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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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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, 2004
|          
|[   ]      |  | 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)


|                                                                                                                                                      |  |                                                                   
|----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------
|Delaware(State or other jurisdiction of
incorporation or organization)
 5456 McConnell Avenue
Los Angeles, CA(Address of principal executive offices) |  | 11-1800515(I.R.S. Employer
Identification Number)
 90066(Zip Code)

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

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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [   ] No [X]

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

|                              |  |                              |           | 
|----------------------------- |  | ---------------------------- | --------- | 
|                              |  | Number of Shares Outstanding
|Title                         |  | as of April 27, 2004        
|                              |  |                             
|Common Stock, $0.01 Par Value |  |                              | 2,954,818 | 



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PART I  FINANCIAL INFORMATION

Item 1.Financial Statements

MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |            |             | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---------- | ----------- | ----------- | -------- | ---------- | ---------- | ----------- | 
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            | March 31,   |             | June 30,
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            | 2004        |             | 2003    
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |         
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            | (Unaudited) |             |          |            |           
|ASSETS                                                                                                                                                                |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|CURRENT ASSETS:                                                                                                                                                       |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      | Cash and cash equivalents                                                                                                                                  |                                                                                    | $          | 1,822,000   |             |          | $          | 2,802,000  |            
|                                                                                                                                                                      | Trade accounts receivable, net of allowance for doubtful accounts of $2,320,000 and
$2,006,000 at March 31, 2004 and June 30, 2003, respectively           |                                                                                    |            | 58,954,000  |             |          |            | 46,753,000 |            
|                                                                                                                                                                      | Inventories, principally aviation fuel                                                                                                                     |                                                                                    |            | 3,867,000   |             |          |            | 4,422,000  |            
|                                                                                                                                                                      | Prepaid expenses and other current assets                                                                                                                  |                                                                                    |            | 9,017,000   |             |          |            | 5,241,000  |            
|                                                                                                                                                                      | Deferred income taxes                                                                                                                                      |                                                                                    |            | 901,000     |             |          |            | 901,000    |            
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | Total current assets                                                               |            |             | 74,561,000  |          |            |            | 60,119,000  | 
|PROPERTY, EQUIPMENT AND LEASEHOLDS, net of accumulated depreciation and amortization
of $66,455,000 and $61,061,000 at March 31, 2004 and June 30, 2003, respectively |                                                                                                                                                            |                                                                                    | 57,789,000 |             |             |          | 58,844,000 |           
|NOTES RECEIVABLE, net of allowance for doubtful accounts of $564,000 and $509,000 at
March 31, 2004 and June 30, 2003, respectively                                   |                                                                                                                                                            |                                                                                    | 1,034,000  |             |             |          | 1,815,000  |           
|DEFERRED INCOME TAXES                                                                                                                                                 |                                                                                                                                                            |                                                                                    | 1,961,000  |             |             |          | 2,284,000  |           
|GOODWILL                                                                                                                                                              |                                                                                                                                                            |                                                                                    | 4,389,000  |             |             |          | 4,389,000  |           
|OTHER INTANGIBLE ASSETS, NET                                                                                                                                          |                                                                                                                                                            |                                                                                    | 808,000    |             |             |          | 1,033,000  |           
|OTHER ASSETS, NET                                                                                                                                                     |                                                                                                                                                            |                                                                                    | 3,869,000  |             |             |          | 4,471,000  |           
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | TOTAL ASSETS                                                                       |            | $           | 144,411,000 |          |            | $          | 132,955,000 | 
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |            |            
|LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS EQUITY                                                                                          |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|CURRENT LIABILITIES:                                                                                                                                                  |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      | Accounts payable                                                                                                                                           |                                                                                    | $          | 38,358,000  |             |          | $          | 34,677,000 |            
|                                                                                                                                                                      | Accrued expenses and other current liabilities                                                                                                             |                                                                                    |            | 15,672,000  |             |          |            | 9,554,000  |            
|                                                                                                                                                                      | Current portion of long-term debt                                                                                                                          |                                                                                    |            | 3,145,000   |             |          |            | 4,194,000  |            
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | Total current liabilities                                                          |            |             | 57,175,000  |          |            |            | 48,425,000  | 
|LONG-TERM DEBT                                                                                                                                                        |                                                                                                                                                            |                                                                                    | 29,286,000 |             |             |          | 25,501,000 |           
|SENIOR SUBORDINATED NOTE                                                                                                                                              |                                                                                                                                                            |                                                                                    | 23,697,000 |             |             |          | 23,445,000 |           
|SUBORDINATED NOTE                                                                                                                                                     |                                                                                                                                                            |                                                                                    | 3,586,000  |             |             |          |            |           
|OTHER LONG TERM LIABILITIES                                                                                                                                           |                                                                                                                                                            |                                                                                    | 1,057,000  |             |             |          | 608,000    |           
|DEFERRED RENT                                                                                                                                                         |                                                                                                                                                            |                                                                                    | 1,414,000  |             |             |          | 1,885,000  |           
|MINORITY INTEREST                                                                                                                                                     |                                                                                                                                                            |                                                                                    | 182,000    |             |             |          | 180,000    |           
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | Total liabilities                                                                  |            |             | 116,397,000 |          |            |            | 100,044,000 | 
|COMMITMENTS AND CONTINGENCIES (Note 4)                                                                                                                                |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|MANDATORILY REDEEMABLE PREFERRED STOCK, Series A  $0.01 par value; 1,000,000 shares
authorized; 462,627 shares outstanding at March 31, 2004 and June 30, 2003       |                                                                                                                                                            |                                                                                    | 509,000    |             |             |          | 481,000    |           
|STOCKHOLDERS EQUITY:                                                                                                                                                 |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      | Preferred Stock  $0.01 par value; authorized 2,000,000 shares; no shares outstanding                                                                      |                                                                                    |            |             |             |          |            |            |            
|                                                                                                                                                                      | Common Stock  $0.01 par value; authorized 18,000,000 shares; 2,954,818 and
3,293,568 shares outstanding at March 31, 2004 and June 30, 2003, respectively |                                                                                    |            | 30,000      |             |          |            | 33,000     |            
|                                                                                                                                                                      | Additional paid-in capital                                                                                                                                 |                                                                                    |            | 20,752,000  |             |          |            | 22,496,000 |            
|                                                                                                                                                                      | Retained earnings                                                                                                                                          |                                                                                    |            | 10,353,000  |             |          |            | 14,018,000 |            
|                                                                                                                                                                      | Accumulated other comprehensive income (loss)                                                                                                              |                                                                                    |            | 6,000       |             |          |            | (86,000    | )          
|                                                                                                                                                                      | Notes receivable from officers                                                                                                                             |                                                                                    |            | (3,636,000  | )           |          |            | (4,031,000 | )          
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | Total stockholders equity                                                         |            |             | 27,505,000  |          |            |            | 32,430,000  | 
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |           
|                                                                                                                                                                      |                                                                                                                                                            | Total liabilities, mandatorily redeemable preferred stock and stockholders equity |            | $           | 144,411,000 |          |            | $          | 132,955,000 | 
|                                                                                                                                                                      |                                                                                                                                                            |                                                                                    |            |             |             |          |            |            |            

See accompanying notes to consolidated financial statements.

2



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

|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |            |           |             |           | 
|------------------------------------------ | ----------------------------------- | ------------------------------------------------------ | ------------------------ | ----------------------------- | ---------- | ----------------- | ---------- | ------------------ | ---------- | ----------- | ---------- | ----------- | --------- | ----------- | ---------- | ---------- | --------- | ----------- | --------- | 
|                                           |                                     |                                                        |                          |                               |            | Nine Months Ended |            | Three Months Ended
|                                           |                                     |                                                        |                          |                               |            | March 31,         |            | March 31,         
|                                           |                                     |                                                        |                          |                               |            |                   |            |                   
|                                           |                                     |                                                        |                          |                               |            | 2004              |            | 2003               |            | 2004        |            | 2003       
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |            
|                                           |                                     |                                                        |                          |                               |            | (Unaudited)       |            | (Unaudited)       
|Sales and revenues:                        |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           | Sales                               |                                                        | $                        | 269,640,000                   |            |                   | $          | 263,487,000        |            |             | $          | 101,775,000 |           |             | $          | 88,151,000 |          
|                                           | Service revenues                    |                                                        |                          | 70,796,000                    |            |                   |            | 69,397,000         |            |             |            | 23,761,000  |           |             |            | 22,876,000 |          
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           |                                     |                                                        | Total sales and revenues |                               |            | 340,436,000       |            |                    |            | 332,884,000 |            |             |           | 125,536,000 |            |            |           | 111,027,000 |          
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|Costs and expenses:                        |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           | Cost of sales                       |                                                        |                          | 241,307,000                   |            |                   |            | 234,647,000        |            |             |            | 93,722,000  |           |             |            | 78,400,000 |          
|                                           | Operating expenses                  |                                                        |                          | 80,666,000                    |            |                   |            | 79,280,000         |            |             |            | 26,978,000  |           |             |            | 26,508,000 |          
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           |                                     |                                                        | Total costs and expenses |                               |            | 321,973,000       |            |                    |            | 313,927,000 |            |             |           | 120,700,000 |            |            |           | 104,908,000 |          
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           |                                     | Gross margin (excluding
depreciation and
amortization) |                          |                               | 18,463,000 |                   |            |                    | 18,957,000 |             |            |             | 4,836,000 |             |            |            | 6,119,000 |            
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|Other expenses (income):                   |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           | Selling, general and
administrative |                                                        |                          | 7,838,000                     |            |                   |            | 7,889,000          |            |             |            | 2,798,000   |           |             |            | 2,648,000  |          
|                                           | Provision for bad debts             |                                                        |                          | 421,000                       |            |                   |            | 1,201,000          |            |             |            | 361,000     |           |             |            | 442,000    |          
|                                           | Depreciation and amortization       |                                                        |                          | 6,405,000                     |            |                   |            | 6,121,000          |            |             |            | 2,126,000   |           |             |            | 2,072,000  |          
|                                           | Interest expense                    |                                                        |                          | 6,240,000                     |            |                   |            | 5,536,000          |            |             |            | 1,715,000   |           |             |            | 2,621,000  |          
|                                           | Hambro settlement costs             |                                                        |                          | 1,799,000                     |            |                   |            |                    |            |             |            |             |           |             |            |            |          
|                                           | Debt extinguishment costs           |                                                        |                          |                               |            |                   |            | 1,773,000          |            |             |            |             |           |             |            | 40,000     |          
|                                           | Interest income                     |                                                        |                          | (286,000                      | )          |                   |            | (77,000            | )          |             |            | (41,000     | )         |             |            | (27,000    | )        
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           |                                     |                                                        |                          | Total other expenses (income) |            |                   | 22,417,000 |                    |            |             | 22,443,000 |             |           |             | 6,959,000  |            |           |             | 7,796,000 | 
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|Loss before income tax benefit             |                                     |                                                        | (3,954,000               | )                             |            |                   | (3,486,000 | )                  |            |             | (2,123,000 | )           |           |             | (1,677,000 | )         
|Income tax benefit                         |                                     |                                                        | (316,000                 | )                             |            |                   | (1,203,000 | )                  |            |             | (304,000   | )           |           |             | (579,000   | )         
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|Net loss                                   |                                     | $                                                      | (3,638,000               | )                             |            | $                 | (2,283,000 | )                  |            | $           | (1,819,000 | )           |           | $           | (1,098,000 | )         
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|Accrued preferred stock dividends          |                                     |                                                        | (28,000                  | )                             |            |                   |            |                    |            |             | (9,000     | )           |           |             |            |           
|Net loss applicable to common
stockholders |                                     | $                                                      | (3,666,000               | )                             |            | $                 | (2,283,000 | )                  |            | $           | (1,828,000 | )           |           | $           | (1,098,000 | )         
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |            |          
|Net loss per common share:                 |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |           
|                                           | Basic:                              |                                                        | $                        | (1.18                         | )          |                   | $          | (0.70              | )          |             | $          | (0.63       | )         |             | $          | (0.33      | )        
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |            |          
|                                           | Diluted:                            |                                                        | $                        | (1.18                         | )          |                   | $          | (0.70              | )          |             | $          | (0.63       | )         |             | $          | (0.33      | )        
|                                           |                                     |                                                        |                          |                               |            |                   |            |                    |            |             |            |             |           |             |            |            |          

See accompanying notes to consolidated financial statements.

3



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

|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |             |            |            |  
|---------------------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------------- | ---------- | ----------------- | ---------- | --------- | ----------- | ---------- | ---------- | -
|                                                     |                                                            |                                                                |                                                     |            | Nine Months Ended
|                                                     |                                                            |                                                                |                                                     |            | March 31,        
|                                                     |                                                            |                                                                |                                                     |            |                  
|                                                     |                                                            |                                                                |                                                     |            | 2004              |            | 2003     
|                                                     |                                                            |                                                                |                                                     |            |                   |            |          
|                                                     |                                                            |                                                                |                                                     |            | (Unaudited)      
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     | Net loss                                                   |                                                                | $                                                   | (3,638,000 | )                 |            | $         | (2,283,000  | )         
|                                                     | Adjustments to derive cash flow from operating activities: |                                                                |                                                     |            |                   |            |           |             |           
|                                                     |                                                            | Bad debt expense                                               |                                                     |            | 421,000           |            |           |             | 1,201,000  |           
|                                                     |                                                            | Depreciation and amortization                                  |                                                     |            | 6,405,000         |            |           |             | 6,121,000  |           
|                                                     |                                                            | Deferred income taxes                                          |                                                     |            | 350,000           |            |           |             | 33,000     |           
|                                                     |                                                            | Deferred rent                                                  |                                                     |            | (471,000          | )          |           |             | 100,000    |           
|                                                     |                                                            | Compensation expense related to remeasurement of stock options |                                                     |            |                   |            |           |             | 318,000    |           
|                                                     |                                                            | Executive loan amortization                                    |                                                     |            | 290,000           |            |           |             | 303,000    |           
|                                                     |                                                            | Write-down of note receivable from officer                     |                                                     |            | 105,000           |            |           |             |            |           
|                                                     |                                                            | Hambro settlement costs                                        |                                                     |            | 1,799,000         |            |           |             |            |           
|                                                     |                                                            | Interest added to senior subordinated note principal           |                                                     |            | 120,000           |            |           |             |            |           
|                                                     |                                                            | Amortization of senior subordinated note discount              |                                                     |            | 132,000           |            |           |             | 222,000    |           
|                                                     |                                                            | Management compensation paid in preferred stock                |                                                     |            |                   |            |           |             | 204,000    |           
|                                                     |                                                            | Management compensation applied to exercise of stock options   |                                                     |            |                   |            |           |             | 174,000    |           
|                                                     |                                                            | Amortization of loan fees included in interest expense         |                                                     |            | 381,000           |            |           |             |            |           
|                                                     |                                                            | Loss (gain) on retirement of assets                            |                                                     |            | 25,000            |            |           |             | 22,000     |           
|                                                     |                                                            | Write-off of deferred financing costs                          |                                                     |            |                   |            |           |             | 1,773,000  |           
|                                                     |                                                            | Minority interest                                              |                                                     |            | 2,000             |            |           |             |            |           
|                                                     | Changes in operating assets and liabilities:               |                                                                |                                                     |            |                   |            |           |             |           
|                                                     |                                                            | Trade and other accounts receivable                            |                                                     |            | (12,622,000       | )          |           |             | (8,584,000 | )         
|                                                     |                                                            | Inventories                                                    |                                                     |            | 555,000           |            |           |             | (587,000   | )         
|                                                     |                                                            | Prepaid expenses and other current assets                      |                                                     |            | (3,776,000        | )          |           |             | (2,486,000 | )         
|                                                     |                                                            | Accounts payable                                               |                                                     |            | 3,682,000         |            |           |             | 5,995,000  |           
|                                                     |                                                            | Accrued expenses and other current liabilities                 |                                                     |            | 6,567,000         |            |           |             | 726,000    |           
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     |                                                            |                                                                | Net cash provided by operating activities           |            |                   | 327,000    |           |             |            | 3,252,000  |  
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     | Decrease in restricted cash                                |                                                                |                                                     |            |                   |            |           | 3,780,000   |           
|                                                     | Increase in other assets                                   |                                                                |                                                     | (202,000   | )                 |            |           | (1,113,000  | )         
|                                                     | Decrease in notes receivable                               |                                                                |                                                     | 781,000    |                   |            |           | 178,000     |           
|                                                     | Proceeds from sale of property                             |                                                                |                                                     | 9,000      |                   |            |           | 79,000      |           
|                                                     | Additions to property, equipment and leaseholds            |                                                                |                                                     | (4,697,000 | )                 |            |           | (3,996,000  | )         
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     |                                                            |                                                                | Net cash used in investing activities               |            |                   | (4,109,000 | )         |             |            | (1,072,000 | )
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     | Net increase (decrease) in debt instruments                |                                                                |                                                     | 2,734,000  |                   |            |           | (2,017,000  | )         
|                                                     | Early retirement of debt                                   |                                                                |                                                     |            |                   |            |           | (13,285,000 | )         
|                                                     | Proceeds from refinancing                                  |                                                                |                                                     |            |                   |            |           | 16,923,000  |           
|                                                     | Capitalization of deferred financing costs                 |                                                                |                                                     |            |                   |            |           | (3,351,000  | )         
|                                                     | Repurchase of common stock                                 |                                                                |                                                     |            |                   |            |           | (370,000    | )         
|                                                     | Proceeds from issuance of preferred stock                  |                                                                |                                                     |            |                   |            |           | 259,000     |           
|                                                     | Proceeds from exercise of stock options                    |                                                                |                                                     | 14,000     |                   |            |           | 58,000      |           
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     |                                                            |                                                                | Net cash provided by (used in) financing activities |            |                   | 2,748,000  |           |             |            | (1,783,000 | )
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|Effect of exchange rate changes on cash              |                                                            |                                                                | 54,000                                              |            |                   |            | 32,000    |            
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                            |                                                                | (980,000                                            | )          |                   |            | 429,000   |            
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       |                                                            |                                                                | 2,802,000                                           |            |                   |            | 5,565,000 |            
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|CASH AND CASH EQUIVALENTS, END OF PERIOD             |                                                            | $                                                              | 1,822,000                                           |            |                   | $          | 5,994,000 |            
|                                                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|CASH PAID DURING THE PERIOD FOR:                     |                                                            |                                                                |                                                     |            |                   |            |           |            
|                                                     | Interest                                                   |                                                                | $                                                   | 5,398,000  |                   |            | $         | 4,123,000   |           
|                                                     | Income taxes                                               |                                                                | $                                                   | 884,000    |                   |            | $         | 5,201,000   |           

See accompanying notes to consolidated financial statements.

4



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##### 



MERCURY AIR GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2004
(Unaudited)

Note 1  General

Business

Mercury Air Group, Inc. (the Company), a Delaware Corporation, was
organized in 1956 and provides a broad range of services to the aviation
industry through four principal operating units during the reporting period:
Mercury Air Centers, Inc., a California corporation (Air Centers), Mercury
Air Cargo, Inc., a California corporation (Air Cargo), MercFuel, Inc., a
Delaware corporation (MercFuel) and Maytag Aircraft Corporation, a Colorado
corporation (Maytag Aircraft), a provider of government contract services.
The Air Centers operations consist of aviation fuel sales, commercial aircraft
refueling operations (into-plane), aircraft ground support services, aircraft
hangar services, secured aircraft parking (aircraft tie-down services) and
aircraft maintenance at certain Air Center locations, known as Fixed Based
Operations (FBOs), for commercial, private, general aviation and United
States Government aircraft (collectively FBO services). Air Cargos
operations consist of cargo handling, the sale of cargo capacity on other
airlines (Cargo Space Logistics), and general cargo sales agent services.
MercFuels operations consist of the sale and delivery of fuel, primarily
aviation fuel, to domestic and international commercial airlines, fractional
aircraft companies, corporate aviation and air freight airlines. Maytags
government contract services consist of the following services primarily for
agencies of the United States Government: aircraft refueling and fuel storage
operations, base operations support (BOS) services, air terminal and ground
handling services and weather observation and forecasting services.

On April 12, 2004, following shareholder approval, the Company sold all of
the outstanding common stock of Air Centers to Allied Capital Corporation
(Allied) for $76,349,000, subject to adjustments for, among other things, net
working capital at closing (the FBO Sale). See additional information at
Note 11  Subsequent Event. However, the Company retains ownership of an FBO
at Long Beach, California through its wholly owned subsidiary, Mercury Air
Center  Long Beach, Inc., a California corporation.

Risks and Uncertainties

Petroleum product prices, including aviation fuel prices, have risen to
historically high levels due primarily to an increase in world-wide petroleum
product consumption and instability in the Middle East. The increased aviation
fuel prices have resulted in an increase in the Companys trade receivable
balances for many of the Companys customers. If aviation fuel prices maintain
these recent high levels for an extended period of time and the Companys
customers are unable to pass on the increased fuel costs to their customers,
the Company may experience longer collection periods and/or higher
uncollectible amounts from certain customers. This would result in reduced cash
availability adversely affecting the Companys ability to pay its fuel
suppliers on a timely basis.

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 the following: 1) substantially all receivables
are related to the aviation industry, 2) there is a concentration of credit
risk as there are several customers who at any given time have significant
balances owed to the Company, and 3) significant balances are owed by certain
customers that are not adequately capitalized. In addition, significantly
higher fuel prices for extended periods of time may have a negative impact on
the aviation industry as it substantially increases airlines operating
expenses. Smaller airlines with lower levels of capital may be more seriously
impacted. 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.

The Company purchases fuel from a limited number of suppliers. If the
Companys relationship with any of these key suppliers terminates, the Company
may not be able to obtain a sufficient quantity of fuel on favorable terms or
may experience difficulty in obtaining fuel from alternative suppliers.
Furthermore, difficulties faced by these suppliers or fuel shortages or the
inability to obtain fuel from alternate sources at acceptable prices and terms,
could impair the Companys ability to sell fuel to its customers at competitive
prices and terms.

5



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##### 



Basis of Presentation

The accompanying unaudited financial statements of the Company have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all of the information and footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments consisting of normal
recurring adjustments and accruals necessary for a fair presentation have been
reflected in these financial statements. Operating results for the quarter are
not necessarily indicative of the results that may be expected for the fiscal
year ending June 30, 2004 due to seasonal and other factors. In order to
maintain consistency and comparability between periods presented, certain prior
period amounts have been reclassified to conform to the current period
presentation. The accompanying financial statements should be read in
conjunction with the audited consolidated financial statements and footnotes
thereto included in the Companys Annual Report on Form 10-K for the fiscal
year ended June 30, 2003.

New Accounting Pronouncements

On April 30, 2003, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment
of Statement 133 on Derivative Instruments and Hedging Activities. This
standard amends and clarifies the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities. The provisions of this statement are generally
effective for contracts entered into or modified after June 30, 2003. The
Company adopted SFAS No.149 on July 1, 2003 with no material impact on the
Companys consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). This interpretation of Accounting
Research Bulletin No. 51, Consolidated Financial Statements, addresses
consolidation by business enterprises of variable interest entities. Under
current practice, two enterprises generally have been included in consolidated
financial statements because one enterprise controls the other through voting
interests. FIN 46 defines the concept of variable interests and requires
existing unconsolidated variable interest entities to be consolidated by their
primary beneficiaries if the entities do not effectively disperse risks among
the parties involved. This interpretation applies immediately to variable
interest entities created after January 31, 2003. It applies in the first
fiscal year or interim period beginning after December 15, 2003, to variable
interest entities considered to be a special purpose entity (SPE) in which an
enterprise holds a variable interest that it acquired before February 1, 2003.
For non-SPE variable interest entities acquired before February 1, 2003, the
interpretation must be adopted no later than the first interim or annual period
ending after March 15, 2004. The interpretation may be applied prospectively
with a cumulative-effect adjustment as of the date on which it is first applied
or by restating previously issued financial statements for one or more years
with a cumulative-effect adjustment as of the beginning of the first year
restated. The Company adopted FIN 46 for the period ended March 31, 2004 with
no material impact on the Companys consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity,
which establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 requires classification of financial instruments within its scope as a
liability, including financial instruments issued in the form of shares that
are mandatorily redeemable, because those financial instruments are deemed to
be, in essence, obligations of the issuer. SFAS No. 150 is effective for the
Company for the interim period ended March 31, 2004. The Company adopted SFAS
No. 150 for the period ended March 31, 2004 with no material impact on the
Companys consolidated financial statements.

Note 2  Stock-Based Employee Compensation

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation Transition and Disclosure. SFAS No. 148 provides
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. The Company
has elected to continue utilizing the intrinsic value method to account for
stock-based compensation as allowed by SFAS No. 123, Accounting for
Stock-Based Compensation.

SFAS No. 148 also amends the disclosure requirements of SFAS No. 123, to
require disclosure in both interim and annual financial statements about the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for the
Companys fiscal year ended June 30, 2003 and for interim financial statements
beginning January 1, 2003.

6



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##### 



The Company has five stock option plans. As permitted under SFAS No. 123,
the Company measures compensation expense related to employee stock options
granted utilizing the intrinsic value method as prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees,
and related interpretations. The following table illustrates the pro forma
effect on the net loss if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation.

|                                                                                                                     |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|-------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | ------------------ |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                                                                     |  | Nine Months Ended |            | Three Months Ended
|                                                                                                                     |  | March 31,         |            | March 31,         
|                                                                                                                     |  |                   |            |                   
|                                                                                                                     |  | 2004              |            | 2003               |  | 2004 |            | 2003
|                                                                                                                     |  |                   |            |                    |  |      |            |     
|Net loss, as reported                                                                                                |  | $                 | (3,638,000 | )                  |  | $    | (2,283,000 | )    |  | $ | (1,819,000 | ) |  | $ | (1,098,000 | )
|Add stock-based employee compensation
expense included in net loss, net of
tax                                       |  |                   | 185,000    |                    |  |      | 406,000    |      |  |   | 62,000     |   |  |   | 66,000     |  
|Less total stock based employee
compensation determined under the fair
value based method for all awards, net
of tax |  |                   | (79,000    | )                  |  |      | (319,000   | )    |  |   | (20,000    | ) |  |   | (34,000    | )
|                                                                                                                     |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Pro forma net loss                                                                                                   |  | $                 | (3,532,000 | )                  |  | $    | (2,196,000 | )    |  | $ | (1,777,000 | ) |  | $ | (1,066,000 | )
|                                                                                                                     |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Basic net loss per share  as reported                                                                               |  | $                 | (1.18      | )                  |  | $    | (0.70      | )    |  | $ | (0.63      | ) |  | $ | (0.33      | )
|Basic net loss per share  pro forma                                                                                 |  | $                 | (1.14      | )                  |  | $    | (0.68      | )    |  | $ | (0.62      | ) |  | $ | (0.32      | )
|Diluted net loss per share  as reported                                                                             |  | $                 | (1.18      | )                  |  | $    | (0.70      | )    |  | $ | (0.63      | ) |  | $ | (0.33      | )
|Diluted net loss per share  pro forma                                                                               |  | $                 | (1.14      | )                  |  | $    | (0.68      | )    |  | $ | (0.62      | ) |  | $ | (0.32      | )

Note 3  Income Taxes

Income taxes have been computed based on the estimated annual effective income
tax rates for the respective periods. The following is a reconciliation of the
federal statutory rate to the Companys effective tax rate on pretax loss:

|                                                    |  |                   |       |      |  |  |       |   
|--------------------------------------------------- |  | ----------------- | ----- | ---- |  |  | ----- | --
|                                                    |  | Nine Months Ended
|                                                    |  | March 31,        
|                                                    |  |                  
|                                                    |  | 2004              |       | 2003
|                                                    |  |                   |       |     
|Federal tax (benefit) at statutory rate             |  |                   | (34.0 | %)   |  |  | (34.0 | %)
|State income taxes (benefit), net of federal effect |  |                   | 6.5   |      |  |  | (2.7  | ) 
|Non-deductible Hambro settlement costs              |  |                   | 17.5  |      |  |  |       |   
|Non-deductible expenses, other                      |  |                   | 2.8   |      |  |  | 1.9   |   
|Other, net                                          |  |                   | (0.8  | )    |  |  | 0.3   |   
|                                                    |  |                   |       |      |  |  |       |   
|Effective income tax rate                           |  |                   | (8.0  | %)   |  |  | (34.5 | %)
|                                                    |  |                   |       |      |  |  |       |   

The Hambro settlement costs of $1,799,000 recognized by the Company in the
second quarter of fiscal 2004 is not deductible in the determination of taxable
income resulting in a permanent book to tax difference.

Note 4  Commitments and Contingencies

Litigation

On April 16, 2003, the Plan Committee of Shuttle America Corporation filed
an Adversary Proceeding in the United States Bankruptcy Court, District of
Connecticut alleging preferential transfers in the amount of $995,000. The
Company believes that it has significant defenses in this matter. The Company
filed its answer on May 15, 2003. On February 19, 2004, the Bankruptcy Court
approved a settlement agreement whereby the Company will pay Shuttle America
Corporation $40,000 in three equal monthly installment payments of $13,333
starting in February 2004. These payments were fully accrued by the Company
at March 31, 2004.

In December 2001 a jury returned its verdict on Michael Marignys
(Plaintiff) cause of action for retaliation in violation of California Fair
Employment and Housing Act in favor of Defendant, Mercury, but awarded damages
in the amount of $15,000 for Plaintiffs cause of action for intentional
infliction of emotional distress. In February 2002, Plaintiff filed a notice
of appeal with the Second Appellate Court (Court). The Court ruled on this
appeal in August of 2003 affirming in part and reversed in part the judgment
and the case was remanded for retrial. On March 31, 2004 the Company entered
into a settlement agreement in this case for

7



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##### 



the payment of $200,000 which was
paid in April 2004. This settlement amount has been accrued by the Company in
the financial statements as of March 31, 2004.

On December 5, 2003, the Company terminated its Chief Operating Officer of
Mercury Air Cargo. This former employee claimed one years salary,
approximately $170,000, and other damages as a result of the termination. On
December 31, 2003, he filed notice of demand for mediation. On March 9, 2004
the Company entered into a Confidential Settlement Agreement and Mutual Release
with this former employee. In the opinion of management, the terms of the
Confidential Settlement Agreement will not have a material effect on the
Companys consolidated financial position. This settlement was accrued by the
Company in the financial statements for the quarter ended March 31, 2004.

On February 28, 2004 the Company received a demand notice from counsel for
the former General Manager of a Mercury Air Centers FBO location for damages
in the amount of $500,000 as a result of his termination of employment. The
Company is in the process of responding to the demand. In the opinion of
management, the ultimate resolution of this matter will not have a material
effect on the Companys consolidated financial position, results of operations
or cash flows.

On March 16, 2004 the Company received a demand notice from counsel for
the former General Manager of Mercury Air Cargos SkyNet Division for damages
in the amount of approximately $82,500 arising out of his termination of
employment. The Company has entered into a confidential settlement agreement.
In the opinion of management, the settlement of this matter will not have a
material effect on the Companys consolidated financial position, results of
operations or cash flows.

Reference is made to the Companys Annual Report on Form 10-K for the
fiscal year ended June 30, 2003 and to the Companys Quarterly Reports on Form
10-Q for the period ended September 30, 2003 for additional legal matters with
respect to which no material developments have occurred in the current quarter.

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 material effect on the Companys
consolidated financial position.

Note 5  Debt

On December 30, 2002, the Company entered into a loan and security
agreement (the Facility), refinancing its senior secured credit facilities
with Wells Fargo Foothill Corporation (Foothill), a division of Wells Fargo
Bank, for a five-year term.

The Facility provides a total of up to $42.5 million in revolving and term
loans. The term loan is for an amount equal to $12.5 million, while the
revolving loan is for an amount not to exceed 85% of Eligible Accounts
Receivable (as defined in the loan agreement), subject to certain limitations.
The term loan is payable in $1.0 million installments each April 1 and October
1and in $0.5 million installments each July 1 and December 31, until paid in
full. Amounts repaid under the term loan increase the maximum availability
under the revolving loan. The Facility also provides for the issuance of
certain letters of credit. The terms of the Facility require that the Company
maintain a minimum availability on the revolving line of credit of $2.5
million. As of March 31, 2004, the Company had $3.4 million of availability on
the revolving line of credit. The amount of the available revolving credit line
fluctuates on a daily basis dependent upon the amount of Eligible Receivables
and the amount of letters of credit outstanding and the amount of outstanding
cash borrowings against the revolving credit facility.

On December 5, 2003, as amended on February 16, 2004, the Company and its
lenders under the Facility executed the Fifth Amendment to the Loan and
Security Agreement and Forbearance Agreement (the Forbearance Agreement).
Among other things, the Company requested the lenders and the lenders agreed to
forbear from exercising their rights and remedies under the Facility for the
following events of default, as defined in the Loan and Security Agreement: (1)
the Companys failure to deliver its annual audited financial statements for
fiscal 2003 within the prescribed time-frame allowed; (2) the formation of a
subsidiary, Mercury Air Center  Long Beach, without the prior consent of the
lenders; (3) the Companys failure to deliver supplemental schedules to J. H.
Whitney as required under the terms of the $24 million Senior Secured 12% Note;
and (4) the Companys failure to achieve the EBITDA financial covenant for the
twelve-month period ended December 31, 2003. The Forbearance Agreement, as
amended, states that the lenders agree, for a limited time but no later than
April 14, 2004, to forbear from exercising their rights and remedies under the
Facility with respect to the events of default noted above.

On April 12, 2004, the Company prepaid all outstanding obligations
associated with the Facility with the proceeds from the FBO sale. With this
prepayment, the Company satisfied all of the conditions established in the
Forbearance Agreement. See Note 11  Subsequent Event for further discussion
of the prepayment of all obligations associated with the Facility and the FBO
sale.

8



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##### 



On October 28, 2003, Allied acquired the $24 million Senior Subordinated
12% Note (the Note), as amended on December 30, 2002 from J. H. Whitney Co.
Mezzanine Fund and waived certain provisions of the Note, which would have
required the Company to provide the Noteholder with the following: 1) if the
principal amount outstanding on the Note was not prepaid in full by December
31, 2003, the Noteholder would have been entitiled to warrants to acquire from
the Company, for a nominal amount, 5% of the then outstanding shares of the
Companys common stock and 2) if the principal amount outstanding on the Note
exceeded $12 million on December 31, 2003 the Noteholder would have been
entitled to: a) a second set of warrants to acquire from the Company, for a
nominal amount, 5% of the then outstanding shares of the Companys common stock
and b) an additional Note in the original principal amount of $5 million. The
Note, subordinated to the Facility, was collateralized by the Companys assets.
Interest on the Note was due and payable at the end of each calendar quarter
and, effective January 2004 and continuing through June 2004, the interest rate
would have increased by 1% per month up to a maximum total interest rate of 18%
with the amount of interest in excess of 12% being added to the principal of
the Note at the end of each calendar month. The Note contained covenants that,
among other matters, limited senior indebtedness, the payment of dividends, and
limited the disposition of assets and the maintenance of certain financial
measurements including EBITDA requirements and limits on capital expenditures.
All outstanding obligations associated with the Note were paid in full on April
12, 2004 with proceeds from the FBO Sale. See Note 11  Subsequent Event for
further discussion of the prepayment of all obligations associated with the
Facility and the FBO sale.

On December 12, 2003, the Company issued three promissory notes for an
aggregate principal amount of $3,586,000 (the Hambro Notes). The Hambro
Notes, subordinated to the Facility and the Note, accrued interest at the rate
of 12% per annum increasing to 16% per annum for any amount of unpaid principal
after June 30, 2004. All outstanding obligations associated with the Hambro
Notes were paid in full on April 12, 2004 with proceeds from the FBO Sale. See
Note 11  Subsequent Event for further discussion of the prepayment of all
obligations associated with the Facility and the FBO sale.

Note 6  Hambro Settlement Costs

On December 12, 2003, the Company entered into a settlement agreement (the
Hambro Settlement) relating to litigation with J O Hambro Capital Management
and certain of its affiliates and private clients (collectively J O Hambro)
whereby the Company issued three promissory notes for an aggregate principle
amount of $3,586,000 (the Hambro Notes) in exchange for the following, among
other things: (1) the release of certain claims by J O Hambro; (2) the
Companys agreement to dismiss litigation against J O Hambro; (3) the Companys
agreement not to institute certain litigation against J O Hambro and certain
other parties; (4) reimbursement of certain costs associated with the pending
litigation and the defense preparation for anticipated litigation between the
parties; and (5) the purchase of 343,600 shares of the Companys common stock
in exchange for the Hambro Notes. The settlement cost of $1,799,000 recognized
in the second quarter of fiscal 2004 represents the difference between the face
value of the Hambro Notes and the trading value of the shares of common stock
acquired by the Company on the day of the Hambro Settlement.

Note 7  Net Loss Per Common Share

Basic net loss per common share is computed by dividing the net loss by
the weighted average number of common shares outstanding during the period.
Diluted net loss per common share is computed by dividing the net loss by the
weighted average number of common shares and potential common shares except for
amounts that are antidilutive. Potential common shares include stock options
and common shares resulting from the assumed conversion of subordinated
debentures, when dilutive.

|                                                                                             |  |                   |           |                    |  |                |           |                |  |       |           |         |  |       |           |         |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|-------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ------------------ |  | -------------- | --------- | -------------- |  | ----- | --------- | ------- |  | ----- | --------- | ------- |  |  | --------- |  |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                                                                             |  | Nine Months Ended |           | Three Months Ended
|                                                                                             |  |                   |           |                   
|                                                                                             |  | March 31, 2004    |           | March 31, 2003     |  | March 31, 2004 |           | March 31, 2003
|                                                                                             |  |                   |           |                    |  |                |           |               
|                                                                                             |  | Basic             |           | Diluted            |  | Basic          |           | Diluted        |  | Basic |           | Diluted |  | Basic |           | Diluted
|                                                                                             |  |                   |           |                    |  |                |           |                |  |       |           |         |  |       |           |        
|Weighted average number of common
shares outstanding during the period                       |  |                   | 3,113,858 |                    |  |                | 3,113,858 |                |  |       | 3,254,500 |         |  |       | 3,254,500 |         |  |  | 2,895,472 |  |  |  | 2,895,472 |  |  |  | 3,288,500 |  |  |  | 3,288,500 | 
|Common share equivalents resulting
from the assumed exercise of
stock options                |  |                   |          |                    |  |                |          |                |  |       |          |         |  |       |          |         |  |  |          |  |  |  |          |  |  |  |          |  |  |  |          | 
|                                                                                             |  |                   |           |                    |  |                |           |                |  |       |           |         |  |       |           |         |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|Weighted average number of common
and common equivalent shares
outstanding during the period |  |                   | 3,113,858 |                    |  |                | 3,113,858 |                |  |       | 3,254,500 |         |  |       | 3,254,500 |         |  |  | 2,895,472 |  |  |  | 2,895,472 |  |  |  | 3,288,500 |  |  |  | 3,288,500 | 
|                                                                                             |  |                   |           |                    |  |                |           |                |  |       |           |         |  |       |           |         |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 

9



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##### 



Note 8  Segment Reporting

The Company discloses segment information in accordance with SFAS No. 131,
Disclosure About Segments of an Enterprise and Related Information, which
requires companies to report selected segment information on a quarterly basis
and to report certain entity-wide disclosures about products and services,
major customers and material countries in which the entity holds assets and
reports revenues. The operating segments reported below are the segments of the
Company for which operating results are evaluated regularly by management in
deciding how to allocate resources and in assessing performance.

The Company operated and reported its activities through four principal
units during the reporting periods: 1) Fuel Sales, 2) Fixed Based Operations,
3) Cargo Operations and 4) Maytag Aircraft.

|                                 |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  |           |        |   |  |   |         | 
|-------------------------------- |  | ---------------------- | ------- | ---------- |  | ---------- | ------ | --------------- |  | ----------- | ------ | ----- |  | -- | ------ |  |  | --------- | ------ | - |  | - | ------- | 
|                                 |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  | Corporate |        |   |  |  
|                                 |  |                        |         |            |  | Fixed Base |        | Cargo           |  |             |        |       |  | or |        |  |  |          
|                                 |  | Fuel Sales             |         | Operations |  | Operations |        | Maytag Aircraft |  | Unallocated |        | Total
|                                 |  |                        |         |            |  |            |        |                 |  |             |        |      
|                                 |  | (Dollars in Thousands)
|Quarter Ended March 31, 2004     |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  |           |        |   |  |   |         | 
|Sales and revenues               |  | $                      | 88,305  |            |  | $          | 23,704 |                 |  | $           | 9,729  |       |  | $  | 5,747  |  |  | $         | (1,949 | ) |  | $ | 125,536 | 
|Gross margin                     |  |                        | 1,506   |            |  |            | 2,104  |                 |  |             | 60     |       |  |    | 1,166  |  |  |           |        |   |  |   | 4,836   | 
|Depreciation and amortization    |  |                        | 118     |            |  |            | 1,306  |                 |  |             | 484    |       |  |    | 89     |  |  |           | 129    |   |  |   | 2,126   | 
|Capital expenditures             |  |                        | 6       |            |  |            | 2,000  |                 |  |             | 9      |       |  |    | 37     |  |  |           | 7      |   |  |   | 2,059   | 
|Segment assets                   |  |                        | 36,899  |            |  |            | 60,000 |                 |  |             | 16,458 |       |  |    | 10,337 |  |  |           | 20,717 |   |  |   | 144,411 | 
|Quarter Ended March 31, 2003     |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  |           |        |   |  |   |         | 
|Sales and revenues               |  | $                      | 72,497  |            |  | $          | 24,479 |                 |  | $           | 8,396  |       |  | $  | 5,990  |  |  | $         | (335   | ) |  | $ | 111,027 | 
|Gross margin                     |  |                        | 1,670   |            |  |            | 2,870  |                 |  |             | 368    |       |  |    | 1,211  |  |  |           |        |   |  |   | 6,119   | 
|Depreciation and amortization    |  |                        | 105     |            |  |            | 1,382  |                 |  |             | 453    |       |  |    | 84     |  |  |           | 48     |   |  |   | 2,072   | 
|Capital expenditures             |  |                        | 1       |            |  |            | 419    |                 |  |             | 2      |       |  |    | 4      |  |  |           | 19     |   |  |   | 445     | 
|Segment assets                   |  |                        | 36,157  |            |  |            | 62,391 |                 |  |             | 16,099 |       |  |    | 11,962 |  |  |           | 16,873 |   |  |   | 143,482 | 
|Nine Months Ended March 31, 2004 |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  |           |        |   |  |   |         | 
|Sales and revenues               |  | $                      | 228,195 |            |  | $          | 69,687 |                 |  | $           | 29,306 |       |  | $  | 17,489 |  |  | $         | (4,241 | ) |  | $ | 340,436 | 
|Gross margin                     |  |                        | 4,806   |            |  |            | 8,392  |                 |  |             | 1,356  |       |  |    | 3,909  |  |  |           |        |   |  |   | 18,463  | 
|Depreciation and amortization    |  |                        | 352     |            |  |            | 4,004  |                 |  |             | 1,401  |       |  |    | 249    |  |  |           | 399    |   |  |   | 6,405   | 
|Capital expenditures             |  |                        | 645     |            |  |            | 3,834  |                 |  |             | 47     |       |  |    | 143    |  |  |           | 28     |   |  |   | 4,697   | 
|Segment assets                   |  |                        | 36,899  |            |  |            | 60,000 |                 |  |             | 16,458 |       |  |    | 10,337 |  |  |           | 20,717 |   |  |   | 144,411 | 
|Nine Months Ended March 31, 2003 |  |                        |         |            |  |            |        |                 |  |             |        |       |  |    |        |  |  |           |        |   |  |   |         | 
|Sales and revenues               |  | $                      | 218,111 |            |  | $          | 72,187 |                 |  | $           | 24,840 |       |  | $  | 18,510 |  |  | $         | (764   | ) |  | $ | 332,884 | 
|Gross margin                     |  |                        | 4,741   |            |  |            | 8,784  |                 |  |             | 2,072  |       |  |    | 3,360  |  |  |           |        |   |  |   | 18,957  | 
|Depreciation and amortization    |  |                        | 213     |            |  |            | 3,963  |                 |  |             | 1,545  |       |  |    | 265    |  |  |           | 135    |   |  |   | 6,121   | 
|Capital expenditures             |  |                        | 7       |            |  |            | 3,597  |                 |  |             | 67     |       |  |    | 4      |  |  |           | 321    |   |  |   | 3,996   | 
|Segment assets                   |  |                        | 36,157  |            |  |            | 62,391 |                 |  |             | 16,099 |       |  |    | 11,962 |  |  |           | 16,873 |   |  |   | 143,482 | 

Gross margin is used as the measure of profit and loss for segment
reporting purposes as it is 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. Bad debt
expense for Fuel Sales was approximately $293,000 and $348,000 for the quarters
ended March 31, 2004 and 2003, respectively; total bad debt expense was
$361,000 and $475,000 in the quarters ended March 31, 2004 and 2003,
respectively. Bad debt expense for Fuel Sales was approximately $113,000 and
$980,000 for the nine-month periods ended March 31, 2004 and 2003,
respectively; total bad debt expense was $421,000 and $1,201,000 for the
nine-month periods ended March 31, 2004 and 2003, respectively.

Note 9  Comprehensive Loss

Comprehensive loss is summarized as follows:

|                                        |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|--------------------------------------- |  | ----------------- | ---------- | ------------------ |  | ---- | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                        |  | Nine Months Ended |            | Three Months Ended
|                                        |  | March 31,         |            | March 31,         
|                                        |  |                   |            |                   
|                                        |  | 2004              |            | 2003               |  | 2004 |            | 2003
|                                        |  |                   |            |                    |  |      |            |     
|Net loss                                |  | $                 | (3,638,000 | )                  |  | $    | (2,283,000 | )    |  | $ | (1,819,000 | ) |  | $ | (1,098,000 | )
|Foreign currency translation adjustment |  |                   | 92,000     |                    |  |      | (57,000    | )    |  |   | (56,000    | ) |  |   | (12,000    | )
|                                        |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  
|Comprehensive loss                      |  | $                 | (3,546,000 | )                  |  | $    | (2,340,000 | )    |  | $ | (1,875,000 | ) |  | $ | (1,110,000 | )
|                                        |  |                   |            |                    |  |      |            |      |  |   |            |   |  |   |            |  

10



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##### 



Note 10  Related Party Transactions

CFK Partners and CFK Realty Partners, LLC are entities consisting of three
of the Companys directors, one of whom also serves as the Companys Chief
Executive Officer and another who serves as Chairman of the Board and another
who serves as outside counsel on various general corporate legal matters. In
addition, CFK Partners also owns approximately 24.7% of the Companys issued
and outstanding common and preferred stock.

In January 2002, the Company sold the land and the office building which
houses its corporate headquarters to CFK Realty Partners, LLC (CFK Realty)
for $4,200,000, consisting of $2,800,000 in cash and a note receivable of
$1,400,000. The note accrues interest at 5% and contains provisions whereby CFK
Realty can elect to extend the maturity date in one year increments through
December 31, 2004. The note had an original maturity date of December 31, 2002.
In early December 2003, the Company received notification from CFK Realty that
it was exercising its right to extend the maturity date of the note for an
additional one year period. Concurrently with the sale, the Company also
entered into a ten-year lease of the property for a monthly rental amount of
approximately $37,000. CFK Realty financed the purchase of the building through
a $3.2 million loan. CFK Realty is included in the Companys consolidated
financial statements included herein.

The Company and its Chairman (collectively, the Members) each own an
equity interest in MercMed LLC (MercMed) of 67.16% and 32.84%, respectively.
The respective Members equity interest is based on the cumulative Member
contributions to MercMed and will be adjusted in the future based on future
Member contributions. Based on the Companys majority interest, MercMed has
been included in the Companys consolidated financial statements and the
liability to the minority interest has also been reflected in the consolidated
balance sheets. Minority interest on the Companys consolidated balance sheet
represents the minority members equity in MercMed. MercMed was formed for the
purpose of owning and operating an aircraft for the Members. On March 27, 2003,
MercMed obtained new financing for the aircraft which is a 15-year loan with
the interest rate being fixed for the initial 36-month period. At the end of
the initial 36-month period, the interest rate will be reviewed and fixed at
the then Federal Home Loan Banks regular three-year interest rate plus 275
basis points. Each of the Members are guarantors of this note. The outstanding
principal amount of the loan as of March 31, 2004 was $675,000.

The Company uses the services of the legal firm McBreen and Kopko (the
Firm) for various general corporate legal matters. Mr. Frederick H. Kopko,
Jr., a partner of the Firm, is a member of the Companys Board of Directors and
is a partner with CFK Partners. For the nine-month periods ended March 31, 2004
and 2003, the Company paid the Firm $679,000 and $541,000, respectively, for
legal services rendered. For the three-month periods ended March 31, 2004 and
2003, the Company paid the Firm $198,000 and $179,000, respectively.

Note 11  Subsequent Event  Sale of Mercury Air Centers, Inc.

On April 12, 2004, upon approval from the Companys shareholders at the
Annual Shareholders Meeting, the Company sold all of the outstanding common
stock owned by it in Mercury Air Centers, Inc. (Air Centers), which
represented 100% of the then outstanding common stock in Air Centers, to Allied
Capital Corporation (Allied) with the Company receiving total consideration
for the sale in cash at closing of $76,349,000 (the FBO Sale). The final
amount of the total consideration to be received by the Company from the FBO
Sale is dependent upon the determination of the amount of Air Centers net
working capital at the time of closing. In accordance with the terms of the
Stock Purchase Agreement entered into by the Company and Allied on October 28,
2003, as amended from time to time, the Company and Allied agreed to the extent
Air Centers actual net working capital at closing exceeded $3,586,000, Allied
is obligated to pay the Company the excess amount or to the extent Air Centers
net working capital is less than $3,586,000, the Company is obligated to pay
Allied the deficiency.

The Company expects to report a net gain on the sale of the business
segment in the Companys fourth quarter of fiscal 2004 in addition to reversing
excess debt premium cost reserves associated with the Companys $24 million
senior subordinated note.

The proceeds from the FBO Sale were used to: 1) prepay the outstanding
principal on the Facility due Foothill comprised of both a term loan and a
revolving credit facility, in the amount of $13,255,000; 2) pay accrued
interest and fees associated with the Facility of $203,000; 3) establish a cash
collateral with Foothill in the amount of $16,031,000 in support of issued and
outstanding letters of credit issued under the terms of the Facility; 4) prepay
the outstanding principal, including the amount of accrued interest payable-in-kind
(PIK), on the Note of $24,120,000 to Allied; 5) pay accrued interest
and fees associated with the Note of $141,000; 6) prepay the outstanding
principal, including the amount of accumulated PIK interest, on the Hambro
Notes in the amount of $3,695,000; 7) pay accrued interest on the Hambro Notes
in the amount of $15,000; 8) establish an escrow account associated with
Hartsfield

11



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##### 



International Airport FBO in Atlanta in the amount of $8,270,000 to
be distributed to the Company, either in whole or in part under certain
conditions, over a period not to exceed five years from the date of closing;
and 9) pay for transaction related fees and expenses of $1,324,000. After
satisfying the obligations noted above, the Company received $9,295,000.

The total amount of principal on long term debt, both current and
non-current amounts, repaid by the Company with the proceeds from the FBO sale
was $41,070,000. Upon the repayment of the long term debt detailed above, the
Companys remaining outstanding principal of long term debt was $17,960,000, of
which $14,000,000 is associated with the tax exempt bonds issued pursuant to a
loan agreement between the Company and the California Economic Development
Financing Authority (the CEDFA Bonds). The CEDFA Bonds carry a variable rate
of interest which is based on a weekly remarketing of the bonds and are
collateralized by a letter of credit issued by Wells Fargo Bank. The rate of
interest at April 28, 2004 was 1.15% per annum.

With the prepayment of all of the obligations associated with the
Facility, the Company satisfied all of the conditions established in the
Forbearance Agreement, as amended on February 16, 2004.

12



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##### 



Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations Comparison of the three months ended March 31,
2004 and March 31, 2003 and comparison of the nine months ended March 31, 2004
and March 31, 2003.

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.

|                          |  |                             |         |                              |  |        |       |          |  |        |         |          |  |        |       |          |  |       |         |   |  |  |       |       |  |  |         |   |  |  |       |  
|------------------------- |  | --------------------------- | ------- | ---------------------------- |  | ------ | ----- | -------- |  | ------ | ------- | -------- |  | ------ | ----- | -------- |  | ----- | ------- | - |  |  | ----- | ----- |  |  | ------- | - |  |  | ----- | -
|                          |  | Nine Months Ended March 31, |         | Three Months Ended March 31,
|                          |  |                             |         |                             
|                          |  | 2004                        |         | 2003                         |  | 2004   |       | 2003    
|                          |  |                             |         |                              |  |        |       |         
|                          |  |                             |         |                              |  | % of   |       |          |  |        |         | % of     |  |        |       |          |  | % of  |         |   |  |  |       | % of 
|                          |  |                             |         |                              |  | Total  |       |          |  |        |         | Total    |  |        |       |          |  | Total |         |   |  |  |       | Total
|                          |  | Amount                      |         | Revenues                     |  | Amount |       | Revenues |  | Amount |         | Revenues |  | Amount |       | Revenues
|                          |  |                             |         |                              |  |        |       |          |  |        |         |          |  |        |       |         
|                          |  | ($ in thousands)           
|Revenues:                 |  |                             |         |                              |  |        |       |          |  |        |         |          |  |        |       |          |  |       |         |   |  |  |       |       |  |  |         |   |  |  |       |  
|Fuel sales                |  | $                           | 228,195 |                              |  |        | 67.0  | %        |  | $      | 218,111 |          |  |        | 65.6  | %        |  | $     | 88,305  |   |  |  | 70.3  |       |  |  | 72,497  |   |  |  | 65.3  | %
|FBOs                      |  |                             | 69,687  |                              |  |        | 20.5  |          |  |        | 72,187  |          |  |        | 21.7  |          |  |       | 23,704  |   |  |  | 18.9  |       |  |  | 24,479  |   |  |  | 22.0  |  
|Cargo operations          |  |                             | 29,306  |                              |  |        | 8.6   |          |  |        | 24,840  |          |  |        | 7.4   |          |  |       | 9,729   |   |  |  | 7.8   |       |  |  | 8,396   |   |  |  | 7.6   |  
|Maytag Aircraft           |  |                             | 17,489  |                              |  |        | 5.1   |          |  |        | 18,510  |          |  |        | 5.5   |          |  |       | 5,747   |   |  |  | 4.6   |       |  |  | 5,990   |   |  |  | 5.4   |  
|Intercompany eliminations |  |                             | (4,241  | )                            |  |        | (1.2  | )        |  |        | (764    | )        |  |        | (0.2  | )        |  |       | (1,949  | ) |  |  | (1.6  | )     |  |  | (335    | ) |  |  | (0.3  | )
|                          |  |                             |         |                              |  |        |       |          |  |        |         |          |  |        |       |          |  |       |         |   |  |  |       |       |  |  |         |   |  |  |       |  
|Total Revenue             |  | $                           | 340,436 |                              |  |        | 100.0 | %        |  | $      | 332,884 |          |  |        | 100.0 | %        |  | $     | 125,536 |   |  |  | 100.0 | %     |  |  | 111,027 |   |  |  | 100.0 | %
|                          |  |                             |         |                              |  |        |       |          |  |        |         |          |  |        |       |          |  |       |         |   |  |  |       |       |  |  |         |   |  |  |       |  

|                   |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |      |       |  |  |  |      |      |  |   |       |  |  |  |      |  
|------------------ |  | ------ | ------ | -------- |  | ------ | ---- | -------- |  | ------ | ------ | -------- |  | ------ | ---- | -------- |  | ---- | ----- |  |  |  | ---- | ---- |  | - | ----- |  |  |  | ---- | -
|                   |  |        |        |          |  | % of   |      |          |  |        |        | % of     |  |        |      |          |  | % of |       |  |  |  |      | % of
|                   |  |        |        |          |  | Unit   |      |          |  |        |        | Unit     |  |        |      |          |  | Unit |       |  |  |  |      | Unit
|                   |  | Amount |        | Revenues |  | Amount |      | Revenues |  | Amount |        | Revenues |  | Amount |      | Revenues
|                   |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |         
|Gross Margin(1):   |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |      |       |  |  |  |      |      |  |   |       |  |  |  |      |  
|Fuel sales         |  | $      | 4,806  |          |  |        | 2.1  | %        |  | $      | 4,741  |          |  |        | 2.1  | %        |  | $    | 1,506 |  |  |  | 1.7  | %    |  | $ | 1,670 |  |  |  | 2.3  | %
|FBOs               |  |        | 8,392  |          |  |        | 12.0 |          |  |        | 8,784  |          |  |        | 12.2 |          |  |      | 2,104 |  |  |  | 8.9  |      |  |   | 2,870 |  |  |  | 11.7 |  
|Cargo operations   |  |        | 1,356  |          |  |        | 4.6  |          |  |        | 2,072  |          |  |        | 8.3  |          |  |      | 60    |  |  |  | 0.6  |      |  |   | 368   |  |  |  | 4.4  |  
|Maytag Aircraft    |  |        | 3,909  |          |  |        | 22.4 |          |  |        | 3,360  |          |  |        | 18.2 |          |  |      | 1,166 |  |  |  | 20.2 |      |  |   | 1,211 |  |  |  | 20.2 |  
|                   |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |      |       |  |  |  |      |      |  |   |       |  |  |  |      |  
|Total Gross Margin |  | $      | 18,463 |          |  |        | 5.4  | %        |  | $      | 18,957 |          |  |        | 5.7  | %        |  | $    | 4,836 |  |  |  | 3.9  | %    |  | $ | 6,119 |  |  |  | 5.5  | %
|                   |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |      |       |  |  |  |      |      |  |   |       |  |  |  |      |  

|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|------------------------------------------ |  | ------ | ------ | -------- |  | ------ | ---- | -------- |  | ------ | ------ | -------- |  | ------ | ---- | -------- |  | ----- | ------ | - |  |  | ---- | ----- |  | - | ------ | - |  |  | ---- | --
|                                           |  |        |        |          |  | % of   |      |          |  |        |        | % of     |  |        |      |          |  | % of  |        |   |  |  |      | % of 
|                                           |  |        |        |          |  | Total  |      |          |  |        |        | Total    |  |        |      |          |  | Total |        |   |  |  |      | Total
|                                           |  | Amount |        | Revenues |  | Amount |      | Revenues |  | Amount |        | Revenues |  | Amount |      | Revenues
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |         
|Selling, general and
administrative        |  | $      | 7,838  |          |  |        | 2.3  | %        |  | $      | 7,889  |          |  |        | 2.4  | %        |  | $     | 2,798  |   |  |  | 2.2  | %     |  | $ | 2,648  |   |  |  | 2.4  | % 
|Provision for bad debts                    |  |        | 421    |          |  |        | 0.1  |          |  |        | 1,201  |          |  |        | 0.4  |          |  |       | 361    |   |  |  | 0.3  |       |  |   | 442    |   |  |  | 0.4  |   
|Depreciation and amortization              |  |        | 6,405  |          |  |        | 1.9  |          |  |        | 6,121  |          |  |        | 1.8  |          |  |       | 2,126  |   |  |  | 1.7  |       |  |   | 2,072  |   |  |  | 1.9  |   
|Interest expense and other                 |  |        | 5,954  |          |  |        | 1.8  |          |  |        | 5,459  |          |  |        | 1.6  |          |  |       | 1,674  |   |  |  | 1.3  |       |  |   | 2,594  |   |  |  | 2.3  |   
|Hambro settlement costs                    |  |        | 1,799  |          |  |        | 0.5  |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|Debt extinguishment costs                  |  |        |        |          |  |        |      |          |  |        | 1,773  |          |  |        | 0.5  |          |  |       |        |   |  |  |      |       |  |   | 40     |   |  |  | 0.0  |   
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|Loss before income tax benefit             |  |        | (3,954 | )        |  |        | (1.2 | )        |  |        | (3,486 | )        |  |        | (1.0 | )        |  |       | (2,123 | ) |  |  | (1.7 | )     |  |   | (1,677 | ) |  |  | (1.5 | ) 
|Income tax benefit                         |  |        | (316   | )        |  |        | (0.1 | )%       |  |        | (1,203 | )        |  |        | (0.3 | )        |  |       | (304   | ) |  |  | (0.2 | )     |  |   | (579   | ) |  |  | (0.5 | ) 
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|Net loss                                   |  |        | (3,638 | )        |  |        | (1.1 | )%       |  |        | (2,283 | )        |  |        | (0.7 | )%       |  |       | (1,819 | ) |  |  | (1.5 | )%    |  |   | (1,098 | ) |  |  | (1.0 | )%
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|Accrued preferred stock dividends          |  |        | (28    | )        |  |        | (0.0 | )%       |  |        |        |          |  |        |      |          |  |       | (9     | ) |  |  | (0.0 | )%    |  |   |        |   |  |  |      |   
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   
|Net loss applicable to common
stockholders |  | $      | (3,666 | )        |  |        | (1.1 | )%       |  | $      | (2,283 | )        |  |        | (0.7 | )%       |  | $     | (1,828 | ) |  |  | (1.5 | )%    |  | $ | (1,098 | ) |  |  | (1.0 | )%
|                                           |  |        |        |          |  |        |      |          |  |        |        |          |  |        |      |          |  |       |        |   |  |  |      |       |  |   |        |   |  |  |      |   



---

|(1) |  | Gross margin as used here and throughout Managements Discussion includes
certain selling, general and administrative costs which are charged
directly to the operating units, but excludes depreciation and
amortization expenses and selling, general and administrative expense.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Three Months Ended March 31, 2004 Compared to March 31, 2003

Revenue for the Company in the third quarter of fiscal 2004 was $125,536
thousand, an increase of $14,509 thousand or 13.1% from revenue of $111,027
thousand reported for the third quarter of fiscal 2003 due to increased sales
in the MercFuel and the Air Cargo operations. Gross margin decreased by 21.0%
to $4,836 thousand in the third quarter of fiscal 2004 from $6,119 thousand
reported in the third quarter of fiscal 2003. The decrease in gross margin
reflected a decline in performances as discussed below at the Companys Air
Centers, and the Air Cargo Operating Segment.

MercFuel, the Companys fuel sales business, generated revenue of $88,305
thousand in the current period, an increase of $15,808 thousand or 21.8% from
last years revenue of $72,497 thousand. The increase in revenue was primarily
due to a combination of both

13



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##### 



higher sales volume and higher average fuel sales
prices. Fuel sales volume was 72.3 million gallons in the third quarter of
fiscal 2004, an increase of 9.1 million gallons from the same period of fiscal
2003 equating to an increase in sales revenue of $10.4 million. The increase in
sales volume was spread throughout its existing customer base of commercial
airlines as well as increased sales to corporate aviation customers, which
includes sales to companies providing fractional shares of corporate jet
ownership and usage. The average sales price in the third quarter of fiscal
2004 was $1.220 per gallon, an increase of $0.074 per gallon from the same
period of last year equating to an increase in revenue of $5.4 million due to
higher average sales prices. The higher average sales price is due to higher
worldwide petroleum prices. MercFuels revenues represented 70.3% of the
Companys total revenue in the current period compared to 65.3% of the
Companys total revenue in the comparable prior year quarter. MercFuels gross
margin from fuel sales was $1,506 thousand, or $0.021 per gallon, in the
current period compared with $1,670 thousand, or $0.026 per gallon, in the same
period last year. The decrease in gross margin was primarily due to lower
realized margins for fuel sales in the corporate aviation fractional aircraft
ownership market, where the average margin per gallon decreased to $0.074 per
gallon in the third quarter of fiscal 2004 on sales volume of 11.8 million
gallons from $0.104 per gallon last year on sales volume of 7.1 million
gallons.

The Companys Air Cargo operations had revenue of $9,729 thousand in the
third quarter of fiscal 2004, an increase of $1,333 thousand or 15.8% from
revenue of $8,396 thousand in the third quarter of fiscal 2003. The increase in
revenue is mainly due to improvements in the cargo management division of $1.3
million. The increased revenue in cargo management is due to increased
activity generated by the Mercury World Cargo division, which sells Cargo
capacity under Mercurys own airway bill. Gross margin from Air Cargo
operations in the current period decreased by $308 thousand, or 83.7%, to $60
thousand from $368 thousand in the year ago period due primarily to lower
margins in Air Cargos cargo marketing services division.

The Companys Maytag Aircraft segment had revenue of $5,747 thousand in
the third quarter of fiscal 2004, a decrease of $243 thousand or 4.1% from
revenue of $5,990 thousand in the third quarter of fiscal 2003. The revenue
decrease is due to the loss of the segments air terminal contract at Eielson
Air Force Base in Alaska in fiscal 2003. Gross margin in the current period
decreased slightly by $45 thousand or 3.7% to $1,166 thousand from $1,211
thousand last year.

The Companys Air Centers business segment had revenue of $23,704 thousand
in the third quarter of fiscal year 2004, a decrease of $775 thousand or 3.2%
from last years third quarter revenue of $24,479 thousand. The revenue
decrease was primarily due to lower revenue of $0.6 million in retail fuel
sales in the Air Center operations. The Air Centers aviation fuel sales volume
in the third quarter of fiscal 2004 was 7.5 million gallons with an average
sales price of $2.04 per gallon as compared to last years third quarter sales
volume of 8.0 million gallons with an average sales price of $1.99 per gallon.
The higher average sales price was due to higher worldwide petroleum prices.
Air Centers gross margin decreased by $766 thousand or 26.7% in the current
period to $2,104 thousand from $2,870 thousand due to lower fuel volume with
little change in the margin per gallon which was 84.7 cents per gallon in the
third quarter of fiscal year 2004 as compared to 84.5 cents per gallon in last
years third quarter.

Selling, general and administrative expenses in the current quarter
increased by $150 thousand, or 5.7%, to $2,798 thousand from $2,648 thousand in
last fiscal years third quarter due to professional fees associated with the
re-audit of the Companys financial statements for fiscal 2002 and 2001.

The Companys provision for bad debts in the third quarter of fiscal 2004
was $361,000, a decrease of $81,000 from the third quarter of fiscal 2003 bad
debt expense of $442,000.

Depreciation and amortization expense was $2,126 thousand in the current
period compared to $2,072 thousand a year ago.

Interest expense and other was $1,674 thousand in the third quarter of
fiscal 2004, a decrease of $920 thousand from the same period last year. The
decrease was due to the accrual in the third quarter of fiscal 2003 of $916
thousand for the debt premiums associated with the Note.

Nine Months Ended March 31, 2004 Compared to March 31, 2003

Revenue for the Company for the first nine months of fiscal 2004 was
$340,436 thousand, an increase of 2.3% from revenue of $332,884 thousand
reported for the first nine months of fiscal 2003. The increase in revenue is
due primarily to higher MercFuel revenue of $10,084 thousand. Gross margin
decreased by 2.6% to $18,463 thousand in the first nine months of fiscal 2004
from $18,957 thousand reported in the first nine months of fiscal 2003. The
decrease in gross margin is due to lower margins in the Air Center and Air
Cargo divisions, offset by improved performance at the Companys Government
Contract Services segment.

14



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MercFuel, the Companys fuel sales business, generated revenue of $228,195
thousand in the current period, an increase of $10,084 thousand or 4.6% from
last years revenue of $218,111 thousand. The increase in revenue was due to
higher average fuel sales prices offset in part by a reduction in fuel sales
volume. Fuel sales volume was 207.5 million gallons in the first nine months of
fiscal 2004, a decrease of 13.9 million gallons from the same period of fiscal
2003 equating to a reduction in sales revenue of $13.8 million. The decline in
sales volume is due to the cessation of business by National Airlines, Inc.
(National), a customer of MercFuel since May 1999, on November 6, 2002. Sales
volume to National in fiscal 2003, through November 6, 2003, was 28.9 million
gallons, resulting in revenue of $24.7 million. The average sales price in the
first nine months of fiscal 2004 was $1.10 per gallon, an increase of $0.115
per gallon from the same period of last year equating to an increase in revenue
of $23.9 million due to higher average sales prices. The higher average sales
price is due to higher worldwide petroleum prices. MercFuels revenues
represented 67.0% of the Companys total revenue in the current period compared
to 65.6% of revenue in the comparable prior year. MercFuels gross margin was
$4,806 thousand in the current period compared with $4,741 thousand in the same
period last year, of which $0.4 million was generated from sales to National.
The average gross margin per gallon sold in the first nine months of fiscal
year 2004 was $0.0401 per gallon as compared to $0.0383 for the same period
last year. MercFuels sales volume in the corporate aviation and fractional
aircraft ownership division for the first nine months of fiscal 2004 was 28.5
million gallons, an increase of 7.7 million gallons, or 37.4%, over last years
sales volume of 20.8 million gallons.

The Companys Air Cargo operations had revenue of $29,306 thousand in the
first nine months of fiscal 2004, an increase of $4,466 thousand or 18.0% from
revenue of $24,840 thousand in the first nine months of fiscal 2003. The
increase in revenue is mainly due to improvements in the cargo management
division of $3.7 million and in the cargo marketing services division of $0.8
million. The increase in cargo management represents increased activity
generated by the Mercury World Cargo division, which sells cargo capacity under
Mercurys own airway bill. Gross margin from Air Cargo operations in the
current period decreased by $716 thousand, or 34.6%, to $1,356 thousand from
$2,072 thousand in the year ago period due primarily to the accrual of employee
severance costs of $0.3 million in fiscal 2004 and lower margins in the cargo
marketing services and the warehouse division which decreased $0.7 million and
$0.8 million, respectively, partially offset by increased operating margin of
$1.1 million for the cargo management division.

The Companys Maytag Aircraft segment had revenue of $17,489 thousand in
the first nine months of fiscal 2004, a decrease of $1,021 thousand, or 5.2%,
from revenue of $18,510 thousand in the first nine months of fiscal 2003. The
revenue decrease is primarily due to decreased revenue from Weather Data
Services contracts in the amount of $0.4 million and the loss of one refueling
contract and one air terminal contract, which generated combined revenue of
$0.9 million last year. Gross margin in the current period increased by $549
thousand or 16.3% to $3,909 thousand from $3,360 thousand last year due to the
recovery of a wage determination in fiscal 2004 for the Companys Westover
contract and the establishment of a legal reserve in fiscal 2003 for settlement
of a labor dispute on the Companys Patrick Air Force Base contract.

The Companys Air Centers business segment had revenue of $69,687 thousand
in the first nine months of fiscal 2004, a decrease of $2,500 thousand or 3.5%
from last years first nine months revenue of $72,187 thousand. The revenue
decrease was mainly due to lower revenue of $1.9 million in maintenance
activities in the Air Center operations. The Air Centers aviation fuel sales
revenue for the first nine months of fiscal 2004 also decreased by $454 thousand from
last years nine month period. The Air Centers aviation fuel sales volume in
the first nine months of fiscal 2004 was 23.3 million gallons with an average
sales price of $1.96 per gallon as compared to last years first nine months
sales volume of 25.2 million gallons with an average sales price of $1.83 per
gallon. The higher average sales price was mainly due to slightly higher
worldwide petroleum prices. Air Centers gross margin decreased by $392
thousand or 4.5% in the current period to $8,392 thousand from $8,784 thousand.

Selling, general and administrative expenses for the year decreased by $51
thousand, or 0.7%, to $7,838 thousand from $7,889 thousand in last years first
nine months primarily due to a $318 thousand expense relating to the extension
of the term for certain stock options in the prior year. This is offset by
expenses associated with the re-audit of the Companys financial statements.

Provision for bad debts was $421 thousand in the current period, compared
to $1,201 thousand from the prior year. The reduction reflects better than
expected customer collections experience in fiscal 2004, despite the higher
average aviation fuel prices.

Depreciation and amortization expense was $6,405 thousand in the current
period compared to $6,121 thousand a year ago.

Interest expense and other was $5,954 thousand in the first nine months of
fiscal 2004, an increase of $495 thousand from the same period last year. This
increase is due in part to the accrual for the debt premiums associated with
the Senior Subordinated Note and the increased debt servicing costs associated
with the Companys Senior Secured Credit Facility entered into on December 30,
2002 as

15



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compared with the Companys previous Senior Secured Credit Facility.
In fiscal year 2004, the Company accrued $1,150 for these debt premiums as
compared to $916 thousand accrued during the first nine months of fiscal year
2003.

The Company recognized settlement expense of $1,799 thousand in the second
quarter of fiscal 2004 associated with the Hambro Settlement. The settlement
expense represents the difference between the face value of the Hambro Notes
and the trading value of the shares of common stock acquired by the Company on
the settlement date. See further discussion of the settlement in the
discussion of liquidity and capital resources which follows.

The Company wrote off unamortized deferred financing costs of $1,773
thousand in the first nine months of fiscal 2003 due to the Companys debt
restructuring in December 2002.

The settlement cost of $1,799 thousand recognized by the Company in the
second quarter of fiscal 2004 is not deductible in determining taxable income
resulting in a permanent book to tax difference. As a result, the Companys
taxable loss is lower than the book loss before income tax benefit for the nine
month period ended March 31, 2004 by $1,799 thousand reducing the Companys
income tax benefit in fiscal 2004 by $612 thousand.

Liquidity and Capital Resources

As of March 31, 2004, the Companys cash and cash equivalents were $1.8
million, a decrease of $1.0 million as compared to cash and cash equivalents
of $2.8 million as of June 30, 2003.

Cash provided by operating activities for the nine-month period ended
March 31, 2004 was $327 thousand as compared to cash provided by operating
activities of $3,252 thousand in the first nine months of fiscal 2003. The
change in operating assets and liabilities for the first nine months of fiscal
2004 resulted in a use of cash from operating activities of $5.6 million as
compared to a use of cash from operating activities of $4.9 million in the
first nine months of fiscal 2003, which reflects a payment of $4.5 million for
income taxes primarily due to the sale of the Bedford FBO. The current years
operating liabilities reflect an accrual of $2.9 for debt premiums which will
be reversed during the fourth quarter of fiscal 2004, following the repayment
of all obligations associated with the Note from the proceeds generated by the
sale of the FBO division.

During the first nine months of fiscal 2004, the Company used $4.1 million
in investing activities primarily due to capital expenditures of $4.7 million
of which $3.8 million was associated with the Air Centers, partially offset by
a $0.8 million reduction in notes receivable. This compares to cash used by
investing activities of $1.1 million during the first nine months of fiscal
2003 resulting from the reduction in restricted cash of $3.7 million,
established to pay for the estimated income tax obligation from the sale of the
Bedford FBO, offset by capital expenditures of $4.0 million of which $3.6
million was associated with the Air Centers. In addition, in fiscal 2003, the
Company invested $1 million in the acquisition of Canyon Fuels business, an
aviation fuel resale business. The Companys financing activities provided $2.7
million during the first nine months primarily associated with the drawings on
the Companys revolving line of credit to meet working capital requirements, as
compared to net cash used by financing activities for the first nine months of
fiscal 2003 of $1.8 million.

On December 30, 2002, the Company entered into a loan and security
agreement with Foothill Capital Corporation (Foothill), now known as Wells
Fargo Foothill Corporation, a division of Wells Fargo Bank (the Facility), as
agent for the lenders party thereto, refinancing its senior collateralized
credit facilities for a five-year term. In addition, the Company and J.H.
Whitney Co. Mezzanine Fund entered into agreements amending the terms of the
subordinated note (the Whitney Note), which was to mature on December 31,
2005. The initial funding from the facility and the amendments to the
subordinated note was completed on December 30, 2002.

The Facility consists of up to $42.5 million in revolving and term loans.
The outstanding principal on the term loan as of March 31, 2004 was $9.5
million, while the revolving loan is for an amount not to exceed 85% of
Eligible Accounts Receivable (as defined in the loan agreement), subject to
certain limitations. The term loan is payable in $1.0 million installments each
April 1 and October 1, beginning April 1, 2003 and in $0.5 million installments
each July 1 and December 31, until paid in full. Amounts repaid under the term
loan increase the maximum availability under the revolving loan. The Facility
also provides for the issuance of certain letters of credit. The terms of the
Facility require that the Company maintain a minimum availability on the
revolving line of credit of $2.5 million. As of March 31, 2004, the Company had
$3.4 million of availability on the revolving line of credit.

The amended Whitney Note was in the form of a $24.0 million Senior
Subordinated 12% Note (the Note) with detachable warrants to purchase 251,563
shares of the Companys common stock exercisable through September 9, 2006 at
$6.10 per share as

16



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adjusted for the one-for-two stock split in July 2003. The
warrant exercise price was reduced from $11.00 per share. The Note is
collateralized by the Companys assets, subordinate to Foothills interest.
Warrants to purchase an additional 5% of the Companys common stock,
exercisable for nominal consideration, would have been issuable if the
principal amount of the Note was not prepaid by December 31, 2003. Warrants to
purchase a second 5% of the Companys common stock, exercisable for nominal
consideration, along with an additional note in the original principal amount
of $5 million would also have been issued if the outstanding principal amount
of the Note was greater than $12 million after December 31, 2003. However, on
October 28, 2003 the Company announced that Allied had acquired the Note from
Whitney and waived the provisions for the additional warrants equivalent to 10%
of the Companys outstanding common stock and the additional $5 million note.

On December 5, 2003, as amended on February 16, 2004, the Company and its
lenders under the Facility executed the Fifth Amendment to the Loan and
Security Agreement and Forbearance Agreement (the Forbearance Agreement).
Among other things, the Company requested the lenders and the lenders agreed to
forbear from exercising their rights and remedies under the Facility for the
following events of default, as defined in the Loan and Security Agreement: (1)
the Companys failure to deliver its annual audited financial statements for
fiscal 2003 within the prescribed time-frame allowed; (2) the formation of a
subsidiary, Mercury Air Center  Long Beach, without the prior consent of the
lenders; (3) the Companys failure to deliver supplemental schedules to J. H.
Whitney as required under the terms of the $24 million Senior Secured 12% Note;
and (4) the Companys failure to achieve the EBITDA financial covenant for the
twelve-month period ended December 31, 2003. The Forbearance Agreement, as
amended, states that the lenders agree, for a limited time but no later than
April 14, 2004, to forbear from exercising their rights and remedies under the
Senior Secured Credit Facility with respect to the events of default noted
above.

On December 12, 2003, the Company entered into a settlement agreement (the
Hambro Settlement) relating to litigation with J O Hambro Capital Management
and certain of its affiliates and private clients (J O Hambro) whereby the
Company issued three promissory notes for an aggregate principle amount of
$3,586,000 (the Hambro Notes) in exchange for the following, among other
things: (1) the release of certain claims by J O Hambro; (2) the Companys
agreement to dismiss litigation against J O Hambro; (3) the Companys agreement
not to institute certain litigation against J O Hambro and certain other
parties; (4) reimbursement of certain costs associated with the pending
litigation and the defense preparation for anticipated litigation between the
parties; and (5) the purchase of 343,600 shares of the Companys common stock
in exchange for the Hambro Notes.

On April 12, 2004, upon approval from the Companys shareholders at the
Annual Shareholders Meeting, the Company sold all of the outstanding common
stock owned by it in Air Centers, which represented 100% of the then
outstanding common stock in Air Centers, to Allied with the Company receiving
total consideration for the sale in cash at closing of $76,349,000 (the FBO
Sale). The final amount of the total consideration to be received by the
Company from the FBO Sale is dependent upon the determination of the amount of
Air Centers net working capital at the time of closing. In accordance with the
terms of the Stock Purchase Agreement entered into by the Company and Allied on
October 28, 2003, as amended from time to time, the Company and Allied agreed
to the extent Air Centers actual net working capital at closing exceeded
$3,586,000, Allied is obligated to pay the Company the excess amount or to the
extent Air Centers net working capital is less than $3,586,000, the Company is
obligated to pay Allied the deficiency.

The Company expects to report a net gain on the sale of the business
segment in the Companys fourth quarter of fiscal 2004 in addition to reversing
excess debt premium cost reserves associated with the Companys $24 million
senior subordinated note.

The proceeds from the FBO Sale were used to: 1) prepay the outstanding
principal on the Facility due Foothill, comprised of both a term loan and a
revolving credit facility, in the amount of $13,255,000; 2) pay accrued
interest and fees associated with the Facility of $203,000; 3) establish a cash
collateral with Foothill in the amount of $16,031,000 in support of issued and
outstanding letters of credit issued under the terms of the Facility; 4) prepay
the outstanding principal, including the amount of accumulated PIK interest,
on the Note of $24,120,000 to Allied; 5) pay accrued interest and fees
associated with the Note of $141,000; 6) prepay the outstanding principal,
including the amount of accumulated PIK interest, on the Hambro Notes in the
amount of $3,695,000; 7) pay accrued interest on the Hambro Notes in the amount
of $15,000; 8) establish an escrow account associated with Hartsfield
International Airport FBO in Atlanta in the amount of $8,270,000 to be
distributed to the Company, either in whole or in part under certain
conditions, over a period not to exceed five years from the date of closing;
and 9) pay for transaction related fees and expenses of $1,324,000. After
satisfying the obligations noted above, the Company received $9,295,000.

The total amount of principal on long term debt, both current and
non-current amounts, repaid by the Company with the proceeds from the FBO Sale
was $41,070,000. Upon the repayment of the long term debt detailed above, the
Companys remaining outstanding principal of long term debt was $17,960,000, of
which $14,000,000 is associated with the tax exempt bonds issued pursuant to a
loan agreement between the Company and the California Economic Development
Financing Authority (the CEDFA Bonds). The CEDFA

17



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Bonds carry a variable rate
of interest which is based on a weekly remarketing of the bonds and are
collateralized by a letter of credit issued by Wells Fargo Bank. The rate of
interest at April 28, 2004 was 1.15% per annum.

With the prepayment of all of the obligations associated with the
Facility, the Company satisfied all of the conditions established in the
Forbearance Agreement.

Petroleum product prices, including aviation fuel prices, have risen to
historically high levels due primarily to an increase in world-wide petroleum
product consumption and instability in the Middle East. The increased aviation
fuel prices have resulted in an increase in the Companys trade receivables for
many of the Companys customers. If aviation fuel prices maintain these recent
high levels for an extended period of time and the Companys customers are
unable to pass on the increased fuel costs to their customers, the Company may
experience longer collection periods and/or higher uncollectible amounts from
certain customers. This would result in reduced cash availability adversely
affecting the Companys ability to pay its fuel suppliers on a timely basis.

The Company is currently evaluating new credit facilities to support the
Companys expansion of its remaining three business lines and to support the
Companys Letters of Credit requirements thereby releasing the cash collateral
of approximately $16 million to be used for working capital requirements and
general corporate purposes.

In January 2004, Maytag Aircraft was awarded the United States Air
Mobility Command (AMC) contract to provide Air Terminal and Ground Handling
Services at Kuwait International Airport. Under the terms of the contract,
Maytag Aircraft will provide air terminal and ground handling services for the
Air Mobility Command, working U.S. Government owned or operated aircraft and
U.S. Government sponsored foreign aircraft requiring such services at Kuwait
International Airport/Al Mubarek Air Base. This contract is effective April 1,
2004 through September 30, 2004 with four one-year option periods making the
full term of this $18 million contract effective through September 30, 2008.
This contract represents a continuum of air terminal and ground handling
services provided by Maytag Aircraft Corporation to AMC since August of 2000.
The services include operating the air terminal operations center (information
control, load planning, capability forecasting, and ramp coordination), and
providing aircraft services (cargo processing, aircraft loading and unloading,
cleaning, and catering), ground services (marshalling, material handling,
baggage handling, and all related connect/disconnect services), passenger
services, information systems, and equipment maintenance.

Critical Accounting Policies

Managements beliefs regarding critical accounting policies have not
changed significantly from those discussed in Item 7 of the Companys Annual
Report on Form 10-K for the fiscal year ended June 30, 2003.

Item 3.Quantitative and Qualitative Disclosure About Market Risk

There has been no material change during the nine months ended March 31,
2004 from the disclosures regarding market risk presented in the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2003.

Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on evaluations as of March 31, 2004, our principal executive officer
and principal financial officer, with the participation of our management team,
have concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act) are effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Securities Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the
SEC.

Changes in Internal Controls

There were no significant changes in our internal controls or in other
factors that could significantly affect these internal controls subsequent to
the date of their most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

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Forward-Looking Statements

Statements contained in this Quarterly Report on Form 10-Q 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.

PART II  OTHER INFORMATION

Item 1.Legal Proceedings

On April 16, 2003, the Plan Committee of Shuttle America Corporation filed
an Adversary Proceeding in the United States Bankruptcy Court, District of
Connecticut alleging preferential transfers in the amount of $995,000. The
Company believes that it has significant defenses in this matter. The Company
filed its answer on May 15, 2003. On February 19, 2004, the Bankruptcy Court
approved a settlement agreement whereby the Company will pay Shuttle America
Corporation $40,000 in three equal monthly installment payments of $13,333
starting in February 2004. These payments were fully accrued by the Company at
March 31, 2004.

In December 2001, a jury returned its verdict on Michael Marignys
(Plaintiff) cause of action for retaliation in violation of California Fair
Employment and Housing Act in favor of Defendant, Mercury, but awarded damages
in the amount of $15,000 for Plaintiffs cause of action for intentional
infliction of emotional distress. In February 2002, Plaintiff filed a notice
of appeal with the Second Appellate Court (Court). The Court ruled on this
appeal in August of 2003 affirming in part and reversed in part the judgment
and the case was remanded for retrial. On March 31, 2004 the Company entered
into a settlement agreement in this case for the payment of $200,000 which was
paid in April 2004. This settlement was accrued by the Company in the financial
statements for the quarterly period ended March 31, 2004.

On December 5, 2003, the Company terminated its Chief Operating Officer of
Mercury Air Cargo. This former employee claimed one years salary,
(approximately $170,000), and other damages as a result of the termination. On
December 31, 2003, he filed notice of demand for mediation. On March 9, 2004
the Company entered into a Confidential Settlement Agreement and Mutual Release
with this former employee. In the opinion of management, the terms of the
Confidential Settlement Agreement will not have a material effect on the
Companys consolidated financial position. This settlement was accrued by the
Company in the financial statements for the quarterly period ended March 31,
2004.

On February 28, 2004 the Company received a demand notice from counsel for
the former General Manager of a Mercury Air Center FBO location for damages in
the amount of $500,000 as a result of his termination of employment. The
Company is in the process of responding to the demand. In the opinion of
management, the ultimate resolution of this matter will not have a material
effect on the Companys consolidated financial position, results of operations
or cash flows

On March 16, 2004 the Company received a demand notice from counsel for
the former General Manager of Mercury Air Cargos SkyNet Division for damages
in the amount of approximately $82,500 arising out of his termination of
employment. The Company has entered into a confidential settlement agreement.
In the opinion of management, the settlement of this matter will not have a
material effect on the Companys consolidated financial position, results of
operations or cash flows.

Reference is made to the Companys Annual Report on Form 10-K for the
fiscal year ended June 30, 2003 and to the Companys Quarterly Reports on Form
10-Q for the period ended September 30, 2003 for additional legal matters with
respect to which no material developments have occurred in the current quarter.

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 material effect on the Companys
consolidated financial position.

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Item 2.Change in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

ISSUER PURCHASES OF EQUITY SECURITIES

|                                               |  |                     |   |                    |  |                    |     |                     |  |                     |     |                   |  |                    |     | 
|---------------------------------------------- |  | ------------------- | - | ------------------ |  | ------------------ | --- | ------------------- |  | ------------------- | --- | ----------------- |  | ------------------ | --- | 
|                                               |  |                     |   |                    |  |                    |     |                     |  |                     |     |                   |  | (d) Maximum Number
|                                               |  |                     |   |                    |  |                    |     |                     |  | (c) Total Number of |     | (or Approximate  
|                                               |  |                     |   |                    |  |                    |     |                     |  | Shares (or Units)   |     | Dollar Value) of 
|                                               |  |                     |   |                    |  |                    |     |                     |  | Purchased as Part   |     | Shares (or Units)
|                                               |  | (a) Total Number of |   | (b) Average Price  |  | of Publicly        |     | that May Yet Be    
|                                               |  | Shares (or Units)   |   | Paid per Share (or |  | Announced Plans or |     | Purchased Under the
|Period                                         |  | Purchased           |   | Unit)              |  | Programs           |     | Plans or Programs  
|                                               |  |                     |   |                    |  |                    |     |                    
|Month #1
January 1, 2004
to
January 31, 2004   |  |                     | 0 |                    |  |                    | N/A |                     |  |                     | N/A |                   |  |                    | N/A | 
|Month #2
February 1, 2004
to
February 29, 2004 |  |                     | 0 |                    |  |                    | N/A |                     |  |                     | N/A |                   |  |                    | N/A | 
|Month #3
March 1, 2004
to
March 31, 2004       |  |                     | 0 |                    |  |                    | N/A |                     |  |                     | N/A |                   |  |                    | N/A | 
|Total                                          |  |                     |   |                    |  |                    |     |                     |  |                     |     |                   |  |                    |     | 

Item 3.Default Upon Senior Securities

None

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

On April 12, 2004 the Company held its annual meeting of shareholders.

All of the Companys directors were re-elected at the meeting by the
following votes:

|                     |  |     |           |         |  |                 |         |  |  |            |     | 
|-------------------- |  | --- | --------- | ------- |  | --------------- | ------- |  |  | ---------- | --- | 
|                     |  |     |           |         |  |                 |         |  |  | Abstain or
|Name                 |  | For |           | Against |  | Broker Non-Vote
|                     |  |     |           |         |  |                
|Dr. Philip Fagan, Jr |  |     | 2,755,293 |         |  |                 | 374,809 |  |  |            | -0- | 
|Joseph A. Czyzyk     |  |     | 2,955,543 |         |  |                 | 174,559 |  |  |            | -0- | 
|Frederick H. Kopko   |  |     | 3,005,572 |         |  |                 | 124,530 |  |  |            | -0- | 
|Gary J. Feracota     |  |     | 3,005,945 |         |  |                 | 124,157 |  |  |            | -0- | 
|Sergei Kouzmine      |  |     | 2,986,775 |         |  |                 | 143,327 |  |  |            | -0- | 
|Michael J. Janowiak  |  |     | 3,005,945 |         |  |                 | 124,157 |  |  |            | -0- | 
|Angelo Pusateri      |  |     | 3,012,936 |         |  |                 | 117,166 |  |  |            | -0- | 

In addition, the proposal seeking approval for the sale of the Companys FBO
business to Allied Corporation was adopted by the following votes:

|          |  |         |        |                            |  |  |       | 
|--------- |  | ------- | ------ | -------------------------- |  |  | ----- | 
|For       |  | Against |        | Abstain or Broker Non-Vote
|          |  |         |        |                           
|2,166,532 |  |         | 54,690 |                            |  |  | 1,255 | 

Also submitted to a vote, was the proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Companys independent auditors for the fiscal
year ending June 30, 2004:

|          |  |         |        |                            |  |  |       | 
|--------- |  | ------- | ------ | -------------------------- |  |  | ----- | 
|For       |  | Against |        | Abstain or Broker Non-Vote
|          |  |         |        |                           
|3,098,674 |  |         | 23,472 |                            |  |  | 3,385 | 

20



---



##### 



Item 5.Other Information

None

Item 6.Exhibits and Exhibit List

(a) Exhibits and Reports on Form 8-K:

|        |  |                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                      
|No.     |  | Description                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                      
|2.1     |  | Agreement and Plan of Merger adopted January 9, 2001.(17)                                                                                                                                                                                                                                                            
|2.2     |  | Certificate of Merger.(17)                                                                                                                                                                                                                                                                                           
|2.3     |  | Stock Purchase Agreement Dated as of October 28, 2003. By and Among Allied Capital Corporation, Mercury Air
Centers, Inc. and Mercury Air Group, Inc.(28)                                                                                                                                                            
|3.1     |  | Certificate of Incorporation.(17)                                                                                                                                                                                                                                                                                    
|3.2     |  | Amended and Restated Bylaws of Mercury Air Group, Inc. adopted December 7, 2002.(25)                                                                                                                                                                                                                                 
|3.3     |  | Certificate of Designations of Series A 8% Cumulative Convertible Preferred Stock.(27)                                                                                                                                                                                                                               
|4.1     |  | 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.(2)
|4.2     |  | Securities Purchase Agreement dated September 10, 1999 by and among Mercury Air Group, Inc. and J.H. Whitney
Mezzanine Fund, L.P.(12)                                                                                                                                                                                
|4.3     |  | Amendment No. 1 dated as of September 30, 2000 by and between J.H. Whitney Mezzanine, L.P. and Mercury Air
Group, Inc. to the Securities Agreement.(16)                                                                                                                                                              
|4.4     |  | Waiver and Consent Agreement dated as of December 29, 2000 among Mercury Air Group, Inc. and J.H. Whitney
Mezzanine Fund, L.P.(17)                                                                                                                                                                                   
|4.5     |  | Waiver and Consent Agreement dated as of July 2, 2001 among Mercury Air Group, Inc. and J.H. Whitney
Mezzanine Fund, L.P.(18)                                                                                                                                                                                        
|4.6     |  | Waiver Agreement dated as of September 25, 2001 among Mercury Air Group, Inc. and J.H. Whitney Mezzanine
Fund, L.P.(18)                                                                                                                                                                                              
|4.7     |  | Amendment No. 2 dated as of September 30, 2001 by and between J.H. Whitney Mezzanine Fund, L.P. and Mercury
Air Group, Inc. to the Securities Purchase Agreement.(19)                                                                                                                                                
|4.8     |  | Waiver Agreement dated as of November 26, 2001 among Mercury Air Group, Inc. and J.H. Whitney Mezzanine,
L.P.(21)                                                                                                                                                                                                    
|4.9     |  | Waiver Agreement dated as of December 21, 2001 among Mercury Air Group, Inc. and J.H. Whitney Mezzanine,
L.P.(21)                                                                                                                                                                                                    
|4.10    |  | Waiver Agreement dated as of June 26, 2002 among Mercury Air Group, Inc. and J.H. Whitney Mezzanine, L.P.(24)                                                                                                                                                                                                        
|4.11    |  | Amendment No. 3 to Securities Purchase Agreement by and between Mercury Air Group, Inc. and J.H. Whitney
Mezzanine Fund, L.P. dated as of December 30, 2002.(26)                                                                                                                                                     
|4.12    |  | Amended and Restated J.H. Whitney Mezzanine Fund, L.P. Warrant dated September 10, 1999.(26)                                                                                                                                                                                                                         
|4.13    |  | Amended and Restated J.H. Whitney Mezzanine Fund, L.P. Senior Subordinated Promissory Note dated September
10, 1999.(26)                                                                                                                                                                                             
|4.14    |  | Security Agreement by and between Mercury Air Group, Inc. and each of its subsidiaries hereto as Obligors
and J.H. Whitney Mezzanine Fund, L.P. as the Lenders, dated as of December 30, 2002.(26)                                                                                                                   
|4.15    |  | Subordination Agreement among J.H. Whitney Mezzanine Fund, L.P. Foothill Capital Corporation, as Agent and
Mercury Air Group, Inc. and certain of its subsidiaries signatory thereto, dated as of December 30,
2002.(26)                                                                                             
|4.16    |  | Loan and Security Agreement by and among Foothill Capital Corporation and Mercury Air Group, Inc. and
certain subsidiaries signatory thereto, dated as of December 30, 2002.(26)                                                                                                                                     
|4.17    |  | First Amendment to Loan and Security Agreement by and among Foothill Capital Corporation and Mercury Air
Group, Inc. and certain of its subsidiaries, dated March 12, 2003.(30)                                                                                                                                      

21



---



##### 



|        |  |                                                                                                                                                                                                                   
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                   
|No.     |  | Description                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                   
|4.18    |  | Second Amendment to Loan and Security Agreement by and among Foothill Capital Corporation and Mercury Air
Group, Inc. and certain of its subsidiaries, dated March 31, 2003.(30)                                  
|4.19    |  | Third Amendment to Loan and Security Agreement by and among Foothill Capital Corporation and Mercury Air
Group, Inc. and certain of its subsidiaries, dated July 16, 2003.(30)                                    
|4.20    |  | Fourth Amendment to Loan and Security Agreement by and among Foothill Capital Corporation and Mercury Air
Group, Inc. and certain of its subsidiaries, dated August 1, 2003.(30)                                  
|4.21    |  | Amendment No. 4 to Securities Purchase Agreement by and between Mercury Air Group, Inc. and Allied Capital
Corporation, as Assignee of J.H. Whitney Mezzanine Fund, L.P. dated as of October 28, 2003(28)         
|4.22    |  | Assignment of Note dated as of October 28, 2003 between Allied Capital Corporation and J.H. Whitney
Mezzanine Fund, L.P.(28)                                                                                      
|4.23    |  | Second Amended and Restated Allied Capital Corporation 12% Senior Subordinated Promissory Note dated
September 10, 1999(28)                                                                                       
|4.24    |  | Second Amended and Restated Allied Capital Corporation Warrant dated October 28, 2003(28)                                                                                                                         
|4.25    |  | Securities Purchase Agreement dated as of October 28, 2003 by and among J.H. Whitney Mezzanine Fund, L.P.
and J.H. Whitney Mezzanine Debt Fund, L.P., Allied Capital Corporation and Mercury Air Group, Inc.(28)  
|4.26    |  | Second Amended and Restated J.H. Whitney Mezzanine Fund, L.P. Warrant dated October 28, 2003(28)                                                                                                                  
|4.27    |  | Fifth Amendment to Security and Loan Agreement and Forbearance Agreement dated as of December 5, 2003 by and
among Wells Fargo Foothill, Mercury Air Group, Inc. and certain of its subsidiaries.(31)             
|4.28    |  | Amendment to Stock Purchase Agreement by and Among Allied Capital Corporation, Mercury Air Centers, Inc. and
Mercury Air Group, Inc. dated as of December 10, 2003.(31)                                           
|4.29    |  | Amendment to Stock Purchase Agreement by and Among Allied Capital Corporation, Mercury Air Centers, Inc. and
Mercury Air Group, Inc. dated as of January 14, 2004.(31)                                            
|4.30    |  | Amendment to Stock Purchase Agreement by and Among Allied Capital Corporation, Mercury Air Centers, Inc. and
Mercury Air Group, Inc. dated as of February 13, 2004.                                               
|4.31    |  | Amendment letter to Forbearance Term and New Covenant Default dated as of February 16, 2004.                                                                                                                      
|10.1    |  | Mercury Air Group, Inc.s 1990 Long-Term Incentive Plan.(4)*                                                                                                                                                      
|10.2    |  | Mercury Air Group, Inc.s 1990 Directors Stock Option Plan.(1)*                                                                                                                                                   
|10.3    |  | Memorandum Dated September 15, 1997 regarding Summary of Officer Life Insurance Policies with Benefits
Payable to Officers or Their Designated Beneficiaries.(8)*                                                 
|10.4    |  | Non-Qualified Stock Option Agreement dated March 21, 1996, by and between Frederick H. Kopko and Mercury Air
Group, Inc.(6)*                                                                                      
|10.5    |  | Mercury Air Group, Inc.s 1998 Long-Term Incentive Plan.(10)*                                                                                                                                                     
|10.6    |  | Mercury Air Group, Inc.s 1998 Directors Stock Option Plan.(10)*                                                                                                                                                  
|10.7    |  | 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.(11)
|10.8    |  | First Amendment to Revolving Credit and Term Loan Agreement dated as of September 10, 1999.(14)                                                                                                                   
|10.9    |  | Second Amendment to Revolving Credit and Term Loan Agreement dated as of March 31, 2000.(14)                                                                                                                      
|10.10   |  | Third Amendment, Waiver and Consent to Revolving Credit and Term Loan Agreement dated as of August 11,
2000.(14)                                                                                                  
|10.11   |  | The Companys 401(k) Plan consisting of CNA Trust Corporation. Regional Prototype Defined Contribution Plan
and Trust and Adoption Agreement.(14)*                                                                
|10.12   |  | Employment Agreement dated July 31, 2000 between the Company and Dr. Philip J. Fagan.(15)*                                                                                                                        
|10.13   |  | Fourth Amendment to Revolving Credit and Term Loan Agreement dated as of November 14, 2000.(16)                                                                                                                   
|10.14   |  | Amendment No. 1 to Mercury Air Group, Inc. 1998 Long-Term Incentive Option Plan as of August 22, 2000.(16)*                                                                                                       
|10.15   |  | Amendment No. 1 to Mercury Air Group, Inc. 1998 Directors Stock Option Plan as of August 22, 2000.(16)*                                                                                                           
|10.16   |  | Limited Waiver letter Agreement to Revolving Credit and Term Loan Agreement dated as of September 21,
2001.(18)                                                                                                   
|10.17   |  | Fifth Amendment to Revolving Credit and Term loan Agreement dated as of September 21, 2001.(18)                                                                                                                   
|10.18   |  | Limited Consent letter Agreement to Revolving Credit and Term Loan Agreement dated as of September 30,
2001.(19)                                                                                                  
|10.20   |  | Limited waiver and Consent to Revolving Credit and Term Loan Agreement dated as of December 31, 2001.(21)                                                                                                         
|10.21   |  | 2002 Management Stock Purchase Plan.(22)                                                                                                                                                                          
|10.22   |  | Amended and Restated Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Joseph A.
Czyzyk.(22)*                                                                                           
|10.23   |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Wayne J. Lovett(22)*                                                                                                                  
|10.24   |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and John Enticknap(22)*                                                                                                                   
|10.25   |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Mark Coleman(22)*                                                                                                                     
|10.26   |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Steven S. Antonoff(22)*                                                                                                               
|10.27   |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Robert Schlax(22)*                                                                                                                    
|10.28   |  | Limited waiver and Consent to Revolving Credit and Term Loan Agreement dated as of June 27, 2002.(24)                                                                                                             
|10.29   |  | Sale-Leaseback agreement made by and between CFK Realty Partners, LLC and Mercury Air Group, Inc. dated
December 15, 2001.(24)                                                                                    

22



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##### 



|        |  |                                                                                                                                                                                                                                                                       
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                       
|No.     |  | Description                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                       
|10.30   |  | Amendment to Sale-Leaseback agreement made by and between CFK Realty Partners, LLC and Mercury Air Group,
Inc.(24)                                                                                                                                                    
|10.31   |  | Promissory Note by CFK Partners, LLC in favor of Mercury Air Group, Inc.(24)                                                                                                                                                                                          
|10.32   |  | Limited Waiver and Consent to Revolving Credit and Term Loan Agreement dated as June 27, 2002.(24)                                                                                                                                                                    
|10.33   |  | Amendment No. 1 to Amended and Restated Employment Agreement dated May 22, 2002 between Mercury Air Group,
Inc. and Joseph A. Czyzyk.*(24)                                                                                                                            
|10.34   |  | Lease dated December 31, 2001 by and between CFK Realty Partners, LLC. and Mercury Air Group, Inc.(30)                                                                                                                                                                
|10.35   |  | Settlement Agreement dated December 12, 2003 by and among (i) J O Hambro Capital Management Group Limited,
(ii) J O Hambro Capital Management Limited, (iii) American Opportunity Trust PLC, (iv) The Trident North
Atlantic Fund, and (v) Mercury Air Group, Inc.(29)
|31.1    |  | Section 302 Certification of Chief Executive Officer                                                                                                                                                                                                                  
|31.2    |  | Section 302 Certification of Chief Financial Officer                                                                                                                                                                                                                  
|32.1    |  | Section 906 Certification of Chief Executive Officer                                                                                                                                                                                                                  
|32.2    |  | Section 906 Certification of Chief Financial Officer                                                                                                                                                                                                                  
|99.1    |  | Partnership Agreement dated as of July 27, 2000 of CFK Partners by and among Philip J. Fagan, M.D.,
Frederick H. Kopko, Jr. and Joseph A. Czyzyk.(13)                                                                                                                 



---

|*    |  | 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 Stockholders and is
incorporated herein by reference. 
|    
|    
|    
|    
|(2)  |  | 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.  
|    
|    
|    
|    
|(3)  |  | 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.                     
|    
|    
|    
|    
|(4)  |  | Such document was previously filed as Appendix A to the Companys Proxy
Statement for the December 2, 1992 Annual Meeting of Stockholders.                                          
|    
|    
|    
|    
|(5)  |  | 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.                     
|    
|    
|    
|    
|(6)  |  | 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.  
|    
|    
|    
|    
|(7)  |  | 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.                         
|    
|    
|    
|    
|(8)  |  | 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.              
|    
|    
|    
|    
|(9)  |  | 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 are
incorporated herein by reference.       
|    
|    
|    
|    
|(10) |  | Such document was previously filed as Appendix A to the Companys Proxy
Statement for the December 3, 1998 Annual Meeting of Stockholders and is
incorporated herein by reference.  
|    
|    
|    
|    
|(11) |  | 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 are
incorporated herein by reference.
|    
|    
|    
|    
|(12) |  | 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 are
incorporated herein by reference.       

23



---



##### 



|(13) |  | 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.                                
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(14) |  | 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, 2000 and is
incorporated herein by reference.            
|    
|    
|    
|    
|(15) |  | All such documents were previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 and
are incorporated herein by reference.
|    
|    
|    
|    
|(16) |  | All such documents were previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended December 31, 2000 and
are incorporated herein by reference. 
|    
|    
|    
|    
|(17) |  | 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, 2001 and are
incorporated herein by reference.    
|    
|    
|    
|    
|(18) |  | 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, 2001 and are
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 September 30, 2001 and
are incorporated herein by reference.
|    
|    
|    
|    
|(20) |  | Such document was previously filed as Appendix A to the Companys Proxy
Statement for the November 7, 2001 Annual Meeting of Stockholders and is
incorporated herein by reference.      
|    
|    
|    
|    
|(21) |  | All such documents were previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended December 31, 2001 and
are incorporated herein by reference. 
|    
|    
|    
|    
|(22) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on June 5, 2002 and is incorporated herein by
reference.                                   
|    
|    
|    
|    
|(23) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on July 11, 2002 and is incorporated herein by
reference.                                  
|    
|    
|    
|    
|(24) |  | 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, 2002 and are
incorporated herein by reference.           
|    
|    
|    
|    
|(25) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on December 7, 2002 and is incorporated herein by
reference.                               
|    
|    
|    
|    
|(26) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on December 30, 2002 and is incorporated herein by
reference.                              
|    
|    
|    
|    
|(27) |  | 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, 2003 and are
incorporated herein by reference.    
|    
|    
|    
|    
|(28) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on October 28, 2003 and is incorporated herein by
reference.                               
|    
|    
|    
|    
|(29) |  | Such document was previously filed as an Exhibit to the Companys Current
Report on Form 8-K on December 12, 2003 and is incorporated herein by
reference.                              
|    
|    
|    
|    
|(30) |  | 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, 2003 and are
incorporated herein by reference.           
|    
|    
|    
|    
|(31) |  | All such documents were previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended December 30, 2003 and
are incorporated herein by reference. 

24



---



##### 



|(b) |  | Reports on Form 8-K:
|--- |  | --------------------

| |                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Form 8-K was filed dated February 17, 2004, reporting on Item 7.
Financial Statements and Exhibits, and Item 12. Disclosure of Results of
Operations and Financial Condition, as to the financial results of the
Company for the three- and six- month periods ended December 31, 2003.

| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | A Form 8-K was filed dated April 12, 2004 reporting on Item 3.
Acquisition or Disposition of Assets and Item 7. Financial Statements and
Exhibits, as to the closing of the transaction with Allied Corporation for
the sale of all of the outstanding shares of stock of the Companys wholly
owned subsidiary Mercury Air Centers, Inc.

25



---



##### 



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                                
|
| |  | /s/ Joseph Czyzyk                                                 
| |  |                                                                   
| |  | Joseph CzyzykChief Executive Officer                              
|
| |  | /s/ Robert Schlax                                                 
| |  |                                                                   
| |  | Robert SchlaxChief Financial Officer
(Principal Financial Officer)

Date: May 14, 2004

26