminated the client-auditor
relationship between itself and Mooney Aerospace Group, Ltd (the "Company") by
delivering to the Company a letter of resignation as the Company's independent
auditors. On March 10, 2003 the Company engaged Stonefield Josephson, Inc.
("Stonefield") as its independent auditors for the fiscal year ending December
31, 2002. The decision to engage Stonefield was approved by the Board of
Directors of the Company. E&Y's reports on the consolidated financial statements
of the Company for fiscal years 2001 and 2000 did not contain any adverse
opinion or a disclaimer of opinion, and were not qualified or modified as to
uncertainty, audit scope or accounting principles. However, the report of E&Y
for these fiscal years was qualified with respect to uncertainty as to the
Company's ability to continue as a going concern. During fiscal years 2001 and
2000 and the subsequent interim period through March 6, 2003, there were no
disagreements with E&Y regarding any matters of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of E&Y, would have caused E&Y
to make reference to the subject matter of the disagreements in connection with
its report. During our two most recent fiscal years and through March 6, 2003,
there were no reportable events as that term is defined in Item 304 (a)(1)(v) of
Regulation S-K.

                                       22
<PAGE>

We engaged Stonefield Josephson, Inc. as our new independent accountants as of
March 10, 2003. During the two most recent fiscal years and through March 10,
2003, we have not consulted with Stonefield Josephson, Inc. regarding either (i)
the application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements; or (ii) any matter that was either the subject of a
disagreement, as that term is defined in Item 304 (a) (1) (iv) of Regulation S-K
and the related instructions to Item 304 of the Regulation S-K, or a reportable
event, as that term is defined in Item 304 (a) (1) (iv) of Regulation S-K.

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

DIRECTORS AND EXECUTIVE OFFICERS

         Our directors and executive officers as follows:

    Name                    Age       Positions Held
    ----                    ---       --------------
Sam Rothman                 49         Chairman

J. Nelson Happy             59         Vice Chairman, President and
                                       Chief Financial Officer and Secretary

Arie Rabinowitz             31         Consultant and Director

Sholom Babad                28         Consultant and Director

Sol Mayer                   49         Director

S. B. Lai                   58         Director


OTHER OFFICERS:

Nicholas Chabbert           37         Executive Vice President of Sales and
            `                          Marketing

Directors serve until the next annual meeting or until their successors are
elected or appointed. All Officers are appointed by and serve at the discretion
of the Board of Directors, although Mr. Happy and Mr. Chabbert have entered into
employment agreements. See "Management Employment Agreements." There are no
family relationships between any of our directors and officers.

SAM ROTHMAN has served as a director of Mooney since December 2001. He was
elected Chairman of the Board on August 19, 2002. Mr. Rothman has been
self-employed in real estate and security investments during the past five
years.


                                       23
<PAGE>

J. NELSON HAPPY has served as President, Chief Financial Officer and Secretary
of the Company since November 14,2002. Prior to that he was named Vice Chairman
of the company's board on August 19, 2002. Prior to that he served as Executive
Vice President and General Counsel since January 8, 2002. He was previously the
CEO of Cenco Refining Company from September 1999 to December 2001. From
September 1993 to August 1999, he served as the Dean of Regent University School
of Law. Mr. Happy received his B.S. Degree from Syracuse University in 1964 and
his JD Degree from Columbia University School of Law in 1967.

ARIE RABINOWITZ has served as a director since December 2001. He is also a
consultant to the company and has been a vice president at LH Financial Services
Inc., during the past five years. LH Financial clients have invested in Mooney.
Mr. Rabinowitz has a B.S. in Actuarial Science from Touro College in New York.

SHOLOM BABAD is a consultant to Mooney and was appointed as a director in April
2002. He has been self-employed as a consultant in fundraising and security
investments during the past five years.

SOL MAYER is an investment manager and entrepreneur with a background in
marketing. He was appointed to the board in April 2002.

S B LAI has served as director of the company since October 1997. Mr. Lai has
been a Professor with the Graduate School of Business Administration, National
Chengchi University, Republic of China; the Secretary General, Chinese
Management Association, Republic of China; a National Assemblyman, Republic of
China; and is Judge and Committeeman of the National Quality Award. He has
served as director of Ta-Yeh University, Republic of China; he is a consulting
committeeman for the Ministry of Economic Affairs and the Ministry of Education
Affairs of the Republic of China. He has a BSME and MBA from the National
Cheng-Kung University and a MSISE and Ph. D. from the University of Southern
California.

NICHOLAS CHABBERT has been our Executive Vice President of Sales and Marketing
since July 2002. From 2001 to 2002, he was the CEO of EXA SA in Geneva,
Switzerland, a start-up company that was marketing a new type stripping machine.
Mr. Chabbert received a Masters Degree in 1992 for l'Ecole Superieure Libre des
Sciences Commerciales Appliquees, a French school of commerce, which is
equivalent to an M.B.A. in "International Business". He then joined EADS Socrata
where he served in a number of management positions and was in charge of direct
sales and then the management of the European distributor network. Mr. Chabbert
was Senior Vice President Sales and Marketing of the U. S. subsidiary Socata
Aircraft for five years beginning in June 1996, and reintroduced the TBM 700 and
TB line in the U.S. market.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

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

Based solely upon a review of the copies of such forms furnished to us, or
written representations that no Form 5 filings were required, we believe that
during the fiscal year ended December 31, 2002, there was compliance with all
Section 16(a) filing requirements applicable to our officers, directors and
other with greater than 10% beneficial owners.


                                       24
<PAGE>

ITEM 10: EXECUTIVE COMPENSATION

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

                           SUMMARY COMPENSATION TABLE
<CAPTION>

                                                                          LONG TERM COMPENSATION
                                ANNUAL COMPENSATION

                                                                            AWARDS             PAYOUTS
                                                          OTHER     RESTRICTED   SECURITIES
    NAME AND                                              ANNUAL       STOCK     UNDERLYING       LTIP     ALL OTHER
    PRINCIPAL       FISCAL                             COMPENSATION   AWARD(S)     OPTIONS/      PAYOUTS  COMPENSATION
    POSITION        YEAR     SALARY ($)    BONUS ($)       ($)         ($)        SARS (#)        ($)         ($)
<S>                 <C>       <C>             <C>       <C>             <C>     <C>               <C>          <C>
J. Nelson Happy,    2002      200,000         -            -            -            -            -            -
 Vice Chairman,
 President, CFO
 and Secretary

Nicolas Chabbert,   2002      150,000         -            -            -            -            -            -
 Executive Vice
 President

Carl L. Chen,       2002      150,000         -            -            -        2,000,000        -            -
 PhD, Former        2001      200,000         -         39,248          -            -            -            -
 Chairman,          2000      200,000         -         39,248          -            -            -            -
 President
 and CEO
</TABLE>


<TABLE>
<CAPTION>


                      OPTION/SAR GRANTS IN LAST FISCAL YEAR

                                             INDIVIDUAL GRANTS

                            NUMBER OF SECURITIES     PERCENT OF TOTAL           EXERCISE OR
                           UNDERLYING OPTIONS/SARs  OPTIONS/SARs GRANTED TO      BASE PRICE
        NAME                     GRANTED (#)        EMPLOYEES IN FISCAL YEAR       ($/SH)      EXPIRATION DATE
<S>                               <C>                        <C>                     <C>              <C>
     J. Nelson Happy,                 -                       -                       -                     -
Vice Chairman, President,
    CFO and Secretary

    Nicolas Chabbert,              300,000                    -                      0.20             No expiration
 Executive Vice President

Carl L. Chen, PhD, Former         2,000,000                  N/A                     0.25                1/8/07
 Chairman, President and
           CEO

</TABLE>


                                       25
<PAGE>

<TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<CAPTION>

                                                                        NUMBER OF SECURITIES
                                                                             UNDERLYING         VALUE OF UNEXERCISED
                                                                            UNEXERCISED             IN-THE-MONEY
                                                                          OPTIONS/SARS AT         OPTIONS/SARS AT
                          SHARES ACQUIRED ON                            FISCAL YEAR END (#)     FISCAL YEAR END ($)
         NAME                EXERCISE (#)        VALUE REALIZED ($)         EXERCISABLE/            EXERCISABLE/
                                                                           UNEXERCISABLE           UNEXERCISABLE
<S>                                <C>                    <C>            <C>                         <C>
   J. Nelson Happy,                -                      -                      -                       -
    Vice Chairman,
  President, CFO and
       Secretary

   Nicolas Chabbert,               -                      -                 300,000/-0-               -0-/-0-
    Executive Vice
       President

  Carl L. Chen, PhD,               -                      -                2,000,000/-0-              -0-/-0-
   Former Chairman,
   President and CEO
</TABLE>


COMPENSATION OF DIRECTORS

Directors do not receive compensation but are reimbursed for their expenses for
each meeting of the board that they attend.

EMPLOYMENT CONTRACTS

We have entered into three-year employment agreements with J. Nelson Happy, Vice
Chairman, President and Chief Financial Officer and Nichols Chabbert, Executive
Vice President of Sales and Marketing. Mr. Happy receives an annual salary of
$200,000 plus reimbursement of expenses. Over the three year period he will vest
ownership of three percent of the outstanding shares of Mooney. Mr. Chabbert
receives an annual salary of $125,000 plus a bonus based on the number of
aircraft sold and delivered. He has also received 300,000 stock options with an
exercise price of $0.20.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding our Common Stock
beneficially owned on May 30, 2003 by (i) each person who is known by us to own
beneficially or exercise voting or dispositive control over 5% or more of our
Common Stock, (ii) each Director and (iii) all executive officers and Directors
as a group. Except as otherwise indicated, all stockholders have sole voting and
investment power with respect to the shares listed as beneficially owned by
them, subject to the rights of spouses under applicable community property laws.
<TABLE>
<CAPTION>

     Name and Address (1)            Number of Shares
      of Beneficial Owner             of Common Stock              Percentage of
       Identity of Group            Beneficially Owned (2)      Beneficial Ownership
       -----------------            ----------------------      --------------------
<S>                                 <C>                         <C>
Sholom Babad (3) (16)               Class A    2,178,868                 3%
C.M. Cheng (4) (5)                  Class A       15,000                <1%
                                    Class B    1,013,572                53%
                                    Class E-1  2,027,144                51%
                                    Class E-2  2,027,144                51%
Hon. Robert P. Kaplan (6)           Class A    3,544,876               4.75%
Neil Lewis (7)                      Class A    7,255,631               9.99%
Arie Rabinowitz (8) (16)            Class A    2,178,868                 3%
Samuel Rothman ( 9) (16)            Class A    2,579,000               3.43%
                                    Class E-1  1,653,503                41%
                                    Class E-2  1,453,503                36%
J. Nelson Happy (10)                Class A    2,178,868                 3%
N. Chabbert (11)                    Class A      300,000                <1%

Harpa limited (5)                   Class B    1,013,572                53%
                                    Class E-1  2,027,144                51%
                                    Class E-2  2,027,144                51%

Shih Jen Yeh (5)                    Class B    1,013,572                53%
                                    Class E-1  2,027,144                51%
                                    Class E-2  2,027,144                51%

Chyao Chi Yeh (5)                   Class B    1,013,572                53%
                                    Class E-1  2,027,144                51%
                                    Class E-2  2,027,144                51%

Alpha Capital (12)                  Class A    7,255,631               9.99%
Akteingesellschaft

Austinvest Anstalt (13)             Class A    7,255,631               9.99%
Balzers

The Endeavour Capital (14)          Class A    7,255,631               9.99%
Investment Fund, S.A.

Esquire Trade & Finance Inc. (15)   Class A    4,190,018               5.45%

All directors and officers as a group.
(5 persons)
Class A Common Stock                           9,415,604                 %
Class E-1 Common Stock                         1,653,503                41%
Class E-2 Common Stock                         1,453,503                30%
</TABLE>

(1)      Except as otherwise indicated, the address of each principal
         stockholder is c/o Mooney at Louis Schreiner Field, Kerrville, TX
         78028. We believe that all persons named have sole voting power,
         subject to community property laws where applicable.
(2)      The Common Stock of Mooney is divided into four classes. Each share of
         Class B. Common Stock, Class E-1 and Class e-2 Common Stock is entitled
         to five votes per share, and Class A Common Stock is entitled to one
         vote per share. The shares of Class E Common Stock are subject to
         redemption by us if we do not achieve certain income or market price
         levels.
(3)      We entered into a consulting agreement pursuant to which Mr. Babad will
         be granted a 3% interest in Mooney which is nondilutable.


                                       27
<PAGE>

(4)      Includes 5,067,860 shares of Common Stock held by Harpa Limited, a
         Cayman Island Corporation (Harpa). C.M. Cheng is a director of Harpa
         and has sole voting and investment control over the shares of Common
         Stock held by Harpa and thus may be deemed to beneficially own such
         shares. Mr. Cheng disclaims beneficial ownership of such shares. The
         address of Harpa is c/o Coutts Co. (Cayman) Ltd., Coutts House, P.O.
         Box 707, West Bay Road, Grand Cayman, Cayman Islands.
(5)      The voting stock of Hepa is currently held equally by Shih Jen Yeh and
         Chyao Chi Yeh, who are the children of Song Gen Yeh, the former
         Chairman and principal stockholder of Mooney. See "Certain
         Transactions." The address of Mr. Shih Jen Yeh and Mr. Chyao Chi Yeh is
         14th Floor, No 55, Section 2, Chung-Cheng Road, Shih-Lin District,
         Taipei, Taiwan.
(6)      This amount includes 1,475,775 shares issued upon conversion or
         exercise of debentures and warrants. Excludes and estimated 6,575,425
         shares issuable upon conversion of $110,000 in convertible debentures
         and 700,000 warrants outstanding as of September 30, 2002.
(7)      Includes an estimated 6,905,631 shares issuable upon conversion or
         exercise of debentures and warrants. Excludes an estimated 6,575,425
         shares issuable upon the conversion or exercise of debentures and
         warrants which may not be converted or exercised pursuant to a
         contractually stipulated 9.99% ownership restriction. The full
         conversion and exercise of all debentures and warrants would exceed
         this restriction. Shares are held in the name of Lewis Family
         Investments Pty., Ltd.
(8)      We entered into a consulting agreement pursuant to which Mr. Rabinowitz
         will be granted a 3% interest in Mooney which is nondilutable.
(9)      We entered into a consulting agreement pursuant to which E&S Investment
         Group will be granted a 3% interest in Mooney which is nondilutable.
         Mr. Rothman disclaims beneficial ownership of the shares underlying the
         3% interest which will all be issued in his wife's name. Mr. Rothman's
         wife Tova Rothman, controls E&S Investment Group. Mr. Rothman holds an
         irrevocable proxy from Dr. Chen to vote the Class E-1 and Class E-2
         shares Dr. Chen previously controlled. This amount includes an
         estimated 2,578,198 shares of common stock issuable upon conversion of
         $170,775 in convertible debentures and warrants outstanding as of
         September 30, 2002.
(10)     There is an employment agreement pursuant to which Mr. Happy will be
         granted a 3% interest in Mooney which is nondilutable for three years.
(11)     Includes 300,000 shares of Class A Common Stock issuable upon the
         exercise of options which are currently exercisable.
(12)     The address for Alpha Capital Aktiengesellscraft is Pradafant 7,
         Furstentums 9490, Vaduz, Liechtenstein. Includes an estimated 7,255,631
         shares of Class A Common Stock issuable upon the conversion or exercise
         of debentures and warrants. Excludes an estimated 30,140,076 shares of
         Common Stock issuable upon conversion or exercise of debentures and
         warrants which may not be converted or exercised pursuant to a
         contractually stipulated 9.99% ownership restriction. The full
         conversion and exercise of all debentures and warrants would exceed
         this restriction.
(13)     The address for Austinvest Anstalt Balzars is Landstrasse 938, 9494
         Furstentums, Balzers, Liechtenstein. Includes an estimated 7,255,631
         shares of Class A Common Stock issuable upon the conversion of Series A
         Preferred Stock or exercise of warrants. Excludes an estimated
         4,235,448 shares of Class A Common Stock issuable upon conversion of
         Series A Preferred Stock or exercise of warrants, which may not be
         converted or exercised pursuant to contractually stipulated 9.99%
         ownership restriction. The full conversion of all Series A Preferred
         Stock and the exercise of all warrants would exceed this restriction.
(14)     The address for The Endeavour Capital Investment Fund, S.A. is
         Cumberland House, 27 Cumberland Street, Nassau, New Providence, The
         Bahamas. Includes and estimated 7,255,631 shares of Class A Common
         Stock issuable upon the exercise or conversion of Series A Preferred
         Stock, debentures, and warrants. Excludes an estimated 7,748,624 shares
         of Class A Common Stock issuable upon conversion or exercise of Series
         A Preferred Stock, debentures, and warrants would exceed this
         restriction.
(15)     The address of Esquire Trade &Finance Inc. is Trident Chambers, Road
         Town, Tortola, B.V.I Includes and estimated 4,190,018 shares Class A
         Common Stock issuable upon conversion of Series A Preferred Stock and
         exercise of warrants.
(16)     The consulting agreement between Mooney and E&S Investment Group
         (controlled by Mr. Rothman's wife), Mr. Babad, Mr., Rabinowitz and
         Libra Finance, S.A., Grants these consultants a nondilutable 12%
         ownership interest in Mooney which will be divided equally among the
         four consultants. This 12% interest will be calculated based upon
         Mooney's issued and outstanding common stock as of December 31, 2002.


                                       28
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS.

In March 2001, we entered into a consulting agreement to issue a 6% nondilutable
interest in Mooney to a group of consultants, two of whom (Messrs. Babad and
Rabinowitz) later became members of our Board of Directors and one of whom is an
entity controlled by the spouse of Mr. Rothman, the Chairman of the Company. The
Company 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 Mooney to be
issued to the consultants to 12%. The consultant agreement between Mooney and
E&S Investment Group (controlled by Mr. Rothman's wife), Mr. Babad, Mr.
Rabinowitz and Libra Finance, S.A., grants these consultants a nondilutable 12 %
ownership in Mooney which will be divided equally among the four consultants.
This 12 % interest will be calculated based on Mooney's issued and outstanding
common stock as of October 26, 2003.

Mr. Babad, a director, received $29,032 in finder's fees in 2001 and has a
consulting agreement with us that provides for payments to him of $10,000 a
month from December 2001 through March 2002, and $7,000 a month from April 2002
through December 31, 2002.

Mr. Rothman has consulting agreements with us that provide for monthly payments
of $5,000 beginning in December 2001. At December 31, 2002, $65,000 was due to
Mr. Rothman under this agreement.

Mr. Rabinowitz has consulting agreements with us that provide for monthly
payments of $5,000 beginning in January 2003.

In 2002, Mr. Rothman, Mr. Rabinowitz and Mr. Babad loaned us an aggregate of
$975,000 in the form of promissory notes. As of December 31, 2002, an aggregate
of $675,000 was still outstanding on these promissory notes.


PART IV

ITEM 13. EXHIBITS LIST

(a) The following exhibits are submitted herewith:


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


       EXHIBIT 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

(15)      2.2            Order of the U.S. Bankruptcy Court dated March 18, 2002
                         re Mooney Aircraft Corporation

(15)      2.3            Asset Purchase Agreement by and between the Company and
                         Mooney Aircraft Corporation dated March 18, 2002


                                       29
<PAGE>

(15)      2.4            First Amendment to Asset Purchase Agreement by and
                         between the Company and Mooney Aircraft Corporation
                         dated March 19, 2002

(1)       3.1            Certificate of Incorporation

          3.2            Bylaws as amended on August 19, 2002

(1)       3.3            Amended and Restated Certificate of Incorporation

(10)      3.4            Amendment to the Certificate of Incorporation

(19)      3.5            Amendment to the Certificate of Incorporation

(7)       3.6            Certificate of Designation

(8)       3.7            Amendment to Certificate of Designation

(15)      3.8            Certificate of Incorporation for Mooney Airplane
                         Company, Inc. (a wholly-owned subsidiary)

(15)      3.9            Certificate of Amendment of Certificate of
                         Incorporation for Mooney Airplane Company, Inc. (a
                         wholly-owned subsidiary)

(19)      3.10           Bylaws as amended on July 22, 2002 for Mooney Airplane
                         Company, Inc. (a wholly-owned subsidiary)

(1)       4.1            Specimen Certificate of Class A Common Stock

(1)       4.2            Warrant Agreement (including form of Class A and Class
                         B Warrant Certificates)
(1)       4.3            Form of Underwriter's Unit Purchase Option

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

(6)       4.6            Form of Special Common Stock Purchase Warrant to be
                         issued to the Series A Preferred Placement Agent

(6)       4.7            Form of Funds Escrow Agreement related to the March
                         2000 Subscription Agreement

(7)       4.8            Private Equity Line of Credit Agreement, dated August
                         15, 2000, between the Company and certain Investors

(7)       4.9            Registration Rights Agreement between the Company and
                         the investors participating in the Private Equity Line
                         of Credit Agreement

(7)       4.10           Form of Warrant issued in connection with Private
                         Equity Line of Credit Agreement

(8)       4.11           Waiver Agreement between the Registrant and the Series
                         A Preferred Stock Subscribers


                                       30
<PAGE>

(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 Traunche A Promissory Note for $500,000, dated
                         January 29, 2002, issued to Congress Financial
                         Corporation (Southwest), as executed
12)      4.24            Secured Traunche B Promissory Note for $2,500,000,
                         dated January 29, 2002, issued to Congress Financial
                         Corporation (Southwest), as executed

(12)      4.26           Limited Recourse Secured Traunche D Promissory Note for
                         $5,714,408.71, dated January 29, 2002, issued to
                         Congress Financial Corporation (Southwest), as executed

(13)      4.27           January 30, 2002 Subscription Agreement and Form of
                         Secured Note (Exhibit A to the Subscription Agreement)
                         and Form of Warrant (Exhibit D to the Subscription
                         Agreement) for subsequent closing under October 26,
                         2002 Subscription Agreement

(13)      4.28           Notice of Put, Officer's Certificate and Modification
                         of Put Agreement Terms for the Put dated January 30,
                         2002

(13)      4.29           January 30, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement)


                                       31
<PAGE>

(14)      4.30           March 26, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         January 30, 2002 Subscription Agreement

(16)      4.31           April 11, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         January 30, 2002 Subscription Agreement

(19)      4.32           May 16, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement)

(19)      4.33           June 5, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         May 16, 2002 Subscription Agreement)

(19)      4.34           June 10, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         May 16, 2002 Subscription Agreement

(19)      4.35           June 18, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         May 16, 2002 Subscription Agreement

(19)      4.36           June 28, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement) for subsequent closing under
                         May 16, 2002 Subscription Agreement

(19)      4.37           July 10, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement)

(19)      4.38           Waiver and Agreement of Amendment

(20)      4.39           July 31, 2002 Subscription Agreement and Form of
                         Unsecured Note (Exhibit A to the Subscription
                         Agreement) and Form of Warrant (Exhibit D to the
                         Subscription Agreement)


(1)       10.1           Form of Indemnification Agreement


                                       32
<PAGE>

(2)       10.2           Amended 1996 Stock Option File

(1)       10.3           Employment Agreement dated as of May 1, 1996 between
                         the Company and Dr. Carl L. Chen

(15)      10.4           Severance Agreement and Warrant Agreement, each between
                         the Company and Dr. Carl L. Chen

(2)       10.5           Lease dated December 19, 1996 between Olen Properties
                         Corp., a Florida corporation, and the Company

(3)       10.6           Standard Sublease dated June 27, 1997 with Budget

                         Rent-a-Car of Southern California

(3)       10.8           Standard Industrial/Commercial Multi-Tenant Lease-Gross
                         dated March 12, 1997 with the Golgolab Family Trust

(5)       10.9           Loan Agreement dated as of August 1, 1997 between the
                         Company and the California Economic Development
                         Authority

(5)       10.10          Indenture of Trust dated as of August 1, 1997 between
                         the Company and the California Economic Development
                         Authority and First Trust of California, National
                         Association

(4)       10.11          Official Statement dated August 5, 1997

(5)       10.12          Letter of Credit issued by The Sumitomo Bank, Limited

(5)       10.13          Reimbursement Agreement dated as of August 1, 1997
                         between the Company and the Sumitomo Bank, Limited

(5)       10.14          Purchase Contract dated August 1, 1997 by and among
                         Rauscher Pierce Refnes, Inc., the California Economic
                         Development Authority and the Treasurer of the State of
                         California, and approved by the Company

(5)       10.15          Remarketing Agreement dated as of August 1, 1997
                         between the Company and Rauscher Pierce Refnes, Inc.

(5)       10.16          Blanket Letters of Representations of the California
                         Economic Development Authority and First Trust of
                         California, National Association

(5)       10.17          Tax Regulatory Agreement dated as of August 1, 1997 by
                         and among the California Economic Development
                         Authority, the Company and First Trust of California,
                         National Association
(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


                                       33
<PAGE>

(4)       10.21          Lease Agreement dated October 17, 1997 between the
                         Company and the City of Long Beach

(4)       10.22          Construction Agreement dated October 29, 1997 between
                         the Company and Commercial Developments
                         International/West

(12)      10.23          Assignment and Assumption Agreement between Advanced
                         Aerodynamics and Structures, Inc. and Congress
                         Financial Corporation (Southwest), dated January 29,
                         2002, as executed

(12)      10.24          Collateral Assignment of Debt and Security Agreements
                         between Advanced Aerodynamics and Structures, Inc. and
                         Congress Financial Corporation (Southwest), dated
                         January 29, 2002, as executed

(17)      10.25          Roy Norris Employment Agreement

(17)      10.26          Dale Ruhmel Employment Agreement

(17)      10.27          L. Peter Larson Employment Agreement

(17)      10.28          J. Nelson Happy Employment Agreement

(17)      10.29          Exhibit 1 to Employment Agreements

(19)      10.30          Nicolas Chabbert Employment Agreement

(19)      10.31          2002 Stock Option Plan

(20)      10.32          Audit Committee Charter adopted July 22, 2002

          99.1           Certification of the Chief Executive Officer and
                         Chief Financial Officer Pursuant to 18 U.S.C.
                         Section 1350, as Adopted Pursuant to Section 906
                         of the Sarbanes-Oxley Act of 2002

_________________________

               (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.

                                       34
<PAGE>

               (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-QSB 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.
               (15)       Incorporated by reference to the Company's Report on
                          Form 10-KSB filed with the Securities and Exchange
                          Commission on April 16, 2002.
               (16)       Incorporated by reference to the Company's Report on
                          Form 8-K filed with the Securities and Exchange
                          Commission on April 26, 2002.
               (17)       Incorporated by reference to the Company's Report on
                          Form 10-QSB filed with the Securities and Exchange
                          Commission on May 20, 2002.
               (18)       Incorporated by reference to the Company's
                          Registration Statement on Form SB-2 (333-88964) filed
                          on May 23, 2002.
               (19)       Incorporated by reference to the Company's Amendment
                          No. 1 to the Registration Statement on Form SB-2
                          (333-88964) filed with the Securities and Exchange
                          Commission on August 6, 2002.
               (20)       Incorporated by reference to the Company's Report on
                          Form 10-QSB filed with the Securities and Exchange
                          Commission on August 19, 2002.


                                       35
<PAGE>

ITEM 14. CONTROLS AND PROCEDURES

         Under the supervision and with the participation of our management,
including our chief executive officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our disclosure controls and procedures as
defined in Rule 13a-14(c) promulgated under the Securities Exchange Act of 1934
within 90 days of the filing date of this report. Based on their evaluation, our
chief executive officer and Chief Financial Officer concluded that the design
and operation of our disclosure controls and procedures were effective as of the
date of the evaluation.

There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect these controls subsequent to
the date of the evaluation referenced in the preceding paragraph.


                                   SIGNATURES

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

                                            MOONEY AEROSPACE GROUP, LTD.



Date:  June 13, 2003                        By: /s/ Sam Rothman
                                                ---------------------------
                                                Sam Rothman, Chairman

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

SIGNATURE                           TITLE                             DATE


/s/ Sam Rothman                    Chairman                        June 13, 2003
-----------------------------
Name: Sam Rothman


/s/ J. Nelson Happy                Vice Chairman, President &      June 13, 2003
-----------------------------      Chief Financial Officer and
Name: J. Nelson Happy              Secretary (Principal Executive
                                   Financial and Accounting Officer)


/s/ Arie Rabinowitz                Director                        June 13, 2003
-----------------------------
Name: Arie Rabinowitz


/s/ Sholom Babad                   Director                        June 13, 2003
-----------------------------
Name: Sholom Babad


/s/ Sol Mayer                      Director                        June 13, 2003
-----------------------------
Name: Sol Mayer


/s/ S. B. Lai                      Director                        June 13, 2003
-----------------------------
Name: S. B. Lai



                                       36
<PAGE>

                                 CERTIFICATIONS


I, J. Nelson Happy, certify that:


1.       I have reviewed this annual report on Form 10-KSB of Mooney Aerospace
         Group, Ltd.;

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances under which
         such statements were made, not misleading with respect to the period
         covered by this annual report;

3.       Based on my knowledge, the financial statements, and other financial
         information included in this annual report, fairly present in all
         material respects the financial condition, results of operations and
         cash flows of the registrant as of, and for, the periods presented in
         this annual report;

4.       I am responsible for establishing and maintaining disclosure controls
         and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
         the registrant and have:

         a)       designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

         b)       evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

         c)       presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

5.       I have disclosed, based on our most recent evaluation, to the
         registrant's auditors and the audit committee of registrant's board of
         directors (or persons performing the equivalent functions):

         a)       all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and report
                  financial data and have identified for the registrant's
                  auditors any material weaknesses in internal controls; and

         b)       any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

6.       I have indicated in this annual report whether there were significant
         changes in internal controls or in other factors that could
         significantly affect internal controls subsequent to the date of our
         most recent evaluation, including any corrective actions with regard to
         significant deficiencies and material weaknesses.


Date: June 13, 2003

                                /s/ J. Nelson Happy
                                ------------------------------------------------
                                Vice Chairman, President,
                                Chief Financial Officer and Secretary (principal
                                Executive and Financial and Accounting Officer)


<PAGE>


                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001









                                    CONTENTS

                                                                        Page
                                                                        ----


INDEPENDENT AUDITORS' REPORT:
  Report on Audited Consolidated Financial Statements                    F-1

FINANCIAL STATEMENTS:
  Consolidated Balance Sheet as of December 31, 2002                  F-2 - F-3
  Consolidated Statements of Operations for the years
    ended December 31, 2002 and 2001                                     F-4
  Consolidated Statement of Stockholders' Deficit for the years
    ended December 31, 2002 and 2001                                     F-5
  Consolidated Statements of Cash Flows for the years
    ended December 31, 2002 and 2001                                  F-6 - F-8
  Notes to Consolidated Financial Statements                          F-9 - F-56


<PAGE>


                          INDEPENDENT AUDITORS' REPORT


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


We have audited the accompanying consolidated balance sheet of Mooney Aerospace
Group, Ltd. and Subsidiary as of December 31, 2002, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the two years
then ended. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mooney
Aerospace Group, Ltd. and Subsidiary as of December 31, 2002, and the
consolidated results of its operations and cash flows for each of the two years
then ended, in conformity with accounting principles generally accepted in the
United States of America.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has incurred significant losses from operations since its inception and
has a working capital deficit. The Company is also involved in various
litigation as described in Note 11. These conditions raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.



/s/ Stonefield Josephson, Inc.
CERTIFIED PUBLIC ACCOUNTANTS

Santa Monica, California
May 9, 2003

                                      F-1
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                 CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2002



                                     ASSETS

CURRENT ASSETS:
  Cash and cash equivalents                                         $ 1,413,000
  Accounts receivable, less allowance for doubtful
     accounts of $0                                                      45,000
  Inventory, net of obsolescence reserve of $220,000                  7,552,000
  Debt issuance costs                                                   407,000
  Prepaid expenses and other current assets                             342,000
                                                                    ------------

          Total current assets                                        9,759,000

PROPERTY AND EQUIPMENT, net                                           4,702,000

TRADE NAME                                                            1,802,000

DEBT ISSUANCE COSTS                                                     259,000
                                                                    ------------

          Total assets                                              $16,522,000
                                                                    ============


                                   (Continued)

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


                                      F-2
<PAGE>

<TABLE>
                        MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                CONSOLIDATED BALANCE SHEET (CONTINUED) - DECEMBER 31, 2002




<CAPTION>
                           LIABILITIES AND STOCKHOLDERS' DEFICIT

<S>                                                                              <C>
CURRENT LIABILITIES:
  Accounts payable                                                               $   2,605,000
  Accrued expenses                                                                   2,849,000
  Accrued interest and penalties                                                     6,873,000
  Liabilities related to abandoned property (Notes 11, 12, 13)                      14,099,000
  Accrued warrant liability                                                            399,000
  Advanced deposits                                                                  1,943,000
  Convertible debentures, current portion (net of discounts of $14,150,000)          3,744,000
  Notes payable, current portion (including related party notes of $675,000)         5,222,000
                                                                                 --------------

          Total current liabilities                                                 37,734,000

CONVERTIBLE DEBENTURES, less current portion (net of discounts
  of $5,887,000)                                                                     2,085,000

NOTES PAYABLE, less current portion                                                  2,705,000
                                                                                 --------------

          Total liabilities                                                         42,524,000
                                                                                 --------------

COMMITMENTS AND CONTINGENCIES (Note 11)                                                     --

STOCKHOLDERS' DEFICIT:
  Preferred Stock, $0.0001 par value, 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; 35,889 shares issued and outstanding       2,798,000
  Class A Common Stock, $0.0001 par value, 625,000,000 shares
    authorized; 80,510,761 shares issued and outstanding                                 8,000
  Class B Common Stock, $0.0001 par value, 10,000,000 shares authorized;
    1,013,572 shares issued and outstanding                                                 --
  Class E-1 Common Stock, $0.0001 par value, 4,000,000 shares authorized;
    4,000,000 shares issued and outstanding                                                 --
  Class E-2 Common Stock, $0.0001 par value, 4,000,000 shares authorized;
    4,000,000 shares issued and outstanding                                                 --
  Additional paid-in capital                                                        97,911,000
  Accumulated deficit                                                             (126,719,000)
                                                                                 --------------

          Total stockholders' deficit                                              (26,002,000)
                                                                                 --------------

          Total liabilities and stockholders' deficit                            $  16,522,000
                                                                                 ==============


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

                                           F-3
</TABLE>
<PAGE>


                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                    Year ended      Year ended
                                                   December 31,    December 31,
                                                       2002            2001
                                                   -------------   -------------
                                                                    (restated)

NET SALES                                          $  5,173,000    $         --

COST OF SALES                                         4,442,000              --
                                                   -------------   -------------

GROSS PROFIT                                            731,000              --
                                                   -------------   -------------

OPERATING EXPENSES:
  Research and development expenses                   8,231,000       7,630,000
  Selling and support expenses                          670,000              --
  General and administrative expenses                 5,095,000       4,815,000
  Non-recurring expenses                             11,083,000       3,823,000
                                                   -------------   -------------
                                                     25,079,000      16,268,000
                                                   -------------   -------------

LOSS FROM OPERATIONS                                (24,348,000)    (16,268,000)
                                                   -------------   -------------

OTHER INCOME (EXPENSE):
  Interest income                                        28,000          37,000
  Other income (expense), net                          (195,000)         36,000
  Amortization of debt issue costs and discounts     (6,106,000)     (3,228,000)
  Interest expense                                   (8,201,000)     (2,749,000)
                                                   -------------   -------------

          Total other income (expense)              (14,474,000)     (5,904,000)
                                                   -------------   -------------

LOSS BEFORE PROVISION FOR INCOME TAXES              (38,822,000)    (22,172,000)

PROVISION FOR INCOME TAXES                                   --              --
                                                   -------------   -------------

NET LOSS                                           $(38,822,000)   $(22,172,000)
                                                   =============   =============

NET LOSS PER SHARE:
  Basic and diluted                                $      (0.58)   $      (0.76)
                                                   =============   =============


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

                                      F-4
<PAGE>

<TABLE>
                             MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                           CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                           FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001


<CAPTION>
                                            Preferred Stock                  Common Stock
                                        ----------------------  -------------------------------------------
                                               Series A                Class A               Class B
                                        ----------------------  ---------------------  ------------------
                                         Shares      Amount       Shares      Amount     Shares    Amount
                                        --------  ------------  -----------  --------  ----------  ------
<S>                                     <C>       <C>           <C>          <C>       <C>         <C>
BALANCE, DECEMBER 31, 2000               68,909   $ 4,625,000    8,964,499   $ 1,000   1,900,324   $  --

Proceeds from issuance of
  preferred stock                        11,285       978,000           --        --          --      --
Value of warrants issued with
  preferred stock                            --            --           --        --          --      --
Conversion of Preferred Stock to
  Class A                               (33,546)   (2,334,000)  16,112,563     2,000          --      --
Proceeds from issuance of
  common stock                               --            --    4,455,023     1,000          --      --
Common stock issued for services             --            --      845,678        --          --      --
Value of warrants issued                     --            --           --        --          --      --
Amortization of discount on
  preferred stock                            --       346,000           --        --          --      --
Amortization of warrants attached
  to common stock                            --            --           --        --          --      --
Value of warrants issued with
  debentures                                 --            --           --        --          --      --
Beneficial conversion feature
  related to debentures                      --            --           --        --          --      --
Conversion of Debentures to Class A          --            --   14,961,087     1,000          --      --
Unrealized investment loss                   --            --           --        --          --      --
Net loss for year                            --            --           --        --          --      --
                                        --------  ------------  -----------  --------  ----------  ------

Balance, December 31, 2001 (restated)    46,648     3,615,000   45,338,850     5,000   1,900,324      --

Conversion of Preferred Stock to
  Class A                               (10,759)   (1,041,000)  12,662,905     1,000          --      --
Proceeds from issuance of common
  stock and warrants for services            --            --      100,000        --          --      --
Amortization of discount on
  preferred stock                            --       224,000           --        --          --      --
Amortization of warrants attached
  to common stock                            --            --           --        --          --      --
Issuance of warrants attached to
  debentures                                 --            --           --        --          --      --
Beneficial conversion feature
  related to debentures                      --            --           --        --          --      --
Conversion of Debentures to Class A          --            --   17,381,383     2,000          --      --
Unrealized investment loss                   --            --           --        --          --      --
Issuance of common stock for
  professional services                      --            --      880,000        --          --      --
Conversion of Class B to Class A             --            --      886,752        --    (886,752)     --
Issuance in connection with Mooney
  Aircraft Corporation                       --            --    3,260,871        --          --      --
Issuance of warrants to Mooney
  Aircraft Corporation                       --            --           --        --          --      --
Issuance of warrants to Dr. Chen             --            --           --        --          --      --
Record value of warrants as liability        --            --           --        --          --      --
Net loss for year                            --            --           --        --          --      --
                                        --------  ------------  -----------  --------  ----------  ------

BALANCE, DECEMBER 31, 2002               35,889   $ 2,798,000   80,510,761   $ 8,000   1,013,572   $  --
                                        ========  ============  ===========  ========  ==========  ======
                                                                                              (CONTINUED)
</TABLE>

                                                    Common Stock
                                        --------------------------------------
                                              Class E-1          Class E-2
                                        ------------------  ------------------
                                          Shares    Amount    Shares    Amount
                                        ----------  ------  ----------  ------
BALANCE, DECEMBER 31, 2000              4,000,000   $  --   4,000,000   $  --

Proceeds from issuance of
  preferred stock                              --      --          --      --
Value of warrants issued with
  preferred stock                              --      --          --      --
Conversion of Preferred Stock to
  Class A                                      --      --          --      --
Proceeds from issuance of
  common stock                                 --      --          --      --
Common stock issued for services               --      --          --      --
Value of warrants issued                       --      --          --      --
Amortization of discount on
  preferred stock                              --      --          --      --
Amortization of warrants attached
  to common stock                              --      --          --      --
Value of warrants issued with
  debentures                                   --      --          --      --
Beneficial conversion feature
  related to debentures                        --      --          --      --
Conversion of Debentures to Class A            --      --          --      --
Unrealized investment loss                     --      --          --      --
Net loss for year                              --      --          --      --
                                        ----------  ------  ----------  ------

Balance, December 31, 2001 (restated)   4,000,000      --   4,000,000      --

Conversion of Preferred Stock to
  Class A                                      --      --          --      --
Proceeds from issuance of common
  stock and warrants for services              --      --          --      --
Amortization of discount on
  preferred stock                              --      --          --      --
Amortization of warrants attached
  to common stock                              --      --          --      --
Issuance of warrants attached to
  debentures                                   --      --          --      --
Beneficial conversion feature
  related to debentures                        --      --          --      --
Conversion of Debentures to Class A            --      --          --      --
Unrealized investment loss                     --      --          --      --
Issuance of common stock for
  professional services                        --      --          --      --
Conversion of Class B to Class A               --      --          --      --
Issuance in connection with Mooney
  Aircraft Corporation                         --      --          --      --
Issuance of warrants to Mooney
  Aircraft Corporation                         --      --          --      --
Issuance of warrants to Dr. Chen               --      --          --      --
Record value of warrants as liability          --      --          --      --
Net loss for year                              --      --          --      --
                                        ----------  ------  ----------  ------

BALANCE, DECEMBER 31, 2002              4,000,000   $  --   4,000,000   $  --
                                        ==========  ======  ==========  ======
                                                                   (CONTINUED)

<TABLE>
<CAPTION>

                                        Additional
                                          Paid in    Comprehensive  Accumulated
                                          Capital        Loss        Deficit          Total
                                        ------------  ----------  --------------  -------------
<S>                                     <C>           <C>         <C>             <C>
BALANCE, DECEMBER 31, 2000              $59,519,000   $      --   $ (64,752,000)  $   (607,000)

Proceeds from issuance of
  preferred stock                           170,000          --        (194,000)       954,000
Value of warrants issued with
  preferred stock                            60,000          --              --         60,000
Conversion of Preferred Stock to
  Class A                                 2,332,000          --              --             --
Proceeds from issuance of
  common stock                              897,000          --              --        898,000
Common stock issued for services            344,000          --              --        344,000
Value of warrants issued                    274,000          --              --        274,000
Amortization of discount on
  preferred stock                                --          --        (346,000)            --
Amortization of warrants attached
  to common stock                           119,000          --        (119,000)            --
Value of warrants issued with
  debentures                              3,443,000          --              --      3,443,000
Beneficial conversion feature
  related to debentures                   9,114,000          --              --      9,114,000
Conversion of Debentures to Class A       2,239,000          --              --      2,240,000
Unrealized investment loss                       --     (29,000)             --        (29,000)
Net loss for year                                --          --     (22,172,000)   (22,172,000)
                                        ------------  ----------  --------------  -------------

Balance, December 31, 2001 (restated)    78,511,000     (29,000)    (87,583,000)    (5,481,000)

Conversion of Preferred Stock to
  Class A                                 1,040,000          --              --             --
Proceeds from issuance of common
  stock and warrants for services            32,000          --              --         32,000
Amortization of discount on
  preferred stock                                --          --        (224,000)            --
Amortization of warrants attached
  to common stock                            90,000          --         (90,000)            --
Issuance of warrants attached to
  debentures                              4,473,000          --              --      4,473,000
Beneficial conversion feature
  related to debentures                   9,842,000          --              --      9,842,000
Conversion of Debentures to Class A       2,525,000          --              --      2,527,000
Unrealized investment loss                       --      29,000              --         29,000
Issuance of common stock for
  professional services                     178,000          --              --        178,000
Conversion of Class B to Class A                 --          --              --             --
Issuance in connection with Mooney
  Aircraft Corporation                      900,000          --              --        900,000
Issuance of warrants to Mooney
  Aircraft Corporation                      399,000          --              --        399,000
Issuance of warrants to Dr. Chen            320,000          --              --        320,000
Record value of warrants as liability      (399,000)         --              --       (399,000)
Net loss for year                                --          --     (38,822,000)   (38,822,000)
                                        ------------  ----------  --------------  -------------

BALANCE, DECEMBER 31, 2002              $97,911,000   $      --   $(126,719,000)  $(26,002,000)
                                        ============  ==========  ==============  =============


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


                                           F-5
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                            Year ended       Year ended
                                                            December 31,    December 31,
                                                               2002             2001
                                                           -------------   -------------
                                                                             (restated)

<S>                                                        <C>             <C>
CASH FLOWS USED FOR OPERATING ACTIVITIES:
  Net loss                                                 $(38,822,000)   $(22,172,000)

  ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
    USED FOR OPERATING ACTIVITIES:
      Noncash professional service expense                      530,000         344,000
      Amortization of discount on convertible debentures      5,935,000       3,165,000
      Amortization of debt issuance costs                       171,000          73,000
      Depreciation and amortization expense                   1,610,000       1,567,000
      Loss on disposal of assets                             11,083,000       2,805,000

  CHANGES IN ASSETS AND LIABILITIES:
    (INCREASE) DECREASE IN ASSETS:
      Accounts receivable                                       (43,000)             --
      Inventory                                              (2,721,000)             --
      Prepaid expenses and other current assets                (275,000)          2,000

    INCREASE (DECREASE) IN LIABILITIES:
      Accounts payable                                          518,000        (170,000)
      Accrued expenses                                         (106,000)      2,249,000
      Accrued interest and penalties                          7,799,000              --
      Advanced deposits                                         310,000          45,000
                                                           -------------   -------------
          Net cash used for operating activities            (14,011,000)    (12,092,000)
                                                           -------------   -------------

CASH FLOWS PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
  Purchase of property and equipment                            (43,000)             --
  Purchase of investments                                            --      (2,910,000)
  Proceeds from maturities of investment in bonds                    --         653,000
  Proceeds from sale of investments                           1,953,000         304,000
  (Increase) decrease in other assets                           314,000        (108,000)
  Purchase of Mooney Airplane Company, Inc.                  (4,082,000)             --
  Change in restricted cash                                     436,000         (31,000)
                                                           -------------   -------------
          Net cash used for investing activities             (1,422,000)     (2,092,000)
                                                           -------------   -------------

                                                                             (Continued)

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

                                           F-6
<PAGE>


                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


                                                            Year ended       Year ended
                                                            December 31,    December 31,
                                                               2002             2001
                                                           -------------   -------------
                                                                             (restated)

CASH FLOWS PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
  Proceeds from issuance of preferred stock                $         --    $    954,000
  Proceeds from issuance of convertible debentures           14,589,000       9,799,000
  Proceeds from issuance of notes payable                     5,264,000              --
  Proceeds from the issuance of warrants                             --       3,776,000
  Proceeds from the issuance of common stock                         --         898,000
  Proceeds from bridge financing                                     --       1,100,000
  Payments for debt issuance costs                             (438,000)             --
  Payments on capital lease obligation                         (386,000)       (214,000)
  Payments on notes                                          (2,864,000)       (361,000)
  Payment on bridge financing                                        --      (1,100,000)
                                                           -------------   -------------
          Net cash provided by financing activities          16,165,000      14,852,000
                                                           -------------   -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                       732,000         668,000
CASH AND CASH EQUIVALENTS, beginning of year                    681,000          13,000
                                                           -------------   -------------
CASH AND CASH EQUIVALENTS, end of year                     $  1,413,000    $    681,000
                                                           =============   =============
</TABLE>


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

During the years ended December 31, 2002 and 2001, the Company paid income taxes
of $0 and $0, respectively and interest of $0 and $1,256,000, respectively.

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

During the year ended December 31, 2001, the Company acquired assets of $750,000
for a note payable and entered into capital lease obligations of $3,200,000.

During the years ended December 31, 2002 and 2001, the Company incurred
discounts on the issuance of convertible debentures totaling $14,315,000 and
$13,117,000, respectively.

During the years ended December 31, 2002 and 2001, the Company issued 980,000
and 845,678 shares of its common stock valued at $210,000 and $344,000 for
services performed. These shares were valued at their fair market value upon
date of issuance.

During the year ended December 31, 2002 the Company issued warrants totaling
$320,000 for services.


                                   (Continued)

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

                                      F-7
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)




SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES, CONTINUED:

         During the year ended December 31, 2002, the Company completed the
         acquisition of certain assets and the assumption of certain liabilities
         of MACorp through its newly formed and wholly owned subsidiary, MAC,
         for approximately $9,881,000 (see Note 2). Assets purchased included
         trade name, inventory and property and equipment, and totaled
         $1,802,000, $5,348,000 and $4,678,000 respectively. Liabilities assumed
         amounted to $1,947,000. Of the total consideration paid, approximately
         $4,082,000 was in cash and the Company had the following non-cash
         transactions:

         a) $4,500,000 was in the form of notes payable to Congress;
         b) 3,260,871 shares of Class A Common Stock were issued with a fair
            value of $900,000; and
         c) warrants to purchase 3,623,189 shares of Class A Common Stock
            were issued with a fair value of $399,000.


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

                                      F-8
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         Organization and Line of Business
         ---------------------------------

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

         Until June 30, 2002, the Company was in the development stage, in
         accordance with Statement of Financial Accounting Standards ("SFAS")
         No. 7, of designing a multi-purpose light aircraft. Since its
         inception, the Company was engaged primarily in the 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.

         In January 2002, the Board of Directors decided to refocus the Company.
         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 planned to
         accomplish this through the acquisition of existing high quality
         aviation lines and the development of new aircraft models. The Company
         conducted a technical review of the JETCRUZER 500 program and the
         predecessor JETCRUZER 450 program to ascertain the reasons for the
         continued delays 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 in negotiations
         surrounding the sale of the program to another company or will use the
         JETCRUZER flight and test data to launch a new development activity.

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

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

                                      F-9
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Organization and Line of Business (Continued)
         ---------------------------------------------

         Since its inception in 1990 to June 30, 2002 the Company had
         accumulated a deficit while in the development stage of $99,216,000.
         Effective July 1, 2002, the Company was no longer considered to be in
         the development stage due to its recent acquisition of MACorp's assets
         and business.

         Basis of Presentation
         ---------------------

         The accompanying consolidated financial statements have been prepared
         in conformity with accounting principles generally accepted in the
         United States of America, which contemplate continuation of the Company
         as a going concern. The Company incurred program development costs
         totaling approximately $48,987,000 relating to its JETCRUZER 500
         program which has now been terminated and has recorded a cumulative net
         loss of approximately $126,719,000 as of December 31, 2002. The Company
         also has a working capital deficiency of $27,975,000 as of December 31,
         2002. The Company is involved in certain litigation with former
         executives of the Company and with the owner of the Long Beach,
         California building that the Company previously used as its corporate
         headquarters.

         These conditions raise substantial doubt as to the Company's ability to
         continue as a going concern. These consolidated financial statements do
         not include any adjustments that might result from the outcome of this
         uncertainty. These consolidated financial statements do not include any
         adjustments relating to the recoverability and classification of
         recorded asset amounts, or amounts and classification of liabilities
         that might be necessary should the Company be unable to continue as a
         going concern.

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

              a)   The Company's management team has been developing a financial
                   plan to address its working capital requirements and believes
                   that if executed successfully, the plan will substantially
                   improve the Company's ability to meet its working capital
                   requirements throughout the year ended December 31, 2003.
                   However, the current working capital and financing obtained
                   subsequent to December 31, 2002 is insufficient to meet the
                   Company's needs beyond the second quarter of fiscal 2003.

              b)   Management plans to restructure its current outstanding debt
                   and raise additional capital through private equity or debt
                   financing to sufficiently fund its current operations and
                   increase the number of airplanes produced to generate
                   sufficient revenue to achieve profitable operating results.

              c)   Management is currently in the process of trying to sell its
                   JETCRUZER 500 program; and

                                      F-10
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Basis of Presentation (Continued)
         ---------------------------------

              d)   Management plans to explore the unique opportunity that
                   exists in the general aviation industry today. The Company
                   believes that 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 as a result of the occurrence of the
                   following: (1) reduction of product-liability exposure as a
                   consequence of the passage of the 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 strategic direction by
                   several general aviation aircraft manufacturers, and (3)
                   deteriorating comfort and convenience of airline travel.

         Principles of Consolidation
         ---------------------------

         The accompanying consolidated financial statements include the accounts
         of the Company and its wholly owned subsidiary, Mooney Airplane Company
         ("MAC"), incorporated under the laws of the state of Delaware on March
         4, 2002 (see Note 2). All inter-company accounts and transactions have
         been eliminated.

         Use of Estimates
         ----------------

         The preparation of consolidated financial statements in conformity with
         accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that
         affect the reported amounts of assets and liabilities and disclosures
         of contingent assets and liabilities at the date of the consolidated
         financial statements and the reported amounts of revenue and expenses
         during the reporting periods. As of December 31, 2002 and 2001, the
         Company used estimates in determining the realization of its accounts
         receivable, inventory and its intangible assets. Actual results could
         differ from these estimates.

         Fair Value of Financial Instruments
         -----------------------------------

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

         Cash and Cash Equivalents
         -------------------------

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

                                      F-11
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Concentration of Credit Risk
         ----------------------------

         Financial instruments, which potentially subject the Company to
         concentrations of credit risk, consist of cash and accounts
         receivables. The Company places its cash with high quality financial
         institutions and at times may exceed the FDIC $100,000 insurance limit.
         The Company extends credit based on an evaluation of the customer's
         financial condition, generally without collateral. Exposure to losses
         on receivables is principally dependent on each customer's financial
         condition. The Company monitors its exposure for credit losses and
         maintains allowances for anticipated losses, as required.

         Inventory
         ---------

         Inventory consisting of raw materials, work in process and finished
         goods are stated at the lower of cost utilizing the first-in, first-out
         method or market. An obsolescence reserve is estimated for parts whose
         values have been determined to be impaired or whose future utility
         appears limited.

         Property and Equipment
         ----------------------

         Property and equipment are stated at cost and are depreciated using the
         straight-line method over their estimated useful lives of 5-10 years
         for machinery and equipment, 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.

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

         The Company recognized an impairment expense relating to certain fixed
         assets during the years ended December 31, 2002 and 2001 (see Note 12).

         Trade Name
         ----------

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

                                      F-12
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Impairment of Long-Lived Assets
         -------------------------------

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

         Accrued Warrant Liability
         -------------------------

         Under the terms the convertible debentures issued in 2002 and 2001 and
         in connection with the issuance of Series A preferred stock in 2001 and
         2000, the Company issued detachable warrants to purchase shares of
         common stock. At December 31, 2002, if all the convertible debentures
         and Series A preferred stock were converted into shares of common
         stock, the number of shares to be issued upon conversion would exceed
         the number of authorized shares. As a result, in accordance with the
         guidelines of EITF 00-19, the fair value of the warrants at December
         31, 2002 was recorded as accrued warrant liability. Furthermore, the
         classification of the warrants as a liability require variable
         accounting, with remeasurement of the fair value of the warrants at
         each balance sheet date, with any adjustments reflected in earnings.

         These outstanding warrants were remeasured at December 31, 2002 using
         the Black-Scholes option pricing model using the following assumptions:
         term ranging from 1 to 4 years, a risk-free interest rate of 4.00%, a
         dividend yield of 0% and volatility of 84%.

                                      F-13
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Stock Based Compensation
         ------------------------

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

<TABLE>
<CAPTION>
                                                                 2002           2001
                                                            -------------   -------------
                  <S>                                       <C>             <C>
                  Net loss
                      As reported                           $(38,822,000)   $(22,172,000)
                      Compensation as calculated under
                        Fair Value method                        (41,000)       (201,000)
                                                            -------------   -------------

                      Pro forma                             $(38,863,000)   $(22,373,000)
                                                            =============   =============

                  Basic and diluted loss per common share
                      As reported                           $      (0.58)   $      (0.76)
                      Pro forma                             $      (0.58)   $      (0.77)
</TABLE>

         Advanced Deposits
         -----------------

         Advanced deposits represent deposits from customers for the purchase of
         the JETCRUZER 500, which were paid when the sales order was signed. As
         of December 31, 2002, the Company is no longer developing the JETCRUZER
         500. The Company is carrying these deposits as a current liability.

         Revenue Recognition
         -------------------

         The Company recognizes revenue on substantially all aircraft sales and
         parts and service sales when each of the following four criteria is
         met: 1) a contract or sales arrangement exists; 2) products have been
         shipped or services have been rendered; 3) the price of the products or
         services is fixed or determinable; and 4) collectibility is reasonable
         assured.

                                      F-14
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Revenue Recognition, Continued
         ------------------------------

         The Company also recognizes revenue on aircraft sales under
         bill-and-hold transactions when each of the following seven criteria
         are met: 1) the risk of ownership has passed to the buyer; 2) the buyer
         has made a fixed commitment to purchase the goods; 3) the buyer has
         requested that the transaction be on a bill-and-hold basis and has a
         substantial business purpose for ordering so; 4) there is a fixed
         schedule for delivery of the goods and the delivery date is reasonable
         and consistent with the buyer's business practices; 5) the Company has
         not retained any specific performance obligations such that the
         earnings process is not complete; 6) the aircraft has been segregated
         from the Company's inventory and is not subject to being used to fill
         other orders; and 7) the aircraft must be complete and ready for
         shipment.

         Advertising and Marketing Costs
         -------------------------------

         The Company expenses costs of advertising and marketing as incurred.
         Advertising and marketing expense for the years ended December 31, 2002
         and 2001 amounted to $592,000 and $43,000, respectively.

         Income Taxes
         ------------

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

                                      F-15
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Earnings Per Share
         ------------------

         The Company reports earnings (loss) per share in accordance with SFAS
         No. 128, "Earnings per Share." Basic earnings (loss) per share is
         computed by dividing income (loss) available to common shareholders by
         the weighted average number of common shares available. Diluted
         earnings (loss) per share is computed similar to basic earnings (loss)
         per share except that the denominator is increased to include the
         number of additional common shares that would have been outstanding if
         the potential common shares had been issued and if the additional
         common shares were dilutive. Diluted earnings (loss) per share has not
         been presented since the effect of the assumed conversion of options
         and warrants to purchase common shares would have an anti-dilutive
         effect. The following potential common shares have been excluded from
         the computation of diluted net loss per share for the year ended
         December 31, 2002 and 2001 because the effect would have been
         anti-dilutive:

<TABLE>
<CAPTION>
                                                                       2002            2001
                                                                  --------------  --------------
                  <S>                                             <C>               <C>
                  Conversion of Series A preferred stock            132,922,222      22,535,266
                  Conversion of convertible debentures            1,481,915,414     206,684,506
                  Stock options issued to employees                     300,000       1,322,000
                  Class A warrants                                           --      20,400,000
                  Class B warrants                                           --       6,900,000
                  Warrants issued with convertible debentures        62,939,612      30,614,757
                  Warrants issued with Series A preferred stock       2,771,002       2,771,002
                  Warrants issued with equity line                    4,268,764       4,268,764
                  Warrants issued with severance package              2,000,000       2,000,000
                  Warrants issued with acquisition of MAC             3,623,189              --
                                                                  --------------  --------------
                                                                  1,690,740,203     297,496,295
                                                                  ==============  ==============
</TABLE>

         Comprehensive Loss
         ------------------

         SFAS No. 130, "Reporting Comprehensive Loss," establishes standards for
         the reporting and display of comprehensive income and its components in
         the financial statements. For the year ended December 31, 2002 and
         2001, the Company had items that represented other comprehensive income
         and, accordingly, has included in the statement of stockholders'
         deficit the change in comprehensive loss.

         Research and Development
         ------------------------

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

                                      F-16
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Warranty
         --------

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

         Product Liability
         -----------------

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

         Environmental Remediation Costs
         -------------------------------

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

         Discount on Convertible Debentures
         ----------------------------------

         Discounts on convertible debentures are principally the values
         attributed to the detachable warrants issued in connection with the
         convertible debentures and the value of the preferential conversion
         feature associated with the convertible debentures. These discounts are
         account for in accordance with Emerging Issues Task Force ("EITF")
         00-27 issued by the American Institute of Certified Public Accountants.

         Reclassification
         ----------------

         Certain reclassifications have been made to the 2001 balances to
         conform to the 2002 presentation.

                                      F-17
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Restatement
         -----------

         The financial statements for the year ended December 31, 2001 have been
         restated to properly account for amortization of discount attributable
         to warrants and beneficial conversion features of convertible
         debentures, in accordance with Emerging Issues Task Force Abstract
         00-27. This restatement resulted in the following change:

                  Net loss, as previously reported             $ (21,164,000)
                  Prior period adjustment                         (1,008,000
                                                               --------------

                  Net loss, as restated                        $ (22,172,000)
                                                               ==============

                  Net loss per share, as previously reported   $       (0.73)
                  Prior period adjustment                              (0.03)
                                                               --------------

                  Net loss per share, as restated              $       (0.76)
                                                               ==============

         Recently Issued Accounting Pronouncements
         -----------------------------------------

         In July 2001, the Financial Accounting Standards Board ("FASB") issued
         SFAS No. 141 "Business Combinations." SFAS No. 141 supersedes
         Accounting Principles Board ("APB") No. 16 and requires that any
         business combinations initiated after June 30, 2001 be accounted for as
         a purchase; therefore, eliminating the pooling-of-interest method
         defined in APB 16. The statement is effective for any business
         combination initiated after June 30, 2001 and shall apply to all
         business combinations accounted for by the purchase method for which
         the date of acquisition is July 1, 2001 or later. The Company has
         implemented this pronouncement.

         In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
         Intangibles." SFAS No. 142 addresses the initial recognition,
         measurement and amortization of intangible assets acquired individually
         or with a group of other assets (but not those acquired in a business
         combination) and addresses the amortization provisions for excess cost
         over fair value of net assets acquired or intangibles acquired in a
         business combination. The statement is effective for fiscal years
         beginning after December 15, 2001, and is effective July 1, 2001, for
         any intangibles acquired in a business combination initiated after June
         30, 2001. The Company has implemented this pronouncement.

                                      F-18
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Recently Issued Accounting Pronouncements (Continued)
         -----------------------------------------------------

         In October 2001, the FASB issued SFAS No. 143, "Accounting for Asset
         Retirement Obligations," which requires companies to record the fair
         value of a liability for asset retirement obligations in the period in
         which they are incurred. The statement applies to a company's legal
         obligations associated with the retirement of a tangible long-lived
         asset that results from the acquisition, construction, and development
         or through the normal operation of a long-lived asset. When a liability
         is initially recorded, the company would capitalize the cost, thereby
         increasing the carrying amount of the related asset. The capitalized
         asset retirement cost is depreciated over the life of the respective
         asset while the liability is accreted to its present value. Upon
         settlement of the liability, the obligation is settled at its recorded
         amount or the company incurs a gain or loss. The statement is effective
         for fiscal years beginning after June 30, 2002. The Company has
         implemented this pronouncement.

         In October 2001, the FASB issued SFAS No. 144, "Accounting for the
         Impairment or Disposal of Long-Lived Assets". Statement 144 addresses
         the accounting and reporting for the impairment or disposal of
         long-lived assets. The statement provides a single accounting model for
         long-lived assets to be disposed of. New criteria must be met to
         classify the asset as an asset held-for-sale. This statement also
         focuses on reporting the effects of a disposal of a segment of a
         business. This statement is effective for fiscal years beginning after
         December 15, 2001. The Company has implemented this pronouncement.

         In April 2002, the FASB issued Statement No. 145, "Rescission of FASB
         Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
         Technical Corrections." This Statement rescinds FASB Statement No. 4,
         "Reporting Gains and Losses from Extinguishment of Debt," and an
         amendment of that Statement, FASB Statement No. 64, "Extinguishments of
         Debt Made to Satisfy Sinking-Fund Requirements" and FASB Statement No.
         44, "Accounting for Intangible Assets of Motor Carriers." This
         Statement amends FASB Statement No. 13, "Accounting for Leases," to
         eliminate an inconsistency between the required accounting for
         sale-leaseback transactions and the required accounting for certain
         lease modifications that have economic effects that are similar to
         sale-leaseback transactions. The Company adopted SFAS No. 145, which
         had no material impact to the Company's financial position or results
         of operations.

         In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities." This Statement addresses
         financial accounting and reporting for costs associated with exit or
         disposal activities and nullifies Emerging Issues Task Force ("EITF")
         Issue No. 94-3, "Liability Recognition for Certain Employee Termination
         Benefits and Other Costs to Exit an Activity (including Certain Costs
         Incurred in a Restructuring)." The provisions of this Statement are
         effective for exit or disposal activities that are initiated after
         December 31, 2002, with early application encouraged. The Company has
         implemented this pronouncement.

                                      F-19
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Recently Issued Accounting Pronouncements (Continued)
         -----------------------------------------------------

         In October 2002, the FASB issued Statement No. 147, "Acquisitions of
         Certain Financial Institutions-an amendment of FASB Statements No. 72
         and 144 and FASB Interpretation No. 9," which removes acquisitions of
         financial institutions from the scope of both Statement 72 and
         Interpretation 9 and requires that those transactions be accounted for
         in accordance with Statements No. 141, Business Combinations, and No.
         142, Goodwill and Other Intangible Assets. In addition, this Statement
         amends SFAS No. 144, Accounting for the Impairment or Disposal of
         Long-Lived Assets, to include in its scope long-term
         customer-relationship intangible assets of financial institutions such
         as depositor- and borrower-relationship intangible assets and credit
         cardholder intangible assets. The requirements relating to acquisitions
         of financial institutions are effective for acquisitions for which the
         date of acquisition is on or after October 1, 2002. The provisions
         related to accounting for the impairment or disposal of certain
         long-term customer-relationship intangible assets are effective on
         October 1, 2002. The adoption of this Statement did not have a material
         impact to the Company's financial position or results of operations as
         the Company has not engaged in either of these activities.

         In December 2002, the FASB issued Statement No. 148, "Accounting for
         Stock-Based Compensation-Transition and Disclosure," which amends FASB
         Statement No. 123, Accounting for Stock-Based Compensation, to provide
         alternative methods of transition for a voluntary change to the fair
         value based method of accounting for stock-based employee compensation.
         In addition, this Statement amends the disclosure requirements of
         Statement 123 to require prominent disclosures in both annual and
         interim financial statements about the method of accounting for
         stock-based employee compensation and the effect of the method used on
         reported results. The transition guidance and annual disclosure
         provisions of Statement 148 are effective for fiscal years ending after
         December 15, 2002, with earlier application permitted in certain
         circumstances.

         The interim disclosure provisions are effective for financial reports
         containing financial statements for interim periods beginning after
         December 15, 2002. The adoption of this statement did not have a
         material impact on the Company's financial position or results of
         operations as the Company has not elected to change to the fair value
         based method of accounting for stock-based employee compensation.

                                      F-20
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Recently Issued Accounting Pronouncements (Continued)
         -----------------------------------------------------

         In May 2000, the Emerging Issues Task Force (EITF) issued EITF Abstract
         No. 00-14, Accounting for Certain Sales Incentives. EITF Issue No.
         00-14 addresses the recognition, measurement, and income statement
         classification for sales incentives that a vendor voluntarily offers to
         customers (without charge), which the customer can use in, or exercise
         as a result of, a single exchange transaction. Sales incentives that
         fall within the scope of EITF Issue No. 00-14 include offers that a
         customer can use to receive a reduction in the price of a product or
         service at the point of sale. The EITF changed the transition date for
         Issue 00-14, concluding that a company should apply this consensus no
         later than the company s annual or interim financial statements for the
         periods beginning after December 15, 2001. In June 2001, the EITF
         issued EITF Issue No. 00-25, Vendor Income Statement Characterization
         of Consideration Paid to a Reseller of the Vendor s Products, effective
         for periods beginning after December 15, 2001. EITF Issue No. 00-25
         addresses whether consideration from a vendor to a reseller is (a) an
         adjustment of the selling prices of the vendor's products and,
         therefore, should be deducted from revenue when recognized in the
         vendor's statement of operations or (b) a cost incurred by the vendor
         for assets or services received from the reseller and, therefore,
         should be included as a cost or expense when recognized in the vendor's
         statement of operations.

         Upon application of these EITFs, financial statements for prior periods
         presented for comparative purposes should be reclassified to comply
         with the income statement display requirements under these issues. In
         September of 2001, the EITF issued EITF Issue No. 01-09, Accounting for
         Consideration Given by Vendor to a Customer or a Reseller of the
         Vendor's Products, which is a codification of EITF Issues No. 00-14,
         No. 00-25 and No. 00-22 Accounting for Points and Certain Other Time-or
         Volume-Based Sales Incentive Offers and Offers for Free Products or
         Services to be Delivered in the Future. The Company has adopted these
         issues in 2002 which did not have a material impact on the Company's
         financial statements.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
         of Variable Interest Entities." Interpretation 46 changes the criteria
         by which one company includes another entity in its consolidated
         financial statements. Previously, the criteria were based on control
         through voting interest. Interpretation 46 requires a variable interest
         entity to be consolidated by a company if that company is subject to a
         majority of the risk of loss from the variable interest entity's
         activities or entitled to receive a majority of the entity's residual
         returns or both. A company that consolidates a variable interest entity
         is called the primary beneficiary of that entity.

         The consolidation requirements of Interpretation 46 apply immediately
         to variable interest entities created after January 31, 2003. The
         consolidation requirements apply to older entities in the first fiscal
         year or interim period beginning after June 15, 2003. Certain of the
         disclosure requirements apply in all financial statements issued after
         January 31, 2003, regardless of when the variable interest entity was
         established. The Company does not expect the adoption to have a
         material impact to the Company's financial position or results of
         operations.

                                      F-21
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         Recently Issued Accounting Pronouncements (Continued)
         -----------------------------------------------------

         During April 2003, the FASB issued SFAS 149 - "Amendment of Statement
         133 on Derivative Instruments and Hedging Activities", effective for
         contracts entered into or modified after June 30, 2003, except as
         stated below and for hedging relationships designated after June 30,
         2003. In addition, except as stated below, all provisions of this
         Statement should be applied prospectively. The provisions of this
         Statement that relate to Statement 133 Implementation Issues that have
         been effective for fiscal quarters that began prior to June 15, 2003,
         should continue to be applied in accordance with their respective
         effective dates. In addition, paragraphs 7(a) and 23(a), which relate
         to forward purchases or sales of when-issued securities or other
         securities that do not yet exist, should be applied to both existing
         contracts and new contracts entered into after June 30, 2003. The
         Company does not participate in such transactions, however, is
         evaluating the effect of this new pronouncement, if any, and will adopt
         FASB 149 within the prescribed time.

         During May 2003, the FASB issued SFAS 150 - "Accounting for Certain
         Financial Instruments with Characteristics of both Liabilities and
         Equity", effective for financial instruments entered into or modified
         after May 31, 2003, and otherwise is effective at the beginning of the
         first interim period beginning after June 15, 2003. This Statement
         establishes standards for how an issuer classifies and measures certain
         financial instruments with characteristics of both liabilities and
         equity. It requires that an issuer classify a freestanding financial
         instrument that is within its scope as a liability (or an asset in some
         circumstances). Many of those instruments were previously classified as
         equity. Some of the provisions of this Statement are consistent with
         the current definition of liabilities in FASB Concepts Statement No. 6,
         Elements of Financial Statements. The Company is evaluating the effect
         of this new pronouncement and will adopt FASB 150 within the prescribed
         time.


NOTE 2 - ACQUISITIONS

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

                                      F-22
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 2 - ACQUISITIONS (CONTINUED)

         On February 8, 2002, the Company purchased Congress Financial
         Corporation's position (the "Congress Position") as senior secured
         creditor for MACorp. Under the terms of the Assignment and Assumption
         Agreement, the purchase price paid by the Company in connection with
         the acquisition of the Congress Position was $8,000,000 with $3,500,000
         paid in cash and $4,500,000 payable in secured notes (see Note 5). Each
         note is secured by substantially all the assets acquired from MACorp.
         As additional security for the Company's compliance with the
         fulfillment of its obligations pursuant to the Assignment and
         Assumption Agreement and the acquisition notes, the Company delivered
         to Congress Financial Corporation a Limited Recourse Secured Promissory
         Note for $5,700,000. This note 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 MACorp's
         assets to the Company, which was completed on April 19, 2002. On April
         19, 2002, the Company completed the acquisition of certain assets and
         the assumption of certain liabilities of MACorp through its newly
         formed and wholly owned subsidiary, MAC, for approximately $9,881,000.
         Of the total consideration paid, approximately $4,082,000 was in cash,
         of which, $3,500,000 was paid directly to Congress; $4,500,000 was in
         the form of notes payable to Congress; 3,260,871 shares of Class A
         Common Stock were issued with a fair value of $900,000, and warrants to
         purchase 3,623,189 shares of Class A Common Stock were issued with a
         fair value of $399,000. Assets purchased included trade name, inventory
         and property, and equipment, and totaled $1,802,000, $5,348,000 and
         $4,678,000 respectively. Liabilities assumed totaled to $1,947,000.

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

         The operating results of the acquisition are included in the Company's
         consolidated results of operations from April 19, 2002. The following
         unaudited proforma summary presents the consolidated results of
         operations as if the acquisition had occurred at the beginning of the
         year of acquisition and the year immediately preceding, after the
         effect of certain adjustments. These proforma results have been
         presented for comparative purposes only and are not indicative of what
         would have occurred had the acquisitions been made as of January 1,
         2001, appropriately, or of any potential results which may occur in the
         future. The results of operations of MACorp included in the pro forma
         information below are not indicative of what the results of operations
         would be had MACorp been operating under normal circumstances, as it
         was operating under Chapter 11 proceedings during a portion of the time
         during the years ended December 31, 2002 and 2001.

                                      F-23
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 2 - ACQUISITIONS (CONTINUED)

                                                         2002           2001
                                                    -------------  -------------
                  Net sales                         $  5,633,000   $ 15,248,000
                                                    =============  =============
                  Gross profit                      $  1,046,000   $  2,484,000
                                                    =============  =============
                  Operating expenses                $ 26,310,000   $ 24,201,000
                                                    =============  =============
                  Net loss                          $(39,956,000)  $(28,271,000)
                                                    =============  =============
                  Basic and diluted loss per share  $      (0.59)  $      (0.87)
                                                    =============  =============
                  Weighted average shares             69,157,000     33,271,000
                                                    =============  =============


NOTE 3 - INVENTORY

         Inventory at December 31, 2002 consisted of the following:

                  Raw materials and purchased parts   $ 1,614,000
                  Work-in-process                       3,530,000
                  Semi finished and finished goods      2,628,000
                                                      ------------

                                                        7,772,000
                  Less allowance for obsolence and
                    slow-moving parts                    (220,000)
                                                      ------------

                                                      $ 7,552,000
                                                      ============


NOTE 4 - PROPERTY AND EQUIPMENT

         The cost of property and equipment at December 31, 2002 consisted of
         the following:

                  Experimental Aircraft                             $   650,000
                  Office furniture and equipment                        529,000
                  Machinery and equipment                             4,051,000
                                                                    ------------
                                                                      5,230,000
                  Less accumulated depreciation and amortization       (528,000)
                                                                    ------------

                                                                    $ 4,702,000
                                                                    ============

         Depreciation expense for the year ended December 31, 2002 and 2001 was
         $1,610,000 and $1,567,000, respectively.

                                      F-24
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 5 - NOTES PAYABLE

         Notes payable at December 31, 2002 consisted of the following:

                       a) Congress Note A                         $        --
                       a) Congress Note B                           1,875,000
                       a) Congress Note C                             607,000
                       b) Notes Payable - May 24, 2002              1,075,000
                       c) Notes Payable - July 30, 2002                    --
                       d) Notes Payable - July 31, 2002               200,000
                       e) Notes Payable - August 23, 2002             500,000
                       f) Notes Payable - August 29, 2002             200,000
                       g) Notes Payable - August 30, 2002             272,000
                       h) Notes Payable - October 4, 2002           1,350,000
                       i) Notes Payable - November 8, 2002             99,000
                       j) Notes Payable - November 22, 2002            50,000
                       k) Notes Payable - December 30, 2002         1,015,000
                       l) Mooney Aircraft Corporation                 139,000
                       m) Kerrville Independent School District       341,000
                       n) City of Kerrville, Texas                    128,000
                       o) Other                                        76,000
                                                                  ------------
                                                                    7,927,000
                               Less current maturities             (5,222,000)
                                                                  ------------

                                                                  $ 2,705,000
                                                                  ============

              Principal payments on notes payable are as follows:

                  Year ending December 31,
                      2003                                        $ 5,222,000
                      2004                                          1,690,000
                      2005                                          1,015,000
                                                                  ------------

                                                                  $ 7,927,000
                                                                  ============

                                      F-25
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001

NOTE 5 - NOTES PAYABLE (CONTINUED)

         a)   As discussed in Note 1 and 2, on February 8, 2002 the Company
              entered into an agreement with Congress Financial Corporation to
              acquire its position as a senior secured creditor of MACorp for
              $8,000,000. Of this amount, $3,500,000 of the purchase price was
              paid in cash, and $4,500,000 was paid in secured notes with the
              following terms: (1) a Secured Promissory Note for $500,000, with
              an interest rate of the prime rate, interest payments being due
              the first day of each month starting with February 1, 2002 and
              principal due on July 29, 2002; (2) a Secured Promissory Note for
              $2,500,000, with an interest rate of the prime rate with principal
              payments of $208,000 and interest payments being due in twelve
              consecutive calendar quarterly installments commencing with April
              1, 2002 and; (3) a Secured Promissory Note for $1,500,000, with an
              interest rate of the prime rate, with principal payments of
              $93,750, and interest payments being due on the first business day
              of each calendar quarter commencing on July 1, 2002. These notes
              are secured by substantially all the assets acquired from MACorp.
              As of December 31, 2002, a total of approximately $2,482,000 of
              these notes are outstanding. At December 31, 2002 accrued interest
              related to these notes totaled approximately $22,000. The note for
              $500,000 plus accrued interest was paid on July 29, 2002.

              As additional security for the Company's compliance with the
              fulfillment of its obligations to Congress, there is a Limited
              Recourse Secured Promissory Note for $5,700,000. Interest accrues
              at the rate of 2% per annum in excess of the prime rate. This note
              is a contingent note and therefore, principal and interest are
              payable on January 29, 2007, but only in the event that the
              Company defaults under the payment terms of the other notes. This
              note is also secured by substantially all the assets acquired from
              Congress. No events of default have occurred with respect to these
              notes.

              In addition to these notes, the terms of the Assignment and
              Assumption Agreement between the Company and Congress also call
              for the Company to pay to Congress, 7 1/2% of any additional
              funding raised subsequent to the agreement, as a prepayment of
              principal on the third note described above with a principal value
              of $1,500,000. The Company had also agreed to pay legal expenses
              incurred by Congress with respect to the acquisition. The total
              amount to be paid was approximately $816,000, including $268,000
              for legal expenses. In August 2002, the Company and Congress
              agreed that the total amount due would be paid in three separate
              installments of approximately $272,000 on August 30, September 30,
              and October 31, 2002. All these payments have been made by certain
              investors on the Company's behalf and recorded as a short-term
              loan payable.

                                      F-26
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 5 - NOTES PAYABLE (CONTINUED)

         b)   On May 24, 2002, the Company received $400,000 in cash in order to
              fund operations, and entered into an unsecured promissory note.
              However, on July 30, 2002 a new secured note in the amount of
              $1,075,000 was signed which superseded the terms of this note, and
              raised an additional $600,000 to fund operations. The remaining
              $75,000 was received by the payment of a consulting invoice on
              behalf of the Company. The note was secured with nearly all of the
              assets of MAC, which is subordinated to Congress's lien on the
              assets, as specified within the Security Agreement dated July 29,
              2002. The terms of this note calls for repayment on the earlier
              of: (1) August 30, 2002; or (2) the sale of the first three
              complete airplanes; or (3) in the event the Company raises an
              aggregate of at least $3,000,000 in financing; or (4) the
              occurrence of an event of default, as defined in the Security
              Agreement dated July 30, 2002 relating to the notes totaling
              $502,000 as described below. The notes accrue at an annual rate of
              8% that increases to 12% should the Company default on repayment.
              As of December 31, 2002, the Company was in default on the note as
              the note had not been repaid according to the repayment terms
              listed above. At December 31, 2002, the balance outstanding of
              $1,075,000 has been recorded as a current liability and interest
              in the amount of $55,000 has been accrued at 12%.

         c)   On July 30, 2002 the Company also issued five secured promissory
              notes in the total amount of $502,000 in order to raise funds to
              pay off the principal and accrued interest of the $500,000 note
              due to Congress. The notes were secured with three aircraft owned
              by the Company as specified within the Security Agreement dated
              July 29, 2002. The interest and payment terms are identical to
              those of the note in the amount of $1,075,000 discussed above. As
              of December 31, 2002, the notes have been repaid.

         d)   On July 31, 2002, the Company issued two secured promissory notes
              in the total amount of $200,000 in order to raise funds for
              operations. The notes were secured with nearly all of the assets
              of MAC, which is subordinated to Congress's lien on the assets, as
              specified within the Security Agreement dated July 29, 2002. The
              interest and payment terms are identical to those of the note in
              the amount of $1,075,000 discussed above, except for event number
              (4), which is defined as the occurrence of an event of default as
              defined in the Security Agreement dated July 29, 2002. The notes
              were due on August 30, 2002. As of December 31, 2002, the Company
              was in default on the notes as the notes had not been repaid
              according to the repayment terms listed above. At December 31,
              2002, the balance outstanding of $200,000 has been recorded as a
              current liability and interest in the amount of $10,000 has been
              accrued at 12%.

                                      F-27
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 5 - NOTES PAYABLE (CONTINUED)

         e)   On August 23, 2002, the Company issued a secured promissory note
              in the amount of $500,000 in order to raise funds for operations.
              The note was secured with nearly all of the assets of MAC, which
              is subordinated to Congress's lien on the assets, as specified
              within the Security Agreement dated July 29, 2002. Payment was due
              on December 23, 2002. Interest accrues at 8% per annum, and at 12%
              in the event of default. As of December 31, 2002, the Company was
              in default on the notes as the notes had not been repaid according
              to the repayment terms. At December 31, 2002, the balance
              outstanding of $500,000 has been recorded as a current liability
              and interest in the amount of $22,000 has been accrued at 12%.

         f)   On August 29, 2002, the Company issued a secured promissory note
              in the amount of $200,000 in order to raise funds for operations.
              The note was secured with nearly all of the assets of MAC, which
              is subordinated to Congress's lien on the assets, as specified
              within the Security Agreement dated July 29, 2002. The payment and
              interest terms are identical to those of the note executed on
              August 23, 2002. As of December 31, 2002, the Company was in
              default on the notes as the notes had not been repaid according to
              the repayment terms. At December 31, 2002, the balance outstanding
              of $200,000 has been recorded as a current liability and interest
              in the amount of $8,000 has been accrued at 12%.

         g)   On August 30, 2002, the Company issued a secured promissory note
              in the amount of $272,000 in order to raise funds to make a
              required payment to Congress. The note was secured with nearly all
              of the assets of MAC, which is subordinated to Congress's lien on
              the assets, as specified within the Security Agreement dated July
              29, 2002. The payment and interest terms are identical to those of
              the note executed on August 23, 2002. As of December 31, 2002, the
              Company was in default on the notes as the notes had not been
              repaid according to the repayment terms. At December 31, 2002, the
              balance outstanding of $272,000 has been recorded as a current
              liability and interest in the amount of $11,000 has been accrued
              at 12%.

         h)   On October 4, 2002, the Company issued four secured promissory
              note in the aggregate amount of $1,350,000 in order to raise funds
              for operations. The note was secured with nearly all of the assets
              of MAC, which is subordinated to Congress's lien on the assets, as
              specified within the Security Agreement dated July 29, 2002.
              Payment was due on November 19, 2002. Interest accrues at 8% per
              annum, and at 12% in the event of default. As of December 31,
              2002, the Company was in default on the notes as the notes had not
              been repaid according to the repayment terms. At December 31,
              2002, the balance outstanding of $1,350,000 has been recorded as a
              current liability and interest in the amount of $40,000 has been
              accrued at 12%.

                                      F-28
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 5 - NOTES PAYABLE (CONTINUED)

         i)   On November 8, 2002, the Company issued two secured promissory
              note in the aggregate amount of $99,000 in order to raise funds
              for operations. The note was secured with nearly all of the assets
              of MAC, which is subordinated to Congress's lien on the assets, as
              specified within the Security Agreement dated July 29, 2002.
              Payment is due on March 31, 2003 and interest accrues at 10% per
              annum. At December 31, 2002, the balance outstanding of $99,000
              has been recorded as a current liability and interest in the
              amount of $1,000 has been accrued at 10%.

         j)   On November 22, 2002, the Company issued a secured promissory note
              in the amount of $50,000 in order to raise funds for operations.
              The note was secured with nearly all of the assets of MAC, which
              is subordinated to Congress's lien on the assets, as specified
              within the Security Agreement dated July 29, 2002. Payment is due
              on March 31, 2003 and interest accrues at 10% per annum. At
              December 31, 2002, the balance outstanding of $50,000 has been
              recorded as a current liability and interest in the amount of
              $1,000 has been accrued at 10%.

         k)   On December 30, 2002, the Company issued fifteen secured
              promissory notes in the total amount of $1,015,000 in order to
              raise funds for operation. The notes were secured by certain of
              the Company's assets, which is subordinated to Congress's liens on
              the assets, as specified within the Security Agreement dated
              December 30, 2002. The notes are due on December 30, 2005.
              Interest accrues at 8% per annum, and at 12% in the event of
              default. At December 31, 2002, the balance outstanding of
              $1,015,000 has been recorded as a long term liability.

         l)   On April 19, 2002, in relation to the acquisition of MACorp (see
              Note 2), the Company issued a promissory note to Mooney Aircraft
              Corporation amounting to $154,489, payable monthly at $2,470,
              bearing interest at 4.75% per annum, and maturing on April 19,
              2008. As of December 31, 2002, unpaid principal on the note
              amounted to $139,000.

         m)   On April 19, 2002, in relation to unpaid property taxes owed, the
              Company issued a promissory note amounting to $465,877 to
              Kerrville Independent School District and Centerpoint Independent
              School District. The Company paid $125,000 of this note during the
              year ended December 31, 2002. Additional payments on the note are
              as follows: a payment of $125,000 on March 31, 2003 and payments
              of $23,720 for each calendar quarter thereafter until paid. The
              note bears interest at 7% and matures on September 30, 2005. As of
              December 31, 2002, unpaid principal amounted to $341,000. The
              Company failed to make the full principal payment of $125,000 at
              March 31, 2003 and is currently in default.

                                      F-29
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 5 - NOTES PAYABLE (CONTINUED)

         n)   On April 19, 2002, in relation to unpaid property taxes owed, the
              Company issued a promissory note amounting to $172,300 to the City
              of Kerrville, Texas and the County of Kerrville, Texas. The
              Company paid $44,000 of this note during the year ended December
              31, 2002. Additional payments are as follows: a payment of $44,000
              on March 31, 2003 and payments of $9,262 for each calendar quarter
              thereafter until paid. The note bears interest at 7% and matures
              on September 30, 2005. As of December 31, 2002, unpaid principal
              amounted to $128,300.

         o)   The Company has other notes payable that are due on demand
              totaling $76,000 with interest at approximately 8% per annum.


NOTE 6 - CONVERTIBLE DEBENTURES

         Convertible debentures at December 31, 2002 consisted of the following:

                       a)      March 27, 2001 Issuance             $    944,000
                       a)      July 25, 2001 Issuance                   195,000
                       b)      June 27, 2001 Issuance                 1,000,000
                       c)      October 26, 2001 Issuance              8,297,000
                       d)      February 27, 2002 Issuance             5,959,000
                       e)      March 26, 2002 Issuance                1,595,000
                       f)      April 11, 2002 Issuance                1,045,000
                       g)      May 16, 2002 Issuance                    803,000
                       h)      June 6, 2002 Issuance                    358,000
                       i)      June 10, 2002 Issuance                   550,000
                       j)      June 18, 2002 Issuance                   385,000
                       k)      June 28, 2002 Issuance                 2,000,000
                       l)      July 10, 2002 Issuance                   275,000
                       m)      July 31, 2002 Issuance                   300,000
                       n)      September 10, 2002 Issuance            2,160,000
                                                                   -------------

                                                                     25,866,000
                               Less discount                        (20,037,000)
                                                                   -------------

                                                                      5,829,000
                               Less current maturities               (3,744,000)
                                                                   -------------

                                                                   $  2,085,000
                                                                   =============

                                      F-30
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         Principal payments on convertible debentures are as follows:

                  Year ending December 31,
                      2003                                         $ 17,894,000
                      2004                                            1,945,000
                      2005                                                   --
                      2006                                                   --
                      2007                                            6,027,000
                                                                   -------------

                                                                   $ 25,866,000
                                                                   =============

         a)   March 27, 2001 and July 25, 2001 Issuance
              -----------------------------------------

              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 $4,126,000 in Secured Convertible Notes ("Notes" or
              "Debentures") with an interest rate of 5% to accredited investors,
              as defined by Regulation D 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 finder's
              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.

              The Company determined the fair value of the warrants issued in
              connection with this convertible debenture to be $1,476,000. The
              March 27, 2001 Debentures were issued with various stated
              conversion prices, all of which were below market at the time of
              issuance. The value of the conversion feature was estimated to be
              $2,663,000. The total discount (including the finder's fee note,
              detachable warrants and beneficial conversion feature) of
              $4,549,000 which resulted from these transactions, will be
              amortized over the life of the Debentures. For the years ended
              December 31, 2002 and 2001, $2,097,000 and $2,148,000 has been
              amortized to interest expense, due to the passage of time and
              conversions into shares of common stock.

                                      F-31
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

              At December 31, 2002, the Company was in default of one of the
              covenants of the agreement for failure to pay accrued interest. On
              May 20, 2002 the Company obtained waivers from note holders who
              participated under the March 27, 2001 Subscription Agreement, that
              waived their right to call the notes due, their right to have
              interest accrued at a penalty rate, and amended the terms of the
              note to require the payment of interest at maturity. Per the terms
              of the associated Collateral Agreement, the terms of the notes
              could be changed on behalf of all subscribers if approval is
              obtained from subscribers whose principal balance outstanding
              represents 60% of the entire balance outstanding, of which the
              Company obtained waivers representing 93% of the principal balance
              outstanding at May 20, 2002. An insufficient number of waivers
              were obtained from those note holders who participated in the July
              25, 2001 transaction. Therefore interest has been accrued at the
              note face rate of 5% for those who signed the waivers and at the
              penalty rate for those who did not. Total interest accrued at
              December 31, 2002 under this Subscription Agreement was
              approximately $111,000.

              The balance of $944,000 outstanding at December 31, 2002 from the
              March 27, 2001 transaction has been recorded as a long-term
              liability since the notes are due on March 27, 2004. The balance
              of $195,000 outstanding from the July 25, 2001 transaction has
              been recorded as a short-term liability, as the notes were due on
              July 25, 2002.

         b)   June 27, 2001 Issuance
              ----------------------

              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 ("Note" or "Debenture") with an interest rate of 5% to an
              accredited investor, as defined by Regulation D issued by the
              Securities and Exchange Commission under the Securities Act of
              1933 due June 27, 2004. 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. Pursuant to that
              Section, the subscriber is entitled to certain damages and, at
              December 31, 2002, the Company has accrued $318,000 in such
              damages.

              In addition, as the non-registration event lasted more than 61
              days, an event of default also occurred. As a result, the balance
              outstanding of $1,000,000 at December 31, 2002 has been record as
              a short-term liability.

                                      F-32
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

              The Company determined the fair value of the warrants issued in
              connection with this convertible debenture to be $317,000. The
              June 27, 2001 Debentures were issued with various stated
              conversion prices, all of which were below market at the time of
              issuance. The value of the conversion feature was estimated to be
              $351,000. The total discount (including the detachable warrants
              and beneficial conversion feature) of $668,000 which resulted from
              this transaction, will be amortized over the life of the
              debenture. For the years ended December 31, 2002 and 2001,
              $223,000 and $114,000 has been amortized to interest expense, due
              to the passage of time. No notes issued under this agreement were
              converted as of December 31, 2002.

              At December 31, 2002, the Company has accrued approximately
              $151,000 in interest due at the penalty rate, as the waiver
              obtained and discussed above did not waive this note holder's
              right to collect interest at the penalty rate as defined in the
              note agreement.

         c)   October 26, 2001 Issuance
              -------------------------

              On October 26, 2001, the Company obtained a 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 ("Notes" or
              "Debentures") with an interest rate of 8% to accredited investors,
              as defined by Regulation D 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 remaining 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 of
              the closing date, which is a non-registration event pursuant to
              Section 10.4 of the Subscription Agreement. In addition, as the
              non-registration event lasted more than 61 days, an event of
              default has also occurred. Therefore in accordance with Section
              10.4, the Company has accrued $1,998,000 representing liquidation
              damages due to the note holders as a result of the
              non-registration event.

              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 expired October 25,
              2002. Funding in the amount of $1,329,000 was obtained through the
              exercise of this option and is discussed below within the
              transaction closed on February 27,2002.

                                      F-33
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be
                  $1,685,000. The October 26, 2001 Debentures were issued with
                  various stated conversion prices, all of which were below
                  market at the time of issuance. The value of the conversion
                  feature was estimated to be $6,065,000. The total discount
                  (including the finder's fee note, detachable warrants and
                  beneficial conversion feature) of $8,417,000, which resulted
                  from this transaction, will be amortized over the life of the
                  debentures. For the years ended December 31, 2002 and 2001,
                  $1,774,000 and $304,000 has been amortized to interest
                  expense, due to the passage of time and conversions into
                  shares of common stock.

                  At December 31, 2002, the Company has accrued approximately
                  $980,000 in interest due the note holders. The Company failed
                  to pay the interest due on the note which is an event of
                  default, therefore, interest has been accrued at the penalty
                  rate of 10%. However, as discussed earlier, on May 20, 2002,
                  the Company obtained waivers from certain note holders. As the
                  debentures are secured, per the terms of the associated
                  Collateral Agreement, the terms of the notes could be changed
                  on behalf of all subscribers under terms similar to the
                  debentures issued on March 27, 2001. As waivers representing
                  66% of all subscribers were obtained, the notes were amended
                  to require the payment of interest at maturity thus curing
                  that event of default, but the waiver did not prohibit the
                  accrual of interest at the penalty rate. The Company is
                  currently in default on this debenture as it has failed to
                  make required interest payments. The principal balance of
                  $8,297,000 outstanding as of December 31, 2002 under this
                  Agreement has been recorded as a current liability.

         d)       February 27, 2002 Issuance
                  --------------------------

                  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 make the cash payment to Congress
                  described in Note 1 and to fund current operations. In the
                  first of the three financing transactions, the Company issued
                  $2,250,000 in 8% Secured Convertible Notes under the October
                  26, 2001 private placement in which $3,000,000 was available
                  for additional financing. In conjunction with the financing,
                  the Company issued an additional $225,000 in Unsecured
                  Convertible Notes as finder's fees. 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 the Company's common stock for the
                  thirty days prior to conversion. The maturity date of the
                  notes is October 26, 2006 and interest is due on September 30,
                  2002 and semi-annually thereafter. Attached to the notes were
                  warrants to purchase 5,143,000 shares of common stock. The
                  first 50% of the warrants may be exercised after 45 days at a
                  price of $.25 per share and the remaining 50% may be exercised
                  at $.30 per share. The warrants may be exercised under the
                  same terms as the warrants issued in conjunction with the
                  October 26, 2001 private placement.

                                      F-34
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  In the second of the three financing transactions, 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. In conjunction with the financing, the
                  Company issued an additional $133,000 in Unsecured Convertible
                  Notes as finder's fees. 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 date of the notes is October
                  26, 2006. Attached to the notes were warrants to purchase
                  3,037,000 shares of 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, the Company
                  issued $2,155,000 in 8% Unsecured Convertible Notes as part of
                  a new private placement dated January 30, 2002. In conjunction
                  with the financing, the Company issued an additional $117,000
                  in Unsecured Convertible Notes as finders fees. 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 4,926,000 shares of 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.

                  The Company determined the fair value of the warrants issued
                  in connection with these convertible debentures to be
                  $2,290,000. The February 27, 2002 Debentures were issued with
                  various stated conversion prices, all of which were below
                  market at the time of issuance. The value of the conversion
                  feature was estimated to be $3,443,000. The total discount
                  (including the finder's fee note, detachable warrants and
                  beneficial conversion feature) $6,208,000 will be amortized
                  over the life of the debentures. For the years ended December
                  31, 2002, $1,343,000 has been amortized to interest expense,
                  due to the passage of time and conversions into shares of
                  common stock.

                  With respect to the three financing deals which closed on
                  February 27, 2002 discussed above, the Company did not
                  register the shares issuable upon conversion within 60 days of
                  the closing date, which is a non-registration event pursuant
                  to Section 10.4 of the Subscription Agreement. In addition, as
                  the non-registration event lasted more than 61 days, an event
                  of default has also occurred. Therefore in accordance with
                  Section 10.4, the Company has accrued $1,076,000 representing
                  liquidation damages due to the note holders as a result of the
                  non-registration event. In addition, those who signed the
                  waivers also amended the terms of their note agreements to
                  require the payment of interest at maturity, but did not waive
                  their right to have interest accrued at the penalty rate of
                  10%. As interest was due on September 30, 2002, and the
                  Company failed to pay the interest when due or within the
                  10-day grace period, a second event of default has occurred.
                  At December 31, 2002, the Company has accrued approximately
                  $520,000 in interest due the note holders. Due to these events
                  of default, the outstanding principal balance of $5,959,000 at
                  December 31, 2002 under this Agreement has been recorded as a
                  current liability.

                                      F-35
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         e)       March 26, 2002 Issuance
                  -----------------------

                  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. In
                  conjunction with the closing, the Company issued an additional
                  $145,000 in Unsecured Convertible Notes as finder's fees. 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
                  with interest being due on September 30, 2002 and
                  semi-annually thereafter. Attached to the notes were warrants
                  to purchase 3,314,000 shares of 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.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $462,000.
                  The March 26, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $988,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $1,595,000 will be amortized over the life of the
                  debentures. For the year ended December 31, 2002, $245,000 was
                  amortized to interest expense due to the passage of time. No
                  notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. In addition, as the non-registration
                  event lasted more than 61 days an event of default has also
                  occurred. Therefore in accordance with Section 10.4, the
                  Company has accrued $218,000 representing liquidation damages
                  due to the note holders as a result of the non-registration
                  event. In addition, those who signed the waivers also amended
                  the terms of their note agreements to require the payment of
                  interest at maturity, but did not waive their right to have
                  interest accrued at the penalty rate of 10%. As interest was
                  due on September 30, 2002 and the Company failed to pay the
                  interest when due or within the 10 day grace period, a second
                  event of default has occurred. At December 31, 2002, the
                  Company has accrued approximately $122,000 in interest due the
                  note holders. Due to the events of default noted above, the
                  outstanding principal balance of $1,595,000 at December 31,
                  2002 under this Agreement has been recorded as a current
                  liability.

                                      F-36
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         f)       April 11, 2002 Issuance
                  -----------------------

                  On April 11, 2002, the Company issued $950,000 in 8% Unsecured
                  Convertible Notes in a subsequent closing that was part of the
                  new private placement that closed on February 27, 2002. In
                  conjunction with the closing, the Company issued an additional
                  $95,000 in Unsecured Convertible Notes as finder's fees. 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 with
                  interest being due at maturity. Attached to the notes were
                  warrants to purchase 2,171,000 shares of 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. At December 31, 2002, the Company has
                  accrued $60,000 in interest due the note holders.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $289,000.
                  The April 11, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $661,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $1,045,000 will be amortized over the life of the
                  debentures. For the year ended December 31, 2002,
                  approximately $151,000 was amortized to interest expense due
                  to the passage of time. As of December 31, 2002, no notes
                  issued under this agreement had been converted.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. As the non-registration event lasted
                  more than 61 days an event of default has also occurred.
                  Therefore, at December 31, 2002, in accordance with and
                  Section 10.4, the Company has accrued $132,000 representing
                  liquidation damages due to the note holders as a result of the
                  non-registration event and subsequent default. Therefore due
                  to the event of default, the outstanding debenture principal
                  balance of $1,045,000 at December 31, 2002 under this
                  agreement has been recorded as a current liability.

                                      F-37
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         g)       May 16, 2002 Issuance
                  ---------------------

                  On May 16, 2002, the Company issued $730,000 in 8% Unsecured
                  Convertible Notes under a new Subscription Agreement. In
                  conjunction with the closing, the Company issued an additional
                  $73,000 in Unsecured Convertible Notes as finder's fees. 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 the Company's common
                  stock for the thirty days prior to conversion. The maturity
                  date of the notes is May 16, 2007 and interest is due on
                  September 30, 2002 and semi-annually there after. Attached to
                  the notes were warrants to purchase 1,669,000 shares of common
                  stock. The first 50% of the warrants may be exercised after 45
                  days at a price of $.25 per share and the remaining 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 determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $232,000.
                  The May 16, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $498,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $803,000 will be amortized over the life of the debentures.
                  For the year ended December 31, 2002, approximately $101,000
                  was amortized to interest expense due to the passage of time.
                  As of December 31, 2002, no notes issued under this agreement
                  had been converted.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. In addition, as the non-registration
                  event lasted more than 61 days, an event of default has also
                  occurred. Therefore, at December 31, 2002, in accordance with
                  Section 10.4, the Company has accrued $82,000 representing
                  liquidation damages due to the note holders as a result of the
                  non-registration event. In addition, those who signed the
                  waivers also amended the terms of their note agreements to
                  require the payment of interest at maturity, but did not waive
                  their right to have interest accrued at the penalty rate of
                  10%. As interest was due on September 30, 2002, and the
                  Company failed to pay interest when due or within the 10-day
                  grace period, a second event of default has occurred. At
                  December 31, 2002, the Company has accrued approximately
                  $51,000 in interest due the note holders. Due to the
                  occurrence of the events of default, the outstanding principal
                  balance of $803,000 at December 31, 2002 under this Agreement
                  has been recorded as a current liability.

                                      F-38
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         h)       June 6, 2002 Issuance
                  ---------------------

                  On June 6, 2002, the Company issued $325,000 in 8% Unsecured
                  Convertible Notes in a subsequent closing that was part of the
                  new private placement dated May 16, 2002. In conjunction with
                  the closing, the Company issued an additional $32,500 in
                  Unsecured Convertible Notes as finder's fees. The notes are
                  convertible after 120 days into shares of common stock under
                  the same terms as the May 16, 2002 private placement. The
                  maturity date of the notes is June 5, 2007 with interest being
                  due at maturity. Attached to the notes were warrants to
                  purchase 743,000 shares of Class A Common Stock. The warrants
                  may be exercised under the same terms as the warrants issued
                  in conjunction with the May 16, 2002 private placement.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $95,000.
                  The June 6, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $230,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $357,500 will be amortized over the life of the debentures.
                  For the year ended December 31, 2002, approximately $41,000
                  was amortized to interest expense due to the passage of time.
                  No notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued $32,000
                  representing liquidation damages due to the note holders as a
                  result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $16,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $358,000 has
                  been recorded as a long-term liability.

         i)       June 10, 2002 Issuance
                  ----------------------

                  On June 10, 2002, the Company issued $500,000 in 8% Unsecured
                  Convertible Notes in a subsequent closing that was part of the
                  new private placement dated May 16, 2002. In conjunction with
                  the closing, the Company issued an additional $50,000 in
                  Unsecured Convertible Notes as finder's fees. The notes are
                  convertible after 120 days into shares of common stock under
                  the same terms as the May 16, 2002 private placement. The
                  maturity date of the notes is June 10, 2007 with interest
                  being due at maturity. Attached to the notes were warrants to
                  purchase 1,143,000 shares of Class A Common Stock. The
                  warrants may be exercised under the same terms as the warrants
                  issued in conjunction with the May 16, 2002 private placement.

                                      F-39
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $133,000.
                  The July 10, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $367,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $550,000 will be amortized over the life of the debentures.
                  During the year ended December 31, 2002, approximately $61,000
                  was amortized to interest expense due to the passage of time.
                  No notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued $47,000
                  representing liquidation damages due to the note holders as a
                  result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $25,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $550,000 has
                  been recorded as a long-term liability.

         j)       June 18, 2002 Issuance
                  ----------------------

                  On June 18, 2002, the Company issued $350,000 in 8% Unsecured
                  Convertible Notes in a subsequent closing that was part of the
                  new private placement dated May 16, 2002. In conjunction with
                  the closing, the Company issued an additional $35,000 in
                  Unsecured Convertible Notes as finder's fees. The notes are
                  convertible after 120 days into shares of common stock under
                  the same terms as the May 16, 2002 private placement. The
                  maturity date of the notes is June 18, 2007 with interest
                  being due at maturity. Attached to the notes were warrants to
                  purchase 800,000 shares of Class A Common Stock. The warrants
                  may be exercised under the same terms as the warrants issued
                  in conjunction with the May 16, 2002 private placement.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $93,000.
                  The June 18, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $257,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $385,000 will be amortized over the life of the debentures.
                  For the year ended December 31, 2002, approximately $41,000
                  was amortized to interest expense due to the passage of time.
                  No notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                                      F-40
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued $31,000
                  representing liquidation damages due to the note holders as a
                  result of the non-registration event.

                  At December 31, 2002 the Company has accrued approximately
                  $17,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $385,000 has
                  been recorded as a long-term liability.

         k)       June 28, 2002 Issuance
                  ----------------------

                  On June 28, 2002, the Company issued $2,000,000 in 8%
                  Unsecured Convertible Notes in a subsequent closing that was
                  part of the new private placement dated May 16, 2002. The
                  notes are convertible after 120 days into shares of common
                  stock under the same terms as the May 16, 2002 private
                  placement. The maturity date of the notes is June 28, 2007
                  with interest being due at maturity. Attached to the notes
                  were warrants to purchase 4,000,000 shares of Class A Common
                  Stock. The warrants may be exercised under the same terms as
                  the warrants issued in conjunction with the May 16, 2002
                  private placement.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $473,000.
                  The June 28, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $1,373,000. The total discount (including the detachable
                  warrants and beneficial conversion feature) of $1,846,000 will
                  be amortized over the life of the debentures. During the year
                  ended December 31, 2002, approximately $188,000 was amortized
                  to interest expense due to the passage of time. No notes
                  issued under this agreement were converted during the year
                  ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore in accordance with Section
                  10.4, the Company has accrued $148,000 representing
                  liquidation damages due to the note holders at December 31,
                  2002 as a result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $82,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $2,000,000 has
                  been recorded as a long-term liability.

                                      F-41
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

         l)       July 10, 2002 Issuance
                  ----------------------

                  On July 10, 2002, the Company issued $250,000 in 8% Unsecured
                  Convertible Notes under a new Subscription Agreement. In
                  conjunction with the closing, the Company issued an additional
                  $25,000 in Unsecured Convertible Notes as finder's fees. 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 the Company's common
                  stock for the thirty days prior to conversion. The maturity
                  date of the notes is July 10, 2007 and interest is due on that
                  date. Attached to the notes were warrants to purchase 571,000
                  shares of common stock. The first 50% of the warrants may be
                  exercised after 45 days at a price of $.25 per share and the
                  remaining 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 determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $58,000.
                  The July 10, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $192,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $275,000 will be amortized over the life of the debentures.
                  For the year ended December 31, 2002, approximately $26,000
                  was amortized to interest expense due to the passage of time.
                  No notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued $18,000
                  representing liquidation damages due to the note holders as a
                  result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $10,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $275,000 has
                  been recorded as a long-term liability.

         m)       July 31, 2002 Issuance
                  ----------------------

                  On July 31, 2002, the Company issued $300,000 in 8% Unsecured
                  Convertible Notes under the July 10, 2002 Subscription
                  Agreement. In conjunction with the closing, the Company paid
                  $30,000 in cash and issued warrants to purchase 86,000 shares
                  of common stock as finder's fees.

                                      F-42
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  The finder's fee warrants may be exercised after 45 days at a
                  price of $.30 per share. 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 the Company's common stock for the thirty days prior to
                  conversion. The maturity date of the notes is July 31, 2007
                  and interest is due on that date. Attached to the notes were
                  warrants to purchase 150,000 shares of common stock. The
                  warrants may be exercised under terms similar to those issued
                  as finder's fees.

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $26,000.
                  The July 31, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $154,000. The total discount (including the finder's fee
                  note, detachable warrants and beneficial conversion feature)
                  of $180,000 will be amortized over the life of the debentures.
                  For the year ended December 31, 2002, approximately $15,000
                  was amortized to interest expense due to the passage of time.
                  No notes issued under this agreement were converted during the
                  year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued
                  approximately $16,000 representing liquidation damages due to
                  the note holders as a result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $10,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $300,000 has
                  been recorded as a long-term liability.

         n)       September 10, 2002 Issuance
                  ---------------------------

                  On September 10, 2002, the Company issued $2,000,000 in 8%
                  Unsecured Convertible Notes under a new Subscription
                  Agreement. In conjunction with the closing, the Company paid
                  $40,000 in cash, issued an additional $160,000 in convertible
                  notes and issued warrants to purchase 571,000 shares of common
                  stock, all as finder's fees. The finder's fee warrants may be
                  exercised after 45 days at a price of $.30 per share. 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 the Company's common
                  stock for the thirty days prior to conversion. The maturity
                  date of the notes is September 10, 2007 and interest is due on
                  that date. Attached to the notes were warrants to purchase
                  4,000,000 shares of common stock. The first 50% of the
                  warrants may be exercised after 45 days at a price of $.25 per
                  share and the remaining 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.

                                      F-43
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 6 - CONVERTIBLE DEBENTURES (CONTINUED)

                  The Company determined the fair value of the warrants issued
                  in connection with this convertible debenture to be $320,000.
                  September 10, 2002 Debentures were issued with various stated
                  conversion prices, all of which were below market at the time
                  of issuance. The value of the conversion feature was estimated
                  to be $1,680,000. The total discount (including the finder's
                  fee note, detachable warrants and beneficial conversion
                  feature) of $2,160,000 will be amortized over the life of the
                  debentures. For the year ended December 31, 2002,
                  approximately $129,000 was amortized to interest expense due
                  to the passage of time. No notes issued under this agreement
                  were converted during the year ended December 31, 2002.

                  The Company did not register the shares issuable upon
                  conversion within 60 days of the closing date, which is a
                  non-registration event pursuant to Section 10.4 of the
                  Subscription Agreement. Therefore, at December 31, 2002, in
                  accordance with Section 10.4, the Company has accrued
                  approximately $48,000 representing liquidation damages due to
                  the note holders as a result of the non-registration event.

                  At December 31, 2002, the Company has accrued approximately
                  $51,000 in interest due the note holders. In addition, as no
                  events of default have occurred with respect to these notes,
                  the principal value of the notes outstanding of $2,160,000 has
                  been recorded as a long-term liability.

                  During the years ended December 31, 2002 and 2001, various
                  note holders converted a total of $2,527,000 and $2,239,000,
                  respectively, of the face amount of Convertible Debentures
                  into 17,381,383 and 14,961,087, shares, respectively, of Class
                  A Common Stock.


NOTE 7 - STOCKHOLDERS' DEFICIT

         Common Stock
         ------------

         As of December 31, 2002 and 2001, the Company has four classes of
         common stock Class A, Class B, Class E-1 and Class E-2. The rights and
         privileges of the 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 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.

                                      F-44
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

         All shares of Class E-1 and Class E-2 Common Stock ("Performance
         Shares") are not transferable or assignable and will 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 through December 31, 2002. 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. 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.

         In connection with the Company's initial public offering in 1996, Class
         A Warrants were issued, which 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 were subsequently extended
         through October 31, 2002, at which time they expired unexercised.

         Preferred Stock
         ---------------

         During 2000 the Company entered into a preferred stock agreement with
         certain investors, 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 aggregate purchase price of $10 million.
         As of December 31, 2002, the Company has 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 under this
         agreement, and received $8,265,500 in cash proceeds, net of $843,000 in
         commissions and legal fees. 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.
         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.

                                      F-45
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 7 - STOCKHOLDERS' DEFICIT (CONTINUED)

         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. As the
         preferred stockholders were able to convert to common stock immediately
         upon issuance of the Preferred Stock, the discount on the Preferred
         Stock of $3,496,000 was immediately amortized to Accumulated Deficit;
         $3,302,000 during the year ended December 31, 2000, and $194,000 during
         the year ended December 31, 2001.

         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, 2002, the Company has
         dividends in arrears for the Preferred Stock totaling $459,000.

         During the years ended December 31, 2002 and 2001, various preferred
         stockholders converted a total of 10,759 and 33,546, shares,
         respectively, plus dividends in arrears into 12,663,000 and 16,113,000
         shares, respectively, of Class A Common Stock. No warrants have been
         exercised as of December 31, 2002.

         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 enabled 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 was for a minimum of $200,000 and
         subject to a maximum of $1,500,000. Additional drawings on this Equity
         Line were dependent upon stock market conditions. The Company sold a
         total of 5,707,000 shares under the Equity Line with a total net
         proceeds of $2,393,000, of which 4,455,000 shares under the Equity Line
         were sold for net cash proceeds of $898,000 during the year ended
         December 31, 2001. No proceeds were received form this equity line
         during the year ended December 31, 2002. The remaining proceeds were
         received during the year ended December 31, 2000.

         In connection with the Equity Line transactions, warrants to purchase
         4,269,000 shares of Common Stock exercisable over three years, at a
         stock price as defined in each agreement, were issued. The fair value
         related to these warrants of $632,000, of which 4,019,000 warrants with
         a fair value of $274,000 were issued during the year ended December 31,
         2001 have been included in the statement of stockholders' deficit. No
         warrants were issued during the year ended December 31, 2002 relating
         to the Equity Line. The remaining warrants were issued during the year
         ended December 31, 2000. No warrants have been exercised as of December
         31, 2002.

                                      F-46
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 8 - 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.

         In June 2002, the board of directors adopted the Company's 2002 Stock
         Option Plan ("Stock Option Plan"). Under the Stock Option Plan, the
         board of directors, or its designated administrators, has the
         flexibility to determine the type and amount of awards to be granted to
         eligible participants. The Stock Option Plan is intended to secure for
         the Company and its stockholders the benefits arising from ownership of
         the Company's common stock by individuals employed or retained by the
         Company who will be responsible for the future growth of the Company.
         Under the Stock Option Plan, an individual shall not be granted more
         than 50,000 options in any one year period.

         The Company authorized and reserved for issuance an aggregate of
         20,000,000 shares of common stock under the Stock Option Plan. The
         exercise price for the options may not be less than 100% (110% for
         options issued to individual with more than 10% voting power) the fair
         market value of the Company's common stock on the date of grant of such
         option. The shares of common stock issuable under the Stock Option Plan
         may be authorized but unissued or acquired or reacquired shares If any
         of the awards granted under the Stock Option Plan expire, terminate or
         are forfeited for any reason before they have been exercised, vested or
         issued in full, the unused shares subject to those expired, terminated
         or forfeited awards will again be available for purposes of the Stock
         Option Plan. As of December 31, 2002, there were no options issued
         under this Stock Option Plan.

         Transactions under the Stock Option Plans during the years ended
         December 31, 2001 and 2002 are summarized as follows:

                                      F-47
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 8 - STOCK OPTIONS (CONTINUED)

         The following is table summarizes the options outstanding:

                                                                       Weighted-
                                                            Stock       Average
                                                           Option      Exercise
                                                            Plan         Price
                                                         -----------  ----------
                  Balance, December 31, 2000                514,000   $    5.00
                      Granted                               878,000   $    0.50
                      Canceled                              (70,000)  $    2.43
                                                         -----------

                  Balance, December 31, 2001              1,322,000   $    2.15
                      Canceled                           (1,322,000)  $    2.15
                                                         -----------

                  Balance, December 31, 2002                     --   $      --
                                                         ===========

         In July 2002, the Company issued 300,000 options to an employee outside
         the Plan. The options do not expire and the exercise price is $0.20.

         The Company has adopted only the disclosure provisions of SFAS No. 123,
         "Accounting for Stock-Based Compensation." It applies Accounting
         Principles Bulletin ("APB") Opinion No. 25, "Accounting for Stock
         Issued to Employees," and related interpretations in accounting for its
         Stock Option Plan and does not recognize compensation expense for its
         Stock Option Plan other than for restricted stock and options issued to
         outside third parties. If the Company had elected to recognize
         compensation expense based upon the fair value at the grant date for
         awards under the Stock Option Plan consistent with the methodology
         prescribed by SFAS No. 123, the Company's net loss and loss per share
         would be reduced to the pro forma amounts indicated below for the years
         ended December 31, 2002 and 2001.

         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 for 2002 and 2001: risk-free interest rate
         of 4.00% and 4.89%; dividend yields of 0% and 0%; volatility factors of
         the expected market price of the Company's common stock of 84.0% and
         91.5%; and a weighted average expected life of the option of 5 and 4
         years, 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.

                                      F-48
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 8 - STOCK OPTIONS (CONTINUED)

         The weighted average fair value of options granted during 2001 was
         $0.23, per option. The weighted average exercise price was $0.50. The
         weighted average fair value of options granted in 2002 was $0.14, per
         option. The weighted average exercise price was $.020.


NOTE 9 - INCOME TAXES

         Deferred income taxes reflect the net tax effects of temporary
         differences between the carrying amounts of assets and liabilities for
         financial statement purposes and the amounts used for income tax
         purposes. Significant components of the Company's deferred tax
         liabilities and assets as of December 31, 2002 are as follows:

                      Deferred tax assets:
                           Federal net operating loss             $ 34,012,000
                           State net operating loss                  3,820,000
                           Research & development credits            1,978,000
                           Other                                       189,000
                                                                  -------------

                      Total deferred tax assets                     39,999,000
                           Less valuation allowance                (39,999,000)
                                                                  -------------

                                                                  $         --
                                                                  =============

         At December 31, 2002, the Company had federal and state net operating
         loss ("NOL") carryforwards of approximately $98,883,000 and
         $39,928,000, respectively. Federal NOLs could, if unused, expire in
         varying amounts in the years 2012 through 2018. State NOLs, if unused,
         could expire in varying amounts from 2002 through 2013.

         At December 31, 2002, the Company had federal and state research and
         development ("R&D") credit carryforwards of approximately $1,436,000
         and $542,000, respectively. The federal R&D credit carryforwards will
         expire beginning in 2004. The state R&D credit carryforwards can be
         carried forward indefinitely.

         The provision for income taxes are as follows:

         The reconciliation of the effective income tax rate to the federal
         statutory rate for the years ended December 31, 2002 and 2001 is as
         follows:
                                                              2002        2001
                                                            -------     -------

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

                      Effective income tax rate               0.0%        0.0%
                                                            =======     =======

                                      F-49
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 9 - INCOME TAXES (CONTINUED)

         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.



NOTE 10 - RELATED PARTY TRANSACTIONS

         In March 2001, the Company entered into a consulting agreement to issue
         a 6% nondilutable interest in the Company to a group of consultants,
         two of whom (Messrs. Babad and Rabinowitz) later became members of the
         Company's Board of Directors and one of whom is an entity controlled by
         the spouse of Mr. Rothman, the Chairman of the Company. The Company
         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 Mooney to be issued to the consultants to 12%. The
         consultant agreement between the Company and E&S Investment Group
         (controlled by Mr. Rothman's wife), Mr. Babad, Mr. Rabinowitz and Libra
         Finance, S.A., grants these consultants a nondilutable 12% ownership in
         the Company which will be divided equally among the four consultants.
         This 12% interest will be calculated based on the Company's issued and
         outstanding common stock as of October 26, 2003.

         Mr. Babad, a director, received $29,032 in finder's fees in 2001 and
         has a consulting agreement with the Company that provides for payments
         to him of $10,000 a month from December 2001 through March 2002, and
         $7,000 a month from April 2002 through December 2002.

         Mr. Rothman has consulting agreements with the Company that provide for
         monthly payments of $5,000 beginning in December 2001. At December 31,
         2002, $65,000 was due to Mr. Rothman under this agreement.

         Mr. Rabinowitz has consulting agreements with the Company that provide
         for monthly payments of $5,000 beginning in January 2003.

         In 2002, Mr. Rothman, Mr. Rabinowitz and Mr. Babad loaned the Company
         an aggregate of $975,000 in the form of promissory notes (see Note 5).
         As of December 31, 2002, an aggregate of $675,000 was still outstanding
         on these promissory notes.

                                      F-50
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 11 - COMMITMENTS AND CONTINGENCIES

         Litigation
         ----------

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

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

         The damages sought in the complaint include attorneys fees, tort
         damages if defamation or fraud can be proven, contractual damages (the
         contract provides for a year's severance if terminated without cause or
         notice).

         The Company has filed a cross-complaint against the two individuals.
         These allegations are based upon Larson and Ruhmel's misappropriation
         of corporate assets, their breach of fiduciary duty, in that they
         continually ignored the directions of the Board of Directors, and acted
         in their own interest. Their actions resulted in substantial damages
         for the Company.

         The Company has accrued damages for this action as of December 31,
         2002, which are included in accrued expenses.

         WHITEFORD JET WINGS, LTD. v. MOONEY AEROSPACE GROUP, LTD. ET AL., Cal.
         Super. Ct. (Los Angeles County, Long Beach District), Case No. NC033548
         (filed January 21, 2003). This case was filed by a company that alleged
         it had signed an agreement to be the exclusive regional distributor of
         Jetcruzer aircraft in Illinois, Indiana, Kentucky, and Wisconsin, and
         that it had put down a deposit of $390,000 for the first 39 aircraft it
         was to purchase. The suit seeks return of the $390,000 deposit on a
         variety of theories, including breach of contract, account stated, and
         fraud. The primary issue is whether the deposits (which the agreement
         provide are non-refundable) must be returned. The Company has recorded
         an advanced deposit, which is included in accrued expenses in the
         accompanying balance sheet, $390,000 related to this matter. The
         Company does not believe that any potential negative outcome from this
         case will have a material impact in its financial position or results
         of operations.

                                      F-51
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

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

         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.

         AP Long Beach Airport, LLC ("AP"), the lessor, has filed a complaint in
         the Los Angeles Superior Court, alleging breach of a Sublease Agreement
         by the Company for failure to pay rent. Specifically, AP alleges that
         AP and the Company entered into a Lease Agreement for the lease of real
         property located in Long Beach, California to the Company for a thirty
         year term. AP and the Company later entered into first, an Assignment
         and Assumption Agreement and then, a Sublease Agreement wherein AP
         sublet the property to the Company for a term of eighteen years at a
         monthly rent of $106,166.67. AP seeks to recover the fair rental value
         of the property and base rent pursuant to the Lease and Sublease
         Agreements in addition to its attorneys' fees and costs.

         Previously, on December 30, 2002, the Company filed suit in the 198th
         Judicial District, Kerr County, Texas alleging that the Sublease
         Agreement was void and specifically fraudulent transfer, breach of the
         duty of good faith and fair dealing, usury and requesting declaratory
         relief. The Company maintains that this transaction, although
         structured as a sale and leaseback, was in reality a financing
         transaction in which the interest charged by AP was usurious.

                                      F-52
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         On March 5, 2003, in response to AP's California suit, the Company
         filed its Motion to Stay or Dismiss Action ("Motion"). In its Motion,
         the Company argued that the California Court should dismiss the action
         before it because the claims could more appropriately be resolved in
         the previously filed, and currently pending, Texas action initiated by
         the Company on December 30, 2002, involving the same parties and the
         same transaction. In its Motion, the Company sought to assure the
         California Court that the Texas Court has jurisdiction over AP and that
         the interest of the parties and judicial economy mitigate in favor of
         dismissing the California action and allowing the dispute to be
         resolved by the Texas Court. In the alternative, the Company requested
         that the California Court stay the action filed by AP until the Texas
         Court has had an opportunity to rule on AP's Motion to Dismiss the
         Texas action for lack of personal jurisdiction.

         The Company's Motion is currently pending before the Superior Court of
         Los Angeles and a hearing has been scheduled for July 8, 2003. The
         Company has recorded as accrued loss on relocation in the accompanying
         consolidated balance sheet, $14,099,000 related to this matter (see
         Note 13). The Company does not believe that any potential negative
         outcome from this case will have a material impact in its financial
         position or results of operations.

         Other Litigation
         ----------------

         In the ordinary course of business, the Company is generally subject to
         claims, complaints, and legal actions. At December 31, 2002, management
         believes that the Company is not a party to any action which would have
         a material impact on its financial condition, operations, or cash
         flows.

         Leases
         ------

         The Company leases a 418,000 square feet complex located in Kerrville,
         Texas under an operating lease agreement with the City of Kerrville,
         Texas that expires in July 2013. The lease provides for current monthly
         lease payments of $1,434.

         Future minimum lease payments applicable to non-cancelable operating
         leases as of December 31, 2002, are as follows:

                                                               Operating
                                                                 Leases
                                                               ----------
                  Year ending December 31,
                      2003                                     $  17,208
                      2004                                        17,208
                      2005                                        17,208
                      2006                                        17,208
                      2007                                        17,208
                      Thereafter                                 130,494
                                                               ----------

                  Net Minimum Lease Payments                   $ 216,534
                                                               ==========

                                      F-53
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 11 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

         The Company incurred rent expense of $184,375 and $173,000, for the
         years ended December 31, 2002 and 2001, respectively.

         Employment Contacts
         -------------------

         The Company's former President and Chief Executive Officer, Dr. Carl
         Chen, resigned effective January 8, 2002. He will remain available as
         needed for consulting with the Company on mutually agreed upon basis.
         The Company agreed to pay Dr. Chen severance of $300,000 over the next
         two years. In addition, he received warrants to purchase 2,000,000
         shares of Class A Common Stock at an exercise price of $.25 valued at
         $320,000 using the Black-Scholes pricing model.

         On August 15, 2002, Mr. Roy H. Norris, President and Chief Executive
         Officer submitted his resignation to the Board of Directors. Mr. Norris
         announced that he had accomplished the objectives he established in
         taking this position, of recruiting a new management team and setting a
         new direction for the Company, and was submitting his resignation and
         turning the company over to those he recruited for that purpose.
         Subsequent to Mr. Norris' resignation, Mr. L. Peter Larson, Chief
         Operating Officer and Chief Financial Officer, became the President and
         Chief Executive Officer. The terms of Mr. Norris' severance called for
         the payment of $165,000 in cash as severance pay, in addition to
         $58,000 in consulting fees and expenses, and has been paid. In
         addition, the Company is to issue a number of shares of Class A common
         stock that is equivalent to 1.5% of all outstanding Class A shares as
         of the date of issuance. As of December 31, 2002, these shares had not
         yet been issued, however a liability of $140,000 was recorded to accrue
         the fair value of the shares owed.

         Additionally, the Company has executed a three-year employment
         agreement with one executive dated January 8, 2002. On a ratable basis
         over the three-year period, the executive will vest a total of 5%
         ownership in the Company. At December 31, 2002, the Company has accrued
         $49,000 in compensation expense representing the estimated fair market
         value of the vested ownership at the date.

         The Company also had a similar employment agreement with Mr. L. Peter
         Larson and Mr. Dale Ruhmel.

                                      F-54
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 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 on outstanding purchase orders which were
         cancelled, in the production of items specifically related to the
         JETCRUZER 500 with no alternative saleable value to the vendors.

         During the fourth quarter of fiscal 2002, the Company abandoned its
         facility in Long Beach, California and incurred a loss of approximately
         $11,083,000, representing the net book value of property and equipment
         of $476,000 and building of $10,607,000. Such losses are classified as
         non-recurring expense in the accompanying consolidated statements of
         operations (see Notes 11 and 13).


NOTE 13 - LIABILITIES RELATED TO ABANDONED PROPERTY

         As discussed in Notes 11 and 12, the Company abandoned its facility in
         Long Beach, California that it had used for its research and
         development activities and its corporate office building, in connection
         with the move of all operations to Kerrville, Texas. There were certain
         obligations related to this building, principally to the owner/lessor,
         for which the Company remains legally obligated (see Note 11). Although
         management believes that the obligations will be settled at amounts
         significantly less than their recorded amounts, the Company does not
         yet have a formal settlement with the lessor, and accordingly the
         obligations continue to be presented at their contractual amounts. In
         the accompanying balance sheet, the Company has the following
         liabilities remaining that relate to this building:

                  Lease obligation (present value of remaining
                    lease payments)                              $   12,622,000
                  Accrued interest on lease obligation                  926,000
                  Other, net                                            551,000
                                                                 ---------------

                                                                 $   14,099,000
                                                                 ===============

         The Company believes they will settle the lawsuit described in Note 11
         and that the actual damages will be substantially less than the
         liability.

         As of December 31, 2002, the Company has impaired the related net
         capitalized cost of the building totaling $10,607,000 (See Note 12).

                                      F-55
<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                     YEARS ENDED DECEMBER 31, 2002 AND 2001


NOTE 14 - 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:

<TABLE>
<CAPTION>
                                                                       2002           2001
                                                                  -------------   -------------
                  <S>                                             <C>             <C>
                  Numerator
                    Loss before extraordinary item                $(38,822,000)   $(22,172,000)
                    Amortization of discount on preferred stock       (224,000)       (346,000)
                    Dividends in Arrears                              (459,000)       (336,000)
                                                                  -------------   -------------

                  Numerator for basic loss per share              $(39,505,000)   $(22,854,000)
                                                                  =============   =============

                  Denominator
                    Weighted average shares of Class B shares        1,014,000       1,900,000
                    Weighted average shares of Class A shares       67,169,000      28,110,000
                                                                  -------------   -------------

                  Denominator for basic loss per share              68,183,000      30,010,000
                                                                  =============   =============

                  Basic loss per share                            $      (0.58)   $      (0.76)
                                                                  =============   =============
</TABLE>

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


NOTE 15 - EMPLOYEE BENEFITS

         The Company has a 401(k) Plan for its employees. For the years ended
         December 31, 2002 and 2001, the Company did not make any contributions
         to the Plan.


NOTE 16 - SUBSEQUENT EVENTS

         Subsequent to December 31, 2002, certain convertible debenture holders
         converted approximately $350,000 of debt into approximately 35,926,000
         shares of the Company's Class A common stock. In addition, certain
         holders of Series A preferred stock converted 2,587 shares of Series A
         preferred stock into approximately 23,462,000 shares of the Company's
         common stock.

         Subsequent to December 31, 2002, the Company has received approximately
         $3,875,000 from the issuance of promissory notes with terms ranging
         from 30 days to 3 years and interest rates ranging from 8% to 10%.

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