U. S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                     AMENDED
                                   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, 2004

                                       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:

<PAGE>

                                      Units

                    Common Stock, par value $.0001 per share

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

                                 Yes |X| No |_|


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: $19,314,271


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 31, 2005
was $20,983,114.


The number of shares outstanding of the issuer's common stock as of March 31,
2005 was 10,491,557.


Transitional Small Business Disclosure Format (check one): Yes o No x


                                     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 7,000 now in operation around the world.

We believe that there is a unique market opportunity to manufacture, sell and
support the Mooney aircraft, due to the following factors: 1) the deteriorating

<PAGE>

comfort and convenience of airline travel, and the resurgence of interest in
purchasing light aircraft for business and personal transportation for small and
medium sized businesses and high net worth individuals; 2) reduction of product
liability legal exposure to manufacturers of general aviation aircraft as a
result of the General Aviation Revitalization Act of 1994, and 3) an excellent
competitive position in the retractable gear, 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
five Mooney models, the, Ovation, Ovation 2 DX and GX, and the high performance
Bravo DX and GX.

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

                               Industry Background

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

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

Currently, there are fewer than ten major manufacturers of general aviation
aircraft based in the United States. Piston aircraft make up the numerical
majority of aircraft delivered by these manufacturers, whereas turboprop and jet
aircraft account for the majority of billings. Aircraft deliveries by United
States manufacturers have increased consistently; for example, sales were
approximately $3.1 billion in 1996, and grew to $11.9 billion in 2004.

                                    Strategy

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

We are producing five models, the Ovation, the Bravo DX and GX and the Ovation2
DX and GX. We have hired a management team with significant experience in
aviation and business management and we believe that the team can make MAC
profitable.

                                  Manufacturing

We manufacture all Mooney airplanes in Kerrville, Texas. We have a favorable
long-term lease on both land and buildings at the Kerrville Airport, which makes
Kerrville a financially attractive location to build aircraft. Additionally, the
Kerrville area has an experienced aerospace labor work force developed over the
many years the Mooney aircraft has been produced in this location. There are no
other aircraft manufacturers in the immediate area, so competition for
experienced workers is minimal. Additional labor to supply the needs created by
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, the Ovation2 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 7,000 Mooney aircraft in operation around
the world. We also sell aircraft parts and service to support many of these
aircraft.

<PAGE>

Domestic Sales

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

We have increased our advertising campaign nationwide featuring the choice of a
Mooney with either a classic flight deck (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. Our distributed sales force is supported by a professional
sales support staff at our facility in Kerrville, Texas. We believe that this
method is ideal for sales in today's fast-paced market environment. The sales
process still requires personal contact between the salespeople and the
prospective customers.

International Sales

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

New Product Development Programs

Mooney's strategy for the M20 airframe is one of continually enhancing an
industry-leading design. In 2004 Mooney introduced and began to deliver aircraft
equipped with state of the art avionics utilizing the Garmin G1000 all glass
integrated avionics system, thereby creating the new Ovation GX and Bravo GX
models. We also introduced the Hartzell three blade propeller, the Amsafe
inflatable seatbelt, and a redesigned all-leather interior. Other product
developments for the M20 are in progress, but are not yet ready for
announcement.

Product-Liability Risk Limitations

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

With respect to the MACorp assets, the U. S. Bankruptcy Court for the District
of San Antonio's order and the Asset Purchase Agreement grant us ownership of
the MACorp assets free and clear of any product-liability claims for products
manufactured prior to our acquisition of the assets. Therefore we believe that
we would not be found liable for product-liability claims related to MACorp.
aircraft or parts manufactured prior to our acquisition of MACorp. assets.
However, we have been named as a defendant in future lawsuits and will incur
costs associated with the defense of such claims.

Foreign Certification

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

                                  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.

The Secured Convertible Debenture Notes are convertible into shares of the
Company's common stock at a fixed per share conversion price of $2.22 cents per
share. The maturity date for the secured convertible notes was extended for a
period of three (3) years, with maturity dates on the third anniversary of the
Notes which is either June 16, 2006 or November 7, 2006, depending on the
inception date of the Note. Interest will be paid in cash at the maturity date.
The unsecured notes (both principal and interest) and the interest on the
secured notes were discharged as of June 10, 2004, per the Amended Plan of
Reorganization approved by the U.S. Bankruptcy Court for the District of
Delaware on December 14, 2004. Under the Amended Plan, the Secured Notes
principal is convertible to Common Stock at a conversion rate of $2.22 per
share. This conversion must be completed by August 30, 2005 unless extended by
the Company's board of directors. The common stock issued pursuant to this
conversion feature is restricted to prohibit any sales prior to March 15, 2005
and allows no more than 10% of each shareholders holdings to be sold each month

<PAGE>

thereafter unless this provision is modified by the Company's board of
directors.

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

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

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

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

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

To date, we have incurred significant losses. At December 31, 2004, we had an
accumulated deficit of approximately $153,434,000. We have incurred net losses
of $14,191,000 in 2003, and $12,470,000 in 2004 respectively. Losses prior to
2004 resulted principally from significant costs associated with the development
of the Jetcruzer 500 and the acquisition of Mooney. We show a reduced loss in
2004 due to the cancellation of debt that was realized from the Amended Plan of
Reorganization. This cancellation of debt amounted to ($1,033,000). We expect to
incur further losses in the future due to significant costs associated with
manufacturing our aircraft, maintaining the necessary regulatory approvals, and
marketing and selling our aircraft. There can be no assurance that sales of our
aircraft will generate sufficient revenues to fund our continuing operations,
that we will generate positive cash flow from our operations, or that we will
attain or thereafter sustain profitability in any future period. If we do not
begin to generate profits, we may be forced to cease or curtail our operations.

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

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

We obtained additional financing in the amount of $3,100,000 referred to as
"Airplane Notes" from the same parties as the revolving loan. These notes bear
interest at 8% per annum and mature November 7, 2007.

We also obtained additional financing referred to as the Secured Promissory
Notes in the principal amount of $9,000,000 of which $4,400,000 was still
outstanding at year end. These notes were funded by the same parties as listed
for the revolving loan. These notes bear interest at 17.5% per annum and provide
for a maturity date of November 7, 2006 callable on March 7, 2005. They were
called on that date and the Company is now in default on the payment of this
obligation. However, discussions are ongoing between the Company and the lenders
on negotiating revised terms of the loan. An agreement in principle has been
reached and a fully executed document curing the default of this loan is
expected to be completed prior to July 31, 2005. However, should this note not
be refinanced, management has no other options to cure the default.

We are required to pay Libra Finance, S.A. a finder's fee of $986,000 secured by
a non-interest bearing promissory note which was due on February 7, 2005. The
due date has been extended by the lender and the terms of the note are in is in
the for obtaining these loans, process of renegotiation.

Subsequent to the year end, on March 8, 2005 we executed a promissory note in
favor of Guarantee & Finance Inc. in the amount of $1,000,000 with interest at
12% per annum due and payable on April 5, 2005. The due date has been extended
and the lender and the loan is the terms of the note are in the process of
renegotiation.

<PAGE>

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

Regulatory uncertainty could result in additional costs or liabilities.

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

The results of our operations will depend in large part on the skills and
efforts of our executive team. 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 on human and financial resources.

We significantly expanded our operations in 2004 and plan to continue to expand
them during 2005, which could place a significant strain on our limited
personnel, financial and other resources. We intend to continue to enlarge the
manufacturing capabilities of our Mooney subsidiary and to manufacture Mooney
aircraft. Our efforts to conduct manufacturing activities may not be successful,
and we may not be able to satisfy commercial scale production requirements on a
timely and cost-effective basis. Our ability to manage this growth, should it
occur, will require significant expansion of our engineering and production
personnel. We may not be able to find qualified personnel to fill such
additional positions or be able to manage a larger organization successfully. We
may also seek to acquire additional aircraft product lines that will place
additional demands on our limited resources.

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

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

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

Future sales of common stock by existing stockholders pursuant to Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), or otherwise,
could have an adverse effect on the price of our securities. As of December 31,
2004, Mooney had 9,997,773 outstanding shares of Common Stock, plus debentures
issued under various agreements convertible into shares of common stock. Sales
of common stock, or the possibility of such sales, in the public market may
adversely affect the market price of the securities offered hereby.

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

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

No dividends.

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

Volatility of stock market.

The stock market from time to time experiences significant price and volume

<PAGE>

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

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

Employees

As of December 31, 2004, we had 310 full time and 7 full time "contract"
employees in MAC, and 3 full time employees and 1 part time employee in the
Company. None of our employees are represented by a labor union.

Item 2. Facilities

We are currently leasing a 353,634 square feet building complex located in
Kerrville, Texas at 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


All legal proceedings previously reported were discharged in bankruptcy.

Bankruptcy Proceedings

On June 10, 2004 the Company filed a voluntary petition in the United States
Bankruptcy Court pursuant to Chapter 11 of Title 11 of the U. S. Code. On
December 14, 2004 the U. S. Bankruptcy Court for the District of Delaware
confirmed the Company's Amended Plan of Reorganization, which has been fully
executed by the Company. A hearing on a final decree to close the bankruptcy
case will be heard by the Court on May 5, 2005. The Amended Plan of
Reorganization provides that the holders of all allowed unsecured claims against
the Company are entitled to their pro-rata share of stock representing 46% of
the Company.

All senior debenture holders will continue to be secured by the stock of the
Company's subsidiary, (MAC) after the stock is transferred to the unsecured
creditors, and the senior debenture holders will also continue to be secured by
MAC's assets. Similarly, the holder of the Factor indebtedness will continue to
be secured by MAC's aircraft and aircraft parts that now secure its claims, and
BLX will continue to be secured by substantially all of MAC's assets. All
preferred shareholders received their pro-rata share of 2% of the stock of the
Company, and all common shareholders received their pro-rata share of 2% of the
stock of the Company. All allowed administrative expenses were paid in cash in
full.

The Amended Plan of Reorganization was implemented by changing the capital
structure to allow the Company to issue 9,800,000 new shares of common stock on
confirmation. The Company's shares were subject to a reverse split so as to
leave 200,000 shares for the common shareholders. On the effective date of the
plan, December 15, 2004, there were a total of 10,000,000 issued shares. Of the
newly issued shares, 5,000,000 were issued to the Allen Group in exchange for
its transferring all of the shares of MAC to the Company, thereby giving Allen
50% of the shares of the Company. Furthermore, the Company is authorized to
issue a total of 50 million shares, and MAC's secured creditors have the right
to convert debt of approximately $30,000,000 to, at the secured creditor's
option, 13,500,000 in additionally newly issued Company shares. The secured
creditor may convert all or part of its debt at the above ratio at its
discretion.

All newly issued or newly issuable shares of the Company are free trading under
Rule 3a (9), except that none could be traded until March 15, 2005 and then only
10% of the holder's shares can be traded each month thereafter. The Company
realized $1,033,000 of extraordinary gain from debt forgiveness as a result of
the discharge in bankruptcy of some of its debts.

On December 15, 2004 American Stock Transfer and Trust Co. issued about 10
million shares of new common stock to our creditors as required by the Amended
Plan of Reorganization. Of this, 200,000 shares were issued to the existing
shareholders of record as of December 15, 2004. An additional 200,000 shares
were issued to the preferred stockholders of record as of December 15, 2004.
4,975,000 shares were issued to Allen Holding & Finance Company Ltd., and about
4,600,000 million shares were issued to the unsecured general creditors.

The Amended Plan of Reorganization also provides that the secured debenture
holders, the airplane note holders and the factor note holders have the option
to convert their shareholdings into 13.5 million shares of new common stock All
of the stock is restricted, (except the shares issued to the existing common
shareholders of record on December 15, 2005), in that none of these shares could
have been sold until March 15, 2005, and then only 10% of each shareholder's
shares can be sold each month thereafter. As part of the Amended Plan of
Reorganization existing shareholders are entitled to be issued new shares of
Mooney Aerospace Group, Ltd. common stock based on a reverse split of 3,223 old
MASG shares for one share of new common stock,

Sale of MAC shares to Allen Holdings and Finance, Ltd. and Reacquisition

On June 1, 2004 the Company announced that it had sold all of the stock of MAC
to Allen Holdings and Finance, Ltd. All of these shares were reacquired by the
Company on December 15, 2004 as a provided for in the Amended Plan of
Reorganization.

<PAGE>

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



None

                                     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
"MNYG" as of December 15, 2004. Our common stock was traded on NASD Electronic
Bulletin Board under the symbol "MASG" prior to December 15, 2004 .The following
table sets forth the range of high and low bid quotations for each of the prior
two fiscal years.. The quotations represent inter-dealer quotations without
adjustment for retail mark-ups, markdowns or commissions and may not represent
actual transactions.

                                                        High        Low

             1 st Quarter 2003                        $0.0400    $0.0300
             2 nd Quarter 2003                        $0.0600    $0.0100
             3 rd Quarter 2003                        $0.0500    $0.0300
             4th Quarter 2003                         $0.0300    $0.0200
             1st Quarter 2004                         $0.0220    $0.0131
             2 nd Quarter 2004                        $0.0048    $0.0006
             3rd Quarter 2004                         $0.0090    $0.0006
             4th Quarter 2004                         $0.1600    $0.1100
             December 16 - December 31, 2004          $0.0000    $0.0000

As of December 31, 2004, there were 264 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 them so long as they identify these statements as
forward looking and provide meaningful cautionary statements identifying
important factors that could cause actual results to differ from the projected
results. All statements other than statements of historical fact made in this
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 6, 2002 the U.S. Bankruptcy Court in San Antonio, Texas approved an
operating agreement that allowed us to manage MACorp until a plan of
reorganization was approved. On February 8, 2002, we announced we had purchased
Congress Financial Corporation's ("Congress") position as senior secured
creditor for Mooney Aircraft Corporation of Kerrville, Texas ("MACorp"). The
Bankruptcy Court approved the sale of substantially all of the MACorp assets to
us on March 18, 2002 and on April 19, 2002 we completed the Mooney asset
acquisition.

MACorp was 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 7,000 aircraft in operation in the US alone. We acquired substantially
all of MACorp's assets and have returned to full production of the Mooney
aircraft line. MACorp's assets are held by our wholly owned subsidiary ("MAC").
On July 23, 2002, we changed our name to Mooney Aerospace Group, Ltd.

We derive a substantial portion of our revenues from the sale of a relatively
small number of aircraft. As a result, a small reduction in the number of
aircraft shipped in a quarter could have a material adverse effect on our
financial position and results of operations for that quarter. Our policy is to
collect not less than a 10% deposit prior to construction of aircraft and final
payments upon the delivery of aircraft. Construction or delivery delays near the
end of a particular quarter due to, for example, shipment rescheduling, delays
in the delivery of component parts or unexpected manufacturing difficulties,
could cause the financial results of the quarter to fall significantly below our
expectations and could materially and adversely affect our financial position
and results of operations for the quarter.

During 2005 we intend to focus our efforts on the following:

<PAGE>

o     An increase in 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.
o     Production of Garmin G-1000 equipped aircraft.

On June 27, 2002 MAC announced that we had received a Federal Aviation
Administration (FAA) production certificate for the Eagle2 (Mooney M20S),
Ovation2 (Mooney M20R) and the Bravo2 (Mooney M20M). We are making 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 enhances our support to Mooney owners and
provides us with additional business opportunities.

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

We generated $19,314,000 in operating revenues for the year ended December 31,
2004 from the sale of aircraft and spare parts, and have incurred a net loss
during the same period of $12,470,000. The loss has been reduced as result of
cancellation of debt in the amount of ($1,033,000) due to the filing of terms of
the Amended Plan or Reorginzation. We believe we will continue to experience
losses until such time as we attain a commercial scale for the production and
sale of our aircraft. No assurance can be made that we will be able to attain
the necessary scale in the foreseeable future that will allow us to generate
revenue and profits sufficient to maintain its operations without other sources
of financing.

Liquidity and Capital Resources

At December 31, 2004, we had a negative working capital of $3,840,000 and
stockholders' deficiency of $23,797,000. 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 increase our
production to planned levels and increase market acceptance of our aircraft at
selling prices and volumes which provide adequate gross profit to cover
operating costs and generate positive cash flow. Our working capital
requirements will depend upon numerous factors, including the level of resources
devoted to the scale-up of manufacturing and the establishment of sales and
marketing. No assurance can be made that we will be able to restore MAC's
production processes to planned levels, regain market acceptance for our
aircraft or generate positive cash flow in the foreseeable future, or ever. If
we are unable to generate cash flow through our operations as necessary, we will
have to continue to obtain financing through equity or debt financing. No
assurance can be made that we will be able to obtain sufficient equity or debt
financing under terms acceptable to us to allow us to maintain operations
according to our current operating plans, or at all.

Our management team has developed a financial plan to address our working
capital requirements. Since early 2001, this has included the issuance of
convertible debentures. The secured debentures are convertible into shares of
common stock at a fixed price set at $2.22 per share and must be converted by
August 30, 2005, in accordance with the Amended Plan of Reorganization that was
confirmed and effective December 15, 2004. The notes earn interest at the rate
of 8% per annum and the payment terms vary with each agreement. The interest is
payable in cash at the maturity date which is either in June or November 2006
depending upon the terms of the particular note. The unsecured debenture holders
and the preferred stockholders were issued stock effective December 15, 2004 to
satisfy the Company's obligations to them as provided for in the Amended Plan of
Reorganization.

The restructuring plan conversions reported in previous filings were changed
pursuant to the provisions of the Amended Plan of Reorganization as confirmed by
the Bankruptcy Court.

On November 14, 2003, we issued a long-term note payable in the amount of
$5,000,000 to a bank. This note is guaranteed by the U. S. Department of
Agriculture Business and Industry Guaranteed Loan Program. The note is
guaranteed and secured by many of the Company's assets and its final installment
payment is due on November 13, 2028.

On November 17, 2003, we issued a secured revolving note which was amended by
Amendment No. 4 Dated September 29, 2004 in the aggregate principal amount of
$7,500,000 issued by MAC. These notes were issued to Alpha Capital
Aktiengesellschaft, Bristol Investment Fund Ltd, Edward Turin, MM&CTW Foundation
Inc, Renaissance Development Holdings International., Ltd, Taria Inc, and TRW
Holdings Party Ltd. The revolving loan is a demand loan and bears interest at a
rate of 8.0% per annum. The proceeds of the revolving loan are used to finance
the purchase of airplane parts and material 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 $2.22 per
share. As of December 31, 2004, there was $6,250,000 outstanding under this
revolving loan.

Our current cash balance, along with amounts available to us under the revolving
loan, will not be sufficient to meet our operating needs for the next 12 months.
If additional funding is required it may be obtained either through additional
stock issuances or debt financing provided by certain private parties. The
following table summarizes the Company's contractual obligations at December 31,
2004:

<PAGE>

<TABLE>
<CAPTION>
Contractual            2005         2006           2007          2008         2009        Thereafter      Total
Obligations
<S>                <C>           <C>           <C>           <C>           <C>           <C>           <C>
Convertible        $        --   $20,926,000   $        --   $        --   $        --   $        --   $20,926,000
debentures
Notes payable        5,005,000        97,000     3,203,000       110,000       116,000     4,421,000    12,952,000
Revolver Loan        6,250,000            --            --            --            --            --     6,250,000
Operating leases        17,000        17,000        17,000        17,000        17,000            --        85,000
Employment             825,000            --            --            --            --            --       825,000
agreements
                   $12,098,000   $21,040,000   $ 3,220,000   $   127,000   $   133,000     4,421,000   $41,038,000
</TABLE>

Critical Accounting Policies

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

Revenue Recognition - As a routine matter aircraft are paid on delivery date. We
recognize revenue on substantially all aircraft sales and parts and service
sales when each of the following four criteria is met: 1) a contract or sales
arrangement exists; 2) products have been shipped or services have been
rendered; 3) the price of the products or services is fixed or determinable; and
4) collectibility is reasonably assured.

We may recognize revenue on aircraft sales under bill-and-hold transactions when
each of the following seven criteria are met: 1) the risk of ownership has
passed to the buyer; 2) the buyer has made a fixed commitment to purchase the
goods; 3) the buyer has requested that the transaction be on a bill-and-hold
basis and has a substantial business purpose for ordering so; 4) there is a
fixed schedule for delivery of the goods and the delivery date is reasonable and
consistent with the buyer's business practices; 5) we have not retained any
specific performance obligations such that the earnings process is not complete;
6) the aircraft has been segregated from our inventory and is not subject to
being used to fill other orders; and 7) the aircraft must be complete and ready
for shipment Bill and Hold arrangements by Policy are less than 30 days in all
cases. The Company's bill and hold policy does not allow for modification of its
normal billing and credit terms

During 2003 and 2004 no sales were booked as bill and hold transactions.

Inventory Obsolescence - We provide an inventory excess and obsolescence reserve
for any portion of any inventory item valued at current cost that has not been
used for 3 years. This allowance has been reduced over time and we anticipate
that trend to continue as our inventory aging stabilizes and our service parts
business is developed.

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

For further information regarding the accounting policies that we believe to be
critical accounting policies and that affect our more significant judgments and
estimates used in preparing our consolidated financial statements see our
December 31, 2004 consolidated financial statements contained elsewhere is this
Form 10-KSB.

Results of Operations

Year ended December 31, 2004 vs. December 31, 2003

Net sales for the year ended December 31, 2004, increased by $2,697,000, or 16%,
from $16,617,000 for the year ended December 31, 2003, compared to $19,314,000
for the same period in 2004. During the year ended December 31, 2003, we sold 34
airplanes as compared to the sale of 36 airplanes for the year ended December
31, 2004.

Cost of sales for the year ended December 31, 2004 increased by $2,447,000, or
16%, from $15,106,000 for the year ended December 31, 2003, compared to
$17,553,000 for the year ended December 31, 2004. The increase in cost of sales
is related to the increase in aircraft sales, increased sale of used airplanes,
increased sales in service parts and the service center. We have the capacity to
produce more airplanes than have been produced in the past thereby reducing the
fixed manufacturing cost associated with each airplane produced. As we increase
our production of airplanes we expect our gross margin to improve.

Research and development costs for the year ended December 31, 2004 increased by
$214,000, or 40%, from $534,000 for the year ended December 31, 2003, compared

<PAGE>

to $748,000 for the year ended December 31, 2004. The significant increase is
due to the change in avionics with the introduction of the G1000 glass panel.
Additional projects were the air bag restraint system, changes in propellers,
expanded fuel tank and recasting of the control wheel.

Selling and support expenses for the year ended December 31, 2004 increased by
$2,473,000, or 126%, from $1,957,000 for the year ended December 31, 2003,
compared to $4,430,000 for the year ended December 31, 2004. The increase is
related to an increase of marketing and sales personnel, increased advertising,
MTR commissions, flight training and the increase in aircraft sales.

General and administrative expenses for the year ended December 31, 2004
increased by $733,772, or 21%, from $3,764,000 for the year ended December 31,
2003, compared to $4,537,772 for the year ended December 31, 2004. The increase
is due to an increase in employee compensation, consultant fees expense, and
financing cost.

Other income (expense) for the year ended December 31, 2004 changed by $497,000,
or 100%, from ($497,000) for the year ended December 31, 2003, compared to $0
for the year ended December 31, 2004. The change is principally due to the 2003
change in fair value of the accrued warrant liability.

Amortization of debt issue costs and discounts for the year ended December 31,
2004 decreased by $3,519,000 or 100%, from $3,519,000 for the year ended
December 31, 2003, compared to $0.0 for the year ended December 31, 2004. 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 years ended December 31, 2004 and 2003 was $3,387,000
and $5,431,000, respectively. The decrease in interest expense is due to the
reduction in the level of debt. The forgiveness of interest liability represents
amounts accrued prior to bankruptcy, which were included in the unsecured
creditors' schedule and was settled with common stock as per the Amended Plan of
Reorganization and was part of the gain on cancellation of debt.

Cash used in operating activities for the year ended December 31, 2004,
increased by $14,013,000 as compared to the same period in 2003, due principally
due to the combination of operating losses of $8,000,000 in MAC and by its
increased working capital requirements. MAC's inventory increased by $6,390,000.

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

Cash used in investing activities for the year ended December 31, 2004,
increased by $695,000 as compared to the same period in 2003. This was primarily
for premises improvements of MAC.

Cash provided by financing activities for the year ended December 31, 2004,
increased by $13,830,000 as compared to the same period in 2003. During the 2004
period, the Company borrowed through short term debt to fund working capital
requirements of MAC.

Item 7. Financial Statements

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

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

Change in Registrant's Certifying Accountant

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

During the last two fiscal years ended December 31, 2003 and December 31, 2002
and through September 23, 2004, (i) there were no disagreements between the
Company and Stonefield on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure which, if not
resolved to the satisfaction of Stonefield would have caused Stonefield to make
reference to the matter in its reports on the Company's financial statements,
and (ii) Stonefield's report on the Company's financial statements did not
contain any other adverse opinion, disclaimer of opinion, or modification or
qualification of opinion except that Stonefield's opinion in its report on the
Company's financial statements for the years ended December 31, 2003 and 2002
expressed substantial doubt with respect to the Company's ability to continue as
a going concern as a result of incurred net losses and negative cash flows from
operations since its inception, working capital deficit and stockholders'
deficit. During the last two most recent fiscal years ended December 31, 2003
and December 31, 2002 and through September 15, 2004, there were no reportable
events as the term is described in Item 304(a)(1)(iv) of Regulation S-B.

During the two most recent fiscal years and through September 15, 2004, the
Company has not consulted with B&P regarding either:

<PAGE>

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

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

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

Item 8 a. Controls and Procedures

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

      o     the number of employees of the Company has increased from 168 at the
            start of the 2003 fiscal year to 318 at the end of 2004, and
      o     the executive management of the Company was replaced during 2004.

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

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

Item 8 b. Other Matters Subject to Disclosure

None

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

Directors and Executive Officers

Our directors and executive officers as follows:

         Name           Age                        Positions Held

Sam Rothman             51  Chairman
J. Nelson Happy         61  Vice Chairman, President, Chief Financial Officer
                            and Secretary
Sholom Babad            30  Director of Planning and Director
Sol Mayer               51  Director

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 has entered into an employment
agreement. See "Management Employment Agreements." There are no family
relationships between any of our directors and officers.

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

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

<PAGE>

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 was appointed to the board in April 2002 and became Director of
Planning at that time. Prior to being employed by the Company, he was a self
employed consultant in fundraising and security investments during the previous
five years.

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

Board Committees

Audit Committee

The Company has an Audit Committee consisting of Sol Mayer, who is not a
"financial expert" as defined by SEC rules. J. Nelson Happy, the Company's
President, is an ex officio member of the Audit Committee.

Code of Ethics

The Company has adopted a Code of Ethics.

Section 16(a) Beneficial Ownership Reporting Compliance

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


Based solely upon a review of the copies of such forms furnished to us, or
written representations that no Form 5 filings were required, we believe that
during the fiscal year ended December 31, 2004, 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 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
         Name and      Fiscal                               Other          Restricted      Securities      LTIP         All Other
         Principal                                         Annual            Stock         Underlying     Payouts      Compensation

         Position                                       Compensation        Award(S)        Options

                        Year    Salary ($) Bonus ($)         ($)              ($)           SARs (#)        ($)             ($)
<S>                     <C>     <C>                     <C>                 <C>            <C>             <C>         <C>
J. Nelson Happy         2004     207,692                   29,489
Vice Chairman, CFO and  2003     200,000
Secretary
                        2002     200,000

Nicolas Chabbert,       2004     156,302                                                                                  52,383
Executive Vice          2003     150,000

President               2002     150,000

Sholom Babad            2004     151,615
Director of Planning
</TABLE>

<PAGE>

                       Options/SAR Grants Last Fiscal Year

                                      NONE

                                Individual Grants

                                      NONE

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

                                      NONE

Compensation of Directors

The directors other than Mr. Happy, Sholom Babad and Sam Rothman do not receive
compensation but are reimbursed for their expenses for each meeting of the board
that they attend. Sholom Babad currently receives $84,000 annually in salary
plus benefits and Sam Rothman receives medical benefits only.

Employment Contracts

We have entered into a three-year employment agreement with J. Nelson Happy,
Vice Chairman, President and Chief Financial Officer. Mr. Happy receives an
annual salary of $200,000 plus reimbursement of expenses. Mr. Happy's employment
contract was extended on January 8, 2005, for a term of 9 months from notice of
termination if made by the board of directors. No notice of termination has been
given.

Item 11: Security Ownership of Certain Beneficial Owners and Management



The following table sets forth certain information regarding our common stock
beneficially owned on March 15, 2005 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.

                 Name and Address (1)        Number of Shares     Percentage of
                  of Beneficial Owner        of Common Stock        Beneficial
                 or Identity of Group                               Ownership

Allen Holdings & Finance Ltd                   4,925,000              20.96%
Alpha Capital AG                               3,928,244              16.72%
Esquire Trade & Finance Inc.                     514,488              2.19%
Guaranty & Finance Corporation                 2,022,032              8.61%
Lewis Family Investments Pty. Limited            983,640              4.19%
Libra Finance S.A                                809,442              3.44%
Renaissance Development Holdings               2,016,352              8.58%
TRW Holdings PTY. Limited                        983,640              4.19%
Tusk Investments                                 849,418              3.61%
All directors and officers as a group.
(4 persons)
Common Stock                                      76,854              0.003%

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

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

Item 12. Certain Relationships and Related Party Transactions.

Tom Gray through Thomas H. Gray Inc. dba Telecom Expert Group (aka TEG )
provides various business and Information Technology consulting expertise's to
the company. The company's relationship with TEG is as a consumer of these
consulting resources. Tom Gray served during 2004 as Managing Director of Mooney
Airplane Company, Inc "MAC"

During 2004 MAC consumed the services of TEG (including expenses) for the
following items:

<PAGE>

<TABLE>
<CAPTION>
                                                             Paid 2004       Accrued 2004, Pd. 2005         Total
<S>                         <C>                              <C>                  <C>                    <C>
Business Consulting         Tom Gray                              $ 240,029               $ 103,049          $ 343,078
Corporate Planning          Walt Catlow                              37,697                       -           $ 37,697
IT Consulting               Patrice Mathias                         105,469                  12,395          $ 117,864
Manufacturing Consulting    Kelly Jones                              88,627                   8,200           $ 96,826
Customer Support            M.L. Zeimer                              49,364                       -           $ 49,364
Miscellaneous               Engel Group                               3,565                       -            $ 3,565
Customer Support            Alan Nitchman                                 -                 6526.51            6526.51
                                                             ----------------------------------------------------------

Total                                                             $ 524,750               $ 130,170          $ 654,920
                                                             ==========================================================
</TABLE>

The total amount paid during 2004 to TEG was $524,750. At 12-31-04 the Company
had open account payable to TEG of $130,170. During the first quarter of 2005
these open payables were paid in cash.

Allen Holdings and Finance, LTD is a related party as a result of their
beneficial and direct ownership of the companies common stock. At 12-31-04 Allen
owned directly 4,925,000 of the 10,000,000 shares of common stock outstanding.
In addition Allen is the beneficial ownership designee of the Secured Debenture
Holders.

                                     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)

(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

<PAGE>

(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

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

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

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

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

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

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

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

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

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

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

(19)  4.38 Waiver and Agreement of Amendment

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

(1)   10.1 Form of Indemnification Agreement

(2)   10.2 Amended 1996 Stock Option File

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

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

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

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

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

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

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

Trust of California, National Association (4) 10.11 Official Statement dated
      August 5, 1997

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

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

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

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

<PAGE>

(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

(21)  10.33 Amended Disclosure Statement

(22)  10.34 Amended Plan of Reorganization

(23)  10.35 Confirmation Order December 2004

(24)  10.36 Specimen Certificate of Common Stock

(25)  10.37 Contract for Thomas H Gray Inc., and Illinois subchapter S
      Corporation doing business as (dba) Telecom Expert Group, FEIN 36-4315031.

(26)  31.1 Certification Pursuant to 18 U. S. C. Section 1350, as Adopted
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

(26)  32.1 Certification Pursuant to 18 U. S. C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

<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: July 6, 2005           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.

<TABLE>
<CAPTION>
Signature              Title                                     Date
<S>                    <C>                                       <C>
/s/ Sam Rothman        Chairman                                  July 6, 2005
Name: Sam Rothman

/s/ J. Nelson Happy    Vice Chairman, President &                July 6, 2005
Name: J. Nelson Happy  Chief Financial Officer and Secretary
                       (Principal Executive Financial and
                       Accounting Officer)

/s/ Sholom Babad       Director and Director of Planning         July 6, 2005
Name: Sholom Babad

/s/ Sol Mayer          Director                                  July 6, 2005
Name: Sol Mayer
</TABLE>

<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary


                        Consolidated Financial Statements

                                Table of Contents


                                                          Page

Reports of Independent Registered Public Accounting Firms
Report  from current year auditors                        F-1
Report from predecessor auditors                          F-2
Consolidated Financial Statements
Balance Sheet                                             F-3
Statements of Operations                                  F-4
Statements of Stockholders' Deficiency                    F-5
Statements of Cash Flows                                  F-6
Notes to Consolidated Financial Statements                F-7

<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Mooney Aerospace Group, Ltd.

Kerrville, Texas

We have audited the accompanying balance sheets of Mooney Aerospace Group, Ltd.
and subsidiary as of December 31, 2004, and the related statements of
operations, stockholders' equity, and cash flows for the year then ended . These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2004 and the results of its operations and its cash flows for the year then
ended, in conformity with accounting principles generally accepted in the United
States of America.


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



/s/ Bernstein & Pinchuk LLP

Certified Public Accountants

New York, New York

February 5, 2005

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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

Kerrville, Texas


We have audited the consolidated statements of operations, stockholders' deficit
and cash flows of Mooney Aerospace Group, Ltd. and Subsidiary for the year ended
December 31, 2003. 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 audit.


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


In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of its operations and
cash flows of Mooney Aerospace Group, Ltd. and Subsidiary, for the year ended
December 31, 2003, 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, Ca

January 30, 2004

<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary

                           Consolidated Balance Sheet
                                December 31, 2004
                                     ASSETS

CURRENT ASSETS
Cash and cash equivalents                                        $      59,000
Accounts receivable                                                  1,568,000
Other receivables                                                    1,646,000
Inventory                                                           15,056,000
Prepaid expenses and other current assets                              391,000
TOTAL CURRENT ASSETS                                                18,720,000
PROPERTY AND EQUIPMENT - at cost, net of accumulated
depreciation and amortization                                        3,994,000
TRADE NAME                                                           1,802,000
OTHER ASSETS                                                           401,000
                                                                     6,197,000
                                                                 $  24,917,000
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable                                                 $   2,152,000
Accrued expenses                                                       851,000
Accrued interest and penalties                                       1,680,000
Advanced deposits - deferred liabilities                             2,481,000
Notes payable, current portion                                       5,005,000
   Notes payable, revolver loan                                      6,250,000
Accrued taxes payable                                                  287,000
Accrued used aircraft trade in liability                               416,000
Accrued warrant costs                                                  163,000
Notes payable, related party                                             7,000
Insurance loan                                                         163,000
Accrued legal & audit                                                    5,000
TOTAL CURRENT LIABILITIES                                           19,460,000
CONVERTIBLE DEBENTURES                                              20,926,000
NOTES PAYABLE                                                        7,947,000
ENVIRONMENTAL CLEANUP LIABILITY                                        381,000
                                                                    48,714,000
STOCKHOLDERS' DEFICIENCY
Common stock, $0.0001 par value; 50,000,000 shares authorized;
9,997,773 shares issued and outstanding                                  1,000
Additional paid in capital                                         129,636,000
Accumulated deficit                                               (153,434,000)
                                                                   (23,797,000)
                                                                 $  24,917,000

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

<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                                        Years ended December 31,

                                                                                    2004                    2003
<S>                                                                          <C>                     <C>
NET SALES                                                                    $      19,314,000       $       16,617,000
COST OF SALES                                                                       17,553,000               15,106,000
GROSS MARGIN                                                                         1,761,000                1,511,000
OPERATING EXPENSES
Research and development expenses                                                      748,000                  534,000
Selling and support expenses                                                         4,430,000                1,957,000
General and administration expenses                                                  4,537,772                3,764,000
                                                                                     9,715,772                6,255,000
LOSS BEFORE OTHER INCOME (EXPENSE) AND PROVISION FOR INCOME TAXES                   (7,954,772)              (4,744,000)
OTHER INCOME (EXPENSE)
Interest income                                                                          2,000                        -
Other income (expense), net                                                                  -                 (497,000)
Amortization of debt issue costs and discount                                                -               (3,519,000)
Interest expense                                                                    (2,044,000)              (5,431,000)
Income from disposition of property and equipment                                       51,000                        -
REORGANIZATION ITEMS                                                                                                  -
Settlement charges                                                                   2,321,243
Professional fees                                                                    1,235,985
Gain on forgiveness of debt                                                          1,033,000
                                                                                     2,933,228               (9,447,000)
LOSS BEFORE PROVISION FOR INCOME TAXES                                             (12,470,000)             (14,191,000)
PROVISION FOR INCOME TAXES                                                                   -                        -
NET LOSS                                                                     $     (12,470,000)      $      (14,191,000)
                                                                                New Common              Old Class A
NET LOSS PER SHARE - BASIC AND DILUTED                                       $         (1.2473)      $          (0.0600)
</TABLE>


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

<PAGE>

                   Mooney Aerospace Group, Ltd. And Subsidiary

                Consolidated Statement of Stockholders Deficiency

<TABLE>
<CAPTION>
                        Preferred Stock                                                         Common Stock
                        Series A Shares         Amount          Common Stock      Amount       Class A Shares         Amount
                                                                   Shares
<S>                      <C>               <C>                  <C>             <C>            <C>                <C>
Balance, December 31,             35,889  $        2,798,000                                           80,510,761 $         8,000
2002
Conversion of                     (9,921)           (770,000)                                          69,679,607           7,000
preferred stock to
class A
Amortization of                                       54,000                                                    -
discount on preferred
stock
Conversion of                                                                                         245,627,442          24,000
debentures to class A
Conversion of accrued                                                                                  25,120,599           3,000
interest to class A
Issuance of common                                                                                      5,900,000           1,000
stock for professional
services
Conversion of accrued                                                                                  30,564,133           3,000
expenses to class A
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,             25,968           2,082,000                                          457,402,542          46,000
2003
Conversion of                     (8,352)           (321,000)                                          23,271,576           2,000
preferred stock to
class A
Conversion of                                                                                          83,972,946           8,000
debentures to class A
Conversion of accrued                                                                                  15,821,497           2,000
interest to class A
Issuance of common                                                                                     64,110,453           6,000
stock for professional
services
Balance prior to                  17,616           1,761,000                                          644,579,014          64,000
cancellation of Stock
per Amended Plan of
Reorganization
Cancellation of Stock            (17,616)         (1,761,000)                                        (644,579,014)        (64,000)
per Amended Plan of
Reorganization
Issuance of new common                                                9,997,773$      1,000
stock
Net loss
Balance, December 31,                  -                   -          9,997,773$      1,000                     -               -
2004
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                         Class B Shares     Amount   Class E-1 Shares    Amount   Class E-2 Shares    Amount

<S>                      <C>                <C>         <C>              <C>           <C>              <C>
Balance, December 31,            1,013,572         -          4,000,000         -          4,000,000         -
2002
Conversion of
preferred stock to
class A
Amortization of
discount on preferred
stock
Conversion of
debentures to class A
Conversion of accrued
interest to class A
Issuance of common
stock for professional
services
Conversion of accrued
expenses to class A
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,            1,013,572         -          4,000,000         -          4,000,000         -
2003
Conversion of
preferred stock to
class A
Conversion of
debentures to class A
Conversion of accrued
interest to class A
Issuance of common
stock for professional
services
Balance prior to                 1,013,572         -          4,000,000         -          4,000,000         -
cancellation of Stock
per Amended Plan of
Reorganization
Cancellation of Stock           (1,013,572)                  (4,000,000)                  (4,000,000)
per Amended Plan of
Reorganization
Issuance of new common
stock
Net loss
Balance, December 31,                    -                            -                            -
2004
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                          Additional Paid in        Accumulated Deficit           Total
                                Capital
<S>                          <C>                 <C>                           <C>
Balance, December 31,     $          97,911,000  $            (126,719,000)    $    (26,002,000)
2002
Conversion of                           763,000                                               -
preferred stock to
class A
Amortization of                                                    (54,000)                   -
discount on preferred
stock
Conversion of                         4,934,000                                       4,958,000
debentures to class A
Conversion of accrued                   545,000                                         548,000
interest to class A
Issuance of common                      236,000                                         237,000
stock for professional
services
Conversion of accrued                   725,000                                         728,000
expenses to class A
Forgiveness of                        7,420,000                                       7,420,000
non-registration
penalties
Contribution of                         880,000                                         880,000
warrant rights
pursuant to
restructuring
Write off of discounts               (5,700,000)                                     (5,700,000)
related to warrants
Write off of discounts              (11,370,000)                                    (11,370,000)
related to beneficial
conversion features
Reclass of warrant                       16,000                                          16,000
liability to equity
Net loss                                                       (14,191,000)         (14,191,000)
Balance, December 31,                96,360,000               (140,964,000)         (42,476,000)
2003
Conversion of                           319,000                                         321,000
preferred stock to
class A
Conversion of                           109,000                                         117,000
debentures to class A
Conversion of accrued                    21,000                                          23,000
interest to class A
Issuance of common                       83,000                                          89,000
stock for professional
services
Balance prior to                     96,892,000               (140,964,000)         (41,926,000)
cancellation of Stock
per Amended Plan of
Reorganization
Cancellation of Stock                         -                                      (1,825,000)
per Amended Plan of
Reorganization
Issuance of new common               32,744,000                          -                    -
stock
Net loss                                                       (12,470,000)         (12,470,000)
Balance, December 31,     $         129,636,000  $            (153,434,000)     $   (23,797,000)
2004
</TABLE>

<PAGE>

                   Mooney Aerospace Group, Ltd. and Subsidiary

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                          Years ended December 31,

                                                           2004            2003
CASH FLOW FROM OPERATING ACTIVITIES:
<S>                                                   <C>             <C>
Net loss                                              $(12,470,000)   $(14,191,000)
Adjustment to reconcile net loss to net cash
used in operating activities:
Extraordinary gain on forgiveness of debt               (1,033,000)             --
Noncash professional service expense                            --         237,000
Amortization of discount on convertible debentures              --       2,968,000
Amortization of debt issuance costs                             --         553,000
Depreciation and amortization expense                      819,000         781,000
Income from disposition of property and equipment          (51,000)             --
Environmental cleanup accrual                              381,000              --
Changes in operating assets and liabilities:
Accounts receivable                                     (1,440,000)        (83,000)
Other receivable                                        (1,646,000)             --
Inventory                                               (6,390,000)     (1,114,000)
Prepaid expenses and other current assets                 (208,000)        159,000
Other assets                                              (401,000)             --
Accounts payable                                           410,000         379,000
Accrued expenses                                          (489,000)        794,000
Accrued interest                                         1,920,000       4,843,000
Accrued warrant liability                                  164,000         497,000
Advanced deposits                                               --          58,000
Accrued taxes payable                                      286,000              --
Accrued used aircraft trade in liability                   416,000              --
Accrued legal & audit                                        5,000              --
Deferred revenue                                         1,595,000              --
Net cash used in operating activities                  (18,133,000)     (4,119,000)
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment                        (818,000)        (72,000)
Proceeds from disposition of property and equipment         51,000              --
Net cash used in investing activities                     (767,000)        (72,000)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible debentures                --         573,000
Proceeds from issuance of notes payable                 27,574,000      10,650,000
Payments for debt issue costs                              379,000        (653,000)
Payments on notes payable                              (10,177,000)     (6,617,000)
Notes payable related party                                  7,000              --
Net cash provided by financing activities               17,783,000       3,953,000
NET DECREASE IN CASH AND CASH EQUIVALENTS               (1,116,000)       (238,000)
CASH AND CASH EQUIVALENTS, Beginning of year             1,175,000       1,413,000
CASH AND CASH EQUIVALENTS, End of year                $     59,000    $  1,175,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid                                         $    414,000    $    365,000
Income taxes paid                                               --              --
</TABLE>

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

<PAGE>

Supplemental Schedule of Non-Cash Investing and Financing Activities:

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

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.

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 $153,434,000 as of December 31,
2004. The Company also has a working capital deficiency of $3,840,000 as of
December 31, 2004.

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.

<PAGE>

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

a)  The Company's management team has developed a financial plan to address its
    working capital requirements and believes that if executed successfully, the
    plan will substantially improve the Company's ability to meet its working
    capital requirements throughout the year ended December 31, 2005. The plan
    includes obtaining additional short term funding for increased working
    capital consistent with the planned growth of the Company, additional long
    term funding which may be obtained under the USDA guaranteed loan program,
    and additional capital raising.

b)  Management has restructured its current outstanding debt and obtained a
    $7,500,000 revolving loan as of September 29, 2004, 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. (See
    Note 6)

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, 2004 and 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. See footnote 3 to the
Financial Statements for additional information.. An obsolescence allowance 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 three years, it is deemed to be impaired.

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.

<PAGE>

Trade Name

Trade name consists of the value assigned to the Mooney 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. In
June of 2003 the Company engaged The Oxbrdge Group to perform a Fairness
Evaluation as to debt and restructuring of the Company. In performing that
evaluation Oxbridge reviewed the Financial records and Auditors reports. A
component of that evaluation was the assignment of various values to collateral
and creditors. The value assigned to Trade Name was a component of this review
and no exception was made by Oxbridge as to the value assigned to Trade Name.

Impairment of Long-Lived Assets

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

Stock Based Compensation

SFAS No. 123, "Accounting for Stock-Based Compensation," establishes and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation cost is determined using the
fair value of stock-based compensation determined as of the date of grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the intrinsic value
based method and has disclosed the pro forma effect of using the fair value
based method to account for its stock-based compensation. The Company uses the
fair value method for options granted to non-employees. 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,
2004 and 2003:

                                                   2004              2003

Net loss
As reported                                  $ (12,470,000)    $  (14,191,000)
Compensation recognized under APB 25                     -                  -
Compensation recognized under SFAS 123                   -                  -
Pro forma                                    $ (12,470,000)    $  (14,191,000)
Basic and diluted loss per common share:       New Common          Old Class A
As reported                                  $     (1.2473)    $        (0.06)
Pro forma                                    $     (1.2473)    $        (0.06)

Advanced Deposits

The Company has a policy that requires a deposit of no less than $10,000.00 for
the purchase of airplanes manufactured by MAC.

Revenue Recognition

Revenue Recognition - As a routine matter aircraft are paid for prior to
delivery date. Manufacturers Trade Representatives "MTR"'s are occasionally
granted short term (less than 30 days) credit We recognize revenue on
substantially all aircraft sales and parts and service sales when each of the
following four criteria is met: 1) a contract or sales arrangement exists; 2)
products have been shipped or services have been rendered; 3) the price of the
products or services is fixed or determinable; and 4) collectibility is
reasonably assured.

We also recognize revenue on aircraft sales under bill-and-hold transactions
when each of the following seven criteria are met: 1) the risk of ownership has
passed to the buyer; 2) the buyer has made a fixed commitment to purchase the
goods; 3) the buyer has requested that the transaction be on a bill-and-hold
basis and has a substantial business purpose for ordering so; 4) there is a
fixed schedule for delivery of the goods and the delivery date is reasonable and
consistent with the buyer's business practices; 5) we have not retained any
specific performance obligations such that the earnings process is not complete;
6) the aircraft has been segregated from our inventory and is not subject to
being used to fill other orders; and 7) the aircraft must be complete and ready
for shipment. Bill and Hold revenue recognition includes the following two
criteria to measure collection probability 1> Relevant and current communication
with the customer regarding the upcoming delivery.2> Ability to immediately
transfer the sale to another customer with no loss or at most transaction costs
limited to the deposit forfeited by the customer. Bill and Hold arrangements by
Policy are less than 30 days in all cases. The Company's bill and hold policy
does not allow for modification of its normal billing and credit terms

<PAGE>

During 2003 and 2004 no sales were booked as bill and hold transactions.

Advertising and Marketing Costs

The Company expenses costs of advertising and marketing as incurred. Advertising
and marketing expense for the years ended December 31, 2004 and 2003 amounted to
$1,371,000 and $423,000, respectively.

Income Taxes

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

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, 2004 and 2003 because the effect would have been
anti-dilutive:

                                                     2004               2003

Conversion of Series A preferred stock            23,271,576        67,625,000
Conversion of convertible debentures              83,972,946     1,503,975,734
Stock options issued to employees                                      300,000
Warrants issued with convertible debentures                                 --
Warrants issued with Series A preferred stock                               --
Warrants issued with equity line                                     4,268,764
Warrants issued with severance package                               2,000,000
Warrants issued with acquisition of MAC                              3,623,189
                                                 107,244,522     1,581,792,687

Comprehensive Loss

SFAS No. 130, "Reporting Comprehensive Loss," establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. For the years ended December 31, 2004 and 2003, the
Company did not have items that represented other comprehensive income and,
accordingly, a statement of comprehensive loss has not been included herein.

Research and Development

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

Warranty

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

Product Liability

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

<PAGE>

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.

The environmental reserve was taken in 2002 at the time the MAC assets were
acquired. The reserve was based on estimated remediation costs to close 2
wastewater ponds. The reserve was based on third party environmental consultant
estimates.

We expect to close this issue this year. Bore holes have been taken and results
show on area of contamination. Worse case scenario (50% probability of
occurrence) is that $400,000 would be required.

Recently Issued Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation 46 changes the criteria by which one
company includes another entity in its consolidated financial statements.
Previously, the criteria were based on control through voting interest.
Interpretation 46 requires a variable interest entity to be consolidated by a
company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. A company that consolidates a variable
interest entity is called the primary beneficiary of that entity. The
consolidation requirements of Interpretation 46 apply immediately to variable
interest entities created after January 31, 2003. The consolidation requirements
apply to 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.

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 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.

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 November 2004, the FASB issued statement No. 151, "Inventory Costs - an
amendment of ARB No. 43, Chapter 4". This Statement amends the guidance in ARB
No. 43, Chapter 4, "Inventory Pricing", to clarify the accounting for abnormal

<PAGE>

amounts of idle facility expense, freight, handling costs, and wasted material
(spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . .
under some circumstances, items such as idle facility expense, excessive
spoilage, double freight, and rehandling costs may be so abnormal as to require
treatment as current period charges. . . ." This Statement requires that those
items be recognized as current period charges regardless of whether they meet
the criterion of "so abnormal." In addition, this Statement requires that
allocation of fixed production overheads to the costs of conversion be based on
the normal capacity of the production facilities. The Company does not have
abnormal idle facility expense, excessive spoilage, double freight nor
rehandling costs that may require application of this Statement.

In December 2004, the FASB issued a revision of FASB Statement No. 123,
"Accounting for Stock- Based Compensation." This Statement supersedes APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and its related
implementation guidance.

This Statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
does not change the accounting guidance for share-based payment transactions
with parties other than employees provided in Statement 123 as originally issued
and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services." This Statement does not address the accounting for employee share
ownership plans, which are subject to AICPA Statement of Position 93-6,
"Employers" Accounting for Employee Stock Ownership Plans." For public entities
that file as small business issuers - as of the beginning of the first interim
or annual reporting period that begins after December 15, 2005. The Company has
not participated in such transactions in the current period nor it has plans to
do so in the near future but will adopt the provisions of this Statement if and
when it applies to any future transactions.

On December 2004, the FASB issued FASB Statement No. 152, "Accounting for Real
Estate Time-Sharing Transactions - an amendment of FASB Statements No. 66 and
67. This Statement amends FASB Statement No. 66, "Accounting for Sales of Real
Estate," to reference the financial accounting and reporting guidance for real
estate time-sharing transactions that is provided in AICPA Statement of Position
(SOP) 04-2, "Accounting for Real Estate Time- Sharing Transactions." This
Statement also amends FASB Statement No. 67, "Accounting for Costs and Initial
Rental Operations of Real Estate Projects," to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. The Company is not
in the business of real estate and does not contemplate to participate in any
transactions where this Statement ma y apply.

On December 2004, the FASB issued FASB Statement No. 153, "Exchanges of
Nonmonetary Assets-an amendment of APB Opinion No. 29." The guidance in APB
Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the fair
value of the assets exchanged. The guidance in that Opinion, however, included
certain exceptions to that principle. This Statement amends Opinion 29 to
eliminate the exception for nonmonetary exchanges of similar productive assets
and replaces it with a general exception for exchanges of nonmonetary assets
that do not have commercial substance. A nonmonetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The Company has not entered in
transactions of this type, but it is reviewing this Statement and will adopt it
whenever it applies to any future transactions.

Bankruptcy Proceedings

On June 10, 2004 the Company filed a voluntary petition in the United States
Bankruptcy Court pursuant to Chapter 11 of Title 11 of the U. S. Code. On
December 14, 2004 the U. S. Bankruptcy Court for the District of Delaware
confirmed the Company's Amended Plan of Reorganization, which has been fully
executed by the Company. A hearing on a final decree to close the bankruptcy
case will be heard by the Court on May 5, 2005. The Amended Plan of
Reorganization provides that the holders of all allowed unsecured claims against
the Company are entitled to their pro-rata share of stock representing 46% of
the Company.

All senior debenture holders will continue to be secured by the stock of the
Company's subsidiary MAC after the stock is transferred to the unsecured
creditors, and the senior debenture holders will also continue to be secured by
MAC's assets. Similarly, the holder of the factor indebtedness will continue to
be secured by MAC's aircraft and aircraft parts that now secure its claims, and
BLX will continue to be secured by substantially all of MAC's assets. All
preferred shareholders received their pro-rata share of 2% of the stock of the
Company, and all common shareholders received their pro-rata share of 2% of the
stock of the Company. All allowed administrative expenses were paid in cash in
full.

The Amended Plan of Reorganization was implemented by restructuring its share
structure to allow the Company to issue 9,800,000 new shares on confirmation.
The Company's shares were subject to a reverse split so as to leave 200,000
shares for the common shareholders. On the effective date of the plan, December
15, 2004, there were a total of 10,000,000 issued shares. Of the newly issued
shares, 5,000,000 were issued to the Allen Holdings and Finance, Ltd. (Allen) in
exchange for its transferring all of the shares of MAC to the Company, thereby
giving Allen 50% of the shares of the Company. Furthermore, the Company is
authorized to issue a total of 50 million shares, and Mac's secured creditors
have the right to convert debt of approximately $30,000,000 to, at the secured
creditor's option, 13,500,000 in additionally newly issued Company shares. The
secured creditor may convert all or part of its debt at the above ratio at its
discretion.

All newly issued or newly issuable shares of the Company are free trading under
Rule 3a (9), except that none could be traded until March 15, 2005 and then only
10% of the holder's shares can be traded each month thereafter. The Company
realized $1,033,000 of extraordinary gain from debt forgiveness as a result of

<PAGE>

the discharge in bankruptcy of its debts. The $1,033,000 extraordinary gain on
debt forgiveness was recorded based on the issuance on December 15, 2004 of
4,997,773 shares of new common stock under the Amended Plan of Reorganization.
The stock was valued at $4.51 per share, its closing price that day for a total
value of $22,539,656 to unsecured creditors in cancellation of recorded debts
totaling $23,572,656, the difference representing the gain. The debts cancelled
included trade and other payables of $2,813,093, building rent obligations of
$10,315,524, unsecured convertible debentures of $6,456,197 and accrued interest
of $3,987,842.

Sale of MAC shares to Allen Holdings and Finance, Ltd.. and Reacquisition

On June 1, 2004 the Company announced that it had sold all of the stock of MAC
to Allen. All of these shares were reacquired by the Company on December 15,
2004 as a provided for in the Amended Plan of Reorganization.

Note 2 - Acquisitions

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

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

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

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

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, 2004 consisted of the following:

Raw materials and purchased parts                   $  4,525,000
Work-in-process                                        6,721,000
Semi finished manufactured components                  3,476,000
Finished goods                                         1,971,000
Totals                                                16,693,000
Less : Allowances                                     (1,637,000)
                                                    $ 15,056,000

Note 4 - Property and Equipment

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

Experimental aircraft                                            $      650,000
Office furniture and equipment                                          845,000
Machinery and equipment                                               4,220,000
Buildings and Improvements                                              361,000
Motor vehicles                                                           46,000
Totals                                                                6,122,000
Less accumulated depreciation and amortization                       (2,128,000)
                                                                 $    3,994,000

<PAGE>

Depreciation expense for the years ended December 31, 2004 and 2003 was
$819,000,000 and $781,000, respectively.

Note 5 - Notes Payable

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

<TABLE>
<CAPTION>
<S>                                                                                          <C>
Note payable to BLX Commercial Capital, LLC - interest rate prime plus 2%;                   $ 4,910,000
collateralized 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.
Notes payable to a group of investors -interest rate of 17.5% secured by                      3,930,000
virtually all the assets of the Company. Due  3,930,000 November 2006. Originally
the loan was for $9,000,000. This is a working capital loan. Notes payable to a
group of investors -- interest rate of 8% secured by specific aircraft with a
maturity of November 3,100,000 2007.

Bank loan for Automobile - interest rate of 5.49% with a maturity of September 2009.             26,000
Note payable to Libra Finance S.A with a maturity of February 2005                              986,000
                                                                                             12,952,000
Less current maturities                                                                       5,005,000
                                                                                          $   7,947,000
Principal payments on notes payable are as follows:
Year ending December 31,
2005                                                                                      $   5,005,000
2006                                                                                             97,000
                                                           2007                               3,203,000
2008                                                                                            110,000
                                                           2009                                 116,000
                                                        Thereafter                            4,421,000
                                                                                          $ 12,952,000
</TABLE>

Note 6 - Revolving Loan

On November 17, 2003, the Company finalized a revolving loan in the aggregate
principal amount of $4,000,000 issued by MAC to Alpha Capital
Aktiengesellschaft, Bristol Investments Fund Ltd., Edward Turin, MM&CTW
Foundation Inc., Renaissance Development Holdings International, Ltd., Taria
Inc., and TRW Holdings Party Ltd., pursuant to an Amended and Restated Loan and
Purchase Money Security Agreement. These parties are related due to their
ownership of our common stock as described in Item 11. The amount of this loan
was increased to a maximum of $7,500,000 with a balance as of December 31, 2004
of $6,250,000. The revolving loan has a term of three (3) years and bears
interest at a rate of 8% per annum. The proceeds of the revolving loan will be
used to finance the purchase of airplane parts to be used in the manufacture of
airplanes, and is secured by parts and equipment purchased with such proceeds.
In connection with this revolving loan, the Company is required to pay a
commitment fee of $400,000 payable in shares of the Company's common stock. As
of December 31, 2004, these shares had been issued.

Note 7 - Convertible Debentures

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

Secured convertible debentures to various individual investors (including
$75,000 to the Company's chairman) - interest $20,926,000 rate 8%; convertible
into shares of the Company's Class A common stock at a rate of $2.22 per shares;
debentures matures at various dates in the year 2007.

<TABLE>
<CAPTION>
A roll forward of the convertible debentures is as follows:
<S>                                                                                  <C>
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
Conversions Into Equity                                                              8,238,000
Balance, December 31, 2004                                                         $20,926,000
</TABLE>

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 per Class A common shares 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.

<PAGE>

The conversion price of $2.22 per share was derived based on the market price of
the existing common stock at the debt issuance date in November 2004. There was
no beneficial conversion feature at the time of issuance.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:

<TABLE>
<CAPTION>
<S>                                                                          <C>
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)
</TABLE>


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

Note 8 - Stockholders' Deficit

Common Stock

As of December 31, 2004, the Company has one class of common stock. The holder
of each outstanding share of Common Stock is entitled to one vote. In connection
with the Company's initial public offering in 1996, Class A Warrants were
issued, which entitled 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. The Preferred Stock was exchanged per the Amended Plan of
Reorganization for 200,000 shares of common stock.

Cancellation and Reissuance of Stock

The 644,579,014 shares of common stock and 17,616 shares of preferred stock that
was issued and outstanding in the amount of $1,825,000 just prior to the Amended
Plan of Reorganization were cancelled. The stock account was reduced for the par
value of the shares cancelled and increased for the par value of the new stock
issued. The difference was an adjustment to additional paid in capital. A new
class of 9,997,773 shares of common stock in the amount of $32,745,000 was
issued as a result of the reorganization. The new issuance of Class A common
stock was valued as follows in compliance with the Amended Plan of
Reorganization:


                                            Shares        Value

To replace old common stock                 200,000   $    46,000

To convert preferred stock                  200,000     2,082,000

To settle unsecured debts                 4,597,773    20,735,956

To buy back Mooney Airplane Company       5,000,000     9,881,274

                                          9,997,773   $32,745,230

<PAGE>

The value of the stock issued for the old common and the preferred stock holders
was the value of the stock on the Company's books as of December 31, 2003. The
value of the new stock issued to settle the unsecured debts was the value the
stock traded for as of the date of the reorganization. The value assigned to the
stock to buy back Mooney Airplane Company is the purchase price agreed to by the
company with Allen Holdings to purchase the company.

Non Cash Stock Transactions

For the year ended December 31, 2003, the company issued 25,120,599 shares of
Class A Common Stock in settlement of $548,000 of accrued interest, 30,564,133
shares of Class A Common Stock in settlement of $728,000 of deferred
compensation and consulting fees, and 5,900,000 shares of Class A Common Stock
in settlement of $237,000 of professional services. The value of the Class A
Common Stock issued in settlement of these debts was valued at the market value
of the stock as of the date of the settlements. Therefore, the Company made an
adjustment to the books to record Class A Common Stock at the par value and the
difference was recorded as additional paid in capital.

For the year ended December 31, 3004, the company issued 15,821,497 shares of
Class A Common Stock in settlement of $550,000 of accrued interest and
64,110,453 shares of Class A Common Stock in settlement of professional fees.
The Company made an adjustment to the books to record Class A Common Stock at
the par value, the difference in par and market value was credited to additional
paid in capital and the remaining value was allocated to gain on cancellation of
debt.

Note 9 - Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial statement
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 2004 are as
follows:

Deferred tax assets:
Federal net operating loss                   $ 43,807,000

Research & development credits                  1,251,000
Depreciation                                      320,000
Other                                              80,000
                                             $ 45,458,000
Valuation Allowance                          $(45,458,000)

At December 31, 2004, the Company had federal net operating loss ("NOL")
carryforwards of approximately $128,845,000. Federal NOLs could, if unused,
expire in varying amounts in the years 2005 through 2024.

At December 31, 2004, the Company had federal research and development ("R&D")
credit carryforwards of approximately $1,251,000. The federal R&D credit
carryforwards started to expire in 2004.

The valuation allowance increased by $4,256,000 during 2004.

The reconciliation of the effective income tax rate to the federal statutory
rate for the years ended December 31, 2004 and 2003 is as follows:

                                                  2004       2003

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 10 - Commitments and Contingencies

Litigation

None


Employment Contracts

The Company executed a three-year employment agreement with one executive dated
January 8, 2002, which has been extended.

<PAGE>

Note 11 - Related Party Transactions

Tom Gray through Thomas H. Gray Inc. dba Telecom Expert Group (aka TEG )
provides various business and Information Technology consulting expertise to the
Company. The Company's relationship with TEG is as a consumer of these
consulting resources. During 2004, Tom Gray served as Managing Director of
Mooney Airplane Company, Inc "MAC." Other than the prior Directorship of Gray,
TEG is an unrelated party.

During 2004 MAC consumed the services of TEG for the following items:

<TABLE>
<CAPTION>
                                                Cash Paid    Accrued 12-31-04      Total 2004
                                                Paid 2004        Paid 2005           Earned

<S>                 <C>                        <C>           <C>                   <C>
Tom Gray            Business Consulting            240,029        103,049            343,078

Walt Catlow         Corporate Planning              37,697              -             37,697

Patrice Mathias     IT Consulting                  105,469         12,395            117,864

Kelly Jones         Manufacturing Consulting        88,627          8,200             96,826

M.L. Zeimer         Customer Support                49,364              -             49,364

Engel Group         Miscellaneous                    3,565              -              3,565

Alan Nitchman       Customer Support                     -        6526.51            6526.51
                                               --------------------------------------------------

Total                                              524,750        130,170            654,920
                                               ==================================================
</TABLE>

The total amount paid during 2004 to TEG was $524,750. At 12-31-05 the Company
had open account payable to TEG of $130,170. During the first quarter of 2005
these open payables were paid by check.

Allen Holdings and Finance, LTD is a related party as a result of their
beneficial and direct ownership of the companies common stock. At 12-31-05 Allen
owned directly 4,925,000 of the 10,000,000 shares of common stock outstanding.
In addition Allen is the beneficial ownership designee of the Secured Debenture
Holders.

Note 11 - Per Share Information

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

                                                     2004             2003

Numerator
Net Loss                                        $ (12,470,000)   $ (14,191,000)
Dividends in arrears                                 (504,000)
Amortization of discount on preferred stock           (54,000)
Numerator for basic loss per share              $ (12,470,000)   $ (14,749,000)
Denominator
Weighted average shares of shares of Class B        1,014,000
Weighted average of new common shares               9,998,000      235,895,000
Denominator for basic loss per share                9,998,000      236,909,000
                                                   New Common      Old Class A
Basic loss per share                            $     (1.2473)       $ (0.06 )

There is no difference between the loss per common share amounts computed for
basic and dilutive purposes in 2003.

Note 12 - Employee Benefits

The Company has a 401(k) Plan for its employees. For the years ended December
31, 2004, 2003 and 2002, the Company did not make any contributions to the Plan.

Note 13 - Other Income (Expense)

Reorganization Items in the accompanying consolidated statements of operations
for the year ended December 31, 2004 is principally related to the change due to
the Amended Plan of Reorganization and the cancellation of debt associated with
it and includes a gain on cancellation of debt of $1,033,000.

Note 14 - Subsequent Events

Thus far in 2005 secured debenture holders have converted $1,074,000 of
convertible debentures into 493,784 shares of common stock.