<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q

(Mark One)


[X]       Quarterly report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the quarterly period ended March 31, 1998


[ ]       Transition report pursuant to Section 13 or 15(d) of the Securities
          Exchange Act of 1934 for the Transition period from            to

Commission File No. 1-7134


                             MERCURY AIR GROUP, INC.

             (Exact name of registrant as specified in its charter)


                New York                                       11-1800515
                --------                                       ----------
      (State or other jurisdiction of                       (I.R.S. Employer
       incorporation or organization)                    Identification Number)


   5456 McConnell Avenue, Los Angeles, CA                         90066
   --------------------------------------                         -----
  (Address of principal executive offices)                     (Zip Code)


                                 (310) 827-2737
                                 --------------
              (Registrant's telephone number, including area code)

          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 the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.

<TABLE>
<CAPTION>
                                             Number of Shares Outstanding
             Title                               As of April 24, 1998
             -----                               --------------------
<S>                                          <C>
   Common Stock, $.01 Par Value                       7,235,951
</TABLE>




<PAGE>   2


                         PART 1 - FINANCIAL INFORMATION


                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                              ASSETS                                             MARCH 31,      JUNE 30,
                                                                                   1998           1997
                                                                               ------------   ------------
CURRENT ASSETS:
<S>                                                                            <C>            <C>         
  Cash and cash equivalents                                                    $  2,753,000   $  2,889,000
  Cash-restricted (Note 3)                                                                       7,000,000
  Trade accounts receivable, net of allowance for doubtful
    accounts of $2,571,000 at 3/31/98 and $1,875,000 at 6/30/97 (Note 3)         38,171,000     43,924,000
  Notes receivable - current portion (Note 3)                                     2,003,000      1,939,000
  Inventories, principally aviation fuel                                          2,034,000      1,948,000
  Prepaid expenses and other current assets                                       3,262,000      2,705,000
                                                                               ------------   ------------
    Total current assets                                                         48,223,000     60,405,000

PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated
 depreciation and amortization of $28,044,000 at 3/31/98 and
    $25,180,000 at 6/30/97  (Note 7)                                             31,140,000     24,834,000
NOTES RECEIVABLE, net of current portion                                             58,000        956,000
OTHER ASSETS   (Note 6)                                                          13,419,000      6,110,000
DEFERRED INCOME TAXES                                                                              332,000
                                                                               ------------   ------------
                                                                               $ 92,840,000   $ 92,637,000
                                                                               ============   ============
                             LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                             $ 14,101,000   $ 16,937,000
  Accrued expenses and other current liabilities                                  4,894,000      4,475,000
  Income taxes payable                                                               66,000
  Current portion of long-term debt                                               2,775,000      1,878,000
                                                                               ------------   ------------
    Total current liabilities                                                    21,836,000     23,290,000

LONG-TERM DEBT                                                                   16,872,000     15,195,000
CONVERTIBLE SUBORDINATED DEBENTURES                                              28,115,000     28,115,000
DEFERRED INCOME TAXES                                                               489,000

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (Note 5):
     Preferred Stock - $.01 par value; authorized 3,000,000 shares;
       no shares outstanding
    Common Stock - $.01 par value; authorized 18,000,000 shares; outstanding
       7,233,951 shares 3/31/98; outstanding 7,524,651 shares 6/30/97                72,000         75,000
    Additional paid-in capital                                                   20,830,000     20,796,000
    Retained earnings                                                             5,368,000      5,907,000
    Notes receivable from sale of stock-officers                                   (662,000)      (662,000)
   Cumulative translation adjustment                                           $    (80,000)  $    (79,000)
                                                                               ------------   ------------
        Total stockholders' equity                                               25,528,000     26,037,000
                                                                               ------------   ------------
                                                                               $ 92,840,000   $ 92,637,000
                                                                               ------------   ------------
</TABLE>




          See accompanying notes to consolidated financial statements.


<PAGE>   3

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



<TABLE>
<CAPTION>
                                                              NINE MONTHS ENDED             THREE MONTHS ENDED
                                                                  MARCH 31,                      MARCH 31,
                                                       -------------------------------------------------------------
                                                            1998            1997            1998           1997
                                                       -------------------------------------------------------------
<S>                                                    <C>             <C>             <C>             <C>          
Sales and Revenues:
  Sales                                                $ 146,385,000   $ 175,862,000   $  37,979,000   $  58,629,000
  Service revenues                                        44,155,000      39,903,000      14,741,000      13,828,000
                                                       -------------------------------------------------------------
                                                         190,540,000     215,765,000      52,720,000      72,457,000
Costs and Expenses:
  Cost of sales                                          128,352,000     161,884,000      31,997,000      53,550,000
  Operating expenses                                      41,216,000      36,722,000      14,128,000      13,240,000
                                                       -------------------------------------------------------------
                                                         169,568,000     198,606,000      46,125,000      66,790,000
                                                       -------------------------------------------------------------
       Gross Margin (Excluding depreciation
            and amortization)                             20,972,000      17,159,000       6,595,000       5,667,000
                                                       -------------------------------------------------------------

Expenses (Income):
  Selling, general and administrative                      4,529,000       4,735,000       1,603,000       1,586,000
  Provision for bad debts                                  1,520,000         792,000         614,000         247,000
  Depreciation and amortization                            3,659,000       2,902,000       1,269,000       1,113,000
  Interest expense                                         2,648,000       2,611,000         894,000         930,000
  Interest income                                           (498,000)       (262,000)       (130,000)        (45,000)
  Loss resulting from bankruptcy of customer (Note 3)      7,050,000
                                                       -------------------------------------------------------------
                                                          18,908,000      10,778,000       4,250,000       3,831,000
                                                       -------------------------------------------------------------

 Income Before  Provision for Income Taxes                 2,064,000       6,381,000       2,345,000       1,836,000
 Provision for Income Taxes                                  816,000       2,520,000         929,000         702,000
                                                       -------------------------------------------------------------

Net  Income                                            $   1,248,000   $   3,861,000   $   1,416,000   $   1,134,000
                                                       =============================================================

Net Income Per Common Share -  Basic (Note 4)          $        0.17   $        0.51   $        0.20   $        0.15
                                                       =============================================================

Net Income Per Common Share and Common
  Equivalent Share -  Diluted (Note 4)                 $        0.16   $        0.41   $        0.15   $        0.13
                                                       =============================================================
</TABLE>




          See accompanying notes to consolidated financial statements.

                                       3


<PAGE>   4


                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                             NINE MONTHS ENDED MARCH 31,
                                                                               1998              1997
                                                                           ------------------------------
<S>                                                                        <C>               <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                               $  1,248,000      $  3,861,000
  Adjustments to derive cash flow from
   Operating activities:
      Bad debt expense                                                        8,362,000           792,000
      Depreciation and amortization                                           3,659,000         2,902,000
      Amortization of officers' loans                                           116,000           116,000
      Deferred income taxes                                                    (419,000)          (46,000)
  Changes in operating assets and liabilities:
      Trade and other accounts receivable                                     6,118,000       (14,451,000)
      Inventories                                                               (86,000)          243,000
      Prepaid expenses and other current assets                                (693,000)         (527,000)
      Accounts payable                                                       (3,582,000)        3,841,000
      Income taxes payable                                                                       (198,000)
      Accrued expenses and other current liabilities                            419,000          (407,000)
                                                                           ------------------------------
          Net cash provided by (used in) operating activities                15,142,000        (3,874,000)
                                                                           ------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Restricted cash-pledged certificates of deposit                             1,000,000
  Decrease in notes receivable                                                1,834,000           443,000
  Addition to other assets                                                   (6,744,000)       (1,044,000)
  Acquisition of business, net of cash acquired (Note 7)                     (1,894,000)       (7,150,000)
  Additions to property, equipment and leaseholds                            (4,152,000)       (2,674,000)
                                                                           ------------------------------
          Net cash used in investing activities                              (9,956,000)      (10,425,000)
                                                                           ------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from long-term debt                                                 942,000         9,996,000
  Reduction of long-term debt                                                (3,288,000)       (4,889,000)
  Payment of dividend on common stock                                           (94,000)         (226,000)
  Repurchase and retire common stock                                         (3,032,000)         (357,000)
  Notes receivable-officers                                                                        70,000
  Proceeds from issuance of common stock                                        150,000             4,000
                                                                           ------------------------------
          Net cash  (used in) provided by  financing activities              (5,322,000)        4,598,000
                                                                           ------------------------------

NET DECREASE IN CASH AND
  CASH EQUIVALENTS                                                             (136,000)       (9,701,000)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                2,889,000        11,820,000
                                                                           ------------------------------

CASH AND CASH EQUIVALENTS,  END OF PERIOD                                  $  2,753,000      $  2,119,000
                                                                           ==============================

CASH PAID DURING THE PERIOD:
  Interest                                                                 $  3,193,000      $  3,156,000
  Income taxes                                                                1,018,000         3,119,000

SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
 Issuance of Notes Payable for the acquisition of FBO                      $  4,250,000      $  4,650,000

 Issuance of stock for the acquisition of RPA (Note 7)                        1,220,000

 Issuance of note payable for the acquisition of Aero Freightways Inc.          229,000

 Note receivable assigned to the Company in exchange for the Company's
 certificates of deposit which was used to guaranty a customer's debt. 
  ( Note 3 )                                                                  1,000,000
</TABLE>




          See accompanying notes to consolidated financial statements.

                                       4

<PAGE>   5

                    MERCURY AIR GROUP, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 1998

                                   (Unaudited)


Note 1 - Basis of Presentation:

          The accompanying unaudited financial statements reflect all
adjustments (consisting of normal, recurring accruals only) which are necessary
to fairly present the results for the interim periods. Such financial statements
have been prepared in accordance with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X and therefore do not include all the information or
footnotes necessary for a complete presentation. They should be read in
conjunction with the Company's Annual Report on Form 10-K for the year ended
June 30, 1997, Quarterly Report on Form 10-Q for the period ended September 30,
1997, Quarterly Report on Form 10-Q for the period ended December 31, 1997 and
the notes thereto. The results of operations for the nine months ended March 31,
1998 are not necessarily indicative of results for the full year.

Note 2 - Income Taxes:

          Income taxes have been computed based on the estimated annual
effective income tax rate for the respective years.

Note 3 - Loss Resulting From Bankruptcy Of Customer and Restricted Cash/Notes
Receivable

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

          At June 30, 1997, the Company had an additional $1,000,000 of
restricted cash representing a certificate of deposit which served as collateral
for a customer's (AeroPeru) bank loan. In November 1997, AeroPeru's bank used
the certificate of deposit to repay the bank loan and the $1,000,000 note was
assigned to the Company. In the quarter ended March 31, 1998, the Company
received $900,000 of cash from AeroPeru and the remaining balance of $100,000 in
April 1998.



Note 4 - Earnings Per Share:

          At December 31, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128 ("SFAS 128"), "Earnings per Share". SFAS 128
replaces the presentation of primary earnings per share with a presentation of
basic earnings per share based upon weighted average number of common shares for
the period. It also requires dual presentation of basic and diluted earnings per
share for companies with " complex capital structures," as defined. SFAS 128 was
adopted by the Company at December 31, 1997. Earnings per share for the current
and prior periods has been presented in conformity with the provisions of SFAS
128.




                                        5

<PAGE>   6

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

          Diluted income 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>
                        Nine Months Ended         Nine Months Ended         Three  Months Ended           Three Months
                          March 31, 1998            March 31, 1997            March 31, 1998             March 31, 1997
                      Diluted       Basic       Diluted        Basic      Diluted       Basic       Diluted       Basic
                    -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
<S>                  <C>           <C>          <C>          <C>          <C>          <C>          <C>          <C>      
Weighted average
number of
common shares
outstanding during
the period           7, 263,000    7 263,000    7,528,000    7,528,000    7,120,000    7,120,000    7,510,000    7,510,000

Common stock
equivalents
resulting from the
assumed exercise
of stock options        331,000           --      304,000           --      372,000           --      300,000           --

Common shares
resulting from the
assumed
conversion of
debentures                   --           --    4,019,000           --    3,939,000           --    4,019,000           --
                    -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------
Weighted average
number of
common and
common
equivalent shares
outstanding during
the period            7,594,000    7,263,000   11,851,000    7,528,000   11,431,000    7,120,000   11,829,000    7,510,000
                    ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
Net income
                    $ 1,248,000  $ 1,248,000  $ 3,861,000  $ 3,861,000  $ 1,416,000  $ 1,416,000  $ 1,134,000  $ 1,134,000
Interest expense,
net of tax, on
convertible
debenture                    --           --    1,035,000           --      336,000           --      345,000           --
                    -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------

Adjusted income     $ 1,248,000  $ 1,248,000  $ 4,896,000  $ 3,861,000  $ 1,752.000  $ 1,416,000  $ 1,479,000  $ 1,134,000
                    -----------  -----------  -----------  -----------  -----------  -----------  -----------  -----------

Earnings per share  $       .16  $       .17  $       .41  $       .51  $       .15  $       .20  $       .13  $       .15
                    ===========  ===========  ===========  ===========  ===========  ===========  ===========  ===========
</TABLE>


Note 5 - Stockholding's Equity:

          During the nine months ended March 31, 1998, the Company repurchased
482,700 shares of its common stock at a cost of approximately $3,032,000 or an
average price per share of $6.28, which was charged to: Common Stock $5,000;
Additional paid in capital $1,334,000; and Retained Earnings $1,693,000. During
the nine months ended March 31, 1998, the Company issued 160,000 shares of its
common stock in


                                        6

<PAGE>   7


connection with the acquisition of RPA and issued 32,000 shares upon the
exercise of stock options. These shares issued are included in Stockholders
Equity at $1,370,000 including $2,000 in common stock and $1,368,000 in
additional paid in capital.


Note 6- Other Assets:

          At March 31, 1998, Other assets included $6,489,000 related to LAX
warehouse construction costs which will be reimbursed to the Company in the form
of rent credits over a five year period by the Airport Authority commencing in
the month when the warehouse is operational but no later than June 1998. The
Airport Authority will reimburse the Company for construction costs up to
approximately $7.4 million.


Note 7- Acquisitions:

          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 preliminarily 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 from
Corporate Express Delivery Leasing - Southeast, Inc. 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
$229,000 which is payable over three years.





                                        7

<PAGE>   8

 
Item 7.                       MANAGEMENTS DISCUSSION AND ANALYSIS OF
                        FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 
Results of Operations-Comparison of the Three Months Ended March 31,1998 and
March 31, 1997 and comparison of the Nine Months ended March 31, 1998 and March
31, 1997:
 
The following tables set forth, for the periods indicated, the revenues and
gross margin for each of the Company's four operating units, as well as selected
other financial statement data.


<TABLE>
<CAPTION>
                                            Nine  Months Ended March 31,                   Three  Months Ended  March 31,

($ in millions)                             1998                    1997                     1998                   1997
 
                                      Amount  % of Total    Amount  % of Total   Amount  % of Total    Amount  % of Total
                                               Revenues              Revenues             Revenues              Revenues
<S>                                  <C>        <C>        <C>        <C>       <C>        <C>        <C>        <C>   
Revenues:                                                                                                              
                                                                                                                       
Fuel Sales and  Services             $ 128.4     67.3%     $ 163.8     75.9%    $  32.3      61.3%    $  53.4     73.7%
                                                                                                                       
FBOs                                    33.7     17.7%        26.5     12.3%       11.1      21.0%       10.6     14.6%
                                                                                                                       
Cargo Operations                        16.1      8.5%        14.5      6.7%        5.3      10.1%        4.3      5.9%
                                                                                                                       
Government Contract Services            12.3      6.5%        11.0      5.1%        4.0       7.6%        4.2      5.8%
                                                                                                                       
                                     -------    -----      -------    -----     -------     -----     -------    ----- 
TOTAL REVENUES                       $ 190.5    100.0%     $ 215.8    100.0%    $  52.7     100.0%    $  72.5    100.0%
                                     =======    =====      =======    =====     =======     =====     =======    ===== 
</TABLE>


<TABLE>
<CAPTION>

                                              % of Unit             % of Unit            % of Unit             % of Unit
                                     Amount    Revenues     Amount   Revenues    Amount   Revenues     Amount   Revenues
<S>                                  <C>        <C>        <C>        <C>       <C>       <C>        <C>       <C>    
Gross Margin (1):
 
Fuel Sales and Services               $  6.2      4.9%      $  6.4      3.9%     $  1.8       5.5%     $  2.1      3.9%
                                                                                                                       
FBOs                                     7.0     20.7%         4.4     16.5%        2.6      23.6%        1.8     17.0%
                                                                                                                       
Cargo Operations                         4.6     28.2%         4.0     28.0%        1.1      20.7%        1.0     24.4%
                                                                                                                       
Government Contract Services             3.2     26.0%         2.3     20.9%        1.1      27.4%         .7     17.5%
                                                                                                                       
                                      ------     ----       ------      ---      ------      ----      ------      --- 
TOTAL GROSS MARGIN                    $ 21.0     11.0%      $ 17.1      8.0%     $  6.6      12.5%     $  5.7      7.8%
                                      ======     ====       ======      ===      ======      ====      ======      === 
</TABLE>



<TABLE>
<CAPTION>
                                              % of Total            % of Total          % of Total           % of Total
                                     Amount    Revenues     Amount   Revenues    Amount  Revenues     Amount  Revenues
<S>                                  <C>        <C>        <C>        <C>       <C>       <C>        <C>       <C>    
Selling, General and                                                      
   Administrative                      $ 4.5      2.4%       $ 4.7      2.2%      $ 1.6       3.0%      $ 1.6      2.2%
                                                                                                                       
Provision for bad debts                  1.5       .8%          .8       .4%        0.6       1.2%         .2       .3%
                                                                                                                       
Depreciation and amortization            3.7      1.9%         2.9      1.3%        1.3       2.4%        1.1      1.5%
                                                                                                                       
Loss resulting from bankruptcy                                                                                         
   of customer                           7.1      3.7%                                                                 
                                                                                                                       
Interest expense and other               2.1      1.1%         2.3      1.1%         .7       1.5%         .9      1.2%
                                       -----      ---        -----      ---       -----       ---       -----      --- 
                                                                                                                       
Income before Income Taxes               2.1      1.1%         6.4      3.0%        2.3       4.4%        1.8      2.5%
                                                                                                                       
Provision for Income Taxes                .8       .4%         2.5      1.2%         .9       1.8%         .7      1.0%
                                       -----      ---        -----      ---       -----       ---       -----      --- 
                                                                                                                       
NET INCOME                             $ 1.2       .7%       $ 3.9      1.8%      $ 1.4       2.7%      $ 1.1      1.6%
                                       =====      ===        =====      ===       =====       ===       =====      === 
</TABLE>

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


                                       8


<PAGE>   9


THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997.

Although total revenue fell by 27.2% to $52.7 million in the current period from
$72.5 million a year ago, gross margin increased 16.4% to $6.6 million in the
current period from $5.7 million a year ago principally due to higher volumes
and margins from FBOs and improved margins from government contract services.
The decrease in revenue was a result of both a decline in the price and volume
of fuel sold.

Revenues from fuel sales and services represented 61.3% of total revenues in the
current period compared to 73.7% of total revenues a year ago. Revenues from
fuel sales and services fell 39.5% to $32.3 million from $53.4 million last
year. The decline in revenues from fuel sales and services was due to both a
decrease in the price of fuel and the volume of fuel sold . The decline in fuel
volume resulted from the loss of Western Pacific in February 1998 and the loss
of certain other customers. Gross margin from fuel sales and services decreased
by 14.9% to $1.8 million in the current period from $2.1 million last year due
to lower volume. Revenues and operating income from fuel sales and services
include the activities of Mercury's contract fueling business, as well as
activities from a number of other commercial services including the provision of
certain refueling services, non-aviation fuel brokerage and other services
managed at LAX as part of Mercury's fuel sales services operations, and RPA
effective March 1998.

Revenues from FBOs increased by 5.0% in the current period to $11.1 million from
$10.6 million a year ago primarily due to the addition of Nashville in July
1997. Gross margin increased 45.7% in the current period to $2.6 million from
$1.8 million last year. The increase was attributable primarily to higher volume
of fuel sales and higher per gallon fuel margins on lower fuel costs.

Revenues from cargo operations in the current period increased 23.9% to $5.3
million from $4.3 million a year ago. This increase was due primarily to an
increase in space brokerage and partially to an increase in handling and General
Sales Agency (GSA). Gross margin from cargo operations in the current period
increased 5.1% to $1.1 million from $1.0 million in the year ago period due to
higher revenues. Gross margin as a percentage of revenues fell to 20.7% from
24.4% last year due to higher warehouse and administrative costs. With the
opening of the new warehouse in April 1998, it is anticipated that warehouse
costs as a percentage of revenue will rise until the new capacity is utilized.

Revenues from government contract services decreased 4.1% in the current period
to $4.0 million from $4.2 million in the year ago period. The decrease in
revenues from government contract services was due primarily to the loss of a
contract in Monterey, California in July 1997. Gross margin from government
contract services in the current period increased 50.1% to $1.1 million from
$0.7 million last year due to higher margins on the Central and South American
contracts.

Provision for bad debts increased by 148.6% in the current period to $614
thousand from $247 thousand a year ago reflecting a higher reserve rate based on
recent experience.

Depreciation and amortization expense increased 14.0% in the current period to
$1.269 million from $1.113 million a year ago primarily due to acquisition of
the Nashville FBO during the current year and capital expenditures during the
past twelve months.

Income tax expense approximated 39.6% of pre-tax income in the current period
and 38.2 % of pretax income in the year ago period reflecting the expected
effective annual tax rate.



                                        9

<PAGE>   10

NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997.

Due to a decline in the price of fuel and volume of fuel sold, revenues
decreased 11.7 % to $190.5 million in the current period from $215.8 million a
year ago. However, gross margin increased 22.2% to $21.0 million in the current
period from $17.2 million a year ago principally due to the acquisition of
additional FBOs in fiscal 1997 and fiscal 1998 and higher contributions from
government contract services and cargo.


Revenues from fuel sales and services represented 67.3% of total revenues in the
current period compared to 75.9% of total revenue a year ago. Revenues from fuel
sales and services decreased 21.7% to $128.3 million from $163.8 million last
year. The decrease in revenues from fuel sales and services was due to both a
decrease in the price of fuel and volume of fuel sold. Gross margin from fuel
sales and services decreased 3.4% in the current period to $6.2 million from
$6.4 million a year ago. The decrease in gross margin from fuel sales and
services in the current period compared to last year was attributable to a
decrease in gallons sold.


Revenue from FBOs increased 27.3% in the current period to $33.7 million from
$26.5 million a year ago primarily due to the addition of seven new locations in
fiscal 1997 and one new location in July 1997. Gross Margin increased 59.7% to
$7.0 million from $4.4 million in the year ago period due to higher revenues and
higher per gallon fuel margins.

Revenues from cargo operations in the current period increased 11.6% to $16.1
million from $14.5 million a year ago. The increase was primarily due to an
increase in space brokerage activity. Gross margin from cargo operations in the
current period increased 12.4% to $4.5 million from $4.0 million in the year ago
period due to higher space brokerage activity.

Revenues from government contract services in the current period increased 12.5%
to $12.3 million from $11.0 million in the year ago period. The increase in
revenues from government contract services in the current period compared to
last year was primarily due to the Central and South American contracts added in
June 1997. Gross margin from government contract services in the current period
increased 39.9% to $3.2 million from $2.3 million last year due to higher
revenues and higher margins on the Central and South American contracts.

Selling general and administrative expenses in the current period decreased 4.4%
to $4.5 million from $4.7 million in the year ago period. The decrease was
primarily due to lower compensation expense and lower professional fees.

Provision for bad debts increased by 91.9% in the current period to $1.52
million from $792 thousand a year ago reflecting a higher reserve rate based on
recent experience.

Depreciation and amortization expense in the current period increased 26.1% to
$3,659,000 from $2,902,000 a year ago. The increase in the current period is
primarily related to the acquisitions of eight FBO locations since August 1996.

Loss resulting from the bankruptcy of a customer in 1998 was $7,050,000 and
resulted from the bankruptcy filing by Western Pacific Airlines, Inc. (WPAI) on
October 5, 1997. The charge includes a $5 million reduction in restricted cash
and approximately $2,050,000 write off of WPAI's account receivable. The
restricted cash consisted of pledged certificates of deposits which guaranteed
bank loans to WPAI.

Income tax expense approximated 39.5% of pretax income in both periods
reflecting the expected effective annual tax rate.




                                       10

<PAGE>   11


LIQUIDITY AND CAPITAL RESOURCES:

Mercury has historically financed its operations primarily through operating
cash flow and debt. In February 1996, the Company issued $28 million of
convertible subordinated debentures for the purpose, among other reasons, of
expanding operations through acquisitions. Mercury's cash balance at March 31,
1998 totaled $2,753,000.

Net cash provided by operating activities totaled $15,142,000 during the period
ended March 31, 1998. During this period, the primary sources of net cash
provided by operating activities was the non-cash charge for bad debt expense of
$8,362,000, depreciation and amortization of $3,659,000 and a decrease in
accounts receivable of $6,118,000. The non-cash charge for bad debt expense of
$8,362,000 included a $5,000,000 reduction in restricted cash, a write off of
$1,842,000 in accounts receivable and $1,520,000 increase in allowance for
doubtful accounts. The primary use of cash from operating activities was a
reduction in accounts payable of $3,582,000.

Net cash used in investing activities was $9,956,000 during the current period.
The primary source of cash from investing activities included a reduction of
$1,834,000 in notes receivable and a reduction of $1,000,000 in restricted cash.
The primary use of cash from investing activities included additions to
property, equipment and leaseholds of $4,152,000 , additions to other assets of
$6,744,000 primarily related to the Company's investment in its LAX warehouse
facility and acquisition of businesses, net of cash acquired, of $1,894,000.

Net cash used in financing activities was $5,322,000 during the current period.
The primary use of cash from financing activities in the current nine month
period was the reduction in long-term debt of $ 3,288,000 and repurchases of
482,700 shares of common stock totaling $3,032,000 or $6.28 per share.

Management is currently authorized by Mercury's board of directors and under
Mercury's loan agreements to repurchase up to an additional $3,000,000 of Common
Stock.

The Company's senior unsecured bank credit facility consists of a $18,600,000
Revolver and various term facilities. At March 31, 1998, there was no
outstanding balance under the Revolver and the balance of the term loans
totalled $10,374,000.

On April 2, 1998, the Company raised $19 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 will be used to
finance the Company's LAX cargo warehouse expansion and expansion of its Burbank
FBO. On April 2, 1998, the company borrowed $8.3 million of the bond proceeds
related to costs incurred to date and paid down a $4.4 million term loan. The
loan carries a variable rate which is based on a weekly remarketing of the tax
exempt bonds issued by CEDFA. (Since the issuance of the bond, the per annum
interest rate has averaged 3.93% through 5/6/98). The Company's senior bank
group has issued a one-year, renewable letter of credit in the amount of
approximately $19.3 million to secure the Company's obligations under the loan
agreement. The loan will be repaid at the rate of $500,000 every six months with
a redemption of $4 million at the end of the fifteenth year. The Company's
revolving credit line was reduced from $25 million to $18.6 million in
connection with the issuance of the letter of credit.

Absent a major prolonged surge in oil prices or a capital intensive acquisition,
the Company believes its operating cash flow, Revolver, 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.



                                       11

<PAGE>   12

The Company has the following significant contracts or commitments for the
purchase of equipment or installation of facilities. The Company is party to a
lease and various contracts pursuant to which it will remodel and reconstruct a
174,000 square foot cargo warehouse at a cost of approximately $10,000,000. To
date, the Company has spent approximately $8.0 million on this project. The
warehouse became operational in April 1998. The Company has also entered into a
new lease with respect to its Burbank, California FBO. Pursuant to the terms of
the lease, the Company will construct new hangar and terminal space and
refurbish some of its existing space at a cost of approximately $9.0 million.
Upon completion of the construction, the Company's lease will be extended
through April 2025. Under the terms of its lease for an FBO presently under
construction in Charleston, South Carolina, the Company will fund a portion of
the construction cost, currently estimated at $800,000. The recently completed
tax exempt bond financing through CEDFA will be used to fund the LAX warehouse
project and Burbank FBO.




                                       12

<PAGE>   13

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

           None

Item 2.  Change in Securities

           None

Item 3.  Default Upon Senior Securities

           None

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

           None


Item 5.  Other Information

           None



Item 6.  Exhibits and Reports on Form 8-K

Exhibit
No.                                 Description

10.1          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.

10.2          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.

10.3          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.





                                       13

<PAGE>   14

                                   SIGNATURES


          Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                      Mercury Air Group, Inc.
                                      Registrant




                                      -------------------------------------
                                      Seymour Kahn
                                      Chairman and Chief
                                      Executive Officer





                                      -------------------------------------
                                      Randy Ajer
                                      Secretary/Treasurer
                                      Chief Accounting Officer


Date: May 6, 1998




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