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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, 2003
                                       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)

 165 AL MOONEY ROAD NORTH, KERRVILLE, TEXAS                  78028
 ------------------------------------------                  -----
  (Address of Principal Executive Offices)                (Zip Code)

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

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

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

                                      Units
                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 [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no 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: $16,617,000

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 March 15, 2004
was $8,410,706.

The number of shares outstanding of the issuer's common stock as of March 15,
2004 was 580,048,672.

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,"
"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 well-equipped Ovation 2 DX/GX, and the high performance
Bravo DX/GX.

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; 2) a professional sales coordinator and two factory sales
administrators in Kerrville, Texas; 3) Mooney Team Representatives, ("MTR"). We
presently have four MTR'S; located in the Northeast, the Midwest, Northwest ,
and the Southeast, And 4) We are also appointing international sales
representatives to market our products outside the United States.

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

We are beginning an advertising program that features the high performance
capability of our airplanes. We have 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.

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                               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, and 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 effect 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, $7.8 billion
in 2002 and $16.6 billion in 2003.

                                    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 two
models, the Bravo DX/GX and the Ovation2 DX/GX. We have hired a management team
with significant experience in managing manufacturing companies, and we believe
that the team can make MAC profitable.

                                  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 that now include 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 8,000 Mooney aircraft in operation around the
world. We also sell aircraft parts and service to support these aircraft.

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DOMESTIC SALES

Through the combination of direct salespeople and MTRs, we have adequately
covered the U.S.

We have increased our advertising campaign nationwide to offer the choice of a
Mooney with a classic flightdeck called the DX or a glass panel flight deck
called the GX. We provide one toll free telephone number to call and one website
to view at our facility in Kerrville, Texas. The Executive Vice President of
Sales is located at the facility 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 Executive Vice President of
Sales.

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 have reinforced the
team with a professional sales coordinator at the facility besides the original
team members for administrations of sales.

INTERNATIONAL SALES

We have started 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. In addition we are presently evaluating several other
candidates. Agents will conduct sales by signing international customers to a
Mooney contract and will be paid a commission for their success on a per
aircraft basis, unless they decide to step in-between and buy the aircraft at
list-price less the amount of their commission. We have made several sales in
Europe that will give us access to an aircraft for demonstrations.

NEW PRODUCT DEVELOPMENT PROGRAMS

We have sold of the Jetcruzer program to another company. We are currently
producing two aircraft that utilize the Garmin GNS 430/530 avionics. We are in
the process of offering the Garmin GRMN G1000 all glass integrated avionics
system as two new models the Ovation2 GX and the BravoGX. The certification
program is now underway and is expected to be complete by mid-summer. We are
extremely excited about our ability to offer the best of both worlds in panel
technology.

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 that 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.

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                                  RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK IS HIGHLY SPECULATIVE AND INVOLVES A HIGH
DEGREE OF RISK. THEREFORE, YOU SHOULD CONSIDER ALL OF THE RISK FACTORS DISCUSSED
BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN THIS DOCUMENT. YOU SHOULD
NOT INVEST IN OUR COMMON STOCK UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE
INVESTMENT AND YOU ARE NOT DEPENDENT ON THE FUNDS YOU ARE INVESTING.

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

Per a restructure plan on June 17, 2003, the convertible note holders waived
his/her right to all defaults prior to May 31, 2003 and for six months following
the plan date. Each Unsecured Note was be amended such that it is convertible
into shares of the Company's common stock at a fixed per share conversion price
which is $0.0384 cents per share. The Secured Note was amended such that the
convertible into shares of the Company's common stock at a fixed per share
conversion price which is $0.0192 cents per share. The Maturity Date for the
Unsecured Notes was extended for a period of three (3) years, which Maturity
Date shall be the third anniversary of the Plan Date. The Unsecured Notes were
amended such that they bear interest at a rate of (3%) per annum, payable upon
maturity or conversion. Interest may be paid in stock or cash at the Company's
option. The obligations of the Company to register the common stock underlying
any Unsecured Note in a registration statement to be filed with the Securities
and Exchange Commission and to maintain the effectiveness of such a registration
statement shall expire on the second anniversary of the date of issuance of the
Unsecured Note.

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.

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

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

The Commission classifies our Class A Common Stock as a "penny stock". This
classification severely and adversely affects 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.

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, 2003, we had an
accumulated deficit of approximately $140,964,000. We have incurred net losses
of $14,191,000, $38,822,000 in 2003 and 2002, 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,

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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 obtained a revolver loan purchase money security agreement from Esquire Trade
& Finance Inc. and Frasir Stiftung Balzers to Mooney Aerospace Group, Ltd. as
parent and Mooney Airplane Company Inc. as borrower in the amount of $4,000,000
to purchase parts for manufacture of Mooney Airplanes.

However, We may 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.

WE FACE NUMEROUS COMPETITORS, SOME OF WHOM 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 Cirrus
Design (Cirrus), Lancair Co (Columbia) 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 has
been difficult because of financial difficulties caused by that bankruptcy and

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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.

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

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

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

We 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 2004, 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

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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 that will place
additional demands on our limited resources.

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

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

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 March 15,
2004, Mooney had outstanding 580,048,672 shares of Class A Common Stock,
debentures issued under various agreements convertible into 1,270,507,471 shares
of Class A Common Stock, 25,989 shares of Series A Preferred Stock convertible
into 55,580,729 shares of Class A Common 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.

OUR COMMON STOCK TRADES ON THE OTC BULLETIN BOARD, WHICH MAY RESULT IN A REDUCED
VOLUME OF TRADING AND VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK.

Our Class A Common Stock was de-listed from the NASDAQ Stock Market in April
2001, and it is now traded on the OTC 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 market transactions, reductions in the number and quality of security
analysts' and the news media's coverage of us, and increased volatility in the
market price of our common stock

NO DIVIDENDS.

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

VOLATILITY OF STOCK MARKET.

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

                                       8


<PAGE>

    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.

The acceptance of the waiver and consent under the restructuring plan of June
17, 2003 by our convertible note holders and the preferred stock holders the
conversion rates were set at $0.0192 for secured convertible note holders and
$0.0384 for unsecured note holders and preferred stock holders. Consequently the
fluctuations of the price of our stock may be increased by the number of shares
of common stock issued upon conversion of the outstanding Series a Preferred
Stock and convertible notes. However the setting of fixed conversion prices has
reduced this significance. 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, 2003, we had 25,989 shares of Series A Preferred Stock
outstanding. 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 new fixed conversion price of $0.0384.
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 March 15, 2004, we had 183 full-time employees. None of our employees are
represented by a labor union.

ITEM 2.  FACILITIES

We are currently leasing a 353,634 square feet complex located in Kerrville,
Texas at the current monthly rent of $1,434 with set increases every 10 years.
The lease commenced on March 1, 2004 and expires on September 2033.

ITEM 3.  LEGAL PROCEEDINGS

L. Peter Larson and Dale Ruhmel v. Mooney Aerospace Group, Inc.
---------------------------------------------------------------

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

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

         On February 20, 2004 the parties have settled the Action for $400,000.
However, the Company may fully satisfy the terms of the Settlement Agreement by
making payments to employees totaling $200,000 in the following manner. Deliver
clean stock to an escrow agent who will sell a maximum of $30,000 of said stock
each month until they have received the total of $200,000 turned over to the
employee attorney's. The Company has accrued $200,000 for damages for this
action as of December 31, 2003.

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)
---------

                                       9


<PAGE>

 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. On December 19, 2003, plaintiff made an
Offer to Compromise for the sum of $389,000, with each side bearing its own
costs and fees. On January 15, 2004, the Company accepted this offer. Within
five business days after Court approval of this Settlement Agreement, the
Company shall deliver to Whiteford's counsel (1) 9,523,810 shares of the
Company's stock (valued at $200,000) issued to Ron Whiteford individually; and
(2) a fully executed note in the amount of $190,000. The note shall carry
interest at the rate of three percent (3%), and is for a three (3) year period.
The note shall be convertible to the Company's common stock at $0.021 per share
after the date of registration of the common shares issuable upon conversion of
the note and then at any time thereafter until the note is fully paid.

AP-Long Beach Airport LLC v. Mooney Aerospace Group, Ltd.
---------------------------------------------------------

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

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

AP Long Beach Airport, LLC ("AP"), the lessor, has filed a complaint in the Los
Angeles Superior Court, alleging breach of a Sublease Agreement by the Company
for failure to pay rent. Specifically, AP alleges that AP and the Company
entered into a Lease Agreement for the lease of real property located in Long
Beach, California to the Company for a thirty year term. AP and the Company
later entered into first, an Assignment and Assumption Agreement and then, a
Sublease Agreement wherein AP sublet the property to the Company for a term of
eighteen years at a monthly rent of $106,167. On December 3, 2003, in connection
with the lawsuit in the Superior Court of the State of California for the County
of Los Angeles, South District, the Company and AP entered into a stipulation
regarding: Admission of Liability and Binding Arbitrage of Damages. Under the
Stipulation, the Company admitted liability to all of AP's claims, except that
the Company and AP agreed to enter into binding arbitration with respect to (i)
the calculation of damages sought by AP and (ii) whether AP properly mitigated
its damages. The Company has offered to settle this legal matter for $4,000,000.
Arbitration began in early March. The Company is awaiting another hearing
scheduled for March 25, 2004. The final closing hearing is tentative scheduled
for April 24, 2004. During testimony to date, the Company's expert witness has
set the damages at $5,000,000, while the plaintiff's expert witness has
calculated the damages to be $29,000,000. Based on current information being
presented to the Arbitrator, the Company believes that the range of the ultimate
resolution of this matter will be between $9,000,000 and not to exceed the
$14,099,000 that is accrued.

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

On Thursday at 10:a.m., October 2, 2003 an Annual Meeting of the Stockholders
was held at the New York Athletic Club located at 180 Central Park South, New
York, New York. The following matters were offered, voted upon, approved by a
majority of the stockholders or their proxy holders and adopted. (1) The
election of directors of the corporation. The directors elected were Sam
Rothman, J. Nelson Happy, Sholom Babad, and Sol Mayer. (2) The ratification of
the appointment of Stonefield Josephson, Inc. as the Company's independent
public accountants for the fiscal year ending December 31, 2003. (3) The
increase in the number of authorized shares of the Company's Class A Common
Stock, par value $.0001, from 625,000 to 3,000,000 shares.

                                     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 AASI. The following
table sets forth the range of high and low bid quotations for each of the prior

                                       10


<PAGE>

eight (8) fiscal quarters. The quotations represent inter-dealer quotations
without adjustment for retail mark-ups, markdowns or commissions and may not
represent actual transactions.

                                                       High          Low
1st Quarter 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         $0.03
2nd Quarter 2003                                       $0.06         $0.01
3rd Quarter 2003                                       $0.05         $0.03
4th Quarter 2003                                       $0.03         $0.02

As of March 15, 2004, there were 363 shareholders of record of our common stock.
This does not include shares held in street names.

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.

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

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

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

                                       11


<PAGE>

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

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

    o    Enhancement and aggressive implementation of our marketing program.

    o    Reduction of costs to increase profit margins.

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

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

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

We have generated $16,617,000 in operating revenues for the year ended December
31, 2003 from the sale of aircraft and spare parts sales, and have incurred a
net loss during the same period of $14,191,000. We believe we will continue to
experience losses until such time as we attain a sales level of our aircraft on
a commercial scale. No assurance can be made that we will be able to attain
sales levels of our aircraft in the foreseeable future that will allow us to
generate revenue sufficient to maintain its operations without other sources of
financing.

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2003, we had a negative working capital of $17,937,000 and
stockholders' deficiency of $42,476,000. Since our inception in January 1990, we
have experienced continuing negative cash flow from operations, which have
resulted in our inability to pay certain existing liabilities in a timely
manner. We have financed our operations through private funding of equity and
debt and through the proceeds generated from our December 1996 initial public
offering.

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

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

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

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

As a result of restructuring, the Company has recognized a contribution of
capital of $8,770,000 as follows: $7,420,000 due to the waiver of the
non-registration penalties that the Company had accrued and $880,000 which is

                                       12


<PAGE>

the fair value of the 65,710,614 warrants that were canceled. These warrants had
previously been accounted for using fair value accounting in accordance with
EITF 00-19; therefore removing this liability resulted in a contribution of
capital of $880,000. In addition, the company wrote off the remaining
unamortized debt discounts related to the convertible debentures of $17,070,000.
The convertible debenture holders are considered related parties in accordance
with SFAS No. 57 due to their ability to convert their debt to equity;
therefore, write off has been treated as a distribution to shareholders and
charged directly to additional paid in capital.

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

On November 17, 2003, we issued a secured revolving loan in the aggregate
principal amount of $4,000,000 issued by MAC to two related parties, pursuant to
an Amended and Restated Loan and Purchase Money Security Agreement. The
revolving loan has a term of (3) years and bears interest at a rate of 10% per
annum. The proceeds of the revolving loan will be used to finance the purchase
of airplane parts to be used in the manufacture of airplanes, and is secured by
parts and equipment purchased with such proceeds. The issuers of the revolving
loan have the option of converting any and all the amounts outstanding under the
loan to shares of our common stock at $.00856 per share. As of December 31,
2003, there were no amounts outstanding under this revolving loan.

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

The following table summarizes the Company's contractual obligations at December
31, 2003:

<TABLE>
<CAPTION>
CONTRACTUAL OBLIGATIONS      2004          2005          2006          2007         2008           TOTAL
<S>                      <C>           <C>           <C>           <C>           <C>           <C>
Convertible debentures   $ 2,376,000   $ 1,094,000   $14,957,000   $10,737,000   $        --   $29,164,000

Notes payable            $   526,000   $    85,000   $    89,000   $    93,000   $    72,000   $   865,000

Capital leases            12,622,000            --            --            --            --    12,622,000

Operating leases              17,000        17,000        17,000        17,000        17,000        85,000

Employment agreements        350,000            --            --            --            --       350,000
                         ------------  ------------  ------------  ------------  ------------  ------------

                         $15,891,000   $ 1,196,000   $15,063,000   $10,847,000   $    89,000   $43,086,000
                         ============  ============  ============  ============  ============  ============
</TABLE>

CRITICAL ACCOUNTING POLICIES

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

Revenue Recognition - We recognize revenue on substantially all aircraft sales
and parts and service sales when each of the following four criteria is met: 1)
a contract or sales arrangement exists; 2) products have been shipped or
services have been rendered; 3) the price of the products or services is fixed
or determinable; and 4) collectibility is reasonably assured. We also recognize
revenue on aircraft sales under bill-and-hold transactions when each of the
following seven criteria are met: 1) the risk of ownership has passed to the
buyer; 2) the buyer has made a fixed commitment to purchase the goods; 3) the
buyer has requested that the transaction be on a bill-and-hold basis and has a
substantial business purpose for ordering so; 4) there is a fixed schedule for

                                       13


<PAGE>

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 based on usage over the prior two years.

For further information regarding the accounting policies that we believe to be
critical accounting policies and that affect our more significant judgments and
estimates used in preparing our consolidated financial statements see our
December 31, 2003 consolidated financial statements 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.

RESULTS OF OPERATIONS

Year ended December 31, 2003 vs. December 31, 2002
--------------------------------------------------

Net sales for the year ended December 31, 2003, increased by $11,444,000, or
221%, from $5,173,000 for the year ended December 31, 2002, compared to
$16,617,000 for the same period in 2003. During the year ended December 31,
2002, we sold 9 airplanes as compared to the sale of 34 airplanes for the year
ended December 31, 2003.

Cost of sales for the year ended December 31, 2003 increased by $10,664,000, or
2,407%, from $4,442,000 for the year ended December 31, 2002, compared to
$15,106,000 for the year ended December 31, 2003. The increase in cost of sales
is directly related to the significant increase in aircraft sales. We have the
capacity to produce more airplanes than have been produced in the past thereby
reducing the fixed manufacturing cost associated with each airplane produced. As
we increase our production of airplanes we expect our gross margin to improve.

Research and development costs for the year ended December 31, 2003 decreased by
$7,679,000, or 94%, from $8,231,000 for the year ended December 31, 2002,
compared to $534,000 for the year ended December 31, 2003. The significant
decrease is due to the closure of the Long Beach, California facility in the 4th
quarter of 2002 whose principal function was research and development.

Selling and support expenses for the year ended December 31, 2003 increased by
$1,287,000, or 192%, from $670,000 for the year ended December 31, 2002,
compared to $1,957,000 for the year ended December 31, 2003. The increase is
directly related to the increase in aircraft sales.

General and administrative expenses for the year ended December 31, 2003
decreased by $1,331,000, or 26%, from $5,095,000 for the year ended December 31,
2002, compared to $3,764,000 for the year ended December 31, 2003. The decrease
is due to the closure of the Long Beach, California facility being closed in the
4th quarter of 2002; thus reducing general and administrative expenses in 2003.

Non-recurring expenses for the year ended December 31, 2003 decreased by
$11,083,000 as compared to the same period in 2002. This non-recurring expense
was due to the closure of the Long Beach, California facility in the 4th quarter
of 2002.

Other expense for the year ended December 31, 2003 increased by $302,000, or
155%, from $195,000 for the year ended December 31, 2002, compared to $497,000
for the year ended December 31, 2003. The increase is principally due to the
change in the fair value of the warranty. They were classified as a liability
until October 3, 2003.

                                       14


<PAGE>

Amortization of debt issue costs and discounts for the year ended December 31,
2003 decreased by $2,587,000, or 42%, from $6,106,000 for the year ended
December 31, 2002, compared to $3,519,000 for the year ended December 31, 2003.
The decrease is due to the debt discounts being written off in the 2nd quarter
of 2003 as a result of the debt restructuring on 6/17/2003. There was no
remaining debt discounts to amortize subsequent to the debt restructuring.

Interest expense for the year ended December 31, 2003, decreased by $2,770,000,
or 34%, from $8,201,000 for the year ended December 31, 2002, compared to
$5,431,000 for the year ended December 31, 2003. The decrease is principally due
to the forgiveness of non-registration penalties as a result of the debt
restructuring in the 2nd quarter of 2003 resulting in no penalties being accrued
the last half of 2003.

Cash used in operating activities for the year ended December 31, 2003,
decreased by $9,892,000 as compared to the same period in 2002, due principally
to the combination of an decreased net loss of $24,794,000, by the reduced
amortization of the discount on convertible debentures of $2,967,000 and a
decrease in accrued warranty liability of $2,956,000 which are non-cash expenses
and decrease on loss on disposal of assets of $11,083,000, which is also a
non-cash expense.

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

Cash used in investing activities for the year ended December 31, 2003,
decreased by $1,350,000 as compared to the same period in 2002.

Cash provided by financing activities for the year ended December 31, 2003,
decreased by $12,212,000 as compared to the same period in 2002. 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 secured
notes pay interest at 8% the unsecured notes pay interest at 3% and the
preferred stock accrues dividends at 3%.

The decrease in proceeds received from the issuance of convertible debentures of
$8,912,185 is mainly due to a decrease in issuance of notes in 2003, to fund the
MACorp acquisition and operating activities.

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

None

ITEM 8A. CONTROLS AND PROCEDURES

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

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

                                       15


<PAGE>

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             50       Chairman

J. Nelson Happy         60       Vice Chairman, President and Chief Financial
                                 Officer and Secretary

Sholom Babad            29       Consultant and Director

Sol Mayer               50       Director

OTHER OFFICERS:

Nicholas Chabbert       38       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.

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.

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.

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.

BOARD COMMITTEES

Our Board of Directors has an audit committee. The audit committee is composed
of Messer. Babad and Rothman. The function of the Audit Committee is to nominate
independent auditors, subject to approval of the Board of Directors, and to
examine and consider matters related to the audit of Mooney Group's financial
affairs and accounts, the scope of the independent accountants' engagement and
their compensation, the effect on our financial statements of any proposed
changes in generally accepted accounting principles, disagreements, if any,
between our independent accountants and management, and matters of concern to
the independent accountants resulting from their audit, including the results of
the independent accountants' review of the internal accounting controls. There
is no person on the Audit Committee who qualifies as a Financial Expert in
accordance with reporting requirements.

CODE OF ETHICS

Mooney has established the following Code of Ethics (the "Code") for its Chief
Executive Officer and Senior Financial Officers to ensure the continuing
integrity of financial reporting and to protect the interests of its
shareholders and all those with which Mooney conducts business. This Code sets
forth specific policies to guide the Company's Chief Executive Officer and
Senior Financial Officers in the performance of their duties. Mooney's Chief
Executive Officer and Senior Financial Officers shall:

1.  Act with honesty and integrity, ethically handling any actual or potential
conflicts between his personal, private interests and the interests of Mooney,
avoiding improper personal benefits as a result of his position.

2.  Perform responsibilities with a view to causing periodic reports filed with
the SEC or other public communications by Mooney to contain disclosures which
are accurate, timely, complete and understandable.

3.  Comply with federal, state and local laws and regulations applicable to
Mooney.

4.  Take appropriately prompt action to report violations of this Code to the
proper person or persons.

5.  Be accountable for adherence to this Code.

6.  Maintain accurate financial record keeping.

7.  Refrain from taking any action that fraudulently influences, coerces,
manipulates, or misleads any independent public or certified accountant engaged
in the performance of an audit of the financial statements of Mooney for the
purpose of rendering such financial statements materially misleading.


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.

                                       16


<PAGE>

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.

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>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                                      ANNUAL COMPENSATION                   LONG TERM 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,          2003        200,000         -            -             -           -           -           -
  Vice Chairman,          2002        200,000         -            -             -           -           -           -
  President, CFO
  and Secretary

Nicolas Chabbert,         2003        150,000         -            -             -           -           -           -
  Executive Vice          2002        150,000         -            -             -           -           -           -
  President
</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
</TABLE>

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

<TABLE>
<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
</TABLE>

                                       17


<PAGE>

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>                    <C>
Sholom Babad (3)                            Class A           5,644,096              .97%

C.M. Cheng (4) (5)                          Class A              15,000               <1%
                                            Class B           1,013,572               17%
                                            Class E-1         2,027,144               35%
                                            Class E-2         2,027,144               35%
Neil Lewis                                  Class A          57,999,067             9.99%
Samuel Rothman                              Class A           4,339,068               75%
                                            Class E-1         1,653,503               29%
                                            Class E-2         1,453,503               25%
J. Nelson Happy                             Class A          10,176,178             1.75%
N. Chabbert                                 Class A             300,000               <1%
Harpa limited (5)                           Class B           1,013,572               17%
                                            Class E-1         2,027,144               35%
                                            Class E-2         2,027,144               35%
Shih Jen Yeh (5)                            Class B           1,013,572               17%
                                            Class E-1         2,027,144               35%
                                            Class E-2         2,027,144               35%
Chyao Chi Yeh (5)                           Class B           1,013,572               17%
                                            Class E-1         2,027,144               35%
                                            Class E-2         2,027,144               35%
Alpha Capital                               Class A          57,999,067             9.99%
Akteingesellschaft

Esquire Trade & Finance Inc.                Class A          38,987,628             6.72%
Amro Internationa S A                       Class A          57,999,067             9.99%
Lucrative Investments                       Class A          36,713,023             6.33%
Libra Finance S.A                           Class A          57,999,067             9.99%
Justino Hirschhorn Rotschild                Class A          36,458,333             6.29%
Guaranty & Finance Corporation              Class A          57,999,067             9.99%
Silver Development Corporation              Class A          36,904,824             6.36%

                                       18


<PAGE>

TRW Holdings PTY. Limited                   Class A          57,999,067             9.99%
Lewis Family Investments Pty. Limited       Class A          57,999,067             9.99%
Renaissance Development Holdings            Class A          57,999,067             9.99%
All directors and officers as a group.
(4 persons)
Class A Common Stock                                         20,159,342             3.48%
Class E-1 Common Stock                                        1,653,503              .29%
Class E-2 Common Stock                                        1,453,503              .25%
</TABLE>

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

         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.

         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.

         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.

         Mr. Rothman holds an irrevocable proxy from Dr. Chen to vote the Class
         E-1 and Class E-2 shares Dr. Chen previously controlled.

         There is an employment agreement pursuant to which Mr. Happy will be
         granted a 3% interest in Mooney that is nondilutable for three years.

         Includes 300,000 shares of Class A Common Stock issued upon the
         exercise of options that are currently exercisable.

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

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. This obligation was completed and fulfilled
in July 2003 by issuing a total of 23,422,062 shares of Class A Common stock at
that time with a fair value of $468,441.

Mr. Babad, a director, received $90,616 in compensation in 2001 and had 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. He currently has a consulting agreement that provides
payments to him of $7,000 per month through 2004.

                                       19


<PAGE>

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. He converted $67,629.90 into convertible
debentures in 2003.

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, 2003, an aggregate
of $287,500 was still outstanding on the promissory notes from Mr. Rothman.

During the year ended December 31, 2003, we were loaned $2,952,000 from Mooney
Parts, Inc., a company owned by certain of our debentures and preferred
stockholders, which was used to purchase certain airplane parts. At December 31,
2003, we owed Mooney Parts, Inc. $1,685,000.

                                     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

(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)

                                       20


<PAGE>

(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

(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

                                       21


<PAGE>

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

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

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

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

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

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

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

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

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

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

(19)      4.38     Waiver and Agreement of Amendment

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

(1)       10.1     Form of Indemnification Agreement

(2)       10.2     Amended 1996 Stock Option File

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

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

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

(3)       10.6     Standard Sublease dated June 27, 1997 with Budget Rent-a-Car
                   of Southern California

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

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

                                       22


<PAGE>

(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

(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

                                       23


<PAGE>

(21)      31.1     Certification Pursuant to 18 U. S. C. Section 1350, as
                   Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of
                   2002

(21)      32.1     Certification 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.
           (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.
           (21)    Included herein.


                                       24


<PAGE>

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

For the fiscal years ended December 31, 2002 and 2003, Stonefield Josephson,
Inc. has billed the Company the following fees for services rendered during the
audit in respect of that year:

AUDIT FEES

For the fiscal years ended December 31, 2002 and December 31, 2003, Stonefield
Josephson, Inc. billed the Company approximately $145,000 and $165,000,
respectively, for services rendered for the audit of the Company's annual
financial statements included in its report on Form 10-KSB and the reviews of
the financial statements included in its reports on Form 10-QSB filed with the
SEC.

AUDIT RELATED FEES

There were no fees billed for services reasonably related to the performance of
the audit or review of our financial statements outside of those fees disclosed
above under "Audit Fees" for fiscal year 2002. For the fiscal year ended
December 31, 2003, Stonefield Josephson, Inc. billed the Company approximately
$10,000 related to the review of Form SB-2 and for a legal deposition.

TAX FEES

There were no tax related fees paid to Stonefield Josephson, Inc. during the
fiscal years ended December 31, 2002 and December 31, 2003.

ALL OTHER FEES

There were no other fees paid to Stonefield Josephson, Inc. during the fiscal
years ended December 31, 2002 and December 31, 2003.

All the fees described above were pre-approved by the Company's Audit Committee.

The Audit Committee does not currently have any pre-approval policies.


                                       25


<PAGE>

                                   SIGNATURES

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

                                                  MOONEY AEROSPACE GROUP, LTD.

Date: March 30 , 2004                             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                                 March 30, 2004
---------------------
Name: Sam Rothman

/s/ J. Nelson Happy      Vice Chairman, President &               March 30, 2004
---------------------    Chief Financial Officer and Secretary
Name: J. Nelson Happy    (Principal Executive Financial and
                         Accounting Officer)

/s/ Sholom Babad         Director                                 March 30, 2004
---------------------
Name: Sholom Babad

/s/ Sol Mayer            Director                                 March 30, 2004
---------------------
Name: Sol Mayer

                                       26



<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                        CONSOLIDATED FINANCIAL STATEMENTS
                     YEARS ENDED DECEMBER 31, 2003 AND 2002

                                    CONTENTS

                                                                        Page
                                                                        ----

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

FINANCIAL STATEMENTS:
     Consolidated Balance Sheet as of December 31, 2003                  F-2
     Consolidated Statements of Operations for the years ended
         December 31, 2003 and 2002                                      F-3
     Consolidated Statement of Stockholders' Deficit for the years
         ended December 31, 2003 and 2002                                F-4
     Consolidated Statements of Cash Flows for the years ended
         December 31, 2003 and 2002                                   F-5 - F-6
     Notes to Consolidated Financial Statements                       F-7 - F-25



<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, 2003, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
ended December 31, 2003 and 2002. 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, 2003, and the
consolidated results of its operations and cash flows for the years ended
December 31, 2003 and 2002, 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 12. 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
January 30, 2004

                                      F-1


<PAGE>

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

                                CONSOLIDATED BALANCE SHEET

                                                                            DECEMBER
                                                                            31, 2003
                                                                         --------------

<S>                                                                      <C>
                                     ASSETS

CURRENT ASSETS
     Cash and cash equivalents                                           $   1,175,000
     Account receivable, net of allowance for doubtful accounts
       of $8,000                                                               128,000
     Inventory                                                               8,666,000
     Debt issuance costs                                                       379,000
     Prepaid expenses and other current assets                                 183,000

                                                                         --------------
TOTAL CURRENT ASSETS                                                        10,531,000

PROPERTY AND EQUIPMENT, net                                                  3,993,000
TRADE NAME                                                                   1,802,000
DEBT ISSUANCE COSTS                                                          1,487,000

                                                                         --------------
TOTAL ASSETS                                                             $  17,813,000
                                                                         ==============

                     LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES
     Accounts payable (including $1,685,000 due to a related party)      $   2,984,000
     Accrued expenses                                                        2,731,000
     Accrued interest                                                        3,748,000
     Liabilities related to abandoned property                              14,099,000
     Advanced deposits                                                       2,001,000
     Convertible debentures, current portion                                 2,376,000
     Notes payable, current portion (including related party
       notes of $288,000)                                                      529,000
                                                                         --------------
TOTAL CURRENT LIABILITIES                                                   28,468,000

CONVERTIBLE DEBENTURES, less current portion (including related
     party convertible debentures of $75,000)                               26,788,000
NOTES PAYABLE, less current portion                                          5,033,000

                                                                         --------------
TOTAL LIABILITIES                                                           60,289,000
                                                                         --------------

COMMITMENT AND CONTINGENCIES                                                        --

STOCKHOLDERS' DEFICIT
     Preferred stock, $0.0001 par value; 5,000,000 shares
       authorized; 0 shares issued and outstanding; 100,000
        shares designated as Series A                                               --
     Series A, Cumulative Convertible Preferred Stock, $100
       stated value per share, 100,000 shares authorized;
       25,968 shares issued and outstanding                                  2,082,000
     Class A Common stock, $0.0001 par value; 3,000,000,000
       shares authorized; 457,402,542 shares issued and outstanding             46,000
     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                                             96,360,000
     Accumulated deficit                                                  (140,964,000)

                                                                         --------------
TOTAL STOCKHOLDERS' DEFICIT                                                (42,476,000)
                                                                         --------------

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                              $  17,813,000
                                                                         ==============

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

                                      F-2
</TABLE>


<PAGE>

<TABLE>
                        MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                           CONSOLIDATED STATEMENTS OF OPERATIONS

<CAPTION>
                                                                 YEARS ENDED
                                                       -----------------------------
                                                          DECEMBER        DECEMBER
                                                          31, 2003        31, 2002
                                                       -------------   -------------

<S>                                                    <C>             <C>
NET SALES                                              $ 16,617,000    $  5,173,000

COST OF SALES                                            15,106,000       4,442,000

                                                       -------------   -------------
GROSS PROFIT                                              1,511,000         731,000
                                                       -------------   -------------

OPERATING EXPENSES
      Research and development expenses                     534,000       8,231,000
      Selling and support expenses                        1,957,000         670,000
      General and administrative expenses                 3,764,000       5,095,000
      Non-recurring expenses                                     --      11,083,000

                                                       -------------   -------------
TOTAL OPERATING EXPENSES                                  6,255,000      25,079,000
                                                       -------------   -------------

LOSS FROM OPERATIONS                                     (4,744,000)    (24,348,000)
                                                       -------------   -------------

OTHER INCOME (EXPENSE)
      Interest income                                            --          28,000
      Other income (expense), net                          (497,000)       (195,000)
      Amortization of debt issue costs and discounts     (3,519,000)     (6,106,000)
      Interest expense                                   (5,431,000)     (8,201,000)

                                                       -------------   -------------
TOTAL OTHER INCOME (EXPENSE)                             (9,447,000)    (14,474,000)
                                                       -------------   -------------

LOSS BEFORE PROVISION FOR INCOME TAXES                  (14,191,000)    (38,822,000)

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

NET LOSS                                               $(14,191,000)   $(38,822,000)
                                                       =============   =============

NET LOSS PER SHARE - BASIC AND DILUTED                 $      (0.06)   $      (0.58)
                                                       -------------   -------------
</TABLE>

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

                                      F-3


<PAGE>

<TABLE>
                                      MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY
                                    CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
                                     FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002

<CAPTION>
                                           PREFERRED STOCK                                               COMMON STOCK
                                              SERIES A                     CLASS A                  CLASS B             CLASS E-1
                                         SHARES       AMOUNT         SHARES      AMOUNT      SHARES      AMOUNT     SHARES    AMOUNT
                                        --------   ------------   ------------  --------  ------------   ------  ------------  -----
<S>                                     <C>        <C>            <C>           <C>         <C>          <C>       <C>         <C>
BALANCE, DECEMBER 31, 2001 (RESTATED)    46,648    $ 3,615,000     45,338,850   $ 5,000     1,900,324    $  --     4,000,000   $ --

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

                                        --------   ------------   ------------  --------  ------------   ------  ------------  -----
BALANCE, DECEMBER 31, 2002               35,889      2,798,000     80,510,761     8,000     1,013,572       --     4,000,000     --

Conversion of Preferred Stock
  to Class A                             (9,921)      (770,000)    69,679,607     7,000            --       --            --     --
Amortization of discount on
  preferred stock                            --         54,000             --        --            --       --            --     --
Conversion of Debentures to
  Class A                                    --             --    245,627,442    24,000            --       --            --     --
Conversion of accrued interest
  to Class A                                 --             --     25,120,599     3,000            --       --            --     --
Issuance of common stock for
  professional services                      --             --      5,900,000     1,000            --       --            --     --
Conversion of accrued expenses
  to Class A                                 --             --     30,564,133     3,000            --       --            --     --
Forgiveness of non-registration
  penalties                                  --             --             --        --            --       --            --     --
Contribution of warrant rights
  pursuant to restructuring                  --             --             --        --            --       --            --     --
Write off of discounts related
  to warrants                                --             --             --        --            --       --            --     --
Write off of discounts related
  to beneficial conversion features          --             --             --        --            --       --            --     --
Reclass of warrant liability
  to equity                                  --             --             --        --            --       --            --     --
Net loss                                     --             --             --        --            --       --            --     --

                                        --------   ------------   ------------  --------  ------------   ------  ------------  -----
BALANCE, DECEMBER 31, 2003               25,968    $ 2,082,000    457,402,542   $46,000     1,013,572       --     4,000,000     --
                                        ========   ============   ============  ========  ============   ======  ============  =====
</TABLE>

(Continued)
<PAGE>
<TABLE>
<CAPTION>

                                                                    ADDITIONAL
                                                  CLASS E-2          PAID IN       COMPREHENSIVE     ACCUMULATED
                                            SHARES       AMOUNT      CAPITAL           LOSS            DEFICIT           TOTAL
<S>                                         <C>         <C>       <C>              <C>              <C>              <C>
BALANCE, DECEMBER 31, 2001 (RESTATED)       4,000,000   $    --   $  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                                           --        --              --               --      (38,822,000)     (38,822,000)

                                        --------------  --------  --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 2002                  4,000,000        --      97,911,000               --     (126,719,000)     (26,002,000)

Conversion of Preferred Stock
  to Class A                                       --        --         763,000               --               --               --
Amortization of discount on
  preferred stock                                  --        --              --               --          (54,000)              --
Conversion of Debentures to
  Class A                                          --        --       4,934,000               --               --        4,958,000
Conversion of accrued interest
  to Class A                                       --        --         545,000               --               --          548,000
Issuance of common stock for
  professional services                            --        --         236,000               --               --          237,000
Conversion of accrued expenses
  to Class A                                       --        --         725,000               --               --          728,000
Forgiveness of non-registration
  penalties                                        --        --       7,420,000               --               --        7,420,000
Contribution of warrant rights
  pursuant to restructuring                        --        --         880,000               --               --          880,000
Write off of discounts related
  to warrants                                      --        --      (5,700,000)              --               --       (5,700,000)
Write off of discounts related
  to beneficial conversion features                --        --     (11,370,000)              --               --      (11,370,000)
Reclass of warrant liability
  to equity                                        --        --          16,000               --               --           16,000
Net loss                                           --        --              --               --      (14,191,000)     (14,191,000)

                                        --------------  --------  --------------   --------------   --------------   --------------
BALANCE, DECEMBER 31, 2003                  4,000,000   $    --   $  96,360,000    $          --    $(140,964,000)   $ (42,476,000)
                                        ==============  ========  ==============   ==============   ==============   ==============
                The accompanying notes are an integral part of these consolidated financial statements.

                                                          F-4
</TABLE>


<PAGE>

<TABLE>
                             MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                                CONSOLIDATED STATEMENTS OF CASH FLOWS

<CAPTION>
                                                                      YEARS ENDED
                                                            -----------------------------
                                                              DECEMBER        DECEMBER
                                                              31, 2003        31, 2002
                                                            -------------   -------------
<S>                                                         <C>             <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net loss                                                 $(14,191,000)   $(38,822,000)
   Adjustment to reconcile net loss to net cash
     used in operating activities:
       Noncash professional service expense                      237,000         530,000
       Amortization of discount on convertible debentures      2,968,000       5,935,000
       Amortization of debt issuance costs                       553,000         171,000
       Depreciation and amortization expense                     781,000       1,610,000
       Loss on disposal of assets                                     --      11,083,000
   Changes in operating assets and liabilities:
     Accounts receivable                                         (83,000)        (43,000)
     Inventory                                                (1,114,000)     (2,721,000)
     Prepaid expenses and other current assets                   159,000        (275,000)
     Accounts payable                                            379,000         518,000
     Accrued expenses                                            794,000        (106,000)
     Accrued interest                                          4,843,000       7,799,000
     Accrued warrant liability                                   497,000              --
     Advanced deposits                                            58,000         310,000

                                                            -------------   -------------
Net cash used in operating activities                         (4,119,000)    (14,011,000)
                                                            -------------   -------------

CASH FLOW FROM INVESTING ACTIVITIES:
   Purchase of property and equipment                            (72,000)        (43,000)
   Proceeds from sale of investments                                  --       1,953,000
   Purchase of Mooney Airplane Company, Inc.                          --      (4,082,000)
   Change in resticted cash                                           --         436,000
   Decrease in other assets                                           --         314,000

                                                            -------------   -------------
Net cash used in investing activities                            (72,000)     (1,422,000)
                                                            -------------   -------------

CASH FLOW FROM FINANCING ACTIVITIES:
   Proceeds from issuance of convertible debentures              573,000      14,589,000
   Proceeds from issuance of notes payable                    10,650,000       5,264,000
   Payments for debt issue costs                                (653,000)       (438,000)
   Payments on capital lease obligation                               --        (386,000)
   Payments on notes payable                                  (6,617,000)     (2,864,000)

                                                            -------------   -------------
Net cash provided by financing activities                      3,953,000      16,165,000
                                                            -------------   -------------

NET INCREASE (DECREASE) IN CASH AND
   CASH EQUIVALENTS                                             (238,000)        732,000

CASH AND CASH EQUIVALENTS, Beginning of year                   1,413,000         681,000
                                                            -------------   -------------

CASH AND CASH EQUIVALENTS, End of year                      $  1,175,000    $  1,413,000
                                                            =============   =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

   Interest paid                                            $    365,000    $         --
                                                            =============   =============
   Income taxes paid                                        $         --    $         --
                                                            =============   =============

        The accompanying notes are an integral part of these consolidated
                              financial statements.
</TABLE>
                                      F-5


<PAGE>

                   MOONEY AEROSPACE GROUP, LTD. AND SUBSIDIARY

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

         During the year ended December 31, 2003, the Company: 1) converted
         9,921 shares of Series A preferred stock into 69,679,607 shares of
         Class A common stock valued at $770,000, 2) converted $4,958,000 of
         convertible debentures into 245,627,442 shares of Class A common stock,
         3) converted $548,000 of accrued interest into 25,120,599 shares of
         Class A common stock, 4) issued 30,564,133 shares of Class A common
         stock for deferred compensation and consulting fees valued at $728,000,
         5) issued $88,000 and $700,000 of convertible debentures for services
         rendered, and commissions and fees, respectively and 6) issued
         5,900,000 shares of Class A common stock for professional services
         valued at $237,000. In addition, during the year ended December 31,
         2003, the Company implemented a restructuring plan whereby certain
         convertible debenture noteholders agreed to waive all outstanding
         defaults including waiver of penalties due to them totaling $8,300,000
         as a contribution to capital and wrote off the remaining debt discount
         related to the convertible debentures of $17,070,000. (See Note 7) In
         addition, as part of the restructuring plan, $6,322,000 of promissory
         notes were converted to convertible debentures (See Note 7).

         During the year ended December 31, 2002, the Company acquired certain
         assets of MACorp for $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 Financial Corporation; $4,500,000 was in the form
         of notes payable to Congress; 3,260,871 shares of Class A Common Stock
         were issued with a fair value of $900,000, and warrants to purchase
         3,623,189 shares of Class A Common Stock were issued with a fair value
         of $399,000. Assets purchased included trade name, inventory and
         property, and equipment, and totaled $1,802,000, $4,833,000 and
         $5,193,000 respectively. Liabilities assumed totaled to $1,947,000. In
         addition, the Company: 1) converted 10,759 shares of Series A preferred
         stock into 12,662,905 shares of Class A common stock valued at
         $1,041,000, 2) converted $2,527,000 of convertible debentures into
         17,381,383 shares of Class A common stock, 3) exchanged 886,752 shares
         of Class B common stock for 886,752 shares of Class A common stock, 4)
         issued 980,000 shares of Class A common stock for professional services
         valued at $210,000, and 5) issued 2,000,000 warrants as part of a
         severance package valued at $320,000. Also, during the year ended
         December 31, 2002, the Company incurred discounts on the issuance of
         convertible debentures totaling $14,315,000.

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

                                      F-6


<PAGE>

NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

         Since its inception in 1990 to June 30, 2002, the Company was in the
         development stage, in accordance with Statement of Financial Accounting
         Standards ("SFAS") No. 7 and had accumulated a deficit while in the
         development stage of $99,216,000. Effective July 1, 2002, the Company
         was no longer considered to be in the development stage due to its
         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 has incurred a cumulative net loss of
         $140,964,000 as of December 31, 2003. The Company also has a working
         capital deficiency of $17,937,000 as of December 31, 2003. 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 (See Note 12).

         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

                                      F-7


<PAGE>

                    working capital requirements throughout the year ended
                    December 31, 2004. The plan included the issuance of a
                    $5,000,000 long-term note payable that was issued in
                    November 2003. $3,500,000 was used to pay off outstanding
                    debt with less favorable terms and the remaining amount will
                    be used for working capital.

               b)   Management has restructured its current outstanding debt and
                    obtained a $4,000,000 revolving loan in November 2003, from
                    which, it plans to fund its current operations and increase
                    the number of airplanes produced to generate sufficient
                    revenue to achieve profitable operating results.

         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, 2003, the Company used
         estimates in determining the realization of its accounts receivable,
         inventory and its intangible assets. Actual results could differ from
         these estimates.

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

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

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

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

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

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

         Inventory
         ---------

         Inventory consists of raw materials, work in process and finished goods
         and is stated at the lower of cost (moving average) or market. An
         obsolescence reserve is estimated for parts whose values have been
         determined to be impaired or whose future utility appears limited. If
         an inventory part has not been used in the past two years, it is deemed

                                      F-8


<PAGE>

         to be impaired. Due to the inventory being written down to fair value
         upon acquisition in April 2002, there is no inventory reserve necessary
         at December 31, 2003, as only acquired inventory has been on hand
         greater than 2 years.

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

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

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

         The Company recognized an impairment expense relating to certain fixed
         assets during the year ended December 31, 2002 (see Note 13).

         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.

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

         Prior to the increase in the authorized shares to 3,000,000,000 on
         October 2, 2003, if all the convertible debentures and Series A
         preferred stock had been converted into shares of common stock, the
         number of shares to be issued upon conversion would have exceeded the
         number of authorized shares. As a result, in accordance with the
         guidelines of EITF 00-19, the fair value of the outstanding warrants
         was recorded as accrued warrant liability. With the increase in
         authorized shares, the fair value of these warrants on October 2, 2003
         has been reclassified from a current liability to additional paid in
         capital. The fair value was determined using the using the
         Black-Scholes option pricing model using the following assumptions:
         term ranging from 1.5 to 4 years, a risk-free interest rate of 3.5%, a
         dividend yield of 0% and volatility of 84%.

         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

                                      F-9


<PAGE>

         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. 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 year ended December 31, 2003 and 2002:

                                                        2003            2002
                                                    -------------  -------------
         Net loss
           As reported                              $(14,191,000)  $(38,822,000)
           Compensation recognized under APB 25               --             --
           Compensation recognized under SFAS 123             --        (41,000)
                                                    -------------  -------------
                      Pro forma                     $(14,191,000)  $(38,863,000)
                                                    =============  =============

         Basic and diluted loss per common share:
           As reported                              $      (0.06)  $      (0.58)
           Pro forma                                $      (0.06)  $      (0.58)

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

         Advanced deposits represent deposits from customers for the purchase of
         the JETCRUZER 500, which were paid when the sales order was signed that
         amounted to $1,605,000. As of December 31, 2003, the Company is no
         longer developing the JETCRUZER 500. The Company is carrying these
         deposits as a current liability. (See Note 18) The Company also
         receives advance deposit for the purchase of airplanes manufactured by
         MAC.

         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.

         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, 2003
         and 2002 amounted to $423,000 and $592,000, 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

                                      F-10


<PAGE>

         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.

         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 years ended
         December 31, 2003 and 2002 because the effect would have been
         anti-dilutive:

<TABLE>
<CAPTION>
                                                                   2003            2002
                                                              --------------  --------------
              <S>                                             <C>             <C>
              Conversion of Series A preferred stock             67,625,000     132,922,222
              Conversion of convertible debentures            1,503,975,734   1,481,915,414
              Stock options issued to employees                     300,000         300,000
              Warrants issued with convertible debentures                --      62,939,612
              Warrants issued with Series A preferred stock              --       2,771,002
              Warrants issued with equity line                    4,268,764       4,268,764
              Warrants issued with severance package              2,000,000       2,000,000
              Warrants issued with acquisition of MAC             3,623,189       3,623,189
                                                              --------------  --------------
                                                              1,581,792,687   1,690,740,203
                                                              ==============  ==============
</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, 2003, the
         Company did not have items that represented other comprehensive income
         and, accordingly, a statement of comprehensive loss has not been
         included herein. For the year ended December 31, 2002, the unrealized
         investment loss has been included in the consolidated statement of
         stockholders' deficit showing 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.

         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.

                                      F-11


<PAGE>

         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 2002 balances to
         conform to the 2003 presentation.

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

         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 September 30, 2003, except as
         stated below and for hedging relationships designated after September
         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 September 30, 2003. The
         Company does not participate in such transactions and 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 for public entities 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.

         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

                                      F-12


<PAGE>

         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 other entities in the first fiscal year or
         interim period beginning after December 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. In December 2003, the FASB concluded to revise certain
         elements of FIN 46, which will be issued shortly. The FASB also
         modified the effective date of FIN 46. For all entities that were
         previously considered special purpose entities, FIN 46 should be
         applied in periods ending after December 15, 2003. Otherwise, FIN 46 is
         to be applied for registrants who file under Regulation SX in periods
         ending after March 15, 2004, and for registrants who file under
         Regulation SB, in periods ending after December 15, 2004. The Company
         does not expect the adoption to have a material impact on the Company's
         consolidated financial position or results of operations.

         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 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.

         On December 24, 2003, the FASB issued FASB Interpretation No. 46
         (Revised December 2003), CONSOLIDATION OF VARIABLE INTEREST ENTITIES,
         (FIN-46R), primarily to clarify the required accounting for interests
         in variable interest entities. FIN-46R replaces FIN-46, CONSOLIDATION
         OF VARIABLE INTEREST ENTITIES, that was issued in January 2003. FIN-46R
         exempts certain entities from its requirements and provides for special
         effective dates for entities that have fully or partially applied
         FIN-46 as of December 24, 2003. In certain situations, entities have
         the option of applying or continuing to apply FIN-46 for a short period
         of time before applying FIN-46R. While FIN-46R modifies or clarifies
         various provisions of FIN-46, it also incorporates many FASB Staff
         Positions previously issued by the FASB.

         In December 2003, the FASB issued a revised SFAS No. 132, "Employers'
         Disclosures about Pensions and Other Postretirement Benefits" which
         replaces the previously issued Statement. The revised Statement
         increases the existing disclosures for defined benefit pension plans
         and other defined benefit postretirement plans. However, it does not
         change the measurement or recognition of those plans as required under
         SFAS No. 87, "Employers' Accounting for Pensions," SFAS No. 88,
         "Employers' Accounting for Settlements and Curtailments of Defined
         Benefit Pension Plans and for Termination Benefits," and SFAS No. 106,
         "Employers' Accounting for Postretirement Benefits Other Than
         Pensions." Specifically, the revised Statement requires companies to
         provide additional disclosures about pension plan assets, benefit
         obligations, cash flows, and benefit costs of defined benefit pension
         plans and other defined benefit postretirement plans. Also, companies
         are required to provide a breakdown of plan assets by category, such as
         debt, equity and real estate, and to provide certain expected rates of
         return and target allocation percentages for these asset categories.
         The Company has implemented this pronouncement and has concluded that
         the adoption has no material impact to the consolidated financial
         statements.

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

                                      F-13


<PAGE>

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

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

         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, $4,833,000 and
         $5,193,000 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.

NOTE 3 - INVENTORY

         Inventory at December 31, 2003 consisted of the following:

                  Raw materials and purchased parts                $  1,968,000
                  Work-in-process                                     4,067,000
                  Semi finished and finished goods                    2,631,000
                                                                   -------------
                                                                   $  8,666,000
                                                                   =============

NOTE 4 - PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 2003 consisted of the following:

                  Experimental aircraft                            $    659,000
                  Office furniture and equipment                        581,000
                  Machinery and equipment                             4,062,000
                                                                   -------------
                                                                      5,302,000
                  Less accumulated depreciation and amortization     (1,309,000)
                                                                   -------------
                                                                   $  3,993,000
                                                                   =============

                                      F-14


<PAGE>

         Depreciation expense for the years ended December 31, 2003 and 2002 was
         $781,000 and $1,610,000, respectively.

NOTE 5 - NOTES PAYABLE

         Notes payable at December 31, 2003 consisted of the following:

         Note payable to BLX Commercial Capital, LLC - interest
              rate prime plus 2%; secured by virtually all the
              assets of the Company and a $2,000,000 life
              insurance policy on the Company's Chief Executive
              Officer and is guaranteed under the U.S. Department
              of Agriculture Business and Industry Guaranteed
              Loan Program; monthly principal and interest
              payments of $32,516, with any unpaid principal and
              interest due on November 1, 2028.                     $ 4,996,000

         Note payable to Lincoln Mortgage Corporation- interest
              rate 4.75%; unsecured note with monthly principal
              payment of $2,470 plus interest, with any unpaid
              principal and interest due on April 1, 2008.              122,000

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

                                                                      5,562,000
                            Less current maturities                    (529,000)
                                                                    ------------
                                                                    $ 5,033,000
                                                                    ============
         Principal payments on notes payable are as follows:

                  Year ending December 31,
                      2004                                          $   526,000
                      2005                                               85,000
                      2006                                               89,000
                      2007                                               93,000
                      2008                                               72,000
                      Thereafter                                      4,697,000
                                                                    ------------
                                                                    $ 5,562,000
                                                                    ============

NOTE 6 - REVOLVING LOAN

         On November 17, 2003, the Company finalized a revolving loan in the
         aggregate principal amount of $4,000,000 issued by MAC to two related
         parties, pursuant to an Amended and Restated Loan and Purchase Money
         Security Agreement. The revolving loan has a term of three (3) years
         and bears interest at a rate of 10% per annum. The proceeds of the
         revolving loan will be used to finance the purchase of airplane parts
         to be used in the manufacture of airplanes, and is secured by parts and
         equipment purchased with such proceeds. The issuers of the revolving

                                      F-15


<PAGE>

         loan have the option of converting any or all the amounts outstanding
         under the loan to shares of the Company's common stock at $0.00856 per
         share, which represents a total beneficial conversion feature of
         $4,000,000. The contingent beneficial conversion feature will not be
         recognized until amounts are actually drawn on the revolving loan. As
         of December 31, 2003, there were no amounts outstanding under this
         revolving loan. In connection with this revolving loan, the Company is
         required to pay a commitment fee of $400,000 payable in shares of the
         Company's common stock. As of December 31, 2003, the shares had not
         been issued and this $400,000 commitment fees has been included in
         accrued expenses in the accompanying consolidated balance sheet. This
         commitment fee will be amortized over the 24 month term of the
         revolving loan.

NOTE 7 - CONVERTIBLE DEBENTURES

         Convertible debentures at December 31, 2003 consisted of the following:

         Secured convertible debentures to various individual
              investors (including $75,000 to the Company's
              Chairman) - interest rate 8%; convertible into
              shares of the Company's Class A common stock at
              a rate of $0.0192 per share; debentures mature
              at various dates through 2007.                       $ 22,364,000

         Unsecured convertible debentures to various individual
              investors - interest rate 3%; convertible into
              shares of the Company's Class A common stock at
              a rate of $0.0384 per share; debentures mature
              in June 2006.                                           6,800,000
                                                                   -------------

                                                                     29,164,000
                            Less current maturities                  (2,376,000)
                                                                   -------------

                                                                   $ 26,788,000
                                                                   =============

         The principal amount of the convertible debentures mature as follows:

                  Year ending December 31,
                      2004                                         $  2,376,000
                      2005                                            1,094,000
                      2006                                           14,957,000
                      2007                                           10,737,000
                                                                   -------------

                                                                   $ 29,164,000
                                                                   =============

         A rollforward of the convertible debentures is as follows:

              Balance, December 31, 2001                           $  2,147,000
              Issuance of convertible debentures for cash            14,589,000
              Conversions into equity                                (2,527,000)
              Discounts recorded on convertible debentures          (14,315,000)
              Amortization of discounts                               5,935,000
                                                                   -------------
              Balance, December 31, 2002                              5,829,000
              Issuance of convertible debentures for cash               573,000
              Issuance of convertible debentures for finder's fees    1,360,000
              Conversions into equity                                (4,958,000)
              Conversions of notes payable to convertible
                debentures                                            6,322,000
              Write off of discounts due to restructuring            17,070,000
              Amortization of discounts                               2,968,000
                                                                   -------------
              Balance, December 31, 2003                           $ 29,164,000
                                                                   =============

                                      F-16


<PAGE>

         On June 17, 2003, the Company implemented a restructuring plan,
         whereby, all convertible note holders agreed to waive all outstanding
         defaults, including waiver of the penalties for non-registration of the
         shares underlying the convertible debentures, and set fixed note
         conversion prices of $0.0192 and $0.0384 for the secured and unsecured
         debenture holders, respectively. In addition, as part of the
         restructuring, holders of notes payable totaling $6,322,000 converted
         their notes payable into secured convertible debentures.

         The debt holders were, due to their beneficial ownership of significant
         equity interests in the Company, considered to be related parties as
         defined in Statement of Financial Accounting Standards No. 57, "Related
         Party Disclosures". Therefore, the Company accounted for this
         restructuring consistent with its economic substance, as set forth in
         Statement of Financial Accounting Standards No. 15, "Accounting by
         Debtors and Creditors for Troubled Debt Restructurings". Since the debt
         holders had agreed to the restructuring primarily to ensure the
         Company's continuation as a going concern thereby protecting their
         equity interests, the restructuring was accounted for as an equity
         transaction and no amounts were charged to operations. The contribution
         of the warrants and the forfeiture of the original beneficial
         conversion rights were treated as a contribution to capital. The
         elimination of the unamortized debt discount attributable to these
         equity features was similarly treated as an equity distribution to
         these debt holders. A summary follows:

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

         Net distribution to related parties at date of
           restructuring                                           $ (8,770,000)
                                                                   =============

NOTE 8 - STOCKHOLDERS' DEFICIT

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

         As of December 31, 2003, 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.

         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.

                                      F-17


<PAGE>

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

         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, 2003, the Company has issued 91,085 shares of Preferred
         Stock with a stated value of $9,108,500. The remaining $891,500 in
         Preferred Stock funding will not occur until certain criteria have been
         met.

         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 stockholders do
         not have voting rights. As of December 31, 2003, the Company has
         dividends in arrears for the Preferred Stock totaling $504,000.

         As of December 31, 2003, a total of 65,117 shares of Preferred Stock
         have been converted into shares of common stock. During the years ended
         December 31, 2003 and 2002, various preferred stockholders converted a
         total of 9,921 and 10,759 shares, respectively, plus dividends in
         arrears into 69,679,607 and 12,663,000 shares, respectively, of Class A
         Common Stock.

         As part of the restructuring of the Company's debt as discussed in Note
         7, all the warrants issued in connection with the Series A preferred
         stock were canceled and the conversion price at which a Series A
         stockholder could convert shares into Class A common stock was fixed at
         $0.0384 per shares.

NOTE 9 - 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

                                      F-18


<PAGE>

         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, 2003, there were no options issued
         under this Stock Option Plan.

         Transactions under the Stock Option Plans during the years ended
         December 31, 2003 and 2002 are summarized as follows:

         The following is table summarizes the options outstanding:

                                                                       Weighted-
                                                          Stock         Average
                                                          Option        Exercise
                                                           Plan          Price
                                                        -----------    ---------
                   Balance, December 31, 2001            1,322,000     $   2.15
                       Canceled                         (1,322,000)    $   2.15
                                                        -----------

                   Balance, December 31, 2002                   --     $     --

                       Granted                                  --     $     --
                                                        -----------
                   Balance, December 31, 2003                   --     $     --
                                                        ===========

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

         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-19


<PAGE>

NOTE 10 - 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, 2003 are as follows:

                  Deferred tax assets:
                        Federal net operating loss                 $ 39,346,000
                        State net operating loss                      1,621,000
                        Research & development credits                1,356,000
                        Depreciation                                    320,000
                        Other                                            80,000
                                                                   -------------

                  Total deferred tax assets                          42,723,000
                        Less valuation allowance                    (42,723,000)
                                                                   -------------

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

         At December 31, 2003, the Company had federal and state net operating
         loss ("NOL") carryforwards of approximately $115,723,000 and
         $27,012,000, respectively. Federal NOLs could, if unused, expire in
         varying amounts in the years 2004 through 2018. State NOLs, if unused,
         could expire in varying amounts from 2003 through 2013.

         At December 31, 2003, the Company had federal research and development
         ("R&D") credit carryforwards of approximately $1,356,000. The federal
         R&D credit carryforwards will expire beginning in 2004.

         The valuation allowance increased by $2,724,000 during 2003.

         The reconciliation of the effective income tax rate to the federal
         statutory rate for the years ended December 31, 2003 and 2002 is as
         follows:

                                                              2003        2002
                                                             -------    -------
                     Federal income tax rate                 (34.0%)    (34.0%)
                     State tax, net of federal benefit        (6.0%)     (6.0%)
                     Increase in valuation allowance          40.0%      40.0%
                                                             -------    -------
                     Effective income tax rate                 0.0%       0.0%
                                                             =======    =======

         Utilization of the net operating loss and tax credit carryforwards is
         subject to significant limitations imposed by the change in control
         under I.R.C. 382, limiting its annual utilization to the value of the
         Company at the date of change in control times the federal discount
         rate. A significant portion of the NOL may expire before it can be
         utilized.

NOTE 11 - 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.
         During the year ended December 31, 2003, the Company issued a total of
         23,422,062 shares of the Company's Class A common stock valued at
         $469,000 in full satisfaction of this agreement.

                                      F-20


<PAGE>

         Mr. Babad, a director, had 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
         2004.

         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. During the
         year ended December 31, 2003, Mr. Rothman converted approximately
         $68,000 of amounts due him into convertible debentures.

         Mr. Rabinowitz, a former director, has consulting agreements with the
         Company that provide for monthly payments of $5,000 that began 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, 2003, an aggregate of $288,000 was still outstanding
         on these promissory notes.

         During the year ended December 31, 2003, the Company was loaned
         $2,952,000 from Mooney Parts, Inc., a company owned by certain
         debentures and preferred stockholders of the Company, which was used to
         purchase certain airplane parts. At December 31, 2003, the Company owed
         Mooney Parts, Inc. $1,685,000.

NOTE 12 - 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.

         On February 20, 2004 the parties have settled the Action for $400,000.
         However, the Company may fully satisfy the terms of the Settlement
         Agreement by making payments to employees totaling $200,000 in the
         following manner. Deliver clean stock to an escrow agent who will sell
         a maximum of $30,000 of said stock each month until they have received
         the total of $200,000 turned over to the employee attorney's. The
         Company has accrued $200,000 for damages for this action as of December
         31, 2003.

         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. On December 19, 2003, plaintiff made an Offer to
         Compromise for the sum of $389,000, with each side bearing its own
         costs and fees. On January 15, 2004, the Company accepted this offer.

                                      F-21


<PAGE>

         Within five business days after Court approval of this Settlement
         Agreement, the Company shall deliver to Whiteford's counsel (1)
         9,523,810 shares of the Company's stock (valued at $200,000) issued to
         Ron Whiteford individually; and (2) a fully executed note in the amount
         of $190,000. The note shall carry interest at the rate of three percent
         (3%), and is for a three (3) year period. The note shall be convertible
         to the Company's common stock at $0.021 per share after the date of
         registration of the common shares issuable upon conversion of the note
         and then at any time thereafter until the note is fully paid.

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

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

         AP Long Beach Airport, LLC ("AP"), the lessor, has filed a complaint in
         the Los Angeles Superior Court, alleging breach of a Sublease Agreement
         by the Company for failure to pay rent. Specifically, AP alleges that
         AP and the Company entered into a Lease Agreement for the lease of real
         property located in Long Beach, California to the Company for a thirty
         year term. AP and the Company later entered into first, an Assignment
         and Assumption Agreement and then, a Sublease Agreement wherein AP
         sublet the property to the Company for a term of eighteen years at a
         monthly rent of $106,167. On December 3, 2003, in connection with the
         lawsuit in the Superior Court of the State of California for the County
         of Los Angeles, South District, the Company and AP entered into a
         stipulation regarding: Admission of Liability and Binding Arbitrage of
         Damages. Under the Stipulation, the Company admitted liability to all
         of AP's claims, except that the Company and AP agreed to enter into
         binding arbitration with respect to (i) the calculation of damages
         sought by AP and (ii) whether AP properly mitigated its damages. The
         Company has offered to settle this legal matter for $4,000,000.
         Arbitration began in early March. The Company is awaiting another
         hearing scheduled for March 25, 2004. The final closing hearing is
         tentative scheduled for April 24, 2004. During testimony to date, the
         Company's expert witness has set the damages at $5,000,000, while the
         plaintiff's expert witness has calculated the damages to be
         $29,000,000. Based on current information being presented to the
         Arbitrator, the Company believes that the range of the ultimate
         resolution of this matter will be between $9,000,000 and not to exceed
         the $14,099,000 that is accrued.

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

         In the ordinary course of business, the Company is generally subject to
         claims, complaints, and legal actions. At December 31, 2003, management
         believes that the Company is not a party to any action which would have
         a material impact on its consolidated 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 September 2033. The lease provides for current
         monthly lease payments of $1,434, increasing over the term of the
         lease.

                                      F-22


<PAGE>

         Future minimum lease payments applicable to non-cancelable operating
         leases as of December 31, 2003, are as follows:

                   Year ending December 31,
                        2004                                    $        17,207
                        2005                                             17,207
                        2006                                             17,207
                        2007                                             17,207
                        2008                                             17,207
                        Thereafter                                    1,256,547
                                                                ----------------

                   Net Minimum Lease Payments                   $     1,342,582
                                                                ================

         The Company incurred rent expense of $17,207 and $184,375 for the years
         ended December 31, 2003 and 2002, respectively.

         Employment Contracts
         --------------------

         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. At December 31, 2003, $150,000 of Dr Chen's severance had
         not been paid. 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 was to issue a number of shares of Class A common
         stock that is equivalent to 1.5% of all outstanding Class A shares.
         During the year ended December 31, 2003, the Company issued to Mr.
         Norris 1,075,136 shares of Class A common stock in satisfaction of this
         obligation.

         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 3%
         ownership in the Company. During the year ended December 31, 2003, the
         Company issued 6,066,935 shares of Class A common stock under this
         agreement. At December 31, 2003, the Company has accrued $103,000,
         which represents 7,650,128 shares of common stock, in compensation
         expense representing the estimated fair market value of the vested
         ownership at the date for remaining shares to be issued under this
         agreement. The underlying shares were issued in January 2004.

NOTE 13 - NON-RECURRING EXPENSES

         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 12 and 14).

                                      F-23


<PAGE>

NOTE 14 - LIABILITIES RELATED TO ABANDONED PROPERTY

         As discussed in Notes 12 and 13, 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 12). 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 consolidated 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 12,
         and that the accrual will be sufficient to account for the actual
         damages.

         As of December 31, 2003, the Company has written off the related net
         capitalized cost of the building totaling $10,607,000 (See Note 13).

NOTE 15 - PER SHARE INFORMATION

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

<TABLE>
<CAPTION>
                                                                         2003              2002
                                                                    --------------   --------------
                   <S>                                              <C>              <C>
                   Numerator
                      Loss before extraordinary item                $ (14,191,000)   $ (38,822,000)
                      Amortization of discount on preferred stock         (54,000)        (224,000)
                      Dividends in Arrears                               (504,000)        (459,000)
                                                                    --------------   --------------

                   Numerator for basic loss per share               $ (14,749,000)   $ (39,505,000)
                                                                    ==============   ==============

                   Denominator
                      Weighted average shares of Class B shares         1,014,000        1,014,000
                      Weighted average shares of Class A shares       235,895,000       67,169,000
                                                                    --------------   --------------

                   Denominator for basic loss per share               236,909,000       68,183,000
                                                                    ==============   ==============

                   Basic loss per share                             $       (0.06)   $       (0.58)
                                                                    ==============   ==============
</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.

                                      F-24


<PAGE>

NOTE 16 - EMPLOYEE BENEFITS

         The Company has a 401(k) Plan for its employees. For the years ended
         December 31, 2003 and 2002, the Company did not make any contributions
         to the Plan.

NOTE 17 - OTHER INCOME (EXPENSE)

         Other income (expense) in the accompanying consolidated statements of
         operations for the year ended December 31, 2003 is principally related
         to the change in fair value of the accrued warrant liability (see Note
         1), and for the year ended December 31, 2002 is principally related to
         the gain (loss) on the sale of fixed assets and investments.

NOTE 18 - SUBSEQUENT EVENTS

         As discussed in Note 12, in January 2004, the Company agreed to settle
         certain advanced deposits aggregating $390,000 for $389,000. Also in
         January 2004, the Company settled another advanced deposit of $90,000
         for $45,000. The above settlements resulted in a gain of $46,000 which
         will be recognized in the first quarter of 2004.

                                      F-25