<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                    FORM 10-K

(Mark One)

[X]     Annual report pursuant to section 13 or 15(d) of the Securities Exchange
        Act of 1934

        For the Fiscal Year ended June 30, 2000

[ ]     Transition report pursuant to section 13 or 15(d) of the Securities
        Exchange Act of 1934

For the transition period from          to

Commission file number: 1-7134

                             MERCURY AIR GROUP, INC.
             (Exact Name of Registrant as Specified in Its Charter)


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  <S>                                         <C>
            NEW YORK                                     11-1800515
  ------------------------------              ------------------------------
 (State or Other Jurisdiction of             (I.R.S. Employer Identification
   Incorporation or Organization)                          Number)
</TABLE>

              5456 McConnell Avenue, Los Angeles, California 90066
              ----------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, Including Area Code: (310) 827-2737

Securities Registered Pursuant to Section 12(b) of the Act:

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<CAPTION>
                                                   Name of Each Exchange on
Title of Each Class                                    Which Registered
-------------------                               -----------------------------
<S>                                               <C>
Common Stock - Par Value $.01                      American Stock Exchange
                                                   Pacific Stock Exchange
</TABLE>



<PAGE>   2

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K. Yes No X.


        As of September 13, 2000, 6,472,955 shares of the Registrant's Common
Stock were outstanding. Of these shares, 2,057,620 shares were held by persons
who may be deemed to be affiliates. The 4,415,335 shares held by non-affiliates
as of September 13, 2000 had an aggregate market value (based on the closing
price of these shares on the American Stock Exchange of $6.625 a share) of
$29,251,594. As of September 13, 2000, there were no non-voting shares of common
stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Proxy Statement which is to be distributed in connection
with the Annual Meeting of Shareholders to be held on December 14, 2000 are
incorporated by reference into Part III of this Form 10-K.


--------------------------------------------------------------------------------
                   (The Exhibit Index May Be Found at Page 34)



<PAGE>   3

                                     PART I

ITEM 1. BUSINESS

        Mercury Air Group, Inc., a New York corporation since 1956, provides a
broad range of services to the aviation industry through five (5) principal
operating units: fuel sales and services, cargo operations, fixed base
operations, U.S. government contract services and RPA Airline Automation
Services, Inc.("RPA"). Fuel sales and services include the sale of fuel and
delivery of fuel primarily to domestic and international commercial airlines,
business aviation and air freight airlines. Cargo operations consist of cargo
handling, space logistics operations and general cargo sales agent services.
Fixed base operations ("FBOs") include fuel sales, into-plane services, ground
support services, aircraft hangar and tie-down facilities and maintenance at
certain locations for commercial, private, general aviation and military
aircraft. Government contract services consist of aircraft refueling and fuel
storage operations, base housing maintenance, base operating support (BOS)
services, air terminal and ground handling services and weather observation and
forecasting services performed principally for agencies of the United States
government. RPA, a subsidiary of the Company, includes airline revenue
accounting and management information software consisting of proprietary
software programs which are marketed to foreign and domestic airlines. As used
in this Annual Report, the term "Company" or "Mercury" refers to Mercury Air
Group, Inc. and, unless the context otherwise requires, its subsidiaries. The
Company's principal executive offices are located at 5456 McConnell Avenue, Los
Angeles, California 90066 and its telephone number is (310) 827-2737.

        NARRATIVE DESCRIPTION OF THE BUSINESS

        FUEL SALES AND SERVICES

        Mercury's fuel sales consist of contract fueling and related fuel
management services. Sales of aviation fuel are made primarily to domestic and
international airlines and airfreight companies. Mercury also provides fuel to
large corporate aircraft operators through third parties. As a result of higher
volume and significantly higher fuel prices, Mercury's revenue from fuel sales
and services as a percentage of revenue increased to 59.9% of total Company
revenue in fiscal 2000 from 49.5% in fiscal 1999.

        Contract fuel sales are generally made pursuant to verbal or short-term
contracts whereby Mercury provides fuel supply and, in most cases, delivery to
meet all or a portion of a customer's fuel supply requirements at one or more
locations. To facilitate its fuel sales business at locations where Mercury does
not have facilities, Mercury has developed an extensive network of third party
supply and delivery relationships which enable it to provide fuel to customers
on a scheduled or ad hoc basis. Through these third party relationships, Mercury
is currently supplying fuel to customers at airports throughout the United
States and internationally.



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        Mercury believes that it adds value for its customers and is able to
attract business by providing high quality service and by offering a combination
of favorable pricing and credit terms. Mercury provides 24-hour, single source,
coordinated supply and delivery on a national and international basis as well as
providing related support services. Further, Mercury believes its scale of
operations and creditworthiness allow the purchase of fuel on more favorable
price and credit terms than would be available to most of its customers on an
individual basis.

        Accordingly, Mercury frequently extends credit on an unsecured basis to
customers which may exhibit a higher credit risk profile and who may otherwise
be required to prepay or post letters of credit for fuel purchases. The amount
of credit extended to any particular customer is a subjective decision. Customer
credit terms range from prepayment to up to more than 60 days with certain
accounts also subject to maximum credit line limitation. In certain instances,
the Company will permit a customer to further defer payment on its account
through an agreed upon payment schedule or execution of a promissory note with
terms negotiated on a case-by-case basis. Factors considered in credit decisions
include the customer's financial strength and payment history, competitive
conditions in the market, the expected productivity of the account, the
availability of credit insurance and collateral or guarantees given to secure
the credit.

        Mercury provides fuel support operations for corporate and fractional
ownership aircraft at numerous locations from its Houston facilities. This
operation allows selected customers to purchase fuel at advantageous prices from
a single source. This operation has grown and developed into a network of over
150 third-party locations in the United States and Europe where Mercury can
provide fuel. The Company has automated this system to provide on-line pricing
and location information on the internet under the domain name mercfuel.com and
expects, at some future date, to include on-line ordering capability. The
automated system is accessible only to customers who have been pre-approved for
credit.

        Mercury has occasionally purchased equity positions in, made loans to or
entered into other financial transactions with certain airlines, particularly
start-up and foreign airlines, in order to initiate new or expand existing
customer relationships. The extent of the equity position, amount loaned or
other financial commitment undertaken is a subjective decision based upon
management's assessment of the future prospects of such airline and the
potential business opportunities with such airline for Mercury. In fiscal 1999
the Company invested $300,000 in National Airlines, a start-up airline based in
Las Vegas, Nevada, which began operations on May 27, 1999. The Company has also
entered into a fuel management contract with National. Sales to National
accounted for approximately 10.6% of consolidated revenue in fiscal 2000.

        Mercury purchases fuel at current market prices from a number of major
oil companies and certain independent and state owned oil companies based on the
expected requirements of its customers. From time-to-time, Mercury will commit
to purchase a fixed volume of fuel, at a fixed price, over a fixed period of
time, at agreed locations based on selected customers' corresponding purchase
commitments. Mercury's terms of payment generally range from ten to




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thirty days for most of its fuel purchases, except for bulk pipeline purchases,
which generally are payable two days from invoice receipt. Mercury has
agreements with certain suppliers under which Mercury purchases a minimum amount
of fuel each month at prices which approximate current market prices. Mercury
makes occasional spot purchases of fuel to take advantage of market
differentials. In order to meet customer supply requirements, Mercury carries
limited inventories at numerous locations. Due to the nature of Mercury's
business, the volume of Mercury's aviation fuel inventories will fluctuate.

        Mercury's fuel supply contracts may generally be canceled by either
party with no further obligations. In some cases, Mercury has monthly purchase
requirements which are established based on historical volumes of fuel purchased
by Mercury. Such fuel purchase history may result in the seller agreeing to
provide a monthly allocation to Mercury such that the seller agrees to dedicate
a portion of its available fuel for Mercury's requirements. Mercury benefits
from such an allocation because, during periods of short fuel supply, reductions
in supply are generally made first to those buyers who have not been given any
allocation. To maintain dedicated allocations of fuel, Mercury usually purchases
fuel at levels approximating the allocated amount. However, Mercury is not
obligated to purchase any fuel under such an allocation. Currently, the monthly
allocations from Mercury's fuel suppliers represent only a small portion of
Mercury's total monthly supply requirements.

        Mercury's consolidated fuel sales could be materially adversely affected
by a significant decrease in the availability, or increase in the price of,
aviation fuel. During fiscal 2000, the cost of fuel per gallon rose
approximately 50% and led to a significant increase in bad debts due to the
incidence of customer bankruptcies. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Although Mercury believes that
there are currently adequate aviation fuel supplies and that aviation fuel
supplies will generally remain available, events outside Mercury's control have
resulted and could result in spot shortages or further rapid increases in fuel
costs. Although Mercury is generally able to pass through rising fuel costs to
its customers, extended periods of high fuel costs could adversely affect
Mercury's ability to purchase fuel in sufficient quantities because of credit
limits placed on Mercury by its fuel suppliers, although this was not a factor
in fiscal 2000 when fuel prices rose significantly. Various factors including
the price of fuel, the volatility of the price of fuel, over-all business mix,
customer profiles and specific major accounts which are attracted, retained or
lost during a given period affect gross margin as a percentage of revenue for
Mercury's fuel sales and services business.

        FIXED BASE OPERATIONS

        Mercury currently provides FBO services at nineteen (19) airports
throughout the United States. For the year ended June 30, 2000 FBO operations
comprised 21.7 % of the total Company revenue. At each FBO, Mercury maintains
administrative offices; conducts retail fuel sales and refueling operations
which service principally corporate and private aircraft ("general aviation")
and to some extent commercial airlines; acts as a landlord for office, aircraft
tie-down and hangar space tenants; and provides aircraft maintenance at a few
select locations. The FBOs operate



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refueling vehicles and maintain fuel storage tanks as required to support
into-plane and fuel sales activities. The FBO facilities and the property on
which operations are conducted are leased from the respective airport
authorities. Fifteen of Mercury's FBOs are currently directly owned by the
Company, the remaining FBOs are owned by Mercury Air Centers, Inc. ("Air
Centers") which is a wholly owned subsidiary of the Company.

        The Company's FBO operations have grown principally as a result of the
acquisition of additional operations or locations as well as facility
enhancements at existing locations. In April 2000, the Company acquired assets
of an FBO located in Fort Wayne, Indiana. In October 1999, the Company acquired
assets of an FBO located in Tulsa, Oklahoma. Also in October 1999, the Company
acquired FBO assets at Charleston International Airport and John's Island
Executive Airport in South Carolina. In November 1998, the Company acquired
certain assets of an FBO located in Jackson, Mississippi. In October 1997, the
Company entered into a new lease for its Burbank FBO pursuant to which it has
constructed 3 new hangars and built an executive terminal and refurbished
certain existing facilities. In July 1997, the Company acquired certain assets
of an FBO located in Nashville, Tennessee. In June 1997, the Company entered
into an agreement to operate an FBO, which opened in November 1998, in
Charleston, South Carolina. In December 1996, the Company acquired an FBO
located in Fresno, California. In August and November 1996, the Company acquired
certain assets of six FBOs from Raytheon Aircraft Services, Inc. In addition, in
September 2000, the Company purchased the FBO assets of Raytheon Aircraft
Services, Inc. Birmingham, Alabama location at a cost of approximately $6.6
million, which the Company funded under its existing senior credit facilities.
Management intends to continue pursuing FBO acquisitions and facility
enhancements to the extent permitted under its credit facilities but no
assurance can be given that acquisition or enhancement opportunities will be
available at prices which will maintain existing levels of profitability or be
approved under its credit facilities.

        CARGO OPERATIONS

        The Company's cargo operations are conducted through its wholly-owned
subsidiary, Mercury Air Cargo, Inc. ("MAC"), which provides the following
services: cargo handling, space logistics and general cargo sales agent
services. Cargo operations comprised 9.6% of total Company revenue for the year
ended June 30, 2000. Each of MAC's services facilitates the movement of domestic
and international cargo. Accordingly, results for MAC's operations depend, in
part, on certain economic factors which affect the volume of cargo transported
throughout the world.

        Cargo Handling

        MAC provides domestic and international air cargo handling, air mail
handling and bonded warehousing. MAC is one of only four (4) non-airline
providers of contractual cargo containerization and palletization for domestic
and international airlines and cargo airlines at LAX. MAC specializes in
consolidating smaller parcels into air cargo pallets and breaking down shipping
containers for sea-to-air and air-to-air transfers.



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        MAC handles cargo at Los Angeles International Airport (LAX), William B.
Hartsfield International Airport (ATL), and Dorval International Airport (YUL),
Mirabel International Airport (YMX) and Lester B. Pearson International Airport
(YYZ) in Canada. In March 1998, MAC expanded its cargo handling operations by
acquiring the assets of Intermodal Services, Inc. located in Atlanta, Georgia.
In April 1998, MAC completed construction and commenced operation of a 174,000
square foot warehouse at LAX under a five year lease which was subsequently
extended to June 2006. MAC is currently the largest independent cargo handling
company at LAX. In February 1999, MAC sold its unprofitable subsidiary
Floracool, Inc. thereby ceasing cargo handling operations at Miami International
Airport. MAC competes in the cargo handling business based on quality and price
of service. Long term growth in MAC's cargo handling operations can only be
realized by maintaining existing and obtaining new locations or expanding
current facilities.

        Space Logistics

        MAC brokers cargo space on transcontinental flights within the United
States and on international flights to Europe, Asia, the Middle East, Australia,
Mexico and Central and South America. Space logistics involves contracting for
bulk cargo space on airlines and selling that space to customers with shipping
needs. MAC has established a network of shipping agents who assist in obtaining
cargo for shipment on space purchased from airlines, and who facilitate the
delivery and collection of freight charges for cargo shipped by MAC.

        As of June 1, 2000, MAC entered into a one year contract to purchase all
of South African Airlines ("SAA") cargo capacity on its passenger flights from
the United States and Canada to South Africa. MAC's one year commitment for
these routes is approximately $5.7 million.

        Unlike an air cargo airline which operates its own aircraft, MAC's space
logistics business purchases committed cargo space on scheduled airline flights
or supplemental flights at a discount. MAC is thereby able to profit from the
sale of cargo transportation space worldwide without the fixed overhead expense
of operating aircraft. In addition to the relationships listed above, MAC
purchases belly cargo space from a number of major airlines worldwide. In some
instances, MAC enters into fixed minimum commitments for cargo space, in order
to obtain exclusive or preferred rights to broker desirable cargo space
profitably. With its large volume of cargo space purchases and its ability to
negotiate among airlines, MAC adds value for its customers and is able to
attract business by offering favorable pricing to the domestic and international
freight forwarding community. MAC records revenue as the difference between the
cost of the space and the amount at which the space is resold.

        On September 1, 2000, the Company acquired a 49% interest in Pacific Air
Cargo, LLC, a start up company which sells cargo capacity on a leased Boeing 747
Freighter Aircraft to forwarders principally on Trans Pacific routes.



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        General Sales Agent Services

        MAC also serves as general cargo sales agent directly and through its
subsidiaries, Hermes Aviation, Inc., Hermes Aviacion de Mexico, S.A. de C.V. and
Aero Freightways, Inc. of Canada for airlines in the Far East, Canada, Mexico,
Central and South America and in the United States. In this capacity, MAC sells
the transportation of cargo on client airlines' flights, using the client
airlines' own air waybills. MAC earns commissions from the airlines for selling
their cargo space. As with its space logistics operations, the growth potential
for MAC's general cargo sales agent business is not limited by requirements for
physical facilities or by requirements for additional capital investments.

        GOVERNMENT CONTRACT SERVICES

        Mercury conducts its government contract services through its wholly
owned subsidiary, Maytag Aircraft Corporation ("Maytag"), which is headquartered
in Colorado Springs, Colorado. Maytag provides aircraft refueling, air terminal,
base housing maintenance, base operating support, and weather data services.

        Aircraft Refueling

        Maytag provides aircraft refueling and related services at 11 United
States military bases, including ten in the United States and one in Greece.
Maytag's refueling contracts generally have a term of four years, with
expiration dates ranging from October 2000 to January 2005. Refueling contracts
provide a firm-fixed price for specified services. Under the terms of its
refueling contracts, Maytag supplies all necessary personnel and equipment to
operate government-owned fuel storage facilities and provides 24-hour refueling
services for a variety of aircraft for the military. All fuel handled in these
operations is government owned. In connection with its government contract
refueling business, Maytag owns and operates a fleet of refueling trucks and
other support vehicles.

        Air Terminal Services

        Maytag provides air terminal and ground handling services to the United
States Government at 18 locations under seven contracts. Six contracts cover
three U.S. military bases in Alaska, Japan, and Korea, and three international
airports in Japan, Korea, and Kuwait. Maytag also has one contract servicing 12
international airports in Latin America. Air terminal services contracts are
generally for a base period of up to one year, with government options for
multiple one-year extension periods. Expiration dates for Maytag's air terminal
contracts range from November 2000 to September 2001. Air terminal contracts
provide a firm-fixed price for specified services. Discretionary
performance-based awards are also available at the five Pacific Rim locations.
Air terminal and ground handling services include the loading and unloading of
passengers and cargo, transient alert, and flight planning services.



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        Base Housing Maintenance

        Maytag provides base housing maintenance services at one United States
military base in Japan under a contract which has been extended through January
2001, while the follow-on contract is being competed. The base housing
maintenance contract provides for "indefinite quantity pricing" and fixed prices
for specified services, with the actual quantities of each item determined by
seasonally varying government delivery orders. Base housing maintenance services
consist of change of occupancy maintenance for government-provided quarters,
including basic interior maintenance, repair, painting, and cleaning.

        Base Operating Support Services

        Maytag provides base operating support (BOS) services at Niagara Falls,
NY and Westover, MA Air Reserve Facilities on a subcontracted basis. Under the
terms of the subcontracts, Maytag provides, at a firm-fixed price,
multi-function services, including fuel management, traffic management, airfield
management, vehicle operations and maintenance services, and meteorological
services through March and February 2001, respectively, with four pre-priced
one-year options. Additionally, Maytag expects to add two more BOS contracts
(Youngstown, OH in October 2000 and Willow Grove, PA in November 2000) in Fiscal
Year 2001.

        Weather Data Services

        Maytag provides weather observation and/or weather forecasting services
at 29 locations within the United States pursuant to 19 contracts with the
United States Government and certain local governmental agencies. This includes
three weather observation and forecasting contracts and 16 weather observation
contracts. The Weather Data contracts provide firm fixed prices for specified
services and are generally for a base period of one year, with multiple one-year
options at the government's election. Some of Weather Data's existing contracts
were extended for a one year period ending September 30, 2001, with remaining
extension options ranging up to two periods on a majority of the contracts.

        All of Maytag's government contracts are subject to competitive bidding.
Refueling, base housing maintenance, air terminal, and weather forecasting
contracts are generally awarded to the offeror with the proposal that represents
the "best value" to the government. In a "best value" competition, the proposals
are evaluated on the basis of price, past performance history of the offeror,
and the merit of the technical proposal, creating a more subjective process.
Weather observation contracts are generally awarded to the offeror with the
lowest priced technically acceptable proposal.

        Maytag's contracts are all subject to termination at the discretion of
the United States Government, in whole or in part. Termination of a contract may
occur if the United States Government determines that it is in its best interest
to discontinue the contract, in which case closure costs will be paid to Maytag.
Termination may also occur if Maytag defaults under a contract. Maytag has never
experienced any such default termination.



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        RPA

        RPA has developed a suite of proprietary software products which it
markets to the aviation industry. Its principal products include software
products for purchasing, maintenance and inventory ("PMI"), airline passenger
revenue accounting ("PRA"), and airline financial accounting ("AFA"). These
products have been designed to operate on the IBM AS/400 platform but will also
operate in Unix and windows NT environments. RPA generates license fee revenue
from the sale of its software packages and receives maintenance revenue from its
ongoing support of these products. In addition, RPA generates consulting fees by
assisting customers with software solutions and process consulting. Although
RPA's software products can be utilized by major airlines, it generally markets
it products and services to foreign airlines and domestic second tier and
regional airlines. During fiscal 2000, RPA generated a loss of $1.3 million due
to lower than expected license fees. RPA's success will depend upon its
continuing product development efforts and expansion of its customer base.

        ACQUISITIONS

        BIRMINGHAM, ALABAMA FBO

        Effective September 1, 2000, the Company acquired the assets of an FBO
located in Birmingham, Alabama for $6.6 million in cash from Raytheon Aircraft
Services, Inc. The company funded the purchase price by borrowing from its
acquisition line.

        FORT WAYNE, INDIANA FBO

        Effective April 21, 2000, the Company acquired the assets of an FBO
located in Fort Wayne, Indiana for $3.9 million in cash. The Company funded the
purchase price by borrowing from its acquisition line.

        TULSA, OKLAHOMA FBO

        On October 22, 1999, the Company acquired certain assets of Air Tulsa,
Inc., an FBO located in Tulsa, Oklahoma. Assets acquired included refueling
equipment and tank farms utilized in the FBO business, inventory, prepaid
expenses and a sublease. The agreement also included a covenant not to compete.
Total consideration was $2.4 million in cash which the Company funded under its
acquisition line. The agreement included a second closing to occur within
eighteen months of the first closing and included the purchase of hangars,
buildings and the leasehold for an additional cash consideration of $3.8
million. The second closing took place in July 2000 and was funded under the
Company's acquisition line




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        CHARLESTON AND JOHN'S ISLAND, SOUTH CAROLINA FBOS

        On October 5, 1999, the Company acquired certain FBO assets of
Charleston Equities, Inc. for $700,000 cash. The purchase consolidated the
leasehold at Charleston International Airport and includes the leasehold at
John's Island Executive Airport.

        MAJOR CUSTOMERS

        During fiscal 2000, EVA Airways Corporation accounted for approximately
14% of cargo operations revenue, National Airlines, Inc. represented
approximately 17% of fuel sales and services revenue and approximately 10.6% of
consolidated revenue and Tower Air, Inc. represented approximately 10% of fuel
sales and services revenue. Tower Air, Inc. filed for bankruptcy protection in
February 2000 and is not expected to be a significant fuel sales customer in
fiscal 2001. During fiscal 2000, government contract services consisted entirely
of revenues from agencies of the United States Government. No other customers
accounted for over 10% of Mercury's consolidated revenue or 10% of revenues for
any of the five reporting units.


        SEASONAL NATURE OF BUSINESS

        Mercury's commercial fuel sales, FBOs and aircraft support operations
are seasonal in nature, being relatively stronger during the months of April
through December in its fueling operations and FBOs than during the winter
months due in part to weather conditions, and increased during summer months due
in part to additional commercial and charter flights. MAC's cargo business is
lower during the months of January and February and increases March through
December. The cargo business is affected by the patterns of international trade.
Operations at military facilities are not seasonal.

        POTENTIAL LIABILITY AND INSURANCE

        Mercury's business activities subject it to risk of significant
potential liability under federal and state statutes, common law and contractual
indemnification agreements. Mercury reviews the adequacy of its insurance on an
on-going basis. Mercury believes it follows generally accepted standards for its
lines of business with respect to the purchase of business insurance and risk
management practices. The Company purchases airport liability and general and
auto liability in amounts which the Company believes are adequate for the risks
of its business.

        COMPETITION

        Mercury competes with major companies which maintain their own source of
aviation fuel and with other aircraft support companies whose total sales and
financial resources far exceed



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those of Mercury. In addition, certain airlines provide cargo and fueling
services comparable to those furnished by Mercury. At LAX Mercury competes with,
in addition to the airlines, three (3) fuel delivery providers and with three
(3) non-airline entities with respect to air cargo handling business. Generally,
FBOs have a minimum of one competitor at each airport as well as national
multi-location chains. Mercury has many principal competitors with respect to
government contracting services including certain small disadvantaged businesses
which receive a ten percent (10%) cost advantage with respect to certain bids
and set asides of certain contracts. Recently the FBO market has seen the
emergence of increased competition among several national FBO chains owned by
major corporations whose total sales and financial resources exceed those of
Mercury. Substantially all of Mercury's services are subject to competitive
bidding. Mercury competes on the basis of price and quality of service.

        ENVIRONMENTAL MATTERS

        Mercury must continuously comply with federal, state and local
environmental statutes and regulations associated with its numerous underground
fuel storage tanks. These requirements include, among other things, tank and
pipe testing for integrity, soil sampling for evidence of leaking and
remediation of detected leaks and spills. Other than the $3.4 million spent
during the 1999 fiscal year to comply with certain federal mandates regarding
below ground fuel tanks (See Item 2 "Properties"), there have been no material
capital expenditures nor has there been a material negative impact on Mercury's
earnings or competitive position in performing such compliance and related
remediation work. In late 1998, Mercury, and many other companies operating on
Southern California airports received notice of potential violations of
California Environmental Protection Agency - Air Resources Board regulations.
This notice alleged that such companies had violated the act by fueling airport
service vehicles with Jet A fuel. Mercury immediately brought all of its
operations into full compliance with all applicable regulations and has entered
into a settlement agreement with the state of California. In addition, it has
undertaken a review of federal and state regulations to insure future
compliance. The Company has received notice that it may be subject to
environmental remediation obligations on property formerly leased by the Company
in Anaheim, California. The Company terminated operations on this leased
property in fiscal 1987 at which time a closure letter was in effect. While no
assurances can be given, the Company does not expect to incur any material
obligation pertaining to this matter. Mercury knows of no other basis for any
notice of violation or cease and abatement proceeding by any governmental agency
as a result of failure to comply with applicable environmental laws and
regulations.

        EMPLOYEES

        As of August 31, 2000, Mercury employed 1,864 full-time and 340
part-time persons in its following operating units: fuel sales and services, 75
full-time persons; RPA, 62 full-time persons; cargo operations, 499 full-time
and 4 part-time persons; FBOs, 652 full-time and 55 part-time persons; and
government contract services, 576 full-time and 281 part-time persons. Maytag
has collective bargaining agreements which affect approximately 120 employees in
its weather and base support operations. Management believes that, in general,
wages, hours, fringe benefits and other conditions of employment offered
throughout Mercury's operations are at least equivalent to those found elsewhere
in its industry and that its general relationship with its employees is
satisfactory.



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ITEM 2. PROPERTIES.

        Listed below are the significant properties leased or owned by Mercury
as of September 19, 2000:

<TABLE>
<CAPTION>

                               LEASED   ANNUAL       EXPIRATION               ACTIVITY AT                     FACILITY
                             ---------  --------    ------------         ----------------------   ----------------------------------
       LOCATION               OR OWNED  RENTAL       OF LEASE                  FACILITY                      DESCRIPTION
-----------------------      ---------  --------    ------------         ----------------------   ----------------------------------
<S>                          <C>        <C>         <C>                  <C>                      <C>
CORPORATE HEADQUARTERS
5456 McConnell                  Owned     N/A           N/A              Landlord, executive       22,500 sq.ft. building
Los Angeles, California (1)                                              and support personnel
                                                                         offices
MAYTAG  OPERATIONS
6145 Lehman Drive, Suite 300    Owned     N/A           N/A              Landlord, executive       8,000 sq.ft. offices
Colorado Springs, CO (2)                                                 and support personnel
                                                                         offices

RPA BUILDINGS
129 S.W. 36th Court Miami,      Owned     N/A           N/A              Land                      10,846 sq. ft.
FL  (5)

101 S.W. 36th Court             Owned     N/A           N/A              Land                      7,210 sq. ft.
Miami,  FL (5)

119 S.W. 36th Court             Owned     N/A           N/A              Office Building           1,401 sq. ft.
Miami,  FL (5)

115 S.W.  36th Court            Owned     N/A           N/A              Office Building           3,865 sq. ft.
Miami,  FL (5)

2000 N.W. 89th PL               Owned     N/A           N/A              Office Building           22,400 sq. ft.
Miami,  FL                                                                                         Office Building


HARTSFIELD ATLANTA INT'L
AIRPORT
996 Toffie Terrace              Leased    $550,100      Month to month   Cargo handling            71,100 sq. ft. of cargo warehouse
Atlanta,  GA (3)                                                         warehouse with            facility with 3,350 sq. ft. of
                                                                         offices                   offices on 5.3 acres
</TABLE>



                                       12
<PAGE>   14

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
Cargo Building "A"              Leased    $924,061      December 2010    Cargo handling            60,597 sq. ft. of cargo warehouse
South Cargo Area (4)                                                     warehouse with offices    facility with 9,785  of Office
                                                                                                   Space on 2.4 acres of land

LOS ANGELES INT'L AIRPORT
6851 W. Imperial Highway,       Leased    $469,000      Month-to-month   Cargo hangar, with        60,000 sq.ft. of  offices and
Los Angeles,  CA                                                         offices and executive     cargo warehouse facility on 5.5 .
                                                                         offices rented to         acres
                                                                         customers

6060 Avion Drive                Leased    $2,097,000    June             Cargo handling            207,000 sq.ft. offices and cargo
Los Angeles,                                            2006             warehouse with offices    warehouse facility
CA

LESTER B. PEARSON INT'L
AIRPORT
Building D                      Leased    $378,000      Month to month   Cargo handling            28,445 sq. ft. warehouse space
Toronto,  AMF                                                            warehouse with offices    and 5,721 sq. ft. of offices
Ontario

Concession 6                    Leased    $121,800      November         Cargo handling            9,000 sq. ft. office space and
East Hurontario St. (4)                                 2010             warehouse with offices    48,360 sq. ft. of warehouse space


DORVAL INT'L AIRPORT
800 Stuart Graham Blvd. South   Leased    $489,000      November         Cargo handling            51,000 sq.ft. warehouse and 2,432
Dorval, Quebec (6)                                      2007             warehouse with offices    sq.ft. of office space


MIRABEL INT'L AIRPORT
12005, Rue Cargo                Leased    $83,000       November         Cargo handling            12,500 sq.ft. warehouse
A-3, Suite 102                                          2005             warehouse with offices
Mirabel, Quebec

LOS ANGELES INT'L AIRPORT
7000 World Way West Los         Leased    $333,000      Month-to-month   Service and refueling     2,000 sq.ft. of executive
Angeles, CA                                                              of private aircraft       terminal on 1.93 acres
</TABLE>



                                       13
<PAGE>   15

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
ONTARIO INT'L AIRPORT
2161 East Avion                 Leased    $226,000      April            Landlord, service and     60,000 sq. ft. of
Ontario, CA                                             2008             refueling of              offices and hangars on  15.4
                                                                         commercial and private    acres
                                                                         aircraft
BAKERSFIELD AIRPORT
1550 Skyway Drive               Leased    $137,000      May              Landlord, service and     Executive offices, terminal and
Bakersfield, CA (6)                                     2020             refueling of              hangars on 6.14 acres
                                                                         commercial and private
                                                                         aircraft

BURBANK-GLENDALE-PASADENA
AIRPORT
4301/4405/4407/4409             Leased    $1,604,000    April            Landlord, service and     156,200 sq. ft. of offices,
/4411/4531                                              2025             refueling of              hangars, and shop facilities
Empire Avenue                                                            commercial                74,612 sq. ft. of offices,
10660/10670/10700/10750                                                  and private aircraft      hangars and shop facilities on
/10760/10800/10820                                                                                 16.3 acres
Sherman Way, Burbank, CA

6920 Vineland Ave. No.          Leased     $164,000     Month to month   Landlord, service and     5,200 sq. ft. of offices, hangars
Hollywood, CA                                                            refueling of              and shop facilities
                                                                         commercial and private
                                                                         aircraft

CHARLESTON INTERNATIONAL
AIRPORT
6060 S Aviation Wy.             Leased     $161,160     August           Terminal, office, and     103,000 sq. ft. of Offices,
N. Charleston, SC                                       2007             hangars                   hangars and parking area

6070 Perimeter.                 Leased     $11,680      November         Building and hanger       Hangars, building, shop
N. Charleston, SC                                       2000             space                     facilities and parking areas

Johns Island Airport            Leased     $26,130      May              Terminal, office, and     consisting of  6.6 acres 285,200
2700 Fort Trenholm                                      2004             hanger space              sq. feet on 6.54 acres
Johns Island, SC

SANTA BARBARA MUNICIPAL
AIRPORT
404 Moffet Road                 Leased     $9,360       Month-to-month   Landlord, service,        8 T-Hangar space  totaling
Goleta, CA                                                               maintenance, and          28,413 sq. ft.
                                                                         refueling of
                                                                         commercial and private
                                                                         aircraft
</TABLE>



                                       14
<PAGE>   16

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
404 Moffet Road                 Leases     $56,000      Month-to-month   Building space            9,360 sq. ft of building space
Goleta, CA
(Building 124 &126)

204 Moffett Place               Lease      $28,920      Month-to-month   Building space and        10,370 sq. ft. office space and
Goleta, CA                                                               parking spaces            10 parking spaces
Building 121

302 Moffet Place                Lease      $39,580      Month-to-month   Building space            3,120 sq. ft office space
Goleta, CA
Building 122

FRESNO YOSEMITE INT'L AIRPORT
5045 E. Anderson Avenue         Leased     $74,000      April            Landlord, service and     8.47 acres.
Fresno, CA                                              2020             refueling of
                                                                         commercial and private
                                                                         aircraft

5045 E. Anderson Avenue         Leased    $3,000        February         Landlord, service and     250 sq. ft. of general office/
Fresno, CA                                              2001             refueling of              storage
                                                                         commercial and private
                                                                         aircraft

5045 E. Anderson Avenue         Leased    $67,000       August           Terminal, office and      Hangars and offices on 2.16 acres
Fresno, CA                                              2006             hangar facility

5045 E. Anderson Avenue         Leased    $6,000        October          Refueling of private      12,320 sq.ft. fuel farm
Fresno, CA                                              2000             and commercial aircraft

5045 E. Anderson Avenue         eased     115,000       May              Hangar and commercial     22,000 sq.ft. office space on
Fresno, CA                                              2005             office space              19.26 acres

WM. B. HARTSFIELD
INT'L AIRPORT
1200 Toffie Terrace             Leased    $107,000      March            Landlord, service and     4,800 sq.ft. of offices and ramp
Atlanta, GA                                             2002             refueling of              area on 11.2 acres
                                                                         commercial and private
                                                                         aircraft

DEKALB-PEACHTREE AIRPORT
1951 Airport Road               Leased    $219,000      November         Landlord, service and     164,288 sq.ft. of offices and
Atlanta, GA (6)                                         2006             refueling of              hangars on 22.46 acres
                                                                         commercial and private
                                                                         aircraft
</TABLE>



                                       15
<PAGE>   17

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
L.G. HANSCOM FIELD AIRPORT
180 Hamscom Drive               Leased    $332,465      May              Landlord, service,        302, 078 sq. ft.  of offices,
Bedford, MA (6)                                         2012             maintenance and           terminal, hangars, and land.
                                                                         refueling of
                                                                         commercial and private
                                                                         aircraft

RENO CANNON INT'L AIRPORT
655 So. Rock Blvd.  Reno, NV    Building    $13,000     June             Landlord, service and     33,000 sq.ft. of hangars and
                                owned,land              2017             refueling of              administrative building on 23.7
                                rented                                   commercial, private       acres of land
                                                                         and military aircraft

ADDISON AIRPORT
4400 Glenn Curtiss Dr.          Leased    $314,000      September        Landlord, service and     49,472 sq. ft. of offices and
Dallas, TX  (6)                                         2021             refueling of              hangars on 2.80 acres
                                                                         commercial and private
                                                                         aircraft

4400 Glenn Curtiss Dr.          Leased    $52,000       June             Landlord, service and     57,949 sq.ft. of offices and
Dallas, TX                                              2022             refueling of              hangar space on 6.28 acres
(6)                                                                      commercial and private
                                                                         aircraft

4400 Glenn Curtiss Dr.          Leased    $8,000        July             Landlord, service and     12,600 sq.ft. of offices and
Dallas, TX                                              2021             refueling of              hangar space
(6)                                                                      commercial and private
                                                                         aircraft
4400 Glenn Curtis Dr.           Leased    $28,000       December         Fuel farm
Dallas, TX (6)                                          2000

CORPUS CHRISTI
355 Pinson Drive                Leased    $19,000       October          Landlord, service and     66,096 sq.ft. of
Corpus Christi, TX (6)                                  2009             refueling of              offices and hangars on 6.69 acres
                                                                         commercial and private
                                                                         aircraft

NASHVILLE INT'L AIRPORT
635 Hangar Lane                 Leased    $247,000      June             Landlord, service and     Office and hangars on 38.69 acres
Nashville, TN                                           2012             refueling of
                                                                         commercial and private
                                                                         aircraft
</TABLE>



                                       16
<PAGE>   18

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
JACKSON INT'L
AIRPORT

110 S. Hangar Drive             Leased    $107,000      February         Landlord, service and     Office and hangars on 7 acres
Jackson, MS  39208 (6)                                  2006             refueling of
                                                                         commercial and private
                                                                         aircraft
TULSA INT'L
AIRPORT
7500 E. Apache                  Leased    $73,000       April            Landlord, service and     Office and hangars on 11.23 acres
Tulsa, OK 74115                                         2019             refueling of
Hangar 1&2                                                               commercial and private
                                                                         aircraft

7500 E. Apache                  Leased    $22,000       April            Landlord, service and     Land consisting of 5.23 acres
Tulsa, OK 74115 Hangar 22 &                             2019             refueling of
26                                                                       commercial and private
                                                                         aircraft

7500 E. Apache                  Leased    $62,000       June             Landlord, service and     Office and hangars on 5.23 acres
Tulsa, OK 74115                                         2011             refueling of
Hangar 22 & 26                                                           commercial and private
                                                                         aircraft

7500 E. Apache                  Leased    $11,000       June             Landlord, service and     Hangar space on 6.18 acres
Tulsa, OK 74115                                         2016             refueling of
Hangar 18                                                                commercial and private
                                                                         aircraft

7500 E. Apache                  Leased    $36,000       January          Landlord, service and     Hangar space on 14,000 sq. ft.
Tulsa, OK 74115                                         2001             refueling of
Hangar 4                                                                 commercial and private
                                                                         aircraft

FORT WAYNE AIRPORT
Fort Wayne-Allen County         Leased    $43,650       December         Landlord, service and     Office, hangars, and ramp space
Airport Authority                                       2003             refueling of              on 172,734  sq. ft of land
Hangar 37,41, 41A Building                                               commercial and private
28                                                                       aircraft

Fort Wayne-Allen County         Leased    $66,700       December         Landlord, service and     234,451 sq. ft. of  office,
Airport Authority                                        2003            refueling of              hangar, parking and ramp space
Hangar 40, 43                                                            commercial and private
                                                                         aircraft

Fort Wayne-Allen County         Leased    $54,900       November         Landlord, service and     49,500 sq. ft of hangar, ramp and
Airport Authority                                       2004             refueling of              parking space
Hangar 42                                                                commercial and private
                                                                         aircraft
</TABLE>



                                       17
<PAGE>   19

<TABLE>
<S>                          <C>        <C>         <C>                  <C>                      <C>
Fort Wayne-Allen County         Leased    $40,400       October          Landlord, service and     Aircraft hangar space consisting
Airport Authority                                        2016            refueling of              of 53,658 sq. ft.
Hangar 45                                                                commercial and private
                                                                         aircraft

Fort Wayne-Allen County         Leased    $8,600        August           Landlord, service and     Aircraft hangar space consisting
Airport Authority                                       2002             refueling of              of 4,000 sq. ft.
Hangar D                                                                 commercial and private
                                                                         aircraft

Fort Wayne-Allen County         Leased    $2,100        Month to month   Landlord, service and     2,500 sq. ft. of Aircraft hangar
Airport Authority                                                        refueling of              space
T-Hangar                                                                 commercial and private
                                                                         aircraft

Fort Wayne-Allen County         Leased    $21,400       November         Landlord, service and     115,128 sq. ft.  of space used
Airport Authority                                       2004             refueling of              for parking, ramp and hangar
Parcel No. 1,2, & 3                                                      commercial and private    space
                                                                         aircraft

Fort Wayne-                     Leased    $100          December         Landlord, service and     Fuel Farm Consisting of 57,000
Allen County Airport                                    2005             refueling of              sq. ft.
Authority                                                                commercial and private
                                                                         aircraft
BIRMINGHAM AIRPORT
Birmingham Airport              Leased    $140,400      August           Landlord, service and     Office, hangar, storage, and ramp
                                                         2021            refueling of              space on  29.30 acres
                                                                         commercial and private
                                                                         aircraft
</TABLE>

(1)     This property was purchased in April 1994 for $1,800,000 and is subject
        to a first mortgage to Sanwa Bank in the sum of $449,000 at June 30,
        2000 repayable in equal monthly installments of principal of $9,750,
        plus interest at 7.5% per annum, the last payment due in April 2004.

(2)     This property was purchased in May 1995 for $515,000 and is subject to a
        first mortgage to U.S. Bank in the sum of $347,000 at June 30, 2000
        repayable with interest at 9% in equal monthly installments of
        approximately $4,450, the last payment due May 2010.

(3)     This lease is subject to the right of Delta to exercise an option to
        acquire the property upon a two-year notice.

(4)     Term date is subject to change upon completion of Tenant Improvements.

(5)     Leased to R&M Investment Corporation under a lease dated July 2, 1999
        with an option to purchase.

(6)     The leasehold interest is subject to security interest granted to Fleet
        National Bank f/k/a Bank Boston.




                                       18
<PAGE>   20

                At most commercial airports where Mercury operates FBOs, Mercury
        maintains its own fuel storage capabilities. Effective January 1, 2000,
        Mercury has replaced, retrofit or closed most of its existing
        underground fuel storage facilities in order to comply with applicable
        federal regulations. See "Business--Environmental Matters" and
        "Management's Discussion and Analysis of Financial Condition and Results
        of Operations--Liquidity and Capital Resources." The following table
        summarizes Mercury's existing fuel storage facilities.
<TABLE>
<CAPTION>
                                                       Approximate
                                                        Capacity
Location                                               (gallons)
-----------------------                       ----------------------------
<S>                                           <C>
Los Angeles, California                       311,000(UG)(1)
Bakersfield, California                       98,000(62,000 AG; 36,000 UG)
Burbank, California                           --(2)
Santa Barbara, California                     --(3)
Reno, Nevada                                  99,000(AG)(4)
Ontario, California                           88,000(UG)(1)
Dallas, Texas                                 57,000(UG)(5)
Corpus Christi, Texas                         25,000(AG)(4)
Atlanta, Georgia (Hartsfield)                 48,000(AG)(4)
Atlanta, Georgia (Peachtree)                  48,000(AG)(4)
Fresno, California                            73,000(AG)
Bedford, Massachusetts                        30,000(AG)(4)
Nashville, Tennessee                          37,000(AG)
Charleston, South Carolina                    38,000(AG)
Jackson, Mississippi                          43,000(AG)(6)
Tulsa, Oklahoma                               126,000 (UG)(4)
Fort Wayne, Indiana                           171,000 (AG)(4)
John's Island, South Carolina                 18,000(UG)(1)
Birmingham, Alabama                           145,500 (AG)(4)
</TABLE>

(AG) = Above-ground fuel storage (UG) = Under-ground fuel storage (1) Retrofit
of existing system.
(2) System closed with consortium fuel farm used as an alternative.
(3) Interim operations without a fuel farm, new above ground fuel farm approved
and will be installed within 12 months. (4) No modification required.
(5) Facility owned by a third-party who completed required modifications.
(6) Presently use a third party tank form consortium, for balance of
requirement.

        Management believes that Mercury's property and equipment are adequate
for its present business needs. Mercury fully utilizes the real properties it
owns or leases for its business. Mercury's operating profits are substantially
dependent on a number of its leased facilities which enjoy strategic airport
locations and could be adversely affected by a failure to obtain alternative
facilities or renew a lease at expiration.



                                       19
<PAGE>   21

ITEM 3. LEGAL PROCEEDINGS.

        In connection with the Chapter 7 bankruptcy filing for Western Pacific
Airlines, Inc., "WPAI", the Company received a letter, dated August 25, 1999,
from the bankruptcy trustee's attorneys making a formal demand for recovery of
alleged preference payments of approximately $11.4 million. This amount
represents cash received for payment of fuel and sales during the 90 days prior
to WPAI's initial bankruptcy filing. Subsequently the trustee filed suit in the
United States District Court for the District of Colorado on October 1, 1999.
The Company believes it has strong defenses based on the transaction 1) being
made in the ordinary course of business, and 2) involving an exchange for new
value. At the same time, Mercury received notice of a claim by the trustee for
$1.1 million against Compass Bank for funds paid pursuant to a loan between
Compass and WPAI, which the Company guaranteed. The trustee also filed suit in
this case on October 1, 1999. The Company has undertaken to defend this matter
and believes it has strong defenses based on the transaction being made in the
ordinary course of business.

        In October 1999, Mr. Rene Perez, formerly the president of RPA, notified
the Company of certain alleged violations of his employment contract dated
February 28, 1998 between the Company, RPA and Mr. Perez asserting among other
things constructive termination. The Company subsequently filed a suit seeking
declaratory relief regarding the employment contract in the United States
District Court for Northern California (San Francisco) in November 1999. The
Company subsequently amended, on November 30, 1999, that suit as a result of its
investigation seeking damages against Mr. Perez. This case was transferred to
the United States District court for the Southern District of New York (New York
City) on March 27, 2000. Mr. Perez filed a lawsuit, which was filed in November
1999 and served in December 1999, on the Circuit Court of the 11th Judicial
Circuit in Dade County, Florida seeking damages in excess of the jurisdictional
limit. This case is now in the discovery phase. The Company believes that the
claims of Mr. Perez are without merit and that it has a strong case against Mr.
Perez.

        Mercury filed a collection action against AER Global Logistics ("AER")
in April 2000 in the state of New York. AER filed a counterclaim for $1,000,000
alleging among other things, tortious interference with contract. Mercury
believes that this claim is without merit.



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

        None.



                                       20
<PAGE>   22

                                     PART II


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

        Mercury's Common Stock is listed and traded on the AMEX under the Symbol
"MAX". The table below sets forth, for the quarterly periods indicated, the high
and low closing sale prices per share of Common Stock

<TABLE>
<CAPTION>
                                                           High       Low
                                                        ---------  ---------
<S>                                                     <C>        <C>
FISCAL 2000:
Quarter ended September 30, 1999 .................      $   7.63   $   6.13
Quarter ended December 31, 1999 ..................          8.25       5.63
Quarter ended March 31,2000 ......................          9.50       6.13
Quarter ended June 30, 2000 ......................          7.75       4.63

FISCAL 1999:
Quarter ended September 30, 1998 .................      $   8.19   $   6.38
Quarter ended December 31, 1998 ..................          8.63       6.44
Quarter ended March 31,1999 ......................          8.69       6.13
Quarter ended June 30, 1999 ......................          6.88       6.25
</TABLE>


        As of September 18, 2000 there were approximately 336 holders of record.

        During fiscal 1998, Mercury paid approximately $94,000 representing one
quarterly dividend at the rate of $.0125 per share. In September 1997, the
Company's Board of Directors terminated the quarterly dividend plan in favor of
allocating these funds towards repurchasing Company common shares in the open
market. Mercury intends to review its dividend policy from time to time in light
of Mercury's earnings, financial condition and other relevant factors, including
applicable covenants in debt and other agreements. In this regard, Mercury's
loan agreement with its lenders prohibits the payment of cash dividends in
excess of $400,000 per year.

ITEM 6. SELECTED FINANCIAL DATA

        The following selected consolidated financial data for each of the five
years ended June 30 have been derived from the audited consolidated financial
statements of Mercury. The information set forth below should be read in
conjunction with the consolidated financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Form 10-K.



                                       21
<PAGE>   23

                               YEAR ENDED JUNE 30,
                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                     2000            1999            1998            1997           1996
                                   --------        --------        --------        --------       ---------
<S>                               <C>             <C>             <C>             <C>             <C>
Operating Data

Sales and Revenues                $ 338,742       $ 224,675       $ 240,111       $ 279,380       $ 225,374

Costs and Expenses                  305,629         192,652         211,981         256,310         206,960
                                   --------        --------        --------        --------       ---------

 Gross Margin                        33,113          32,023          28,130          23,070          18,414

Selling, General and
Administrative Expenses               7,223           7,118           6,007           6,296           5,106


Provision for Bad Debts               5,408           1,721           1,971           1,810             945

Depreciation and                      9,405           8,499           5,194           3,953           2,818
Amortization

Loss Resulting from                      --              --           7,050              --              --
Bankruptcy of a Customer

Interest Expense                      6,340           4,380           3,542           3,393           2,375

Other Expense (Income)                 (194)           (222)           (595)            370            (596)
                                   --------        --------        --------        --------       ---------

Income before Income Taxes            4,931          10,527           4,961           7,248           7,766

Provision for Income Taxes            1,923           4,105           1,934           2,869           3,086
                                   --------        --------        --------        --------       ---------

Net Income Before
Extraordinary Items                   3,008           6,422           3,027           4,379           4,680

Extraordinary Item                     (979)           (483)             --              --              --
                                   --------        --------        --------        --------       ---------

Net Income                        $   2,029       $   5,939       $   3,027       $   4,379       $   4,680
                                   ========        ========       =========       =========       =========

Net Income Per Share:

Basic:
   Before extraordinary item      $     .46       $    0.96       $    0.42       $    0.58       $    0.63
   Extraordinary item                  (.15)           (.07)             --              --              --
                                   --------        --------        --------        --------       ---------
   Net  income                    $     .31       $    0.89       $    0.42       $    0.58       $    0.63
                                   ========        ========       =========       =========       =========
Diluted:
   Before extraordinary item      $     .43       $    0.73       $    0.38       $    0.49       $    0.56
   Extraordinary item                  (.13)           (.05)             --              --              --
                                   --------        --------        --------        --------       ---------
   Net  income                    $     .30       $    0.68       $    0.38       $    0.49       $    0.56
                                   ========        ========       =========       =========       =========
</TABLE>



                                       22
<PAGE>   24

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

                                                         AT JUNE 30,
BALANCE SHEET DATA                2000           1999         1998           1997          1996
                                -------------------------------------------------------------------
<S>                             <C>           <C>           <C>           <C>           <C>
Total Assets                    $135,115      $127,302      $111,741      $ 92,637      $ 79,123

Short-Term Debt
(including current                 6,936         6,806         3,732         1,878         2,555
portion of long-term debt)

Long-Term Debt                    42,358        44,285        30,619        15,195         6,893

Subordinated Debt                 22,844            --            --            --            --


Convertible Subordinated
Debentures                            --        19,852        28,090        28,115        28,115

Dividends per Common Share            --            --          .013         .0425         .0425
</TABLE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.


        RESULTS OF OPERATIONS - FISCAL 2000, 1999 AND 1998

        The following tables set forth, for the periods indicated, the revenue
and gross margin for each of the Company's five operating units, as well as
selected other financial statement data.


<TABLE>
<CAPTION>
                                                      Year Ended June 30,
                                  -----------------------------------------------------------------
                                                        ($ in millions)
                                  -----------------------------------------------------------------
                                         2000                   1999                  1998

                                               % of                   % of                   % of
                                               Total                  Total                  Total
                                  Amount      Revenues     Amount    Revenues    Amount     Revenues
                                  -----------------------------------------------------------------
<S>                               <C>          <C>          <C>          <C>          <C>          <C>
Revenues:

Fuel Sales and Services (2)       $  202.8         59.9%    $  111.3         49.5%    $  148.2        61.7%

FBOs                                  73.7         21.7         53.9         24.1         51.8        21.6

Cargo Operations                      32.5          9.6         27.7         12.3         21.5         8.9

Government Contract Services          25.3          7.5         25.4         11.3         17.0         7.1

RPA (2)                                4.4          1.3          6.4          2.8          1.6         0.7
                                  --------     --------     --------     --------     --------     -------

                                  $  338.7        100%      $  224.7        100%      $  240.1       100%
 Total Revenues                   ========     ========     ========     ========     ========     =======
</TABLE>



                                       23
<PAGE>   25


<TABLE>
<CAPTION>
                                                         % of                  % of                   % of
                                                         Unit                   Unit                   Unit
                                            Amount     Revenues     Amount    Revenues    Amount     Revenues
                                           -------------------------------------------------------------------
<S>                                        <C>         <C>         <C>        <C>        <C>         <C>
Gross Margin (1):

Fuel Sales and Services (2)                $   7.9        3.9%     $   8.9       8.0%    $   7.0       4.7%

FBOs                                          11.5       15.6         11.3      21.0        11.1      21.3

Cargo Operations                              10.0       30.7          5.7      20.7         5.3      24.8

Government Contract Services                   5.0       19.9          5.3      20.8         4.5      26.7

RPA (2)                                       (1.3)     (29.5)         0.8      12.5         0.2      12.1
                                           -------     -------     -------    -------     -------    -------

    Total Gross Margin                     $  33.1        9.8%     $  32.0      14.3%    $  28.1      11.7%
                                           =======     =======     ========   =======    =======     =======
</TABLE>


<TABLE>
<CAPTION>
                                                        % of                   % of                   % of
                                                        Total                  Total                  Total
                                            Amount     Revenues     Amount    Revenues    Amount     Revenues

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

<S>                                        <C>         <C>         <C>        <C>        <C>         <C>
Selling, General and                       $   7.2        2.1%     $   7.1       3.2%    $   6.0       2.5%
Administrative

Provision for Bad Debts                        5.4        1.6          1.7       0.8         2.0       0.8

Depreciation and Amortization                  9.4        2.8          8.5       3.8         5.2       2.2

Loss Resulting from Bankruptcy                 --         --           --        --          7.1       2.9
of a Customer

Interest Expense and Other                     6.2        1.8          4.2       1.9         2.9       1.3


Income before Income Taxes                     4.9        1.5         10.5       4.7         4.9       2.1

Provision for Income Taxes                     1.9        0.6          4.1       1.9         1.9       0.8

Net Income before Extraordinary
Item                                           3.0        0.9          6.4       2.9         3.0       1.3

Extraordinary Items                           (1.0)      (0.3)        (0.5)     (0.2)         --        --
                                           -------     -------      -------   -------     -------    -------

Net Income                                 $   2.0        0.6%     $   5.9       2.6%    $   3.0       1.3%
                                           =======     =======     ========   =======    =======     =======
</TABLE>

(1) Gross Margin as used here and throughout Management's discussion excludes
depreciation and amortization and selling, general and administrative expenses.

(2) Revenue and gross margin for fuel sales and services in fiscal 1999 and
fiscal 1998 has been adjusted to exclude RPA, which has been classified as a
separate operating unit.


Fiscal Year Ended June 30, 2000 Compared to Fiscal Year Ended June 30, 1999

        Revenue increased 50.8% to $338.7 million in fiscal 2000 from $224.7
million in fiscal 1999 due to higher fuel prices and higher volume of fuel sold.
Gross Margin increased 3.4% to $33.1 million in fiscal 2000 from $32.0 million
in fiscal 1999.



                                       24
<PAGE>   26


        Revenue from fuel sales and services represented 59.9% of total revenue
in fiscal 2000 compared to 49.5% of total revenue in fiscal 1999. Revenue from
fuel sales and services increased 82.3% in fiscal 2000 to $202.8 million from
$111.3 million in fiscal 1999. The increase in revenue from fuel sales and
services was due to an increase of 22.3% in volume of fuel sold and an increase
of 43.0% in the price of fuel sold. Gross margin from fuel sales and services
decreased by 11.3% to $7.9 million in fiscal 2000 from $8.9 million in fiscal
1999 primarily due to lower per gallon margins caused by rising fuel prices.
Revenues and gross margin from fuel sales and services includes the activities
of Mercury's contract fueling business and related fuel management services.

        Revenue from FBOs increased in fiscal 2000 by 36.9% to $73.7 million
from $53.9 million in fiscal 1999. The increase in revenue in fiscal 2000 was
primarily due to the addition of FBOs in Tulsa, Oklahoma; Charleston and John's
Island, South Carolina; and Fort Wayne, Indiana in addition to higher fuel
prices. Gross margin increased 2.1% in fiscal 2000 to $11.5 million from $11.3
million in fiscal 1999. Gross margin as a percentage of revenue decreased in
fiscal 2000 to 15.6% from 21.0% in fiscal 1999 due to higher fuel prices and
lower per gallon fuel margins.

        Revenue from Cargo operations increased 17.1% in fiscal 2000 to $32.5
million from $27.7 million in fiscal 1999. The increase was primarily
attributable to higher space brokerage revenue and higher handling revenue at
LAX. Gross margin increased 73.5% in fiscal 2000 to $10.0 million from $5.7
million in fiscal 1999. The increase in gross margin in fiscal 2000 was
primarily due to higher space brokerage revenue, higher handling revenues at LAX
and elimination of losses at the Miami cargo location, which was sold in March
1999.

        Revenue from government contract services declined marginally in fiscal
2000 to $25.3 million from $25.4 million in fiscal 1999. Gross margin from
government contract services declined in fiscal 2000 by 5% to $5.0 million from
$5.3 million in fiscal 1999 primarily due to lower margins from Weather Data
contracts.

        Revenue from RPA declined 31.1% in fiscal 2000 to $4.4 million from $6.4
million in fiscal 1999 due to lower license fee revenues. Gross margin declined
in fiscal 2000 to a loss of $1.3 million compared to gross margin of $0.8
million in fiscal 1999 based on lower revenue. RPA is a developer and installer
of proprietary airline revenue accounting and related software. RPA's future
success will depend upon its development of products and its ability to extend
its customer base.

        Selling general and administrative expenses increased by 1.5% to $7.2
million in fiscal 2000 from $7.1 million in fiscal 1999.

        Provision for bad debts increased 214.2% in fiscal 2000 to $5.4 million
from $1.7 million in fiscal 1999 due to a $2.7 million write off of Tower Air,
Inc's receivable ( as a result of its bankruptcy), significantly higher sales in
fiscal 2000 and greater exposure due to significantly higher fuel prices during
fiscal 2000 which has created a greater risk of loss due to potential bad debts
related to certain airline accounts. Future periods may continue to be impacted
by higher reserve requirements.



                                       25
<PAGE>   27

        Depreciation and amortization expense increased 10.7% in fiscal 2000 to
$9.4 million from $8.5 million in fiscal 1999 primarily due to the Burbank FBO
expansion during fiscal 1999, acquisitions of Jackson and Charleston FBOs in
fiscal 1999, acquisition of Tulsa FBO in October 1999 and various capital
expenditures.

        Interest expense (net) increased 47.8% in fiscal 2000 to $6.2 million
from $4.2 million in fiscal 1999 due to higher interest rates and higher average
outstanding borrowings.

        Income tax expense approximated 39.0% of pretax income in both fiscal
2000 and fiscal 1999 reflecting the expected effective annual income tax rate.

        The extraordinary item of $979,000 in fiscal 2000 consisted of charges
associated with the redemption of the Company's 7 3/4% convertible subordinated
debentures in September 1999. The charge includes a $780,000 redemption premium
plus write off of capitalized fees of $824,000 less the related tax benefit of
$625,000. The extraordinary item of $483,000 in fiscal 1999 consisted of a
charge of $792,000 related to the cost of repurchasing and retiring convertible
subordinated debentures in excess of par value plus write off of related bond
issuance costs net of the related income tax benefit of $309,000.

Fiscal Year Ended June 30, 1999 Compared to Fiscal Year Ended June 30, 1998

        Revenue decreased 6.4% to $224.7 million in fiscal 1999 from $240.1
million in fiscal 1998, primarily due to lower fuel prices and lower fuel
volume. However, gross margin increased 13.8% to $32.0 million in fiscal 1999
from $28.1 million in fiscal 1998.

        Revenue from fuel sales and services represented 49.5 % of total revenue
in fiscal 1999 compared to 61.7% of total revenue in fiscal 1998. Revenue from
fuel sales and services in fiscal 1999 decreased 24.9% to $111.3 million from
$148.2 million in fiscal 1998. The decrease in revenue from fuel sales and
services was due to a decrease in both the price of fuel and volume of fuel
sold. Volume declined approximately 32 million gallons all of which was related
to Western Pacific Airline, Inc. (WPAI). The loss of WPAI's business occurred in
February 1998 when the carrier ceased operations. Average fuel prices decreased
approximately 12% in fiscal 1999 as compared to fiscal 1998. Gross margin from
fuel sales and services was $8.9 million in fiscal 1999 compared to $7.0 million
in fiscal 1998 or, as a percentage of revenue, 8.0% in fiscal 1999 and 4.7 % in
fiscal 1998. Higher per gallon fuel margins caused by lower fuel prices
increased gross margin as a percentage of revenue in fiscal 1999 as compared to
fiscal 1998.

        Revenue from FBOs in fiscal 1999 increased 3.8% to $53.9 million from
$51.8 million in fiscal 1998. The increase in revenue from FBOs was primarily
due to the addition of an FBO in Charleston, South Carolina in October 1998 and
an FBO in Jackson, Mississippi in December 1998. Gross Margin from FBOs in
fiscal 1999 increased 2.1% to $11.3 million from $11.1 million in fiscal 1998
due to higher per gallon fuel margins.

        Revenue from cargo operations in fiscal 1999 increased 28.9% to $27.7
million from $21.5 million in fiscal 1998. The increase was primarily
attributable to higher cargo handling revenue at LAX due to the expansion of
facilities which occurred during the fourth quarter or fiscal 1998, and the
addition of the



                                       26
<PAGE>   28

Atlanta facility, which was acquired in April 1998. Gross margin from cargo
operations in fiscal 1999 increased 7.7% to $5.7 million from $5.3 million in
fiscal 1998 primarily due to higher handling revenue partially offset by
increased losses at Floracool in Miami and lower space brokerage revenue. In
March 1999, the Company sold its Miami cargo operations. Gross margin as a
percentage of revenue in fiscal 1999 decreased to 20.7% from 24.8% in fiscal
1998 primarily due to higher losses in the Miami operations and lower space
brokerage activity.

        Revenue from government contract services in fiscal 1999 increased 50%
to $25.4 million from $17.0 million in fiscal 1998. The increase in revenue was
due to the acquisition of Weather Data which was acquired on August 1, 1998.
Gross margin from government contract services in fiscal 1999 increased 17% to
$5.3 million from $4.5 million in fiscal 1998 primarily due to the addition of
the Weather Data contracts. Gross margin as a percentage of revenue in fiscal
1999 declined to 20.8% from 26.7% in fiscal 1998 primarily due to the Weather
Data contracts which operate at a lower margin.

        Revenue from RPA was $6.4 million in fiscal 1999 compared to $1.6
million recognized during the four month period subsequent to its acquisition in
February 1998. Gross margin from RPA was $0.8 million in fiscal 1999 compared to
$0.2 million in fiscal 1998.

        Selling, general and administrative expenses in fiscal 1999 increased
18.5% to $7.1 million from $6.0 million in fiscal 1998 primarily due to higher
compensation expense.

        Provision for bad debts in fiscal 1999 declined 12.7% to $1.7 million
from $2.0 million in fiscal 1998 reflecting lower bad debt allowance
requirements attributable in part to lower fuel sales.

        Depreciation and amortization expense in fiscal 1999 increased 63.6% to
$8.5 million from $5.2 million in fiscal 1998. The increase in the current
period is related primarily to the LAX cargo warehouse added in April 1998, the
Burbank FBO expansion substantially completed in February 1999 and acquisitions
during the current fiscal year.

        Interest expense in fiscal 1999 increased 23.7% to $4.4 million from
$3.5 million in fiscal 1998 primarily due to higher average outstanding
borrowings in the current period. Interest income in fiscal 1999 decreased 62.7%
to $0.2 million from $0.6 million in fiscal 1998 due to lower average notes
receivable balances and lower balances of invested cash.

        Loss resulting from bankruptcy of customer of $7,050,000 in fiscal 1998
was due to WPAI's bankruptcy on October 5, 1997.

        Income tax expense approximated 39% of pretax income for both fiscal
1999 and fiscal 1998, reflecting the Company's effective income tax rate.

        The extraordinary item of $483,000 in fiscal 1999 consists of a charge
of $792,000, primarily related to the cost of repurchasing and retiring
convertible subordinated debentures in excess of par value plus the write off of
related bond issuance costs, net of the related income tax benefit of $309,000.



                                       27
<PAGE>   29

        LIQUIDITY AND CAPITAL RESOURCES

        Mercury has historically financed its operations primarily through
operating cash flow, bank debt and various public and private placement of bonds
and subordinated debt. Mercury's cash balance at June 30, 2000 was $2,143,000.

        Net cash provided by operating activities was $16,929,000 during fiscal
2000. The primary source of net cash provided by operating activities was net
income plus depreciation and amortization totaling $11,434,000, bad debt expense
of $5,408,000 and an increase in accounts payable of $4,799,000. The primary use
of cash from operating activities was an increase in trade and other accounts
receivable of $3,594,000.

        Net cash used in investing activities was $18,648,000 during fiscal
2000. The primary uses of cash from investing activities included $10,971,000 in
additions to property, equipment and leaseholds, $7,000,000 in acquisitions of
businesses, net of cash acquired and addition to other assets of $1,607,000.

        Net cash used in financing activities was $935,000 during fiscal 2000.
The primary source of cash from financing activities during this period was
proceeds from senior subordinated note of $24,000,000 and proceeds from
long-term debt of $10,648,000. The primary use of cash from financing activities
was the reduction in convertible subordinated debentures of $19,534,000 and
reduction of long-term debt of $12,445,000 .

        On September 10, 1999, the Company issued, in a private placement,
$24,000,000 Senior Subordinated 12% Note ("the Note") due 2006 with detachable
warrants to acquire 503,126 shares of the Company's common stock exercisable at
$6.50 per share for seven years. Proceeds of the Note were used primarily to
redeem $19,509,000 of the Company's 7 3/4% convertible subordinated debentures
due February 1, 2006 plus a redemption premium of 4% totaling $780,000, pay
accrued interest and pay expenses of the transaction. The Note balance is net of
warrants valued at $1,306,000 less $150,000 amortized as interest expense in
fiscal 2000.

        On March 2, 1999, the Company entered into an $80,000,000 senior secured
credit facility with a consortium of four banks. At June 30, 2000, this facility
includes up to $40,000,000 Revolving Credit ("Revolving Credit"), a term loan
with a balance of $19,875,000 ("Term Loan") and an acquisition facility of up to
$18,000,000 ("Acquisition Facility"). These facilities mature in March 2004. The
Term Loan is payable over five years in quarterly installments of principal of
$1,000,000 in year one with quarterly installments increasing each year
thereafter by $125,000 with a final installment in March 2004. Balances
outstanding under the Revolving Credit and Acquisition Facility will be due in
March 2004. Interest rates may vary depending upon the Company's leverage ratio,
however, the cost has been the Eurodollar rate plus 1.75% or the Banks base rate
(equivalent to the prime rate which is 9.5%). At June 30, 2000 current portion
of long-term debt pertaining to this facility is $4,625,000 and long-term debt
includes $15,250,000 of the Term Loan and $9,928,000 of the Acquisition
Facility. Subsequent to June 30, 2000, the Acquisition line was increased to
$23,000,00 and the Revolver was reduced to $35,000,000.

        On April 2, 1998, the Company raised $19.0 million from a tax exempt
bond financing pursuant to a loan agreement between the Company and the
California Economic Development Financing Authority, ("CEDFA"). These funds were
obtained to finance the Company's LAX Cargo warehouse expansion and expansion of
its Burbank FBO. The loan carries a variable rate which is based on a weekly
remarketing



                                       28
<PAGE>   30

of the tax exempt bonds issued by CEDFA. Since the issuance of the bond, the per
annum interest rate has averaged 3.15% through June 30, 2000. The Company's
senior bank group has issued a one-year, renewable letter of credit in the
amount of approximately $17.8 million to secure the Company's obligations under
the loan agreement. Principal payments of $500,000 are payable semi-annually
with a redemption of $4.0 million at the end of the fifteenth year. At June 30,
2000, the balance was $17.0 million.

        The Company's accounts receivable balance was $48,320,000 at June 30,
2000 and $50,134,000 at June 30, 1999. In addition, a note receivable of
approximately $824,000 at June 30, 2000 is due from a former customer of the
Company, Saeta, an Ecuadorian Airline, for the purchase of fuel. Due to
political and financial crisis in Ecuador, Saeta has defaulted on its monthly
payment obligation of approximately $48,000 since January 2000, with the
exception of one $10,000 payment received in February 2000. The Company has
initiated legal action and has obtained a default judgement against individual
guarantors in the U.S. and is proceeding against Saeta in Ecuador. While no
assurance can be given, the Company believes some portion of the note will
ultimately be collected. Bad debt reserves will include a continuing assessment
of the collectability of the Saeta note. Accounts receivable days outstanding
for the quarters ended June 30, 2000 and June 30 1999 were 52 and 74 days,
respectively, based upon consolidated revenue for each period. Accounts
receivable days outstanding decreased primarily due to fuel sales and services
revenue increasing to 59.9% of total revenue in fiscal 2000 from 49.5% in the
year ago period. Accounts receivable days outstanding are impacted by a high
volume of fuel brokerage which is reported in revenues on a net margin basis and
a high concentration of fuel sales to customers with extended payment terms.
Allowance for doubtful accounts increased to $2,550,000 at June 30, 2000 from
$1,953,000 at June 30, 1999.

        From June 1999 to June 30, 2000, per gallon fuel costs rose
approximately 67%. Significantly higher fuel prices for an extended period of
time have a negative impact on the aviation industry as it increases the
airlines operating expenses. Smaller, less well capitalized airlines may be more
seriously impacted. The current fiscal year includes a bad debt expense of $5.4
million, including $2.7 million resulting from the bankruptcy of Tower Air,
Inc., and an additional bad debt provision of $2.7 million due to higher fuel
prices affecting the aviation industry. The bad debt provision in fiscal 1999
was $1.7 million. The increase in the general bad debt reserve resulted from
significantly higher fuel prices during the current fiscal year which have
created a greater risk of loss due to potential bad debts related to certain
airline accounts. Future periods may continue to be impacted by higher reserve
requirements related to potential bankruptcies.

        The Company's recurring capital expenditure requirements have been
related to the acquisition of refueling and ground handling equipment for both
commercial and government contract services operations. During fiscal 1998, 1999
and 2000, respectively, the Company spent approximately $3,000,000, $2,100,000
and $2,700,000 to purchase refueling and ground handling equipment for its
commercial and government contract services operations. During the last three
fiscal years, the Company has also made substantial expenditures to acquire and
construct facilities and businesses to expand its operations. In July 1997, the
Company acquired certain assets of an FBO located in Nashville, Tennessee for
$4,250,000 cash. To fund this acquisition, the Company borrowed an additional
$4,250,000 under its former credit facilities. During fiscal 1998, the Company
spent approximately $9,600,000 to remodel and construct a cargo warehouse at
LAX, $300,000 to pay for a portion of the construction of an FBO in Charleston,
South Carolina, $422,000 to acquire the assets of a cargo handling operation at
William B. Hartsfield International Airport in Atlanta, Georgia, and $4,220,000
($3,000,000 in cash and $1,220,000 worth of Mercury Common Stock) to acquire the
outstanding stock of RPA. On August 1, 1998, Maytag acquired thirty-eight
government contracts and related assets from Weather Data for $2,500,000 in cash
and $1,000,000 in stock (subsequently increased by 22,565 shares in September
1999 since the market value of the shares originally issued was less then $1.0



                                       29
<PAGE>   31

million on August 1, 1999). On November 30, 1998, the Company acquired
substantially all the assets of an FBO in Jackson, Mississippi for $4,500,000 in
cash. In April 2000, the company acquired the assets of an FBO located in Fort
Wayne, Indiana for $3,900,000 in cash which was funded under its acquisition
line. In October 1999, the company acquired assets of an FBO in Tulsa, Oklahoma
for $2.4 million in cash which was funded under its acquisition line. A second
part to this closing occurred in July 2000 for $3,800,000 which was funded under
the company's acquisition line. In October 1999, the company acquired certain
FBO assets at Charleston International Airport and John's Island Executive
Airport in South Carolina for $700,000 in cash which was funded under its
acquisition line.

        In fiscal 1998, the Company began construction of a new FBO operation in
Burbank, California at a cost of approximately $11.2 million, $1.8 million spent
in fiscal 2000, $7.2 million spent in fiscal 1999 and $2.2 million spent in
fiscal 1998. This project was completed in fiscal 2000. The Company also
retrofitted or replaced a number of fuel farms during fiscal 1999 at a cost of
approximately $3.4 million.

        Absent a major prolonged surge in oil prices or a capital intensive
acquisition, the Company believes its operating cash flow, senior credit
facility, vendor credit and cash balance will provide it with sufficient
liquidity during the next twelve months. In the event that fuel prices increase
significantly for an extended period of time, the Company's liquidity could be
adversely affected unless the Company is able to increase vendor credit or
increase lending limits under its revolving credit facility. The Company
believes, however, its Revolver and vendor credit should provide it with
sufficient liquidity in the event of a major temporary surge in oil prices.

        Inflation

        The Company believes that inflation has not had a significant effect on
its results of operations during the past three fiscal years.

        Forward-Looking Statements

        Statements contained in this Annual Report on Form 10-K which are not
historical facts are forward-looking statements. In addition, Mercury, from
time-to-time, makes forward-looking statements concerning its expected future
operations and performance and other developments. Such forward-looking
statements are necessarily estimates reflecting Mercury's best judgment based
upon current information and involve a number of risks and uncertainties, and
there can be no assurance that other factors will not affect the accuracy of
such forward-looking statements. While it is impossible to identify all such
factors, factors which could cause actual results to differ materially from
those estimated by Mercury include, but are not limited to, risks associated
with acquisitions, the financial condition of customers, non-renewal of
contracts, government regulation, as well as operating risks, general conditions
in the economy and capital markets, and other factors which may be identified
from time-to-time in Mercury's Securities and Exchange Commission filings and
other public announcements.



                                       30
<PAGE>   32

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

        The Company does not currently utilize material derivative financial
instruments which expose the Company to significant market risk. However, the
Company's cash flow, earnings, and the fair value of its debt, may be adversely
effected due to changes in interest rates with respect to its long-term debt.
The table below presents principal cash flows and related weighted average
interest rates of the Company's long-term debt at June 30, 2000 by expected
maturity dates. Weighted average variable rates are based on rates in effect at
June 30, 2000. These rates should not be considered a predictor of actual future
interest rates.

                             Expected Maturity Date


<TABLE>
<CAPTION>
                        June-01    June-02    June-03     June-04    June-05   Thereafter         Total           Fair Value
<S>                     <C>        <C>        <C>         <C>        <C>       <C>                <C>             <C>
Fixed Rate                  0          0          0            0           0    24,000,000       24,000,000       24,000,000
Senior
Subordinated Note

 Average                12.0%      12.0%      12.0%        12.0%       12.0%         12.0%            12.0%
Interest Rate


Fixed Rate Other      336,000    310,000    326,000      200,000      30,000       313,000        1,515,000        1,421,000
Debt

 Average                8.22%      8.39%      8.52%        8.83%       9.14%         9.14%            8.64%
Interest Rate


Variable Rate       1,000,000  1,000,000  1,000,000    1,000,000   1,000,000    12,000,000       17,000,000        17,000,000
Tax Exempt Bonds
(1)

 Average                3.15%      3.15%      3.15%        3.15%       3.15%         3.15%            3.15%
Interest Rate


Variable Rate       5,600,000  5,126,000  5,625,000   14,428,000           0             0       30,779,000        30,779,000
Other Debt (2)

 Average                8.45%      8.45%      8.45%        8.45%           0             0            8.45%
Interest Rate
</TABLE>

(1) The interest rate is based upon a weekly remarketing of the bonds.
(2) Consists of debt under which interest rates will fluctuate based upon
changes in the prime rate or LIBOR.

        In making its determination as to the balance of fixed and variable rate
debt, the Company considers the interest rate environment (including interest
rate trends), borrowing alternatives and relative pricing. The Company
periodically monitors the balance of fixed and variable rate debt, and can make
appropriate corrections either pursuant to the terms of debt agreements or
through the use of swaps and other financial instruments. At June 30, 2000, the
Company had a zero cost interest rate cap in place on $7 million of term debt
which expired in August 2000.



                                       31
<PAGE>   33

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

        See Part IV, Item 14, pages F1 through F23 immediately following.


ITEM 9. ACCOUNTING AND FINANCIAL DISCLOSURE DISPUTES.

        None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

        Reference is made to the information set forth under the caption
"Election of Directors" of the Company's Proxy Statement for the annual meeting
scheduled for December 14, 2000 (the "Proxy Statement") for a description of the
directors and executive officers of the Company, which information is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION.

        Reference is made to the information set forth under the caption
"Executive Compensation" of the Proxy Statement, which information is
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        Reference is made to the table, including the footnotes thereto, set
forth under the caption "Election of Directors" of the Proxy Statement, for
certain information respecting ownership of stock of the Company by management
and certain shareholders, which table and footnotes are incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        Reference is made to the information set forth under the caption
"Certain Transactions" of the Proxy Statement for certain information with
respect to relationships and related transactions, which information is
incorporated herein by reference.



                                       32
<PAGE>   34

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

<TABLE>
(a) (1) Financial Statements
<S>                                                                                        <C>
Independent Auditors' Report...............................................................F-1

Consolidated Balance Sheets as of June 30, 2000 and 1999...................................F-2

Consolidated Statements of Income for each of the three
   years in the period ended June 30, 2000.................................................F-3

Consolidated Statements of Cash Flows for each of the three
   years in the period ended June 30, 2000.................................................F-4

Consolidated Statements of Stockholders' Equity for each
   of the three years in the period ended June 30, 2000....................................F-5

Notes to Consolidated Financial Statements for the three
   years ended June 30, 2000...............................................................F-6

(a) (2) Supplemental Schedule for each of the three years in the period ended
June 30, 2000:

Schedule II - Valuation and Qualifying Accounts...........................................F-23
</TABLE>

        All other items are not included in this Form 10-K either because they
are not applicable or are included in the information as set forth in the
Consolidated Financial Statements or in the Notes to Consolidated Financial
Statements.




                                       33
<PAGE>   35

Item 14 (a) Exhibits and Exhibit List
        (b) Reports on Form 8-K

<TABLE>
<CAPTION>
(a)
Exhibit
No.                          Description

<S>     <C>
3.1     Restated Certificate of Incorporation. (4)
3.2     Form of Amendment to Restated Certificate of Incorporation creating the
        Series A 8% Convertible Cumulative Redeemable Preferred Stock. (4)
3.3     Form of Amendment to Restated Certificate of Incorporation declaring the
        Separation Date for the Series A 8% Convertible Redeemable Preferred
        Stock. (5)
3.4     Bylaws of the Company. (4)
3.5     Amendment to Bylaws of the Company. (10)
3.6     Amendment to Bylaws of the Company adopted on December 3, 1998. (19)
4.1     Form of Indenture between Mercury Air Group, Inc. and IBJ Schroder Bank
        & Trust Company. (11)
4.2     Negotiable Promissory Note, dated as of June 21, 1996, from Mercury Air
        Group, Inc. to Raytheon Aircraft Services, Inc. (13)
4.3     Legend Agreement, dated as of August 29, 1996 between Mercury Air Group,
        Inc. and Raytheon Aircraft Services, Inc. (13)
4.4     Loan Agreement between California Economic Development Financing
        Authority and Mercury Air Group, Inc. relating to $19,000,000 California
        Economic Development Financing Authority Variable Rate Demand Airport
        Facilities Revenue Bonds, Series 1998 (Mercury Air Group, Inc. Project)
        dated as of April 1, 1998. (3)
4.5     Securities Purchase Agreement dated September 10, 1999 by and among
        Mercury Air Group, Inc. and J.H. Whitney Mezzanine Fund, L.P. (20)
10.1    Employment Agreement dated December 10, 1993 between the Company and
        Seymour Kahn. (8) *
10.2    Stock Purchase Agreement between the Company, SK Acquisition, Inc.,
        Randolph E. Ajer, Kevin J. Walsh, Grant Murray and Joseph Czyzyk. (2)*
10.3    Company's 1990 Long-Term Incentive Plan. (6)*
10.4    Company's 1990 Directors Stock Option Plan. (1)*
10.5    Lease for 6851 West Imperial Highway, Los Angeles, California. (4)
10.6    Memorandum Dated September 15, 1997 regarding Summary of Officer Life
        Insurance Policies with Benefits Payable to Officers or Their Designated
        Beneficiaries. (15)*
10.7    Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for
        Seymour Kahn, Joseph Czyzyk and Randolph E. Ajer. (10)*
10.8    Memorandum dated September 15, 1995 regarding Summary of Bonus Plans for
        Kevin Walsh and William Silva.(10)*
10.9    The Company's 401(k) Plan consisting of LCI Actuaries, Inc. Regional
        Prototype Defined Contribution Plan and Trust and Adoption Agreement.
        (7)*
</TABLE>



                                       34
<PAGE>   36

<TABLE>
<S>     <C>
10.10   Non-Qualified Stock Option Agreement by and between the Company and
        Seymour Kahn dated January 21, 1993. (7)*
10.11   Stock Purchase Agreement among the Company, SK Acquisition, Inc. and
        William L. Silva dated as of August 9, 1993. (8)*
10.12   Stock Exchange Agreement dated as of November 15, 1994 between Joseph
        Czyzyk and the Company. (9)*
10.13   Employment Agreement dated November 15, 1994 between the Company and
        Joseph Czyzyk. (16)*
10.14   Non-Qualified Stock Option Agreement dated August 24, 1995, by and
        between S.K. Acquisition and Mercury Air Group, Inc. (12) *
10.15   Non-Qualified Stock Option Agreement dated March 21, 1996, by and
        between Frederick H. Kopko and Mercury Air Group, Inc. (12) *
10.16   Credit Agreement by and among Sanwa Bank California, Mellon Bank, N.A.,
        The First National Bank of Boston and Mercury Air Group, Inc. dated
        March 14, 1997. (14)
10.17   First Amendment to Credit Agreement and Related Loan Documents dated as
        of November 1997, by and among Sanwa Bank California, Mellon Bank, N.A.,
        BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.18   First Amendment of 1998 to Credit Agreement and Other Loan Documents
        dated as of April 1, 1998, by and among Sanwa Bank California, Mellon
        Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (3)
10.19   Second Amendment of 1998 to Credit Agreement and Other Loan Documents
        dated as of April 1998, by and between Sanwa Bank California, Mellon
        Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.20   Third Amendment of 1998 to Credit Agreement and Other Loan Documents
        dated as of August 31, 1998, by and between Sanwa Bank California,
        Mellon Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.21   Reimbursement Agreement dated as of April 1, 1998, by and among Sanwa
        Bank California, Mellon Bank, N.A., BankBoston, N.A. and Mercury Air
        Group, Inc. (3)
10.22   First Amendment to Reimbursement Agreement and Other L/C Documents as of
        August 31, 1998, by and between Sanwa Bank California, Mellon Bank,
        N.A., BankBoston, N.A. and Mercury Air Group, Inc. (16)
10.23   Fourth Amendment of 1998 to Credit Agreement and Other Loan Documents by
        and between Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A.
        and Mercury Air Group, Inc. dated September 15, 1998. (17)
10.24   Second Amendment to Reimbursement Agreement and Other L/C Documents by
        and between Sanwa Bank California, Mellon Bank, N.A., BankBoston, N.A.
        and Mercury Air Group, Inc. dated September 15, 1998. (17)
10.25   Company's 1998 Long-Term Incentive Plan. (18) *
10.26   Company's 1998 Directors Stock Option Plan. (18) *
10.27   Amendment to Employment Agreement by and between Mercury Air Group, Inc.
        and Joseph A. Czyzyk dated October 15, 1998. (19) *
10.28   Amendment No. 2 to Employment Agreement by and between Mercury Air
        Group, Inc. and Joseph A. Czyzyk dated April 12, 1999. (19) *
</TABLE>



                                       35
<PAGE>   37

<TABLE>
<S>     <C>
10.29   First Amendment of 1999 to Credit Agreement and Other Loan Documents
        dated as of December 31, 1998 by and between Sanwa Bank California,
        Mellon Bank, N.A. and BankBoston, N.A. and Mercury Air Group, Inc. (19)
10.30   Third Amendment to Reimbursement Agreement and Other L/C Documents dated
        as of December 31, 1998 by and between Sanwa Bank California, Mellon
        Bank, N.A., BankBoston, N.A. and Mercury Air Group, Inc. (19)
10.31   Revolving Credit and Term Loan Agreement dated as of March 2, 1999 by
        and among Mercury Air Group, Inc., The Banks listed on Schedule 1
        thereto, and The Fleet National Bank f/k/a BankBoston, N.A., as Agent.
        (19)
10.32   First Amendment to Revolving Credit and Term Loan Agreement dated as of
        September 10, 1999.
10.33   Second Amended to Revolving Credit and Term Loan Agreement dated as of
        March 31, 2000.
10.34   Third Amendment, Waiver and Consent to Revolving Credit and Term Loan
        Agreement dated as of August 11, 2000.
10.35   The Company's 401(k) Plan consisting of CNA Trust Corporation. Regional
        Prototype Defined Contribution Plan and Trust and Adoption Agreement. *
22.1    Subsidiaries of Registrant.
23.1    Consent of Deloitte & Touche, LLP with respect to incorporation of their
        report on the audited financial statements contained in this Annual
        Report on Form 10-K in the Company's Registration Statement on Form S-8
        (Registration Statement No. 33-69414).
27      Financial Data Schedule
99.1    Partnership Agreement dated as of July 27, 2000 of FK Partners by and among Philip J.
        Fagan, M.D., Frederick H. Kopko, Jr., and Joseph A. Czyzyk. (21)
</TABLE>

----------

*       Denotes managements contract or compensation plan or arrangement.

(1)     Such document was previously filed as Appendix A to the Company's Proxy
        Statement for the December 10, 1993 Annual Meeting of Shareholders and
        is incorporated herein by reference.

(2)     Such document was previously filed as an Exhibit to the Company's
        Current Report on Form 8-K dated December 6, 1989 and is incorporated
        herein by reference.

(3)     All such documents were previously filed as Exhibits to the Company's
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1998 and
        are incorporated herein by reference.

(4)     All such documents were previously filed as Exhibits to the Company's
        Registration Statement No. 33-39044 on Form S-2 and are incorporated
        herein by reference.

(5)     Such document was previously filed as an Exhibit to the Company's
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 and
        is incorporated herein by reference.



                                       36
<PAGE>   38

(6)     Such document was previously filed as Appendix A to the Company's Proxy
        Statement for the December 2, 1992 Annual Meeting of Shareholders.

(7)     All such documents were previously filed as Exhibits to the Company's
        Annual Report on Form 10-K for the year ended June 30, 1993 and are
        incorporated herein by reference.

(8)     All such documents were previously filed as Exhibits to the Company's
        Annual Report on Form 10-K for the year ended June 30, 1994 and are
        incorporated herein by reference.

(9)     Such document was previously filed as an Exhibit to the Company's
        Current Report on Form 8-K dated November 15, 1994 and is incorporated
        herein by reference.

(10)    All such documents were previously filed as Exhibits to the Company's
        Annual Report on Form 10-K for the year ended June 30, 1995 and are
        incorporated herein by reference.

(11)    All such documents were previously filed as Exhibits to the Company's
        Registration Statement No. 33-65085 on Form S-1 and are incorporated
        herein by reference.

(12)    All such documents were previously filed as Exhibits to the Company's
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and
        are incorporated herein by reference.

(13)    All such documents were previously filed as Exhibits to the Company's
        Report on Form 8-K filed September 13, 1996 and are incorporated herein
        by reference

(14)    Such document was previously filed as an Exhibit to the Company's
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1997 and
        is incorporated herein by reference.

(15)    Such document was previously filed as an Exhibit to the Company's Annual
        Report on Form 10-K for the year ended June 30, 1997 and is incorporated
        herein by reference.

(16)    All such documents were previously filed as an Exhibit to the Company's
        Annual Report on Form 10-K for the year ended June 30, 1998 and is
        incorporated herein by reference.

(17)    Such document was previously filed as an Exhibit to the Company's
        Quarterly Report on Form 10-Q for the quarter ended December 31, 1998
        and is incorporated herein by reference.



                                       37
<PAGE>   39

(18)    Such document was previously filed as Appendix A to the Company's Proxy
        Statement for the December 3, 1998 Annual Meeting of Shareholders and is
        incorporated herein by reference.

(19)    All such documents were previously filed as an Exhibit to the Company's
        Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and
        incorporated herein by reference.

(20)    All such documents were previously filed as an Exhibit to the Company's
        Annual Report on Form 10-K for the year ended June 30, 1999 and is
        incorporated herein by reference.

(21)    Such document was previously filed as an Exhibit to the Company's
        current Report on Form 8-K on August 11, 2000 and is incorporated herein
        by reference.


(b) Reports on Form 8-K:

        A Form 8-K was filed on August 11, 2000 reporting on Item 1 of a change
        in control of the Registrant. No financial statements were filed with
        such report.



                                       38
<PAGE>   40

                                   SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized in the City of Los
Angeles, State of California, on September 27, 2000.

                                       MERCURY AIR GROUP, INC.


                                       By: /s/ Philip J. Fagan, Jr.,  M.D
                                          -------------------------------
                                          Philip J. Fagan, Jr., M.D
                                          Chairman of the Board


        Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed by the following persons in the capacities and on
the dates indicated:


Signers:


Chairman of the Board


<TABLE>
<S>                                                 <C>
/s/ Philip J. Fagan, Jr. M.D.
-----------------------------
Philip J. Fagan, Jr., M.D.                           Dated:  September 27, 2000
Chairman of the Board


Principal Executive Officer and Director:

/s/ Joseph Czyzyk
-----------------------------
Joseph Czyzyk                                         Dated:  September 27, 2000
Chief Executive Officer and Director


Principal Financial and Accounting Officer:

/s/ Randolph E. Ajer
-----------------------------
Randolph E. Ajer                                      Dated: September 27, 2000
Executive Vice President and Treasurer


Additional Directors:

/s/ Frederick H. Kopko, Jr.
-----------------------------
Frederick H. Kopko, Jr.                              Dated:  September 27, 2000
Director

/s/ Robert L.List
-----------------------------
Robert L. List                                       Dated:  September 27, 2000
Director

/s/ Harold Bowling
-----------------------------
Harold Bowling                                       Dated:  September 27, 2000
Director
</TABLE>



                                       39
<PAGE>   41

INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
Mercury Air Group, Inc.
Los Angeles, California


We have audited the accompanying consolidated balance sheets of Mercury Air
Group, Inc. and subsidiaries as of June 30, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended June 30, 2000. Our audits also include
the financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Mercury Air Group, Inc. and
subsidiaries as of June 30 2000 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended June 30
2000 in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

Deloitte & Touche LLP


Los Angeles, CA
September 27, 2000



                                      F-1
<PAGE>   42


                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                         ASSETS                                                      JUNE 30,            JUNE 30,
                                                                                      2000                 1999
                                                                                  -------------       -------------
<S>                                                                               <C>                 <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                       $   2,143,000       $   4,797,000
  Trade accounts receivable, net of allowance for doubtful accounts
      of $2,550,000 at 6/30/00 and $1,953,000 at 6/30/99                             48,320,000          50,134,000
  Notes receivable - current portion                                                    555,000             555,000
  Inventories, principally aviation fuel                                              3,428,000           1,892,000
  Prepaid expenses and other current assets                                           2,960,000           2,603,000
                                                                                  -------------       -------------
    Total current assets                                                             57,406,000          59,981,000

CASH-RESTRICTED                                                                              --             785,000
PROPERTY, EQUIPMENT AND LEASEHOLDS (Notes 3,9 and 13), net of
  accumulated depreciation and amortization of $43,792,000 at 6/30/00
  and $35,787,000 at 6/30/99                                                         65,133,000          56,110,000
NOTES RECEIVABLE                                                                        309,000             454,000
OTHER ASSETS, net (Notes 4,9 and 13)                                                 12,267,000           9,972,000
                                                                                  -------------       -------------
                                                                                  $ 135,115,000       $ 127,302,000
                                                                                  =============       =============
           LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                $  26,111,000       $  21,312,000
  Accrued expenses and other current liabilities (Note 5)                             6,091,000           6,241,000
  Current portion of long-term debt (Note 7)                                          6,936,000           6,806,000
                                                                                  -------------       -------------
    Total current liabilities                                                        39,138,000          34,359,000

LONG-TERM DEBT (Notes 7 and 9)                                                       42,358,000          44,285,000
DEFERRED INCOME TAXES (Note 6)                                                          110,000             223,000
SENIOR SUBORDINATED NOTE (Note 14)                                                   22,844,000
CONVERTIBLE SUBORDINATED DEBENTURES  (Note 14)                                                           19,852,000

COMMITMENTS AND CONTINGENCIES  (Note 10)

STOCKHOLDERS' EQUITY (Note 8):
    Preferred Stock - $.01 par value;  authorized 3,000,000 shares;
       no shares outstanding
    Common Stock - $ .01 par value; authorized 18,000,000 shares;
      outstanding 6,472,955 shares at 6/30/00;
      outstanding 6,641,175 shares at 6/30/99                                            64,000              66,000
    Additional paid-in capital                                                       21,014,000          19,873,000
    Retained earnings                                                                10,423,000           9,543,000
    Accumulated other comprehensive income                                             (228,000)           (237,000)
    Notes receivable from sale of stock                                                (608,000)           (662,000)
                                                                                  -------------       -------------
         Total stockholders' equity                                                  30,665,000          28,583,000
                                                                                  -------------       -------------
                                                                                  $ 135,115,000       $ 127,302,000
                                                                                  =============       =============
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-2
<PAGE>   43


                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                                             YEAR ENDED JUNE 30,
                                                           -----------------------------------------------------
                                                               2000                1999                 1998
                                                           -------------       -------------       -------------
<S>                                                        <C>                 <C>                 <C>
Sales and Revenues:
  Sales                                                    $ 254,474,000       $ 144,972,000       $ 179,859,000
  Service revenues                                            84,268,000          79,703,000          60,252,000
                                                           -------------       -------------       -------------
                                                             338,742,000         224,675,000         240,111,000
                                                           -------------       -------------       -------------
Costs and Expenses:
  Cost of sales                                              223,053,000         115,416,000         155,191,000
  Operating expenses                                          82,576,000          77,236,000          56,790,000
                                                           -------------       -------------       -------------
                                                             305,629,000         192,652,000         211,981,000
                                                           -------------       -------------       -------------
       Gross Margin (Excluding depreciation
            and amortization)                                 33,113,000          32,023,000          28,130,000
                                                           -------------       -------------       -------------

Expenses (Income):
  Selling, general and administrative                          7,223,000           7,118,000           6,007,000
  Provision for bad debts                                      5,408,000           1,721,000           1,971,000
  Depreciation and amortization                                9,405,000           8,499,000           5,194,000
  Loss resulting from bankruptcy of customer (Note 2)                                                  7,050,000
  Interest expense                                             6,340,000           4,380,000           3,542,000
  Interest income                                               (194,000)           (222,000)           (595,000)
                                                           -------------       -------------       -------------
                                                              28,182,000          21,496,000          23,169,000
                                                           -------------       -------------       -------------
 Income Before Provision for Income Taxes                      4,931,000          10,527,000           4,961,000
 Provision for Income Taxes (Note 6)                           1,923,000           4,105,000           1,934,000
                                                           -------------       -------------       -------------
Net Income Before Extraordinary Item                           3,008,000           6,422,000       $   3,027,000

Extraordinary Item (Notes 6 and 14) Less applicable
  income tax benefit of $625,000, $309,000                      (979,000)           (483,000)
                                                           -------------       -------------       -------------
Net Income                                                 $   2,029,000       $   5,939,000       $   3,027,000
                                                           -------------       -------------       -------------


Net Income Per Common Share (Note 12):

   Basic:
      Before extraordinary item                            $        0.46       $        0.96       $        0.42
      Extraordinary item                                           (0.15)              (0.07)
                                                           -------------       -------------       -------------
      Net income                                           $        0.31       $        0.89       $        0.42
                                                           -------------       -------------       -------------

   Diluted:
      Before extraordinary item                            $        0.43       $        0.73       $        0.38
      Extraordinary item                                           (0.13)              (0.05)
                                                           -------------       -------------       -------------
      Net income                                           $        0.30       $        0.68       $        0.38
                                                           -------------       -------------       -------------
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-3
<PAGE>   44


                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>
                                                                                                YEAR ENDED JUNE 30,
                                                                                --------------------------------------------------
                                                                                    2000               1999               1998
                                                                                ------------       ------------       ------------
<S>                                                                             <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                    $  2,029,000       $  5,939,000       $  3,027,000
  Non-cash component of extraordinary charge                                         824,000            566,000

  Adjustments to derive cash flow from operating activities:
      Bad debt expense                                                             5,408,000          1,721,000          1,971,000
      Depreciation and amortization                                                9,405,000          8,499,000          5,194,000
      Loss resulting from bankruptcy of customer                                                                         7,050,000
      Deferred income taxes                                                         (113,000)            27,000           (712,000)
      Compensation expense related to remeasurement
          of stock options                                                            64,000
      Amortization of Senior Subordinated Note discount                              150,000
  Changes in operating assets and liabilities:
      Trade and other accounts receivable                                         (3,594,000)       (13,468,000)         5,224,000
      Inventories                                                                 (1,536,000)          (353,000)           409,000
      Prepaid expenses and other current assets                                      584,000           (211,000)           495,000
      Accounts payable                                                             4,799,000          4,989,000           (860,000)
      Income taxes payable/receivable                                               (941,000)        (1,643,000)         1,148,000
      Accrued expenses and other current liabilities                                (150,000)           999,000            237,000
                                                                                ------------       ------------       ------------
          Net cash provided by operating activities                               16,929,000          7,065,000         23,183,000
                                                                                ------------       ------------       ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Decrease (Increase) in restricted cash-tax exempt bond                             785,000          8,376,000         (9,161,000)
  Restricted cash - pledged certificates of deposit                                                                      1,000,000
  Decrease (Increase) in notes receivable                                            145,000            (13,000)         2,899,000
  Addition to other assets                                                        (1,607,000)          (237,000)          (906,000)
  Acquisition of businesses                                                       (7,000,000)        (7,000,000)        (6,145,000)
  Additions to property, equipment and leaseholds                                (10,971,000)       (15,245,000)       (16,784,000)
                                                                                ------------       ------------       ------------
          Net cash used in investing activities                                  (18,648,000)       (14,119,000)       (29,097,000)
                                                                                ------------       ------------       ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of dividend on common stock                                                                                      (94,000)
  Proceeds from long-term debt                                                    10,648,000         34,050,000         24,192,000
  Reduction of long-term debt                                                    (12,445,000)       (17,310,000)        (9,182,000)
  Capitalized loan fee                                                            (1,802,000)
  Payment received from notes receivable - officers                                   54,000
  Reduction of convertible subordinated debentures                               (19,534,000)        (8,188,000)
  Repurchase of common stock                                                      (1,856,000)        (4,682,000)        (4,217,000)
  Proceeds from senior subordinated note                                          24,000,000
  Proceeds from issuance of common stock                                                                145,000            162,000
                                                                                ------------       ------------       ------------
          Net cash (used in) provided by financing activities                       (935,000)         4,015,000         10,861,000
                                                                                ------------       ------------       ------------

NET (DECREASE) INCREASE IN CASH AND
  CASH EQUIVALENTS                                                                (2,654,000)        (3,039,000)         4,947,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                     4,797,000          7,836,000          2,889,000
                                                                                ------------       ------------       ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $  2,143,000       $  4,797,000       $  7,836,000
                                                                                ============       ============       ============

CASH PAID DURING THE PERIOD:
  Interest                                                                      $  6,821,000       $  4,568,000       $  3,542,000
  Income taxes                                                                  $  2,309,000       $  5,412,000       $  1,069,000

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
    Issuance of 124,224 shares of common stock in fiscal 1999 and an
      additional 22,565 shares in fiscal 2000 for acquisition of
      assets of Weather Data                                                    $    158,000       $  1,000,000
   Conversion of 318 debentures into 43,590 shares of common stock              $    318,000
   Direct financing for purchase of equipment and property                                                            $  1,600,000
   Issuance of stock for the acquisition fo RPA                                                                       $  1,220,000
   Issuance of note payable for the acquisition of Aero Freightways Inc.                                              $    227,000
   Note receivable assigned to the Company in exchange for the
        Company's certificates of deposit which was used to guaranty a
        customer's debt                                                                                               $  1,000,000
   Conversion of debentures into shares of common stock                                            $     50,000       $     25,000
</TABLE>



          See accompanying notes to consolidated financial statements.


                                       F-4
<PAGE>   45

                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                 CONSOLIDATE STATEMENTS OF STOCKHOLDERS' EQUITY
                                 JUNE 30, 2000


<TABLE>
<CAPTION>
                                                                  COMMON STOCK
                                                             -----------------------      ADDITIONAL
                                                             NUMBER OF                      PAID-IN         RETAINED
                                                              SHARES          AMOUNT        CAPITAL         EARNINGS
                                                             ---------       -------      -----------     -----------
<S>                                                          <C>             <C>          <C>             <C>
BALANCE, JUNE 30, 1997                                       7,524,651       $75,000      $20,796,000     $ 5,907,000

  Net income                                                                                                3,027,000
  Cash dividend on common stock                                                                               (94,000)
  Repurchase of common stock                                  (639,325)       (6,000)      (1,786,000)     (2,425,000)
  Common stock issued on exercise of
    warrants and options                                        34,000             -          162,000
  Common stock issued in acquisition                           160,000         2,000        1,218,000
  Common stock issued on conversion of debentures                3,427             -           25,000
  Tax benefit from exercises of stock options                                                  50,000
  Foreign currency adjustment
                                                             ---------       -------      -----------     -----------
BALANCE, JUNE 30, 1998                                       7,082,753        71,000       20,465,000       6,415,000


  Net income                                                                                                5,939,000
  Repurchase of common stock                                  (641,781)       (6,000)      (1,865,000)     (2,811,000)
  Common stock issued on exercise of
    options                                                     69,125                        144,000
  Common stock issued in acquisition                           124,224         1,000          999,000
  Common stock issued on conversion of debentures                6,854                         50,000
  Tax benefit from exercises of stock options                                                  80,000
  Foreign currency adjustment
                                                             ---------       -------      -----------     -----------
BALANCE, JUNE 30, 1999                                       6,641,175        66,000       19,873,000       9,543,000


  Net income                                                                                                2,029,000
  Repurchase of common stock                                  (234,375)       (2,000)        (705,000)     (1,149,000)
  Payment received from notes receivable - officers
  Foreign currency adjustment
  Common stock issued on conversion of debentures               43,590                        318,000
  Common stock issued in acquisition                            22,565                        158,000
  Warrants issued in connection with Senior
    Subordinated Note                                                                       1,306,000
  Value of remeasured stock options                                                            64,000
                                                             ---------       -------      -----------     -----------
BALANCE, JUNE 30, 2000                                       6,472,955       $64,000      $21,014,000     $10,423,000
                                                             =========       =======      ===========     ===========
</TABLE>


<TABLE>
<CAPTION>
                                                                         ACCUMULATED
                                                              NOTES          OTHER
                                                           RECEIVABLE    COMPREHENSIVE      COMPREHENSIVE
                                                            OFFICERS        INCOME              INCOME
                                                           ----------    -------------      -------------
<S>                                                        <C>           <C>                <C>
BALANCE, JUNE 30, 1997                                      $(662,000)      $(79,000)

  Net income                                                                                  $3,027,000
  Cash dividend on common stock
  Repurchase of common stock
  Common stock issued on exercise of
    warrants and options
  Common stock issued in acquisition
  Common stock issued on conversion of debentures
  Tax benefit from exercises of stock options
  Foreign currency adjustment                                               (160,000)           (160,000)
                                                            ---------       --------          ----------
BALANCE, JUNE 30, 1998                                       (662,000)      (239,000)          2,867,000
                                                                                              ==========

  Net income                                                                                  $5,939,000
  Repurchase of common stock
  Common stock issued on exercise of
    options
  Common stock issued in acquisition
  Common stock issued on conversion of debentures
  Tax benefit from exercises of stock options
  Foreign currency adjustment                                                  2,000               2,000
                                                            ---------       --------          ----------
BALANCE, JUNE 30, 1999                                       (662,000)      (237,000)          5,941,000
                                                                                              ==========

  Net income                                                                                  $2,029,000
  Repurchase of common stock
  Payment received from notes receivable - officers            54,000
  Foreign currency adjustment                                                 9,000                9,000
  Common stock issued on conversion of debentures
  Common stock issued in acquisition
  Warrants issued in connection with Senior
    Subordinated Note
  Value of remeasured stock options
                                                            ---------       --------          ----------
BALANCE, JUNE 30, 2000                                      $(608,000)     $(228,000)         $2,038,000
                                                            =========       ========          ==========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                       F-5
<PAGE>   46



                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         THREE YEARS ENDED JUNE 30, 2000


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        BUSINESS

        Mercury Air Group, Inc. and subsidiaries (the "Company") are principally
engaged in aviation services including: the conduct of cargo handling, cargo
general sales agency and air cargo space logistics; the sale and delivery of
aviation fuels to commercial, air courier and commuter airlines, and to general
aviation aircraft; the provision of ground support services to U.S. military
aircraft; Fixed Base Operations (FBO) services which include fuel sales,
into-plane, ground support and aircraft hangar and tie-down facilities; and the
development and installation of aviation software.

        PRINCIPLES OF CONSOLIDATION

        The consolidated financial statements include the accounts of Mercury
Air Group, Inc. and its subsidiaries. All material intercompany transactions and
balances have been eliminated.

        CASH AND CASH EQUIVALENTS

        Cash equivalents consist of short-term, highly liquid investments that
are readily convertible into cash and were purchased with maturities of three
months or less.

        Restricted cash consists of cash held by the trustee in connection with
the CEDFA loan (See Note 7).

        INVENTORIES

        Inventory is stated at the lower of aggregate cost (first-in, first-out
method) or market.

        PROPERTY, EQUIPMENT AND LEASEHOLDS

        Property, equipment and leaseholds are recorded at cost. Depreciation is
computed using the straight-line method over the estimated useful life of the
related asset (3-25 years) and over the lesser of the lease term or useful life
for leasehold improvements.

        COST IN EXCESS OF NET ASSETS ACQUIRED

        Cost in excess of net assets acquired are being amortized using the
straight-line method over the estimated lives ranging from ten to forty years.
The Company assesses recoverability on a periodic basis. Factors included in
evaluating recoverability include historical earnings and projected future
earnings of the related operations.


                                      F-6
<PAGE>   47

        FOREIGN CURRENCY TRANSLATION

        Assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars at the exchange rate prevailing at the balance
sheet date and, where appropriate, at historical rates of exchange. Income and
expense accounts are translated at the weighted average rate in effect during
the year. The aggregate effect of translating the financial statements of the
foreign subsidiary is included in other comprehensive income. Foreign exchange
gains (losses) were not significant during the years presented.

        REVENUE RECOGNITION

        Revenues are recognized upon delivery of product or completion of
service. The Company's contracts with the U.S. Government are subject to profit
renegotiation. To date the Company has not been required to adjust profits
arising out of U.S. Government contracts.

        INCOME TAXES

        Deferred income tax assets and liabilities are recognized based on
differences between the financial statement and income tax basis of assets and
liabilities using presently enacted income tax rates.

        FAIR VALUE OF FINANCIAL INSTRUMENTS

        The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable and payable, and debt instruments. The book
values of all financial instruments, other than debt instruments, are
representative of their fair values due to their short-term maturity. The book
values of the Company's debt instruments are considered to approximate their
fair values because the interest rates of these instruments are based on current
rates offered to the Company or, in the case of publicly traded debt, based
upon quoted market prices.

        IMPAIRMENT OF LONG-LIVED ASSETS

        The Company reviews for impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of such assets may not be recoverable. Measurement of
an impairment loss is based on the fair values of the asset.

        USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

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

        NEW ACCOUNTING PRONOUNCEMENTS

        In 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which established accounting and
reporting standards for derivative instruments and for hedging activities. It
requires


                                      F-7
<PAGE>   48

that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure these instruments at fair value.
SFAS 133, as amended by SFAS Nos. 137 and 138, is required to be adopted by the
Company July 1, 2000. The Company does not believe that the impact of adopting
this statement will be material.

        In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin No. 101 ("SAB 101"), which provided the staff's views in
applying generally accepted accounting principals to selected revenue issues.
SAB 101, as amended, is required to be implemented by the Company during the
quarter ended June 30, 2001. The Company does not believe that the impact of
implementing SAB 101 will be material.

        RECLASSIFICATIONS

        Certain reclassifications were made to prior year statements to conform
to the June 30, 2000 presentation.

        ACCOUNTS RECEIVABLE

        Accounts receivable is comprised primarily of trade receivables from
customers and is net of an allowance for doubtful accounts. The Company's credit
risk is based in part on, 1) primarily all receivables are related to one
industry, aviation, 2) there are significant balances owed by certain customers,
and 3) balances are owed by certain customers that are not adequately
capitalized. The Company assesses its credit portfolio on an ongoing basis and
establishes allowances which it believes are adequate to absorb potential credit
problems that can be reasonably anticipated.

NOTE 2 - LOSS RESULTING FROM BANKRUPTCY OF CUSTOMER:

        On October 5, 1997, Western Pacific Airlines, Inc. (WPAI) filed for
bankruptcy protection under Chapter 11 and, as a result, the Company wrote off
$5,000,000 of certificates of deposit which were pledged to guarantee a bank
loan to WPAI. In addition, the Company wrote off $2,050,000 of accounts
receivable due from WPAI. Effective February 5, 1998 WPAI ceased operations.

NOTE 3 - PROPERTY, EQUIPMENT AND LEASEHOLDS:

        Property, equipment and leaseholds consist of the following:

<TABLE>
<CAPTION>
                                                                JUNE, 30
                                                    ---------------------------------
                                                        2000                 1999
                                                    -------------       -------------
<S>                                                 <C>                 <C>
Land, buildings and leasehold improvements          $  74,197,000       $  63,206,000

Equipment, furniture and fixtures                      31,406,000          28,286,000

Construction in progress                                3,322,000             405,000
                                                    -------------       -------------
                                                      108,925,000          91,897,000

Less accumulated depreciation and amortization        (43,792,000)        (35,787,000)
                                                    -------------       -------------
                                                    $  65,133,000       $  56,110,000
                                                    =============       =============
</TABLE>


                                      F-8
<PAGE>   49


NOTE 4 - OTHER ASSETS:

        Other assets consists of the following:

<TABLE>
<CAPTION>
                                                          JUNE, 30
                                                ----------------------------
                                                   2000              1999
                                                -----------      -----------
<S>                                             <C>              <C>
Cost in excess of net assets acquired - net     $ 6,309,000      $ 6,672,000

Capitalized loan fees - net (Note 7)              2,393,000        1,715,000

Covenants not to compete - net                      583,000          250,000

Other                                             2,982,000        1,335,000
                                                -----------      -----------
                                                $12,267,000      $ 9,972,000
                                                ===========      ===========
</TABLE>


         Cost in excess of net assets acquired and covenants not to compete have
resulted from various acquisitions and are being amortized using the
straight-line basis over periods ranging from five to forty years. Accumulated
amortization related to cost in excess of net assets acquired was $1,598,000 and
$1,142,000 at June 30, 2000 and 1999, respectively. Accumulated amortization
related to covenants not to compete was $417,000 and $250,000 at June 30, 2000
and 1999, respectively.

         Capitalized loan fees represent cost incurred in connection with
outstanding debt and are being amortized over the term of the debt.

         In 1991, four executive officers of the Company each agreed to purchase
151,250 shares, an aggregate of 605,000 shares of the Company's stock, from a
company owned by the then Chairman at $1.98 per share, pursuant to a Stock
Purchase Agreement ("The Agreement"). The officers each paid $30,000 in cash, or
$120,000 in the aggregate. The remaining purchase price of $1,080,000 was paid
over a five -year period ending in 1996. As part of the Agreement to purchase
the stock, the Company loaned the executives the $1,080,000. Beginning in 1994,
one fifth of the amount loaned was forgiven annually over a five-year period
ending in 1998.

         In 1994, a fifth executive officer of the Company purchased 151,250
shares of the Company's stock from a company owned by the then Chairman at $1.98
per share, pursuant to a Stock Purchase Agreement similar to the agreements
above. The officer paid $30,000 in cash and the remaining purchase price of
$270,000 was paid over a five year period ending in 1998. As part of the
agreement, the Company loaned the executive the $270,000. Beginning in 1996, one
fifth of the amount loaned, or $54,000, was forgiven annually over a five year
period ending in 2000.

         The amounts subject to forgiveness of $1,080,000 and $270,000 were
treated as additional compensation expense over the seven year periods from the
date of the agreements through 1998 and 2000, respectively. Compensation expense
related to the forgiveness of these loans was $39,000 in fiscal 2000, $39,000 in
fiscal 1999 and $154,000 in fiscal 1998.


                                      F-9
<PAGE>   50

NOTE 5 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES:

        Accrued expenses and other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                 JUNE, 30
                        --------------------------
                           2000            1999
                        ----------      ----------
<S>                     <C>             <C>
Salaries and wages      $3,077,000      $3,154,000

Other                    3,014,000       3,087,000
                        ----------      ----------
                        $6,091,000      $6,241,000
                        ==========      ==========
</TABLE>


NOTE 6 - INCOME TAXES:

        The provision for taxes on income consists of the following:

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                          ----------------------------------------------
                                             2000              1999             1998
                                          -----------       -----------      -----------
<S>                                       <C>               <C>              <C>
Federal, current                          $ 1,638,000       $ 3,385,000      $ 1,849,000

State, current                                398,000           693,000          443,000
                                          -----------       -----------      -----------

                                            2,036,000         4,078,000        2,292,000

Deferred, primarily federal                  (113,000)           27,000         (358,000)
                                          -----------       -----------      -----------

Provision, before extraordinary item        1,923,000         4,105,000        1,934,000

Extraordinary item                           (625,000)         (309,000)
                                          -----------       -----------      -----------
 Net Provision                            $ 1,298,000       $ 3,796,000      $ 1,934,000
                                          ===========       ===========      ===========
</TABLE>


        Major components of deferred income tax (assets) and liabilities were as
follows:

<TABLE>
<CAPTION>
                                                    JUNE 30,
                                           -------------------------
                                             2000             1999
                                           ---------       ---------
<S>                                        <C>             <C>
Depreciation/amortization                  $ 683,000       $ 200,000

Prepaid expenses                             322,000         628,000

State income taxes                          (222,000)       (222,000)

Allowance for doubtful accounts             (888,000)       (764,000)

Acquired from RPA - primarily
conversion from cash to accrual basis
accounting                                   329,000         658,000

 Other                                      (114,000)       (277,000)
                                           ---------       ---------
                                           $ 110,000       $ 223,000
                                           =========       =========
</TABLE>


                                      F-10
<PAGE>   51

        The reconciliation of the federal statutory rate to the Company's
effective tax rate on income is summarized as follows:

<TABLE>
<CAPTION>
                                       YEAR ENDED JUNE 30,
                                   ---------------------------
                                    2000       1999      1998
                                   -----       -----     -----
<S>                                <C>         <C>       <C>
Computed "expected" tax rate       34.0%       34.0%     34.0%

State income taxes, net of

Federal income tax benefit          5.0%        5.0%      5.0%
                                   -----       -----     -----

Effective rate                     39.0%       39.0%     39.0%
                                   =====       =====     =====
</TABLE>


NOTE 7 - LONG-TERM AND SUBORDINATED DEBT:

        Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                                JUNE 30,
                                                                                      ----------------------------
                                                                                         2000             1999
                                                                                      -----------      -----------
<S>                                                                                   <C>              <C>
Notes payable to banks                                                                $29,803,000      $31,000,000

Installment notes, payable to financial institutions in monthly installments
aggregating approximately $18,000 at June 30, 2000 including interest from 7.28%
to 8.09%, collateralized by certain assets of the Company and maturing from 2000
through 2002.                                                                             134,000          229,000

Convertible subordinated debentures payable to seller of Excel Cargo in monthly
installments of $13,810 including interest at 8.5%,
collateralized by property acquired, maturing in September 2003                           480,000          599,000

Tax exempt bond pursuant to a loan agreement between the Company and the
California Economic Development Financing Authority ("CEDFA"). Repayment terms
consist of semi-annual principal payments of $500,000 with a redemption of $4
million at the end of the fifteenth year (2013). The loan carries a variable
rate which is based on a weekly remarketing of the bonds. The rate at June 30,
2000 was 4.4%. In addition, a letter of credit has been issued by the Company's
Senior lender to guaranty the credit at an annual cost of approximately 1.9% of
the principal
                                                                                       17,000,000       18,000,000

Mortgage payable to financial institution in monthly principal installments of
$9,750 plus interest at 7.5% per annum, collateralized by land and building,
maturing in April 2004                                                                    449,000          566,000

Mortgage payable to financial institution in monthly installments of
$4,447 including interest at 9% per annum, collateralized by land
and building, maturing in May 2010                                                        347,000          368,000

Other                                                                                   1,081,000          329,000
                                                                                      -----------      -----------
                                                                                       49,294,000       51,091,000

Less current portion                                                                    6,936,000        6,806,000
                                                                                      -----------      -----------

                                                                                      $42,358,000      $44,285,000
                                                                                      ===========      ===========
</TABLE>


                                      F-11
<PAGE>   52

        Notes Payable to banks consists principally of a credit facility (the
"Credit Facility") which provides for a term loan (the "Term Loan"), an
acquisition line (the "Acquisition Line") and a revolving line of credit ("the
Revolver"). The Credit Facility expires in March 2004. Borrowings under the Term
Loan were $19,875,000 and $25,000,000 at June 30 2000 and 1999, respectively.
Principal payments are payable in quarterly installments of $1,125,000 in fiscal
2001, increasing $125,000 annually. The Acquisition Line permits borrowings of
up to $18,000,000 (increased from $15,000,000 during fiscal 2000). Outstanding
borrowings under the Acquisition Line were $9,928,000 and zero at June 30, 2000
and 1999, respectively. Principal is due in March 2004. The Revolver permits
borrowings of up to $40,000,000. Outstanding borrowings under the Revolver were
zero and $6,000,000 at June 30, 2000 and 1999, respectively. Interest under the
credit facility accrues at LIBOR+ 1.75% (8.34% to 8.56% based on 30, 60 and 90
day LIBOR rates in effect at June 30, 2000). Subsequent to June 30, 2000, the
Acquisition Line was increased to $23,000,000 and the Revolver was reduced to
$35,000,000.

        Certain debt agreements contain provisions that require the maintenance
of certain financial ratios, minimum tangible net worth (as defined), minimum
profitability levels, maximum leverage and minimum debt service coverage and
quick ratios and limitations on annual capital expenditures. Additionally, the
Company is prohibited from paying dividends in excess of $400,000 per fiscal
year. At June 30, 2000, the Company received a waiver from its senior lender as
it had violated the capital expenditure covenant.

        Long-term debt payable subsequent to June 30, 2000 is as follows:


<TABLE>
<S>                                              <C>
             2001                                $6,936,000

             2002                                 6,436,000

             2003                                 6,951,000

             2004                                15,628,000

             2005                                 1,030,000

          Thereafter                             12,313,000
                                                -----------
                                                $49,294,000
                                                ===========
</TABLE>

        On January 31, 1996, pursuant to a public offering, the Company issued
$28,115,000 principal amount of 7 3/4% convertible subordinated debentures due
February 1, 2006. The outstanding balance of these debentures, $19,509,000, were
redeemed by the Company on September 10, 1999. (See Note 14).

        During fiscal year 1999 the Company repurchased 8,188 of these
debentures ($1,000 par value) in the open market. The excess of cost over par
value plus bond issuance costs was $675,000. On September 10, 1999 the Company
redeemed the remaining outstanding debentures (See Note 14). In addition, during
fiscal 1999 the Company terminated its prior credit facility resulting in the
write off of related deferred financing costs of $117,000. The aggregate charge
of $792,000, net of tax benefits of $309,000, has been classified as an
extraordinary item.


                                      F-12
<PAGE>   53

NOTE 8 - EMPLOYEE STOCK OPTION PLANS:

        The Company has the following stock option plans, the 1990 Long-Term
Incentive Plan ("1990 Incentive Plan") , the 1990 Directors Stock Option Plan
("1990 Directors Plan"), the 1998 Long-Term Incentive Plan ("1998 Incentive
Plan") and the 1998 Directors Stock Option Plan ("1998 Directors Plan"). The
Company has reserved 848,000 shares related to the Incentive Plans and 632,000
shares related to the Directors Plans. The Company has also reserved 152,000
shares for special option grants made outside the plans. Options granted
pursuant to the plans and special grants are generally made at the fair market
value of such shares on the date of grant and generally vest over twelve months.
The contractual lives of the options are generally ten years.

        The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock issued to Employees".
During fiscal 2000, 1999 and 1998 compensation expense attributable to stock
options was $64,000, $0 and $0, respectively . Had compensation cost for stock
options been calculated using the fair value provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and earnings per share would have
approximated the pro forma amounts indicated in the following table:

<TABLE>
<CAPTION>
                                                    2000                  1999                  1998
                                                 ----------            ----------            ----------
<S>                                              <C>                   <C>                   <C>
Net income - as reported                         $2,029,000            $5,939,000            $3,027,000

Net income - pro forma                           $1,877,000            $5,840,000            $2,937,000

Basic earnings per share - as reported                 $.31                  $.89                  $.42

Basic earnings per share - proforma                    $.29                  $.88                  $.41

Diluted earnings per share - as reported               $.30                  $.68                  $.38

Diluted earnings per share - pro forma                 $.27                  $.67                  $.37
</TABLE>

        The weighted average fair value of options granted in 2000, 1999 and
1998 is estimated as $3.45, $3.00 and $2.13 respectively, on the date of grant
using the Black-Scholes option pricing model using the following weighted
average assumptions.

<TABLE>
<CAPTION>
                                   2000               1999              1998
                                  -------            -------           -------
<S>                               <C>                <C>               <C>
Expected life                     5 years            5 years           5 years

Expected volatility                   38%                34%               31%

Risk free interest rate             6.19%              5.78%             5.25%

Dividend yield                         0%                 0%                0%
</TABLE>


                                      F-13
<PAGE>   54

A summary of stock option activity is as follows:


<TABLE>
<CAPTION>
                              WEIGHTED        LONG-TERM        WEIGHTED         DIRECTOR'S         WEIGHTED         SPECIAL
                               AVERAGE        INCENTIVE     AVERAGE OPTION     STOCK OPTION        AVERAGE          OPTION
                            OPTION PRICES       PLANS           PRICES            PLANS         OPTION PRICES       GRANTS

<S>                         <C>               <C>           <C>                <C>              <C>                 <C>
Outstanding
June 30, 1997                   $3.99          274,272          $4.32            272,250            $2.21           203,500

                                                                                                       --                --
Granted                          5.75           13,000           5.75             60,500

                                                                                                       --                --
Exercised                        4.00          (18,875)          5.70            (15,125)

                                                                   --                 --               --
Cancelled                       6.454           (5,500)
                                               -------                           -------                            -------

Outstanding
June 30, 1998                    4.03          262,897           4.53            317,625             2.21           203,500

Granted                          7.56          138,361             --                 --               --                --

Exercised                        3.78          (17,125)            --                 --            1.542           (52,000)

Cancelled                        6.30          (14,000)            --                                  --
                                               -------                           -------                            -------

Outstanding
June 30, 1999                    5.25          370,133           4.53            317,625             2.43           151.500

Granted                         8.125           65,300           7.75             40,000               --                --

Exercised                          --               --             --                 --               --                --

Cancelled                        7.87          (20,303)            --                                  --
                                               -------                           -------
 Outstanding
June 30, 2000                    5.60          415,130           4.89            357,625             2.43           151,500
                                               =======                           =======                            =======
</TABLE>


                                      F-14
<PAGE>   55

        A summary of information about stock options issued and outstanding
pursuant to the Incentive Plan, Directors Plan and special option grants at June
30, 2000, is as follows:

<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                        OPTIONS EXERCISABLE

         EXERCISE                                                      WEIGHTED            SHARES
       PRICE RANGE          SHARES               WEIGHTED              AVERAGE          EXERCISABLE           WEIGHTED
                        OUTSTANDING AT      AVERAGE CONTRACTUAL        EXERCISE          AT 6/30/00       AVERAGE EXERCISE
                            6/30/00           REMAINING LIFE            PRICE                                   PRICE
      --------------    --------------      -------------------        --------         -----------       ----------------
<S>   <C>               <C>                 <C>                        <C>              <C>               <C>
      $1.236 - 2.436       317,647                 2.4                 $1.65              317,647              $1.65

       3.669 - 5.750       247,125                 6.1                  5.14              247,125               5.14

       6.090 - 7.182       184,183                 6.3                  6.64              151,314               6.71

       7.75 - 8.4375       175,300                 9.1                  8.12               70,000               8.34
                           -------                                     -----              -------              -----
                           924,255                                     $4.81              786,086              $4.32
                           =======                                     =====              =======              =====
</TABLE>


        In March 2000, the Board of Directors extended the termination date of
options for 38,875 shares held by an officer and a Director. This resulted in
compensation expense of $64,000.

        During fiscal 1996, the Company sold 137,500 shares of its common stock
to two officers for $812,500. The officers each paid $40,000 in cash and issued
promissory notes of $732,500 for the balance of the purchase price. The notes
are payable over ten years and due in fiscal year 2006. As of June 30, 2000,
$608,000 remained outstanding.

NOTE 9 - ACQUISITIONS:

        The Company has acquired various businesses during the years reported.
All such acquisitions have been accounted for under the purchase method of
accounting. Pro forma disclosure has not been provided as the aggregate annual
purchases have not been material. The following describes the various purchases.

        Fiscal 2000

        On April 21, 2000, the company acquired certain assets of an FBO located
in Fort Wayne, Indiana (FWAS) for a cash consideration of $3,900,000. The
Company borrowed from its acquisition line to fund the purchase. The purchase
price was allocated primarily to Property, Equipment and Leaseholds with a
portion also allocated to inventories.

        On October 22, 1999, the Company acquired certain assets of Air Tulsa,
Inc., an FBO located in Tulsa, Oklahoma. Assets acquired included refueling
equipment and tank farms utilized in the FBO business, inventories, prepaid
expenses and a sublease. The agreement also includes a non-compete with the
seller. Total consideration was $2.4 million which the Company initially paid in
cash and subsequently funded under its acquisition line. The agreement included
a second closing to occur within eighteen months to include the purchase of
hangars, buildings and the leasehold for an additional cash consideration of
$3.8 million. This transaction was completed in July 2000 and the entire amount
was also funded under the acquisition line.


                                      F-15
<PAGE>   56

        On October 5, 1999, the Company acquired certain FBO assets of
Charleston Equities, Inc. for $700,000 in cash. The purchase consolidated the
leasehold at Charleston International Airport and includes the leasehold at
John's Island Executive Airport.

        Fiscal 1999

        Effective November 30, 1998 the Company acquired substantially all the
assets of Jackson Air Center in Mississippi for $4,500,000 in cash. The Company
borrowed $2.8 million in term debt under its senior credit facility and the
balance was funded from borrowings under its revolver. The purchase price has
been allocated primarily to Property, Equipment and Leaseholds ($4,195,000) with
the balance to inventories and accounts payable.

        On August 1, 1998, the Company acquired the weather observation and
forecasting and air traffic control government contracts and related assets of
Weather Data Services, Inc. for $3,500,000, which consisted of $2,500,000 in
cash and $1,000,000 of the Company's stock. The purchase price has been
allocated to intangible assets. During fiscal 2000, as part of the agreement,
the Company issued an additional 22,565 shares of the Company's stock valued at
$158,000.

        Fiscal 1998

        On February 27, 1998, the Company acquired all the outstanding stock of
Rene Perez and Associates, Inc. ("RPA"), a computer services company located in
Miami, Florida, for $4,220,000. The purchase price consisted of $3,000,000 in
cash and 160,000 shares of common stock valued at $1,220,000 based on a closing
price of $7.625 per share. The purchase price has been allocated to assets and
liabilities as follows:



<TABLE>
<S>                                                         <C>
Cash                                                        $  1,490,000

Accounts receivable                                            3,702,000

Prepaid expenses and other current assets                         59,000

Property, equipment and leaseholds                               919,000

Intangibles                                                      716,000

Accounts payable and other current liabilities                  (724,000)

Income taxes payable                                            (261,000)

Deferred income taxes payable                                 (1,240,000)

Notes payable                                                   (441,000)
                                                             -----------
Purchase price                                               $ 4,220,000
                                                             ===========
</TABLE>

        On March 31, 1998, the Company acquired the assets of a cargo handling
company located at Hartsfield Atlanta International Airport in Georgia for
$422,000 in cash. The purchase price has been allocated to Property, Equipment
and Leaseholds.

        On January 16, 1998, the Company acquired all the outstanding stock of
Aero Freightways Inc., a general sales agency located in Ontario, Canada. The
purchase price consisted of a variable capital debenture with a face value of
$227,000 which is payable over three years.


                                      F-16
<PAGE>   57

        On July 9, 1997 the Company acquired the assets of an FBO located in
Nashville, Tennessee. Purchase price of the assets was $4,250,000 paid in cash
and has been allocated to Property, Equipment and Leaseholds. The cash was
borrowed under the acquisition line.

NOTE 10 - COMMITMENTS AND CONTINGENCIES:

        LEASES

        The Company is obligated under noncancellable operating leases. Certain
leases include renewal clauses and require payment of real estate taxes,
insurance and other operating costs. Total rental expense on all such leases for
the fiscal years 2000, 1999 and 1998 was $8,640,000, $8,037,000 and $6,832,000
respectively, which is net of sublease income of approximately $230,000
annually. The minimum annual rentals on all noncancellable operating leases
having a term of more than one year at June 30, 2000 are as follows:


<TABLE>
<S>                                                   <C>
                                    2001              $  7,795,000

                                    2002                 8,182,000

                                    2003                 8,102,000

                                    2004                 8,045,000

                                    2005                 7,924,000

                              Thereafter                70,235,000
                                                      ------------
          Total minimum payment required              $110,283,000
                                                      ============
</TABLE>


        PURCHASE COMMITMENTS

        As of June 1, 2000, MAC entered into a one year contract to purchase all
of South African Airlines cargo capacity on its passenger flights from the
United States and Canada to South Africa. MAC's one year commitment for these
routes is approximately $5.7 million.

        LITIGATION

        In connection with the Chapter 7 bankruptcy filing for WPAI, the Company
received a letter, dated August 25, 1999, from the bankruptcy trustee's
attorneys making a formal demand for recovery of alleged preference payments of
approximately $11.4 million. This amount represents cash received for payment of
fuel and sales during the 90 days prior to WPAI's initial bankruptcy filing.
Subsequently the trustee filed suit in the United States District Court for the
District of Colorado on October 1, 1999. The Company believes it has strong
defenses based on the transaction 1) being made in the ordinary course of
business, and 2) involving an exchange for new value. At the same time, Mercury
received notice of a claim by the trustee for $1.1 million against Compass Bank
for funds paid pursuant to a loan between Compass and WPAI, which the Company
guaranteed. The trustee also filed suit in this case on October 1, 1999. The
Company has undertaken to defend this matter and believes it has strong defenses
based on the transaction being made in the ordinary course of business.
Accordingly, based upon the facts currently available, the Company does not
believe that a provision is required, nor does it believe this matter will have
a significant effect on the financial statements.


                                      F-17
<PAGE>   58

        In October 1999, Mr. Rene Perez, formerly the president of RPA, notified
the Company of certain alleged violations of his employment contract dated
February 28, 1998 between the Company, RPA and Mr. Perez asserting among other
things constructive termination. The Company subsequently filed a suit seeking
declaratory relief regarding the employment contract in the United States
District Court for Northern California (San Francisco) in November 1999. The
Company subsequently amended, on November 30, 1999, that suit as a result of its
investigation seeking damages against Mr. Perez. This case was transferred to
the United States District court for the Southern District of New York (New York
City) on March 27, 2000. Mr. Perez filed a lawsuit in November 1999 and was
served in December 1999, on the Circuit Court of the 11th Judicial Circuit in
Dade County, Florida seeking damages in excess of the jurisdictional limit. This
case is now in the discovery phase. The Company believes that the claims of Mr.
Perez are without merit and that it has a strong case against Mr. Perez.
Accordingly, based upon the facts currently available, the Company does not
believe that a provision is required, nor does it believe this matter will have
a significant effect on the financial statements.


        Mercury filed a collection action against AER Global Logistics ("AER")
in April 2000 in the state of New York. AER filed a counterclaim for $1,000,000
alleging among other things, tortious interference with contract. Mercury
believes that this claim is without merit. Accordingly, based upon the facts
currently available, the Company does not believe that a provision is required,
nor does it believe this matter will have a significant effect on the financial
statements.

        The Company is also a defendant in certain litigation arising in the
normal course of business. In the opinion of management, the ultimate resolution
of such litigation will not have a significant effect on the financial
statements.

        RELATED PARTY TRANSACTION

        The Company and its Chairman each own a 50% interest in an LLC that owns
and operates a corporate airplane. The Company contributed capital to the LLC of
$137,000 and $113,000 in fiscal 2000 and fiscal 1999, respectively. Amounts paid
to the LLC by the Company for the use of the airplane were insignificant in both
years. The Company is a guarantor on a note payable to a financial institution
which funded the purchase of the aircraft. The principal balance of the note as
of June 30, 2000 was $1,164,000.

NOTE 11 - MAJOR CUSTOMERS AND FOREIGN CUSTOMERS:

        National Airlines, Inc. represented approximately 10.6% of consolidated
revenue for fiscal 2000. Government contract services consists of revenues from
agencies of the United States government. Revenue from this segment represented
7.5%, 11.3% and 7.1% of the Company's consolidated revenues for fiscal 2000,
1999 and 1998, respectively. No other customers accounted for over 10% of
Mercury's consolidated revenues.

        The Company does business with a number of foreign airlines, principally
in the sale of aviation fuels. For the most part, such sales are made within the
United States and utilize the same assets and generally the same personnel as
are utilized in the Company's domestic business. Revenues related to these
foreign airlines amounted to approximately 24%, 27% and 31% of consolidated
revenues for the years ended June 30, 2000, 1999 and 1998, respectively.

NOTE 12 - EARNINGS PER SHARE:

        Basic earnings per common share is computed by dividing net income by
the weighted average number of common shares outstanding during the period.


                                      F-18
<PAGE>   59

        Diluted earnings per share is computed by dividing net income by the
weighted average number of common shares and common stock equivalents. Common
stock equivalents include stock options and shares resulting from the assumed
conversion of subordinated debentures, when dilutive.


<TABLE>
<CAPTION>
                                                FISCAL YEAR                    FISCAL YEAR                    FISCAL YEAR
                                               JUNE 30, 2000                  JUNE 30, 1999                   JUNE 30, 1998
                                         --------------------------      --------------------------      -------------------------
                                           DILUTED         BASIC           DILUTED         BASIC           DILUTED         BASIC
                                         ----------      ----------      ----------      ----------      ----------     ----------
<S>                                      <C>             <C>             <C>             <C>             <C>            <C>
Weighted average number of common
shares outstanding during the period      6,565,000       6,565,000       6,651,000       6,651,000       7,244,000      7,244,000

Common stock equivalents
resulting  from the assumed
exercise of stock options                   344,000                         356,000                         348,000

Common shares resulting from the
assumed conversion of debentures            590,000                       3,391,000                       3,932,000
                                         ----------      ----------      ----------      ----------      ----------     ----------

Weighted average number of
common and common equivalent
shares outstanding during the
period                                    7,499,000       6,565,000      10,398,000       6,651,000      11,524,000      7,244,000
                                         ==========      ==========      ==========      ==========      ==========     ==========

Net income before extraordinary
item                                      3,008,000       3,008,000       6,422,000       6,422,000       3,027,000      3,027,000


Add: Interest expense, net of
tax, on convertible debentures              185,000                       1,152,000                       1,342,000
                                         ----------      ----------      ----------      ----------      ----------     ----------

Adjusted income before
extraordinary item                        3,193,000       3,008,000       7,574,000       6,422,000       4,369,000      3,027,000

Extraordinary item                         (979,000)       (979,000)       (483,000)       (483,000)
                                         ----------      ----------      ----------      ----------      ----------     ----------

Adjusted income                          $2,214,000      $2,029,000      $7,091,000      $5,939,000      $4,369,000     $3,027,000

Common stock and common share
equivalents                               7,499,000       6,565,000      10,398,000       6,651,000      11,524,000      7,244,000

Earnings (Loss) per share:

Before extraordinary item                $      .43      $      .46      $      .73      $      .96      $      .38     $      .42

Extraordinary item                             (.13)           (.15)           (.05)           (.07)
                                         ----------      ----------      ----------      ----------      ----------     ----------
Net Income                               $      .30      $      .31      $      .68      $      .89      $      .38     $      .42
                                         ==========      ==========      ==========      ==========      ==========     ==========
</TABLE>

NOTE 13 - SUBSEQUENT EVENT:

        On September 1, 2000, the Company acquired the assets of an FBO in
Birmingham, Alabama from Raytheon Aircraft Services, Inc. (RAS) for $6.6 million
cash funded under the Company's acquisition line. The purchase price was
allocated principally to Property, Equipment and leaseholds. At June 30, 2000,
Other Assets includes a $1.5 million cash deposit paid to RAS towards the
purchase price.


                                      F-19
<PAGE>   60

NOTE 14 - SENIOR SUBORDINATED NOTE/EXTRAORDINARY ITEM:

        On September 10, 1999, the Company issued, in a private placement,
$24,000,000 Senior Subordinated 12% Notes ("the Note") due 2006 with detachable
warrants to acquire 503,126 shares of the Company's common stock exercisable at
$6.50 per share for seven years. Proceeds of the Note were used to redeem the
Company's 7 3/4% convertible subordinated debentures due February 1, 2006 at
104% of the principal amount plus accrued interest and pay expenses of the
transaction as follows:

<TABLE>
<S>                                                              <C>
Principal balance of Debentures redeemed                         $ 19,509,000
Redemption premium of 4%                                              780,000
Accrued Interest                                                      164,000
Placement fees, legal fees and other expenses of transaction
Capitalized as other assets                                         1,750,000
Cash received                                                       1,797,000
                                                                 ------------
Proceeds                                                         $ 24,000,000
Valuation of warrants credited to additional paid in capital       (1,306,000)
Warrants amortized as interest expense                                150,000
                                                                 ------------
Senior Subordinated Note                                         $ 22,844,000
                                                                 ============
</TABLE>


        As a result of this transaction the Company posted an extraordinary
charge of $979,000 in the fiscal 2000, which is net of a $625,000 income tax
benefit. The extraordinary charge consists of the redemption premium of $780,000
plus write off of capitalized fees of $824,000.

        The Note agreement contains covenants that, among other matters, limit
senior indebtedness, the disposition of assets and unfunded capital
expenditures. The covenants also include ratio tests for interest coverage,
leverage, fixed charge coverage and debt service. The Company received a waiver
from the Note holder as of June 30, 2000 for covenant violations pertaining to
unfunded capital expenditures, fixed charge coverage, debt service ratio and
permitted acquisitions.


                                      F-20
<PAGE>   61

NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED):

<TABLE>
<CAPTION>
                                                                            2000
                                                --------------------------------------------------------------
                                                SEPTEMBER 30    DECEMBER 31        MARCH 31          JUNE 30
                                                ------------    -----------       -----------      -----------
<S>                                             <C>             <C>               <C>              <C>
Sales and Revenues                              $74,640,000     $83,533,000       $89,935,000      $90,634,000

Gross Margin                                      9,147,000       8,742,000         7,277,000        7,947,000

Net Income (Loss) Before Extraordinary Item       2,067,000       1,494,000        (1,282,000)         729,000

Net Income (Loss)                                 1,089,000       1,493,000        (1,282,000)         729,000

Net Income Per Share:
 Basic:
    Before Extraordinary Item
                                                $       .31     $       .22       $      (.20)     $       .11
    After Extraordinary Item
                                                        .16             .22              (.20)             .11

  Diluted:
    Before Extraordinary Item                           .25             .21              (.20)             .11

    After Extraordinary Item
                                                        .14             .21              (.20)             .11
</TABLE>


<TABLE>
<CAPTION>
                                                                            1999
                                                --------------------------------------------------------------
                                                SEPTEMBER 30    DECEMBER 31         MARCH 31        JUNE 30
                                                ------------    -----------       -----------      -----------
<S>                                             <C>             <C>               <C>              <C>
    Sales and Revenues                          $52,600,000     $56,665,000       $53,643,000      $61,767,000

    Gross Margin                                  7,656,000       7,917,000         7,375,000        9,075,000

    Net Income Before Extraordinary Item          1,659,000       1,827,000         1,144,000        1,792,000

    Net Income                                    1,506,000       1,793,000         1,076,000        1,564,000

    Net Income Per Share:
     Basic:
       Before Extraordinary Item                $      0.24     $      0.28       $      0.17      $      0.27

       After Extraordinary Item                        0.22            0.27              0.16             0.24

     Diluted:
       Before Extraordinary Item                       0.18            0.21              0.14             0.20

       After Extraordinary Item                        0.17            0.20              0.13             0.18
</TABLE>


                                      F-21
<PAGE>   62

NOTE 16 - SEGMENT REPORTING:

        The Company operates and reports it's activities through five principal
units: 1) Fuel Sales and Services, 2) Fixed Based Operations, 3) Cargo
Operations , 4) Government contract services, and 5) RPA.

<TABLE>
<CAPTION>
                                    Fuel Sales      Fixed Base           Cargo        Government       RPA            Total
(Dollars in Thousands)            And Services      Operations      Operations        Contract
                                                                                      Services
-----------------------------------------------------------------------------------------------------------------------------
<S>                               <C>               <C>             <C>              <C>             <C>             <C>
2000

Revenues                             $202,906        $ 73,666         $32,474        $ 25,287        $  4,409        $338,742
Gross Margin                            7,884          11,522           9,977           5,031          (1,301)         33,113

Depreciation and Amortization             780           4,292           3,262             827             244           9,405
Capital expenditures                      109           8,796             756             965             345          10,971
Segment Assets                         46,405          31,248          31,616          19,391           6,455         135,115

-----------------------------------------------------------------------------------------------------------------------------
1999
Revenues                             $111,296        $ 53,799         $27,741        $ 25,436        $  6,403        $224,675

Gross Margin                            8,892          11,280           5,751           5,297             803          32,023

Depreciation and Amortization             540           3,282           3,649             827             201           8,499

Capital expenditures                    1,083          12,940             551             497             174          15,245

Segment Assets                         57,465          21,485          24,293          16,780           7,279         127,302

-----------------------------------------------------------------------------------------------------------------------------
1998
Revenues                             $148,170        $ 51,838         $21,521        $ 16,961        $  1,621        $240,111

Gross Margin                            7,019          11,046           5,342           4,527             196          28,130

Depreciation and Amortization             725           2,691           1,161             559              58           5,194

Capital expenditures                    2,582           3,260          10,461           1,957             124          18,384

Segment Assets                         47,587          19,636          22,660          15,611           6,247         111,741
</TABLE>


        Gross margin is used as the measure of profit and loss for segment
reporting purposes as it viewed by key decision makers as the principal
operating indicator in measuring segment profitability. The key decision makers
also view bad debt expense as an important measure of profit and loss. The
predominant component of bad debt expense relates to Fuel Sales and Services.
Bad debt expense for Fuel Sales and Services was approximately $5,000,000,
$1,377,000 and $1,577,000; total bad debt expense was $5,408,000, $1,721,000 and
$1,971,000 in fiscal 2000, fiscal 1999 and fiscal 1998, respectively.


                                      F-22
<PAGE>   63

                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                         THREE YEARS ENDED JUNE 30, 2000



<TABLE>
<CAPTION>
    CLASSIFICATION                    BALANCE AT       CHARGED TO COSTS    DEDUCTIONS        BALANCE AT END
                                  BEGINNING OF PERIOD    AND EXPENSES         (a)               OF PERIOD

<S>                               <C>                  <C>                 <C>               <C>

            2000

Allowance for doubtful accounts        $1,953,000        $5,408,000        $(4,811,000)        $2,550,000
                                       ==========        ==========        ===========         ==========



            1999

Allowance for doubtful accounts        $1,686,000        $1,721,000        $(1,454,000)        $1,953,000
                                       ==========        ==========        ===========         ==========



            1998

Allowance for doubtful accounts        $1,875,000        $1,971,000        $(2,160,000)        $1,686,000
                                       ==========        ==========        ===========         ==========
</TABLE>


(a) Accounts receivable write-off





                                      F-23