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UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q/A

(Mark One)

|þ |  | Amendment No. 1 to quarterly report pursuant to section 13 or
15 (d) of the Securities Exchange Act of 1934 of the quarter
ended March 31, 2003
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------
|  |  |                                                                                                                                                
|o |  | 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)         |  | 11-1800515(I.R.S. Employer
Identification Number)
|                                                                               |  |                                                  
|5456 McConnell Avenue, Los Angeles, CA(Address of principal executive offices) |  | 90066(Zip Code)                                  

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

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
þ No
o

Indicate by check mark whether the Registrant is an Accelerated Filer (as
defined by rule 12 (b) 2 of the Securities Exchange Act of 1934.) Yes o
No þ

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 May 9, 2003           
|                              |  |                             
|Common Stock, $0.01 Par Value |  |                              | 6,577,334 | 



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TABLE OF CONTENTS



|                               |                                                                                               |  |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3. Quantitative and Qualitative Disclosure About Market Risk                            
|                               | Item 4. Controls and Procedures                                                              
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 2. Change in Securities                                                                 
|                               | Item 3. Default Upon Senior Securities                                                       
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                  
|                               | Item 5. Other Information                                                                    
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                    
|EX-31.1                       
|EX-31.2                       
|EX-32.1                       
|EX-32.2                       



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INTRODUCTORY NOTE

The registrant is filing this Form 10-Q/A to give effect to the
restatement as discussed in Note 1  Restatement to the consolidated
financial statements. Only Part 1, Items 1 and 2 of the original 10-Q filing
are being amended and restated as part of this Form 10-Q/A.

2



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PART I  FINANCIAL INFORMATION

Item 1.Financial Statements

MERCURY AIR GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |             |  |  | 
|----------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------- | ---------- | ----------- | ---------------------- | ----------- | ------------- | ----------- |  |  | 
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             | March 31, 2003         |             | June 30, 2002
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             | (Unaudited)            |             |              
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             | (Restated, see Note 1)
|ASSETS                                                                                                                                    |                                                                                                                                               |                            |             |            |             |                        |             |              
|CURRENT ASSETS:                                                                                                                           |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          | Cash and cash
equivalents                                                                                                                     |                            | $           | 5,994,000  |             |                        | $           | 5,565,000     |            
|                                                                                                                                          | Restricted
cash                                                                                                                               |                            |             |            |             |                        |             | 3,780,000     |            
|                                                                                                                                          | Trade accounts receivable, net of allowance for doubtful
accounts of $2,549,000 at 3/31/03 and $1,583,000
at
6/30/02                          |                            |             | 54,007,000 |             |                        |             | 47,570,000    |            
|                                                                                                                                          | Inventories, principally aviation
fuel                                                                                                        |                            |             | 3,572,000  |             |                        |             | 2,985,000     |            
|                                                                                                                                          | Prepaid expenses and other current
assets                                                                                                     |                            |             | 3,015,000  |             |                        |             | 3,042,000     |            
|                                                                                                                                          | Income taxes
receivable                                                                                                                       |                            |             | 2,513,000  |             |                        |             |               |            
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            
|                                                                                                                                          |                                                                                                                                               | TOTAL CURRENT
ASSETS       |             |            | 69,101,000  |                        |             |               | 62,942,000  | 
|PROPERTY, EQUIPMENT AND LEASEHOLDS, net of
accumulated depreciation and amortization of
$59,097,000 at 3/31/03 and $54,383,000 at
6/30/02 |                                                                                                                                               |                            | 59,069,000  |            |             |                        | 61,094,000  |              
|NOTES
RECEIVABLE                                                                                                                          |                                                                                                                                               |                            | 2,926,000   |            |             |                        | 2,158,000   |              
|DEFERRED INCOME
TAXES                                                                                                                     |                                                                                                                                               |                            | 1,269,000   |            |             |                        | 1,302,000   |              
|GOODWILL                                                                                                                                  |                                                                                                                                               |                            | 4,389,000   |            |             |                        | 4,389,000   |              
|OTHER INTANGIBLE ASSETS, NET                                                                                                              |                                                                                                                                               |                            | 1,108,000   |            |             |                        | 233,000     |              
|OTHER ASSETS,
NET                                                                                                                         |                                                                                                                                               |                            | 5,620,000   |            |             |                        | 4,096,000   |              
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            
|                                                                                                                                          |                                                                                                                                               | TOTAL ASSETS               |             | $          | 143,482,000 |                        |             | $             | 136,214,000 | 
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                      |                                                                                                                                               |                            |             |            |             |                        |             |              
|CURRENT LIABILITIES:                                                                                                                      |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          | Accounts
payable                                                                                                                              |                            | $           | 41,444,000 |             |                        | $           | 35,449,000    |            
|                                                                                                                                          | Accrued expenses and other current
liabilities                                                                                                |                            |             | 9,587,000  |             |                        |             | 8,861,000     |            
|                                                                                                                                          | Current portion of long-term debt                                                                                                             |                            |             | 4,122,000  |             |                        |             | 14,677,000    |            
|                                                                                                                                          | Senior subordinated note, current                                                                                                             |                            |             |            |             |                        |             | 23,179,000    |            
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            
|                                                                                                                                          |                                                                                                                                               | TOTAL CURRENT
LIABILITIES  |             |            | 55,153,000  |                        |             |               | 82,166,000  | 
|LONG-TERM DEBT                                                                                                                            |                                                                                                                                               |                            | 29,692,000  |            |             |                        | 17,516,000  |              
|SENIOR SUBORDINATED NOTE                                                                                                                  |                                                                                                                                               |                            | 23,401,000  |            |             |                        |             |              
|DEFERRED INCOME
TAX                                                                                                                       |                                                                                                                                               |                            | 169,000     |            |             |                        | 169,000     |              
|DEFERRED
RENT                                                                                                                             |                                                                                                                                               |                            | 2,043,000   |            |             |                        | 1,943,000   |              
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            
|                                                                                                                                          |                                                                                                                                               | TOTAL
LIABILITIES          |             |            | 110,458,000 |                        |             |               | 101,794,000 | 
|MANDATORILY REDEEMABLE PREFERRED STOCK, Series A  $.01
par value;
authorized 1,000,000 shares; outstanding 462,627
shares at
3/31/03     |                                                                                                                                               |                            | 472,000     |            |             |                        |             |              
|STOCKHOLDERS EQUITY:                                                                                                                     |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          | Preferred Stock  $.01 par value; authorized 2,000,000
shares; none outstanding                                                               |                            |             |            |             |                        |             |               |            
|                                                                                                                                          | Common Stock  $ .01 par value; authorized 18,000,000
shares; outstanding 6,577,334 and 6,541,699 shares at
3/31/03 and 6/30/02,
respectively |                            |             | 66,000     |             |                        |             | 66,000        |            
|                                                                                                                                          | Additional paid-in
capital                                                                                                                    |                            |             | 22,448,000 |             |                        |             | 22,233,000    |            
|                                                                                                                                          | Retained
earnings                                                                                                                             |                            |             | 14,543,000 |             |                        |             | 16,872,000    |            
|                                                                                                                                          | Accumulated other comprehensive loss                                                                                                          |                            |             | (373,000   | )           |                        |             | (316,000      | )          
|                                                                                                                                          | Notes receivable from
officers                                                                                                                |                            |             | (4,132,000 | )           |                        |             | (4,435,000    | )          
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          |                                                                                                                                               | TOTAL STOCKHOLDERS EQUITY |             |            | 32,552,000  |                        |             |               | 34,420,000  | 
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |              
|                                                                                                                                          |                                                                                                                                               | $                          | 143,482,000 |            |             | $                      | 136,214,000 |              
|                                                                                                                                          |                                                                                                                                               |                            |             |            |             |                        |             |               |            

See accompanying notes to consolidated financial statements

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

|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |           |  
|------------------------------------------------------------------------------ | ---------------------------------------- | ------------------------------------------------------ | ----------- | ---------------------- | ---------- | ------------------ | ----------- | ----------- | ---------- | ---- | ----------- | ---------- | --------- | - | ---------- | ---------- | --------- | -
|                                                                               |                                          |                                                        |             | Nine Months Ended      |            | Three Months Ended
|                                                                               |                                          |                                                        |             | March 31,              |            | March 31,         
|                                                                               |                                          |                                                        |             |                        |            |                   
|                                                                               |                                          |                                                        |             | 2003                   |            | 2002               |             | 2003        |            | 2002
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |     
|                                                                               |                                          |                                                        |             | (Restated, See Note 1)
|Sales and revenues:                                                            |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               | Sales                                    |                                                        | $           | 263,487,000            |            |                    | $           | 216,203,000 |            |      | $           | 88,151,000 |           |   | $          | 66,301,000 |          
|                                                                               | Service
revenues                         |                                                        |             | 69,397,000             |            |                    |             | 67,558,000  |            |      |             | 22,876,000 |           |   |            | 21,617,000 |          
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               |                                          |                                                        | 332,884,000 |                        |            |                    | 283,761,000 |             |            |      | 111,027,000 |            |           |   | 87,918,000 |           
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|Costs and Expenses:                                                            |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               | Cost of
sales                            |                                                        |             | 234,647,000            |            |                    |             | 186,331,000 |            |      |             | 78,400,000 |           |   |            | 56,948,000 |          
|                                                                               | Operating
expenses                       |                                                        |             | 79,280,000             |            |                    |             | 75,387,000  |            |      |             | 26,508,000 |           |   |            | 24,455,000 |          
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               |                                          |                                                        | 313,927,000 |                        |            |                    | 261,718,000 |             |            |      | 104,908,000 |            |           |   | 81,403,000 |           
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               |                                          | Gross margin (excluding depreciation and amortization) |             |                        | 18,957,000 |                    |             |             | 22,043,000 |      |             |            | 6,119,000 |   |            |            | 6,515,000 |  
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|Expenses (Income):                                                             |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               | Selling, general and
administrative      |                                                        |             | 7,889,000              |            |                    |             | 7,679,000   |            |      |             | 2,648,000  |           |   |            | 2,941,000  |          
|                                                                               | Provision for bad
debts                  |                                                        |             | 1,201,000              |            |                    |             | 1,247,000   |            |      |             | 442,000    |           |   |            | 475,000    |          
|                                                                               | Depreciation and
amortization            |                                                        |             | 6,121,000              |            |                    |             | 7,053,000   |            |      |             | 2,072,000  |           |   |            | 2,369,000  |          
|                                                                               | Interest
expense                         |                                                        |             | 5,536,000              |            |                    |             | 4,380,000   |            |      |             | 2,621,000  |           |   |            | 1,389,000  |          
|                                                                               | Costs and expenses of stock
offering     |                                                        |             |                        |            |                    |             | 985,000     |            |      |             |            |           |   |            |            |          
|                                                                               | Loss on sale of
property                 |                                                        |             |                        |            |                    |             | 71,000      |            |      |             |            |           |   |            |            |          
|                                                                               | Write off of capitalized financing
costs |                                                        |             | 1,773,000              |            |                    |             |             |            |      |             | 40,000     |           |   |            |            |          
|                                                                               | Interest
income                          |                                                        |             | (77,000                | )          |                    |             | (54,000     | )          |      |             | (27,000    | )         |   |            | (26,000    | )        
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               |                                          |                                                        | 22,443,000  |                        |            |                    | 21,361,000  |             |            |      | 7,796,000   |            |           |   | 7,148,000  |           
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|Income (loss) from continuing operations before
provision for income
taxes     |                                          |                                                        | (3,486,000  | )                      |            |                    | 682,000     |             |            |      | (1,677,000  | )          |           |   | (633,000   | )         
|Income tax provision
(benefit)                                                 |                                          |                                                        | (1,203,000  | )                      |            |                    | 263,000     |             |            |      | (579,000    | )          |           |   | (243,000   | )         
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|Income (loss) from continuing
operations                                       |                                          |                                                        | (2,283,000  | )                      |            |                    | 419,000     |             |            |      | (1,098,000  | )          |           |   | (390,000   | )         
|Loss from discontinued operations net of income
tax benefit of $27,000 in
2002 |                                          |                                                        |             |                        |            |                    | (42,000     | )           |            |      |             |            |           |   |            |           
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|Net income (loss)                                                              |                                          | $                                                      | (2,283,000  | )                      |            | $                  | 377,000     |             |            | $    | (1,098,000  | )          |           | $ | (390,000   | )         
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|Net income (loss) per common share:                                            |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |           
|                                                                               | Basic:                                   |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|                                                                               |                                          | From continuing operations                             |             | $                      | (0.35      | )                  |             | $           | 0.07       |      |             | $          | (0.17     | ) |            | $          | (0.06     | )
|                                                                               |                                          | Loss from discontinued
operations                      |             |                        |            |                    |             |             | (0.01      | )    |             |            |           |   |            |            |           |  
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|                                                                               |                                          | Net income (loss)                                      |             | $                      | (0.35      | )                  |             | $           | 0.06       |      |             | $          | (0.17     | ) |            | $          | (0.06     | )
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|                                                                               | Diluted:                                 |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|                                                                               |                                          | From continuing
operations                             |             | $                      | (0.35      | )                  |             | $           | 0.07       |      |             | $          | (0.17     | ) |            | $          | (0.06     | )
|                                                                               |                                          | Loss from discontinued
operations                      |             |                        |            |                    |             |             | (0.01      | )    |             |            |           |   |            |            |           |  
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          
|                                                                               |                                          | Net income (loss)                                      |             | $                      | (0.35      | )                  |             | $           | 0.06       |      |             | $          | (0.17     | ) |            | $          | (0.06     | )
|                                                                               |                                          |                                                        |             |                        |            |                    |             |             |            |      |             |            |           |   |            |            |          

See accompanying notes to consolidated financial statements

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

|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |            |            |            |  
|------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------------- | ----------- | ---------------------- | ---------- | ---------- | ---------- | ---------- | ---------- | -
|                                                                                |                                                            |                                                                |                                                     |             | Nine Months Ended     
|                                                                                |                                                            |                                                                |                                                     |             | March 31,             
|                                                                                |                                                            |                                                                |                                                     |             |                       
|                                                                                |                                                            |                                                                |                                                     |             | 2003                   |            | 2002      
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |           
|                                                                                |                                                            |                                                                |                                                     |             | (Restated, See Note 1)
|CASH FLOWS FROM OPERATING ACTIVITIES:                                           |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                | Net income
(loss)                                          |                                                                | $                                                   | (2,283,000  | )                      |            | $          | 377,000    |           
|                                                                                | Add: Loss from discontinued operations                     |                                                                |                                                     |             |                        |            |            | 42,000     |           
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |            |           
|                                                                                | Income (loss) from continuing operations                   |                                                                |                                                     | (2,283,000  | )                      |            |            | 419,000    |           
|                                                                                | Adjustments to derive cash flow from operating activities: |                                                                |                                                     |             |                        |            |            |            |           
|                                                                                |                                                            | Provision for bad
debts                                        |                                                     |             | 1,201,000              |            |            |            | 1,247,000  |           
|                                                                                |                                                            | Depreciation and amortization                                  |                                                     |             | 6,121,000              |            |            |            | 7,053,000  |           
|                                                                                |                                                            | Deferred income
taxes                                          |                                                     |             | 33,000                 |            |            |            | 56,000     |           
|                                                                                |                                                            | Deferred
rent                                                  |                                                     |             | 100,000                |            |            |            | 442,000    |           
|                                                                                |                                                            | Compensation expense related to remeasurement of stock options |                                                     |             | 318,000                |            |            |            | 87,000     |           
|                                                                                |                                                            | Expense related to amortization of executive stock plan        |                                                     |             | 303,000                |            |            |            |            |           
|                                                                                |                                                            | Amortization of senior subordinated note
discount              |                                                     |             | 222,000                |            |            |            | 140,000    |           
|                                                                                |                                                            | Management compensation paid in preferred stock                |                                                     |             | 204,000                |            |            |            |            |           
|                                                                                |                                                            | Management compensation applied to exercise of stock options   |                                                     |             | 174,000                |            |            |            |            |           
|                                                                                |                                                            | Loss on retirement/sale of
assets                              |                                                     |             | 22,000                 |            |            |            | 71,000     |           
|                                                                                |                                                            | Write off of capitalized financing
costs                       |                                                     |             | 1,733,000              |            |            |            |            |           
|                                                                                |                                                            | Changes in operating assets and liabilities:                   |                                                     |             |                        |            |            |            |            |           
|                                                                                |                                                            | Trade and other accounts receivable                            |                                                     |             | (8,584,000             | )          |            |            | 3,146,000  |           
|                                                                                |                                                            | Inventories                                                    |                                                     |             | (587,000               | )          |            |            | 1,108,000  |           
|                                                                                |                                                            | Prepaid expenses and other current
assets                      |                                                     |             | (2,486,000             | )          |            |            | (1,780,000 | )         
|                                                                                |                                                            | Accounts
payable                                               |                                                     |             | 5,995,000              |            |            |            | (8,515,000 | )         
|                                                                                |                                                            | Accrued expenses and other current
liabilities                 |                                                     |             | 726,000                |            |            |            | (2,138,000 | )         
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                |                                                            |                                                                | Net cash provided by operating
activities           |             |                        | 3,212,000  |            |            |            | 1,336,000  |  
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                           |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                | Decrease in restricted
cash                                |                                                                |                                                     | 3,780,000   |                        |            |            |            |           
|                                                                                | Decrease (increase) in other
assets                        |                                                                |                                                     | (1,073,000  | )                      |            |            | 770,000    |           
|                                                                                | Decrease (increase) in notes
receivables                   |                                                                |                                                     | 178,000     |                        |            |            | (108,000   | )         
|                                                                                | Proceeds from sale of
property                             |                                                                |                                                     | 79,000      |                        |            |            | 2,077,000  |           
|                                                                                | Additions to property, equipment and
leaseholds            |                                                                |                                                     | (3,996,000  | )                      |            |            | (2,905,000 | )         
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                |                                                            |                                                                | Net cash provided by (used in) investing
activities |             |                        | (1,032,000 | )          |            |            | (166,000   | )
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                           |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                | Net reduction of debt
instruments                          |                                                                |                                                     | (2,017,000  | )                      |            |            | (7,253,000 | )         
|                                                                                | Early retirement of
debt                                   |                                                                |                                                     | (13,285,000 | )                      |            |            |            |           
|                                                                                | Proceeds from
refinancing                                  |                                                                |                                                     | 16,923,000  |                        |            |            |            |           
|                                                                                | Capitalization of deferred financing
cost                  |                                                                |                                                     | (3,351,000  | )                      |            |            |            |           
|                                                                                | Repurchase of common
stock                                 |                                                                |                                                     | (370,000    | )                      |            |            | (313,000   | )         
|                                                                                | Proceeds from issuance of preferred stock                  |                                                                |                                                     | 259,000     |                        |            |            |            |           
|                                                                                | Proceeds from exercise of stock
options                    |                                                                |                                                     | 58,000      |                        |            |            | 5,000      |           
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                |                                                            |                                                                | Net cash used in financing
activities               |             |                        | (1,783,000 | )          |            |            | (7,561,000 | )
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|Effect of exchange rate changes on
cash                                         |                                                            |                                                                | 32,000                                              |             |                        |            |            |           
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM
CONTINUING
OPERATIONS |                                                            |                                                                | 429,000                                             |             |                        |            | (6,391,000 | )         
|NET CASH PROVIDED BY DISCONTINUED OPERATIONS                                    |                                                            |                                                                |                                                     |             |                        |            | 4,296,000  |           
|CASH AND CASH EQUIVALENTS, beginning of period                                  |                                                            |                                                                | 5,565,000                                           |             |                        |            | 3,886,000  |           
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|CASH AND CASH EQUIVALENTS, end of period                                        |                                                            | $                                                              | 5,994,000                                           |             |                        | $          | 1,791,000  |           
|                                                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|CASH PAID DURING THE PERIOD FOR:                                                |                                                            |                                                                |                                                     |             |                        |            |            |           
|                                                                                | Interest                                                   |                                                                | $                                                   | 4,123,000   |                        |            | $          | 4,310,000  |           
|                                                                                | Income
taxes                                               |                                                                | $                                                   | 5,201,000   |                        |            | $          | 470,000    |           

See accompanying notes to consolidated financial statements

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##### Table of Contents



MERCURY AIR GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2003
(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: fixed base operations, cargo
operations, fuel sales, and government contract services. Fixed base operations
(FBOs) include fuel sales, into-plane services, ground support services,
aircraft hangar and tie-down facilities and maintenance at certain locations
for commercial, private, general aviation and military aircraft. Cargo
operations consist of cargo handling, space logistics operations and general
cargo sales agent services. Fuel sales include the sale of fuel and delivery of
fuel primarily to domestic and international commercial airlines, business
aviation and air freight airlines. Government contract services consist of
aircraft refueling and fuel storage operations, base operating support (BOS)
services, air terminal and ground handling services and weather observation and
forecasting services performed principally for agencies of the United States
Government. Additionally, the Company had a fifth operating unit, RPA Airline
Automation Services, Inc. (RPA) which was sold on July 3, 2001 and is
classified as a discontinued operation (See Note 2).

Restatement

The consolidated balance sheets as of March 31, 2003 and June 30, 2002 and
the consolidated statements of operations and cash flows for the three-month
and nine-month periods ended March 31, 2003 and 2002 have been restated related
to the following items: (1) To record as of June 30, 2002 an accrual of
$459,000 (representing increased rent expense of $789,000 net of retroactive
recoverable sublease rental income of $330,000) and to accrue
$115,000 and $344,000 for the three and nine-month periods ended
March 31, 2003, respectively, for a rent increase related to
one of Air Cargos warehouse facilities at Los Angeles International Airport
which is retroactive to June 18, 2001. The Company had previously recognized no
accrual for this retroactive rent increase in its fiscal 2002 financial
statements, as the Company was disputing the amount of the increase; however,
the Company subsequently determined that it had received information regarding
the proposed rent increase prior to the issuance of its fiscal 2002 financial
statements which provided substantial evidence that an obligation existed at
the balance sheet date and that the amount of the liability could be reasonably
estimated; (2) To record additional
compensation expense of $430,000 during the fourth quarter of fiscal 2002 in
connection with the 2002 Management Stock Purchase Plan, pursuant to which the
Company had loaned certain officers in May 2002 a total of $3.9 million to
purchase shares of the Companys stock from CFK Partners (which is owned by
three of the Companys directors) at $7.50. The trading price of the shares at
this time was $4.90 per share. A full recourse loan was made to the Companys
Chief Executive Officer in the amount of $2.9 million, and non-recourse loans
totaling $1 million were made to the other executives (Other Executives). The
Company originally recorded a compensation charge of $356,000 in connection
with this transaction to write-down the non-recourse loans based on the
difference between the purchase price paid by the Other Executives for the
shares and the market value of such shares at that time. The Company has
determined that it was proper to record the compensation expense of $356,000 to
reflect the benefit received by CFK Partners for the purchase price paid by the
Other Executives in excess of the market value of such shares at that time;
however, the non-recourse loans should not have been written-down, but rather
additional paid-in capital should have been credited for $356,000. In addition,
the Company determined that it should have recorded additional compensation
expense of $436,000 related to the recourse loan and the shares purchased by
the CEO to also reflect the benefit received by CFK Partners related to the
purchase price paid by the CEO for his shares in excess of the market value of
such shares at that time. The benefit attributed to the CEOs interest in CFK
Partners has been deducted in determining the compensation expense related to
these loans. Accordingly, the fiscal 2002 financial statements have been
restated to record in the fourth quarter of fiscal 2002 the reversal of the
write-down of the non-recourse loans and a credit to additional paid-in capital
for $356,000, and to record additional compensation expense of $436,000. The
non-recourse loans are being accounted for as a variable stock plan pursuant to
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and the recourse loan is being accounted for as a fixed stock plan;
(3) To reverse the sale-leaseback accounting associated with the sale of a
building housing the Companys corporate headquarters and accounting for this
transaction as a financing effective January 2002. The Company sold the
corporate headquarters to CFK Realty Partners, LLC (CFK Realty), a wholly
owned subsidiary of CFK Partners, and concurrently entered into a ten-year
lease of the property. However, the Company has determined that CFK Realty was
not sufficiently capitalized to permit sale-leaseback accounting and the
non-consolidation of CFK Realty. Accordingly, the fiscal 2002 financial
statements have been restated to fully consolidate CFK Realty effective in the
third quarter of fiscal 2002, resulting in land and building totaling $1.8
million, net of accumulated depreciation, being reinstated on the books of the
Company, recording of debt related to a loan of $3.2 million incurred by CFK
Realty to finance the acquisition, reversal of a deferred gain of $2.1 million
recorded by the Company at the time of the transaction, and the reversal of
rent expense and recording of depreciation resulting in additional pre-tax
expense of $23,000 for the third and fourth quarters of fiscal 2002 combined;
and (4) to adjust opening retained earnings by $363,000 to correct for income
tax adjustments that should have been recorded in years prior to fiscal 2001.

6



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##### Table of Contents



The accompanying restated financial statements

resulted in an increase to the previously reported net loss of
$144,000 and $357,000, or $0.02 and $0.05 per basic and diluted share,
for the three and nine-month periods ended March 31, 2003,
respectively. For the three and nine-month periods ended
March 31, 2002, the restatement to the financial statements
resulted in a reduction to the previously reported net income of
$10,000 and $3,000, respectively, with no change in the previously
reported net income per basic and diluted share.

The following tables represent the impact of the restatement on balances as
reported, and as restated for all periods presented:

|                                                 |                                                                   |                                                                                     |        |             |         |                |        |                |         |  |  | 
|------------------------------------------------ | ----------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ------ | ----------- | ------- | -------------- | ------ | -------------- | ------- |  |  | 
|                                                 |                                                                   |                                                                                     |        |             |         | March 31, 2003 |        | March 31, 2003
|CONSOLIDATED BALANCE SHEETS                      |                                                                   | As Reported                                                                         |        | As Restated
|                                                 |                                                                   |                                                                                     |        |            
|                                                 |                                                                   |                                                                                     |        |             |         | (in thousands) |        | (in thousands)
|ASSETS                                           |                                                                   |                                                                                     |        |             |         |                |        |               
|CURRENT ASSETS:                                  |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 | Cash and cash equivalents                                         |                                                                                     | $      | 5,976       |         |                | $      | 5,994          |        
|                                                 | Trade accounts receivable, net of allowance for doubtful accounts |                                                                                     |        | 53,397      |         |                |        | 54,007         |        
|                                                 | Inventories, principally aviation fuel                            |                                                                                     |        | 3,572       |         |                |        | 3,572          |        
|                                                 | Prepaid expenses and other current assets                         |                                                                                     |        | 3,015       |         |                |        | 3,015          |        
|                                                 | Income tax receivable                                             |                                                                                     |        | 2,513       |         |                |        | 2,513          |        
|                                                 | Notes receivable from affiliate                                   |                                                                                     |        | 1,400       |         |                |        |                |        
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |                |        
|                                                 |                                                                   | TOTAL CURRENT ASSETS                                                                |        |             | 69,873  |                |        |                | 69,101  | 
|PROPERTY, EQUIPMENT AND LEASEHOLDS, NET          |                                                                   |                                                                                     | 57,329 |             |         |                | 59,069 |               
|NOTES RECEIVABLE, net of allowance for doubtful  |                                                                   |                                                                                     | 2,926  |             |         |                | 2,926  |               
|DEFERRED INCOME TAXES                            |                                                                   |                                                                                     | 764    |             |         |                | 1,269  |               
|GOODWILL                                         |                                                                   |                                                                                     | 4,389  |             |         |                | 4,389  |               
|OTHER INTANGIBLE ASSETS, NET                     |                                                                   |                                                                                     | 1,108  |             |         |                | 1,108  |               
|OTHER ASSETS, NET                                |                                                                   |                                                                                     | 5,620  |             |         |                | 5,620  |               
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 |                                                                   | TOTAL ASSETS                                                                        |        | $           | 142,009 |                |        | $              | 143,482 | 
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |                |        
|LIABILITIES, MANDATORILY REDEEMABLE PREFERRED    |                                                                   |                                                                                     |        |             |         |                |        |               
|STOCK AND STOCKHOLDERS EQUITY                   |                                                                   |                                                                                     |        |             |         |                |        |               
|CURRENT LIABILITIES:                             |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 | Accounts payable                                                  |                                                                                     | $      | 41,080      |         |                | $      | 41,444         |        
|                                                 | Accrued expenses and other current liabilities                    |                                                                                     |        | 8,841       |         |                |        | 9,587          |        
|                                                 | Current portion of long-term debt                                 |                                                                                     |        | 4,122,      |         |                |        | 4,122          |        
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 |                                                                   | TOTAL CURRENT LIABILITIES                                                           |        |             | 54,043  |                |        |                | 55,153  | 
|LONG-TERM DEBT                                   |                                                                   |                                                                                     | 26,583 |             |         |                | 29,692 |               
|SENIOR SUBORDINATED NOTES                        |                                                                   |                                                                                     | 23,401 |             |         |                | 23,401 |               
|DEFERRED GAIN                                    |                                                                   |                                                                                     | 2,087  |             |         |                |        |               
|DEFERRED INCOME TAX                              |                                                                   |                                                                                     |        |             |         |                | 169    |               
|DEFERRED RENT                                    |                                                                   |                                                                                     | 2,043  |             |         |                | 2,043  |               
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |                |        
|                                                 |                                                                   | TOTAL LIABILITIES                                                                   |        |             | 108,157 |                |        |                | 110,458 | 
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |               
|MANDATORILY REDEEMABLE PREFERRED STOCK, Series A |                                                                   |                                                                                     | 472    |             |         |                | 472    |               
|STOCKHOLDERS EQUITY:                            |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 | Common stock                                                      |                                                                                     |        | 66          |         |                |        | 66             |        
|                                                 | Additional paid-in capital                                        |                                                                                     |        | 21,633      |         |                |        | 22,448         |        
|                                                 | Retained earnings                                                 |                                                                                     |        | 15,779      |         |                |        | 14,543         |        
|                                                 | Accumulated other comprehensive loss                              |                                                                                     |        | (373        | )       |                |        | (373           | )      
|                                                 | Notes receivable from officers                                    |                                                                                     |        | (3,725      | )       |                |        | (4,132         | )      
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 |                                                                   | TOTAL STOCKHOLDERS EQUITY                                                          |        |             | 33,380  |                |        |                | 32,552  | 
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |               
|                                                 |                                                                   | TOTAL LIABILITIES, MANDATORILY REDEEMABLE PREFERRED
STOCK, AND STOCKHOLDERS EQUITY |        | $           | 142,009 |                |        | $              | 143,482 | 
|                                                 |                                                                   |                                                                                     |        |             |         |                |        |                |        

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##### Table of Contents



|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |   |       |       |  
|----------------------------------------------------------------------------- | -------- | --------------------------------- | --------------------------------------- | -------------- | ----------------------------------- | -------------- | ------------------------------------ | -------------- | ---------- | ----- | -------- | - | ---------- | ----- | -------- | - | ---------- | ----- | -------- | - | ----- | ----- | ------- | - | ----- | ----- | ------ | - | ----- | ----- | ------ | - | ----- | ----- | -
|                                                                              |          |                                   |                                         |                | For the Nine Months Ended March 31, |                | For the Three Months Ended March 31,
|                                                                              |          |                                   |                                         |                |                                     |                |                                     
|                                                                              |          |                                   |                                         |                | 2003                                |                | 2002                                 |                | 2003       |       | 2002    
|CONSOLIDATED STATEMENTS OF OPERATIONS                                         |          | (In Thousands)                    |                                         | (In Thousands) |                                     | (In Thousands) |                                      | (In Thousands)
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |               
|                                                                              |          |                                   |                                         |                | As                                  |                |                                      |                |            |       | As       |   |            |       |          |   | As         |       |          |   |       |       | As      |   |       |       |       
|                                                                              |          |                                   |                                         |                | Previously                          |                | As                                   |                | Previously |       | As       |   | Previously |       | As       |   | Previously |       | As      
|                                                                              |          |                                   |                                         |                | Reported                            |                | Restated                             |                | Reported   |       | Restated |   | Reported   |       | Restated |   | Reported   |       | Restated
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |         
|Sales and revenues                                                            |          | $                                 | 332,884                                 |                |                                     | $              | 332,884                              |                |            | $     | 283,761  |   |            | $     | 283,761  |   |            | $     | 111,027  |   |       | $     | 111,027 |   |       | $     | 87,918 |   |       | $     | 87,918 |  
|Cost and expenses:                                                            |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Cost of sales                                                                 |          |                                   | 234,647                                 |                |                                     |                | 234,647                              |                |            |       | 186,331  |   |            |       | 186,331  |   |            |       | 78,400   |   |       |       | 78,400  |   |       |       | 56,948 |   |       |       | 56,948 |  
|Operating expenses                                                            |          |                                   | 78,936                                  |                |                                     |                | 79,280                               |                |            |       | 75,387   |   |            |       | 75,387   |   |            |       | 26,394   |   |       |       | 26,508  |   |       |       | 24,455 |   |       |       | 24,455 |  
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Total costs and expenses                                                      |          |                                   | 313,583                                 |                |                                     |                | 313,927                              |                |            |       | 261,718  |   |            |       | 261,718  |   |            |       | 104,794  |   |       |       | 104,908 |   |       |       | 81,403 |   |       |       | 81,403 |  
|Gross margin (excluding
depreciation and amortization)                        |          |                                   | 19,301                                  |                |                                     |                | 18,957                               |                |            |       | 22,043   |   |            |       | 22,043   |   |            |       | 6,233    |   |       |       | 6,119   |   |       |       | 6,515  |   |       |       | 6,515  |  
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Expenses:                                                                     |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              |          |                                   | Selling, general and administrative     |                |                                     | 8,205          |                                      |                |            | 7,889 |          |   |            | 7,769 |          |   |            | 7,679 |          |   |       | 2,746 |         |   |       | 2,648 |        |   |       | 3,031 |        |   |       | 2,941 |  
|                                                                              |          |                                   | Provision for bad debts                 |                |                                     | 1,201          |                                      |                |            | 1,201 |          |   |            | 1,247 |          |   |            | 1,247 |          |   |       | 442   |         |   |       | 442   |        |   |       | 475   |        |   |       | 475   |  
|                                                                              |          |                                   | Depreciation and amortization           |                |                                     | 6,053          |                                      |                |            | 6,121 |          |   |            | 7,030 |          |   |            | 7,053 |          |   |       | 2,049 |         |   |       | 2,072 |        |   |       | 2,346 |        |   |       | 2,369 |  
|                                                                              |          |                                   | Interest expense                        |                |                                     | 5,355          |                                      |                |            | 5,536 |          |   |            | 4,320 |          |   |            | 4,380 |          |   |       | 2,564 |         |   |       | 2,621 |        |   |       | 1,329 |        |   |       | 1,389 |  
|                                                                              |          |                                   | Loss on sale of facilities and property |                |                                     |                |                                      |                |            |       |          |   |            | 71    |          |   |            | 71    |          |   |       |       |         |   |       |       |        |   |       |       |        |   |       |       |  
|                                                                              |          |                                   | Costs and expenses of stock offering    |                |                                     |                |                                      |                |            |       |          |   |            | 985   |          |   |            | 985   |          |   |       |       |         |   |       |       |        |   |       |       |        |   |       |       |  
|                                                                              |          |                                   | Debt extinguishment cost                |                |                                     | 1,773          |                                      |                |            | 1,773 |          |   |            |       |          |   |            |       |          |   |       | 40    |         |   |       | 40    |        |   |       |       |        |   |       |       |  
|                                                                              |          |                                   | Interest income                         |                |                                     | (130           | )                                    |                |            | (77   | )        |   |            | (72   | )        |   |            | (54   | )        |   |       | (45   | )       |   |       | (27   | )      |   |       | (44   | )      |   |       | (26   | )
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Total expenses                                                                |          |                                   | 22,457                                  |                |                                     |                | 22,443                               |                |            |       | 21,350   |   |            |       | 21,361   |   |            |       | 7,796    |   |       |       | 7,796   |   |       |       | 7,137  |   |       |       | 7,148  |  
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Income (loss) from continuing operations
before income tax provision
benefit) |          |                                   | (3,156                                  | )              |                                     |                | (3,486                               | )              |            |       | 693      |   |            |       | 682      |   |            |       | (1,563   | ) |       |       | (1,677  | ) |       |       | (622   | ) |       |       | 633    |  
|Income tax provision (benefit)                                                |          |                                   | (1,230                                  | )              |                                     |                | (1,203                               | )              |            |       | 271      |   |            |       | 263      |   |            |       | (609     | ) |       |       | (579    | ) |       |       | (242   | ) |       |       | (243   | )
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Net income (loss) from continuing
operations                                  |          |                                   | (1,926                                  | )              |                                     |                | (2,283                               | )              |            |       | 422      |   |            |       | 419      |   |            |       | (954     | ) |       |       | (1,098  | ) |       |       | (380   | ) |       |       | (390   | )
|Loss from discontinued operations, net of
tax                                 |          |                                   |                                         |                |                                     |                |                                      |                |            |       | (42      | ) |            |       | (42      | ) |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Net income (loss)                                                             |          | $                                 | (1,926                                  | )              |                                     | $              | (2,283                               | )              |            | $     | 380      |   |            | $     | 377      |   |            | $     | (954     | ) |       | $     | (1,098  | ) |       | $     | (380   | ) |       | $     | (390   | )
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|Net income (loss) per common share:                                           |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              | Basic:   |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |   |      
|                                                                              |          | From continuing operations        |                                         | $              | (0.30                               | )              |                                      | $              | (0.35      | )     |          | $ | 0.06       |       |          | $ | 0.06       |       |          | $ | (0.15 | )     |         | $ | (0.17 | )     |        | $ | (0.06 | )     |        | $ | (0.06 | )    
|                                                                              |          | Loss from discontinued operations |                                         |                |                                     |                |                                      |                |            |       |          |   | (0.01      | )     |          |   | (0.01      | )     |          |   |       |       |         |   |       |       |        |   |       |       |        |   |       |      
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              |          | Net income (loss)                 |                                         | $              | (0.30                               | )              |                                      | $              | (0.35      | )     |          | $ | 0.06       |       |          | $ | 0.06       |       |          | $ | (0.15 | )     |         | $ | (0.17 | )     |        | $ | (0.06 | )     |        | $ | (0.06 | )    
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              | Diluted: |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |   |      
|                                                                              |          | From continuing operations        |                                         | $              | (0.30                               | )              |                                      | $              | (0.35      | )     |          | $ | 0.06       |       |          | $ | 0.06       |       |          | $ | (0.15 | )     |         | $ | (0.17 | )     |        | $ | (0.06 | )     |        | $ | (0.06 | )    
|                                                                              |          | Loss from discontinued operations |                                         |                |                                     |                |                                      |                |            |       |          |   | (0.01      | )     |          |   | (0.01      | )     |          |   |       |       |         |   |       |       |        |   |       |       |        |   |       |      
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  
|                                                                              |          | Net income (loss)                 |                                         | $              | (0.30                               | )              |                                      | $              | (0.35      | )     |          | $ | 0.06       |       |          | $ | 0.06       |       |          | $ | (0.15 | )     |         | $ | (0.17 | )     |        | $ | (0.06 | )     |        | $ | (0.06 | )    
|                                                                              |          |                                   |                                         |                |                                     |                |                                      |                |            |       |          |   |            |       |          |   |            |       |          |   |       |       |         |   |       |       |        |   |       |       |        |  

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Risks and Uncertainties

The $24.0 million Senior Subordinated 12% Note (the Note) contains
provisions that provide incentives to prepay the principal of the Note. If the
entire principal of the Note is not prepaid by December 31, 2003, the Note
Holder will be entitled to stock warrants equivalent to 5% of the Companys
outstanding shares of common stock then outstanding, exercisable for nominal
consideration. If the principal amount of the Note is in excess of $12.0
million on December 31, 2003, the Note Holder will be entitled to receive stock
warrants equivalent to an additional 5% of the number of shares of common stock
outstanding at that date, exercisable for nominal consideration, along with an
additional note with a principal amount of $5.0 million. In addition, beginning
January 2004 and continuing through June 2004, the interest rate will increase
by 1% per annum each month up to a maximum rate of 18%. The Company is
assessing various options to prepay the principal of the Note by December 31,
2003 but if the Company does not prepay at least $12.0 million in principal on
the Note by December 31, 2003, the consideration due the Note Holder at that
time will adversely affect the Companys financial position and may have a
negative effect on its ability to meet its financial obligations. In addition,
the issuance and exercise of these warrants will have a dilutive impact on the
current shares of common stock outstanding.

While the Note is subordinate to the Senior Secured Credit Facility (the
Facility), the loan and security agreement does allow for the prepayment of
principal on both the Note and the Facility under certain conditions. Under the
terms of loan and security agreement of the Facility, the first $15.0 million
of principal prepayment is to be applied equally to the outstanding principal
of the Facilitys term loan and the Note. The next $4.5 million of principal
prepayment is to be applied entirely to the outstanding principal of the Note.
The next principal prepayments will then either be applied equally to the
outstanding principal of the Facility and to the Note or entirely to the
outstanding principal of the Note, depending on certain conditions, until the
entire $24.0 million of the Note has been repaid in full.

As of March 31, 2003, the Company was in compliance with all of the
covenants contained in the Facility and the Note; however, based on
managements judgment, the Company may exceed the Facilitys maximum capital
expenditure covenant and the Notes maximum professional fees covenant for the
period ending June 30, 2003. The Company will be holding discussions with its
Lenders to address these issues and attempt to obtain waivers for these
financial covenants.

In April 2002, the Company received a notice from Los Angeles World
Airports (LAWA) of a proposed rent increase for one of Air Cargos warehouse
facilities at LAX (the Avion Warehouse) retroactive to June 18, 2001. In
response to this notice, the Company submitted protests to the LAWA Staff and
Board of Commissioners regarding the proposed increase on the basis that: 1)
the Company had made a substantial investment in the warehouse facility and the
proposed rental increase would greatly reduce the Companys ability to achieve
an acceptable rate of return on the Companys investment to date; 2) if any
increase is to be made, it should be determined based on the Company being a
developer of the facility and not strictly a tenant; and 3) that the amount of
the proposed increase is not justified given the general business environment
of the air cargo handling operations. In response to the Companys protests to
the proposed increase, in September 2002 the Company received a revised notice
from LAWA of a reduced proposal for a rental increase for the Avion Warehouse.
The LAWA Staff intend to present their recommended rental increase to the LAWA
Board of Commissioners for approval in late January 2004. From June 18, 2001
through June 30, 2002, the accumulated amount of the retroactive rent increase
is $789,000, which will be partially offset by recoverable retroactive sublease
rental income of $330,000. The LAWA Staff has indicated that the retroactive
portion of the rent increase would be payable by the Company in equal monthly
installments over the remaining term of the lease agreement, which is scheduled
to expire in June 2006. The proposed increase in the monthly rent, on a
go-forward basis, would be $64,600, or 35%, from the existing monthly rent. The
Company has accrued $459,000 for the retroactive rent increase, which is net of
increased recoverable retroactive sublease rental income, as of June 30, 2002,
and has accrued an additional $115,000 and $344,000 for the three and
nine-month periods ended March 31, 2003, respectively,
resulting in a total accrual of $803,000 as of March 31, 2003
for the rent increase. See the
discussion above in this Note 1 under Restatement regarding the restatement
of the financial statements.

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 a single industry, aviation, 2) there is a concentration of
credit risk as there are several customers who at any 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 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.

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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 generally accepted accounting
principles in the United States of America for complete financial statements.
In the opinion of management, all adjustments consisting of normal recurring
adjustments and accruals, as well as accounting changes considered 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, 2003 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, 2002.

New Accounting Pronouncements

In December 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 148 Accounting for
Stock-Based Compensation  Transition and Disclosure, an amendment of FASB
Statement No. 123. This statement amends SFAS No. 123 Accounting for
Stock-Based Compensation to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148 also amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both the annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The Company
adopted the disclosure provisions beginning with the Companys quarter ended
December 31, 2002. The Company has no current intention to change its policy of
accounting for stock-based compensation.

The Company accounts for stock options in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.
Had compensation cost for stock options been calculated using the fair value
provisions of Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation, the Companys net loss and loss per share would
have approximated the pro forma amounts indicated in the following table:

|                                              |  |                   |            |                    |  |         |         |         |  |   |            |   |  |   |          |  
|--------------------------------------------- |  | ----------------- | ---------- | ------------------ |  | ------- | ------- | ------- |  | - | ---------- | - |  | - | -------- | -
|                                              |  | Nine Months Ended |            | Three Months Ended
|                                              |  |                   |            |                   
|                                              |  | 3/31/03           |            | 3/31/02            |  | 3/31/03 |         | 3/31/02
|                                              |  |                   |            |                    |  |         |         |        
|Net
income (loss)  as reported               |  | $                 | (2,283,000 | )                  |  | $       | 377,000 |         |  | $ | (1,098,000 | ) |  | $ | (390,000 | )
|Net income (loss)  pro forma                 |  | $                 | (2,404,000 | )                  |  | $       | 117,000 |         |  | $ | (1,067,000 | ) |  | $ | (509,000 | )
|Basic income (loss) per share 
as reported   |  | $                 | (0.35      | )                  |  | $       | 0.06    |         |  | $ | (0.17      | ) |  | $ | (0.06    | )
|Basic income (loss) per share 
pro forma     |  | $                 | (0.37      | )                  |  | $       | 0.02    |         |  | $ | (0.16      | ) |  | $ | (0.08    | )
|Diluted income (loss) per share 
as reported |  | $                 | (0.35      | )                  |  | $       | 0.06    |         |  | $ | (0.17      | ) |  | $ | (0.06    | )
|Diluted income (loss) per share 
pro forma   |  | $                 | (0.37      | )                  |  | $       | 0.02    |         |  | $ | (0.16      | ) |  | $ | (0.08    | )

The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets
on July 1, 2002. SFAS No. 142 requires that existing and future goodwill and
intangible assets with indefinite lives not be amortized, but written down, as
needed, based upon an impairment analysis that must occur at least, annually,
or sooner if an event occurs or circumstances change that would more likely
than not result in an impairment loss. All other intangible assets are
amortized over their estimated useful lives. SFAS No. 142 requires that the
Company perform step one of a two-part transitional impairment test to compare
the reporting units fair value with their respective carrying amount, including
goodwill. If the carrying value exceeds the fair value, step two of the
transitional impairment test must be performed to measure the amount of the
impairment loss, if any. SFAS No. 142 also requires that intangible assets be
reviewed as of the date of adoption to determine if they continue to qualify as
intangible assets under the criteria established under SFAS No. 141, Business
Combinations, and to the extent previously recorded intangible assets do not
meet the criteria that they be reclassified to goodwill.

During the quarter ended December 31, 2002, with the assistance of an
independent valuation firm, the Company completed step one of the transitional
test to determine whether there was a potential impairment of goodwill at July
1, 2002. Primarily based on a weighted value using a market approach and an
income approach, it was determined that the fair values of the reporting units
that have goodwill exceeded their carrying values, therefore a step two
impairment test is not required. Since the completion of this valuation,
nothing has come to the attention of management which would lead the Company to
believe that an impairment has occurred subsequent to this valuation. In
accordance with SFAS No. 142, the Company will perform an impairment test
annually to determine whether any impairment has occurred requiring a pre-tax
charge to operating income.

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The
following is a reconciliation of reported net income (loss) adjusted
for adoption of SFAS No. 142:

|                                         |  |               |            |               |  |               |         |               |  |   |            |   |  |   |          |  
|---------------------------------------- |  | ------------- | ---------- | ------------- |  | ------------- | ------- | ------------- |  | - | ---------- | - |  | - | -------- | -
|                                         |  | Nine Months   |            | Nine Months   |  | Three Months  |         | Three Months 
|                                         |  | Ended 3/31/03 |            | Ended 3/31/02 |  | Ended 3/31/03 |         | Ended 3/31/02
|                                         |  |               |            |               |  |               |         |              
|Net income (loss)
as reported            |  | $             | (2,283,000 | )             |  | $             | 377,000 |               |  | $ | (1,098,000 | ) |  | $ | (390,000 | )
|Goodwill                                
|Amortization (net
of tax)                |  |               |            |               |  |               | 186,000 |               |  |   |            |   |  |   | 62,000   |  
|                                         |  |               |            |               |  |               |         |               |  |   |            |   |  |   |          |  
|Net income (loss)
as adjusted            |  | $             | (2,283,000 | )             |  | $             | 563,000 |               |  | $ | (1,098,000 | ) |  | $ | (328,000 | )
|                                         |  |               |            |               |  |               |         |               |  |   |            |   |  |   |          |  
|Fully diluted                            | 
|Net income (loss) per
share, as adjusted |  | $             | (0.35      | )             |  | $             | 0.08    |               |  | $ | (0.17      | ) |  | $ | (0.05    | )
|Fully diluted                            | 
|Net income (loss) per
share, as reported |  | $             | (0.35      | )             |  | $             | 0.06    |               |  | $ | (0.17      | ) |  | $ | (0.06    | )

The Company had $1,108,000 and $233,000 of net intangible assets at March
31, 2003 and June 30, 2002, respectively. Accumulated amortization for
intangible assets was $892,000 and $767,000 at March 31, 2003 and June 30,
2002, respectively. Intangible assets at March 31, 2003 consist of covenants
not to compete agreements and fuel sales contracts amortized over 3-5 years.
Amortization expense for intangible assets was $125,000 and $150,000 for the
nine months ended March 31, 2003 and the year ended June 30, 2002. Estimated
amortization expense in each of the next five years is as follows: $75,000 in
the remainder of 2003; $300,000 in 2004; $233,000 in 2005; $200,000 in 2006;
$200,000 in 2007; and $100,000 thereafter.

Included in Property, Equipment and Leaseholds are leasehold interests
relating to the unallocated purchase costs of certain FBO locations. The
capitalized value of these leasehold interests was $16,257,000 at March 31,
2003 and June 30, 2002. Accumulated depreciation of the leasehold interests was
$6,214,000 and $5,434,000 at March 31, 2003 and June 30, 2002, respectively.
Estimated depreciation expense in each of the next five years is as follows:
$260,000 in the remainder of 2003; $1,041,000 in 2004; $1,011,000 in 2005;
$1,001,000 in 2006; $918,000 in 2007; and $5,812,000 thereafter.

Effective June 30, 2002, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 143, Accounting for Asset Retirement
Obligations. This Statement establishes accounting standards for the
recognition and measurement of an asset retirement obligation and associated
asset retirement cost. It also provides accounting guidance for legal
obligations associated with the retirement of tangible long-lived assets.
Adoption of this statement had no impact on the Companys consolidated results
of operations or financial position.

Effective July 1, 2002, the Company adopted SFAS No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, which supersedes FASB
Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. This new statement also supersedes
certain aspects of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions,
with regard to reporting the effects of a disposal of a component of a business
and will require expected future operating losses from discontinued operations
to be reported in discontinued operations in the period incurred (rather than
as of the measurement date as previously required by APB Opinion No. 30). In
addition, more dispositions may qualify for discontinued operations treatment.
The adoption of SFAS No. 144 did not have a material effect on the Companys
consolidated financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements Nos, 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical
Corrections, which rescinds and amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Company adopted SFAS
No. 145 on July 1, 2002.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 requires that cost
associated with an exit or disposal activity be recognized when incurred as
opposed to an entitys commitment to an exit plan as previously allowed. The
provisions of SFAS No. 146 are effective for exit or disposal activities that
are initiated after December 31, 2002. The Company adopted SFAS No. 146 on
January 1, 2003. The adoption of this statement did not affect the Companys
consolidated financial position or results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, Amendment of Statement
133 on Derivative Instruments and Hedging Activities. Such 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

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of this
statement are generally effective for contracts entered into or modified after
June 30, 2003. The Company is in the process of assessing the impact of
adopting this standard on its consolidated results of operations and financial
position.

In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). This interpretation
elaborates on disclosures to be made by a guarantor in its interim and annual
financial statements with regard to its obligations under certain guarantees
that it has issued. It also clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The disclosure requirements
of FIN 45 are effective for interim and annual periods ending after December
15, 2002, and the Company has adopted those requirements beginning with the
Companys quarter ended December 31, 2002. The initial recognition and initial
measurement requirements of FIN 45 are effective prospectively for guarantees
issued or modified after December 31, 2002. The adoption of the recognition and
initial measurement requirements of FIN 45 is not expected to have a material
impact on the Companys financial position and results of operations.

In January 2003, the FASB issued Interpretation Number 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 June 15, 2003, to variable
interest entities in which an enterprise holds a variable interest that it
acquired before February 1, 2003. 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 is assessing, but at this point does not believe the
adoption of FIN 46 will have a material impact on its financial position or
results of operations.

Note 2  Discontinued Operations

On July 3, 2001, the Company completed the sale of its subsidiary, RPA
Airline Automation Services, Inc. (RPA), which provided airline revenue
accounting and management information software consisting of proprietary
software programs which are marketed to foreign and domestic airlines. During
the quarter ended September 30, 2001, the Company recorded a loss of $42,000
related to the sale of a building that had previously been RPAs corporate
headquarters. As of June 30, 2002 the Company no longer retained any
significant assets or liabilities related to RPA.

Note 3  Income Taxes

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

Note 4  Litigation

In September 2001, the Company filed a motion for declaratory judgment to
determine its liability as a result of a fuel spill on April 8, 2001 at the
Ontario, CA. Airport. On November 30, 2001, the Company received notice of a
counter-complaint filed by UPS against the Company and a third party seeking
indemnification and reimbursement in the amount of $470,000 for the costs
incurred as a result of the fuel spill. The parties have reached a tentative
settlement through mediation. Trial has been continued until October 2003,
pending the outcome of the proposed settlement.

On May 1, 2002, Mercury received a Notice of Violation (NOV) for its
Fort Wayne, Indiana facility alleging that Mercurys Spill Prevention, Control
and Countermeasure Plan (SPCC) did not meet certain federal regulatory
guidelines. Specifically, the Environmental Protection Agency (EPA) alleged
that Mercurys SPCC failed to provide for proper parking, secondary
containment, and proper drainage of its refueler trucks. Mercury entered into
discussions with the EPA and responded to the NOV. On January 29, 2003, the EPA
again notified the Company of some deficiencies in its latest SPCC and
requested that Mercury submit a written response to its allegations within 30
days. On March 14, 2003, Mercury received a Notice of Violation from the United
States Environmental Protection Agency, Region 5 (EPA) alleging certain
deficiencies in the SPCC for its Fort Wayne, Indiana facility, submitted to EPA
in November 2002. Mercury believes that it has resolved all deficiencies except
for alleged deficiencies related to: 1) secondary containment for refueler
trucks, and 2) secondary containment for discrete fuel loading areas. Pursuant
to an agreement detailed in a letter submitted to EPA on April 16, 2003,
Mercury has been permitted to suspend modifications to its SPCC regarding the
installation of secondary containment for its refueler trucks, pending
resolution of federal regulatory issues associated with secondary containment
for such trucks. EPA has also extended national compliance with regulations
related to discrete loading areas until August 17, 2004.

On October 31, 2002 a complaint was filed before the National Labor
Relations Board Region 12 on behalf of the Transport Workers

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Union of America,
Local 525, AFL-CIO alleging that Maytag Aircraft Corporation has been engaging
in unfair labor practices as set forth in the National Labor Relations Act at
its Patrick Air Force Base location. On April 11, 2003, a settlement agreement
was fully executed. The Company agreed to pay approximately $170,000 plus
applicable payroll taxes.

On November 18, 2002, Investorwatch LLC filed an action in the Superior
Court of the State of California for the County of Los Angeles, Central
District alleging derivative and direct claims against Mercury and certain of
its affiliates based upon alleged wrongful conduct in connection with certain
transactions entered into by Mercury, including certain related party
transactions, which transactions were previously disclosed by Mercury. On
February 18, 2003, the plaintiff filed a dismissal without prejudice with the
court.

On November 27, 2002, Andrew J. Chitiea filed a shareholder verified
derivative complaint in the Superior Court of the State of California, County
of San Diego, North County Division alleging that certain directors of the
Company breached their fiduciary duty to the Company. On February 13, 2003, the
plaintiff files a dismissal without prejudice with the court to dismiss the
complaint and the entire action of all parties and causes of action.

On February 26, 2003, Robert Bosch, filed an action in the United States
District Court, Eastern District of New York against Excel Cargo, Inc. and
others, seeking $1.5 million in damages for damaged cargo. The Company is in
the process of responding to the complaint. Mercury does not believe the
outcome of this claim will have a significant impact on its financial position
or operating results.

On April 16, 2003, the Plan Committee of Shuttle America Corp 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s
answer is due on May 16, 2003. Mercury does not believe this matter will have a
significant impact on its financial position or operating results.

The Company is also a defendant in certain litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of such litigation will not have a significant effect on its
financial position or operating results. Reference is made to the SEC Form 10-Q
for the quarterly period ended December 31, 2002 for additional litigation with
respect to which no material developments have occurred in the current quarter.

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 Foothill Capital Corporation (Foothill), a division of Wells Fargo Bank,
for a five-year term, as agent for the lenders party thereto. In addition, the
Company and J.H. Whitney Co. Mezzanine Fund entered into agreements revising
the terms of the Note, which will mature on December 31, 2005. The funding
under the Facility and the amendments to the Note were completed on December
31, 2002.

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
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
requires that the Company maintain a minimum availability on the revolving line
of credit of $2.5 million. As of March 31, 2003, the Company had $3.8 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 Accounts Receivable and the amount of letters of credit outstanding
and the amount of outstanding cash borrowings against the revolving credit
facility.

The Facility may be terminated on December 23, 2005, if the Whitney Note
is not paid in full or refinanced, on terms acceptable to Foothill, prior to
October 31, 2005. The Facility is secured by substantially all of the assets of
the Company and its subsidiaries. The Facility contains provisions that require
the maintenance of certain financial ratios including minimum EBITDA levels,
minimum fixed charge coverage ratios, and maximum annual capital expenditure
levels. In addition, under the Facility, the Company is prohibited from paying
non-intercompany cash dividends.

The revised Whitney Note is in the form of a $24.0 million Senior
Subordinated 12% Note (the Note) with detachable warrants to purchase 503,126
shares of the Companys common stock exercisable at $3.742 per share through
September 9, 2006. The warrant exercise price was reduced from $5.50 per share.
The Note is secured 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, will be issued if the principal amount
of the Note is 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 $5.0 million, will
also be issued if the outstanding principal amount of the Note is greater than
$12.0 million after December 31, 2003. In addition, beginning January 2004 and
continuing through June
2004, the interest rate will increase by 1% per annum each month up to a
maximum rate of 18%. The Company is currently assessing various

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options that
will enable it to prepay the principal portion of the Note to avoid the
necessity of having to issue the additional warrants and incur the additional
note obligation. At such time when the Company determines that it is probable
that the Note, or a portion of the Note, will be prepaid, the estimated amount
of the prepayment may be classified as a current portion of long-term debt on
the Companys balance sheet. Until the Company determines that it is not
probable that the Note, or any portion of the Note, will be prepaid, the
Company is accruing the additional cost of the new warrants and the additional
note obligation over the remaining term of the Note. The Company is also
required to prepay all outstanding principal of the Note and any additional
note on December 31, 2004, but the failure by the Company to make such
prepayment will not entitle the holder to accelerate the balance on the
outstanding Note or outstanding additional note. The revised Whitney Note
contains similar covenants as in the original Note, including covenants that,
among other matters, limit senior indebtedness, the payment of dividends, and
the disposition of assets. The revised covenants also include minimum EBITDA
requirements and capital expenditure limitations.

While the Note is subordinate to the Facility, the loan and security
agreement does allow for the prepayment of principal on both the Note and the
Facility under certain conditions. Under the terms of loan and security
agreement, the first $15.0 million of principal prepayment is to be applied
equally to the outstanding principal of the Facilitys term loan and the Note.
The next $4.5 million of principal prepayment is to be applied entirely to the
outstanding principal of the Note. The next principal prepayments will then
either be applied equally to the outstanding principal of the Facility and to
the Note or entirely to the outstanding principal of the Note, depending on
certain conditions, until the entire $24.0 million of the Note has been repaid
in full.

As required by the Whitney Note, the Company has formed committees
consisting of its independent directors to seek opportunities for asset sales
and other financing transactions, with a view to reducing the Companys total
debt.

At June 30, 2002, the Company was in noncompliance with certain debt
covenants contained in the previous credit facility, giving the lenders the
right to declare the outstanding obligation immediately due and payable. As
such, the total principal amount outstanding on the previous Senior Secured
Credit Facility and the Note were classified on the Companys consolidated
balance sheet at June 30, 2002 as current portion of long-term debt and Senior
Subordinated Note, current. With the aforementioned refinancing, the default
conditions were removed and the debt is classified as current and long term
based on normal due dates stipulated by the loan agreement. In addition, for
the nine months ended March 31, 2003 the Company wrote off $1.7 million in
capitalized financing costs relating to the previous credit facility and Note.

Note 6  Preferred Stock

During December 2002, the Company issued 462,627 shares of Series A 8%
Cumulative Convertible Preferred Stock (the Preferred Stock) at a stated
value of $1.00 per share with a par value of $0.01 per share to investors
having a pre-existing relationship with the Company, comprised of customers and
employees. The issuance of the Preferred Stock occurred after the Company was
unable to draw-down on the previous revolving credit facility.

The shares of the Preferred Stock are convertible to common stock, at the
option of the stockholder, at a conversion price of $7.50 per share. Dividends
on the Preferred Stock are accrued on a semi-annual basis at an annual rate of
8.0% and paid, either in cash or in-kind at the election of the Company. During
a 30-day period immediately following the third, fourth, fifth and each
subsequent anniversary date of the issuance of the Preferred Stock, both the
Company and the stockholder have the option to redeem the then outstanding
shares of Preferred Stock for an amount equal to $1.00 plus all accrued but
unpaid dividends for each share of Preferred Stock redeemed. The Company has
the option, whether the Company or the Stockholder exercised their redemption
option, to pay all or part of the redemption in shares of the Companys common
stock. In the event of any liquidation of the Company, the holders of Preferred
Stock have a liquidation preference over common stock, plus all declared but
unpaid dividends. In the event the assets are insufficient to cover the
aforesaid amounts, the Preferred Stockholders would share in the assets ratably
in proportion to the full preferential amount.

Note 7  Net Income (Loss) Per Share

Basic
net income (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding
during the period. In calculating net income (loss) per share, the net loss for
the three-month and nine-month periods ended March 31, 2003 was reduced by
accrued preferred stock dividends of $9,000. Diluted net income (loss) per
share is computed by dividing net income (loss) less accrued preferred stock
dividends by the weighted average number of common shares and potential common
shares. Potential common shares include stock options, shares resulting from
the assumed conversion of subordinated debentures, and preferred stock
redemptions, when dilutive.

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|                                                                                             |  |                   |           |                    |  |                |           |                |  |         |           |       |  |         |           |       |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|-------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ------------------ |  | -------------- | --------- | -------------- |  | ------- | --------- | ----- |  | ------- | --------- | ----- |  |  | --------- |  |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                                                                             |  | Nine Months Ended |           | Three Months Ended
|                                                                                             |  |                   |           |                   
|                                                                                             |  | March 31, 2003    |           | March 31, 2002     |  | March 31, 2003 |           | March 31, 2002
|                                                                                             |  |                   |           |                    |  |                |           |               
|                                                                                             |  | Diluted           |           | Basic              |  | Diluted        |           | Basic          |  | Diluted |           | Basic |  | Diluted |           | Basic
|                                                                                             |  |                   |           |                    |  |                |           |                |  |         |           |       |  |         |           |      
|Weighted average
number of common
shares outstanding
during the period                       |  |                   | 6,509,000 |                    |  |                | 6,509,000 |                |  |         | 6,557,000 |       |  |         | 6,557,000 |       |  |  | 6,577,000 |  |  |  | 6,577,000 |  |  |  | 6,518,000 |  |  |  | 6,518,000 | 
|Common share
equivalents
resulting from the
assumed exercise of
stock options                |  |                   |           |                    |  |                |           |                |  |         | 142,000   |       |  |         |           |       |  |  |           |  |  |  |           |  |  |  | 151,00    |  |  |  |           | 
|Common shares
resulting from the
assumed conversion
of debentures                            |  |                   |           |                    |  |                |           |                |  |         | 28,000    |       |  |         |           |       |  |  |           |  |  |  |           |  |  |  | 28,000    |  |  |  |           | 
|                                                                                             |  |                   |           |                    |  |                |           |                |  |         |           |       |  |         |           |       |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|Weighted average
number of common
and common
equivalent shares
outstanding during
the period |  |                   | 6,509,000 |                    |  |                | 6,509,000 |                |  |         | 6,727,000 |       |  |         | 6,557,000 |       |  |  | 6,577,000 |  |  |  | 6,577,000 |  |  |  | 6,697,000 |  |  |  | 6,518,000 | 
|                                                                                             |  |                   |           |                    |  |                |           |                |  |         |           |       |  |         |           |       |  |  |           |  |  |  |           |  |  |  |           |  |  |  |           | 

Note 8  Segment Reporting

The Company discloses segment information in accordance with Statements of
Financial Accounting Standards (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. Intersegment sales are not
significant.

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The Company operates and reports its activities through four principal
units: 1) Fuel Sales, 2) Fixed Based Operations, 3) Cargo Operations and 4)
Government Contract Services.

|                                                    |  |                        |        |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|--------------------------------------------------- |  | ---------------------- | ------ | ---------- |  | ---------- | ------ | -------- |  | ----------- | ------ | ----- |  | ---------- | ------ | --------- |  | - | ------ | - |  | - | ------- | 
|                                                    |  |                        |        |            |  |            |        |          |  |             |        |       |  | Government |        | Corporate |  |   |        |  
|                                                    |  |                        |        |            |  | Fixed Base |        | Cargo    |  | Contract    |        | or    |  |            |        |          
|                                                    |  | Fuel Sales             |        | Operations |  | Operations |        | Services |  | Unallocated |        | Total
|                                                    |  |                        |        |            |  |            |        |          |  |             |        |      
|                                                    |  | (Dollars in Thousands)
|Quarter Ended March 31, 2003
(Restated, see Note 1) |  |                        |        |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|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 | 
|Quarter Ended March 31, 2002
(Restated, see Note 1) |  |                        |        |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|Revenues                                            |  | $                      | 52,243 |            |  | $          | 22,491 |          |  | $           | 6,400  |       |  | $          | 6,784  |           |  |   |        |   |  | $ | 87,918  | 
|Gross Margin                                        |  |                        | 1,799  |            |  |            | 3,195  |          |  |             | (153   | )     |  |            | 1,674  |           |  |   |        |   |  |   | 6,515   | 
|Depreciation and
Amortization                       |  |                        | 16     |            |  |            | 1,489  |          |  |             | 547    |       |  |            | 171    |           |  | $ | 146    |   |  |   | 2,369   | 
|Capital Expenditures                                |  |                        | 11     |            |  |            | 661    |          |  |             | 45     |       |  |            | 5      |           |  |   | 14     |   |  |   | 736     | 
|Segment Assets                                      |  |                        | 23,206 |            |  |            | 68,169 |          |  |             | 14,866 |       |  |            | 14,306 |           |  |   | 14,713 |   |  |   | 135,260 | 

|                                                        |  |                        |         |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|------------------------------------------------------- |  | ---------------------- | ------- | ---------- |  | ---------- | ------ | -------- |  | ----------- | ------ | ----- |  | ---------- | ------ | --------- |  | - | ------ | - |  | - | ------- | 
|                                                        |  |                        |         |            |  |            |        |          |  |             |        |       |  | Government |        | Corporate |  |   |        |  
|                                                        |  |                        |         |            |  | Fixed Base |        | Cargo    |  | Contract    |        | or    |  |            |        |          
|                                                        |  | Fuel Sales             |         | Operations |  | Operations |        | Services |  | Unallocated |        | Total
|                                                        |  |                        |         |            |  |            |        |          |  |             |        |      
|                                                        |  | (Dollars in Thousands)
|Nine Months Ended
March 31, 2003
(Restated, see Note 1) |  |                        |         |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|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 | 
|Nine Months Ended
March 31, 2002
(Restated, see Note 1) |  |                        |         |            |  |            |        |          |  |             |        |       |  |            |        |           |  |   |        |   |  |   |         | 
|Revenues                                                |  | $                      | 171,353 |            |  | $          | 69,575 |          |  | $           | 21,086 |       |  | $          | 21,747 |           |  |   |        |   |  | $ | 283,761 | 
|Gross Margin                                            |  |                        | 5,169   |            |  |            | 10,455 |          |  |             | 1,008  |       |  |            | 5,411  |           |  |   |        |   |  |   | 22,043  | 
|Depreciation and
Amortization                           |  |                        | 31      |            |  |            | 4,301  |          |  |             | 1,680  |       |  |            | 384    |           |  | $ | 657    |   |  |   | 7,053   | 
|Capital Expenditures                                    |  |                        | 22      |            |  |            | 2,718  |          |  |             | 142    |       |  |            | 5      |           |  |   | 18     |   |  |   | 2,905   | 
|Segment Assets                                          |  |                        | 23,206  |            |  |            | 68,169 |          |  |             | 14,866 |       |  |            | 14,306 |           |  |   | 14,713 |   |  |   | 135,260 | 

The Companys assets are reviewed by management on a consolidated basis
because it is not meaningful to allocate assets to the various segments. The
Company evaluates segment performance based on revenues and operating profits.
The Company does not allocate income taxes or charges determined to be
non-recurring in nature, such as restructuring and impairment charges.
Unallocated amounts of operating profits consist of corporate expenses, and
certain general and administrative expenses from field operations.

The revenue amount for the corporate or unallocated segment represents the
elimination of intersegment sales between the fuel sales and fixed base
operations segments.

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 $348,000 and $449,000; total bad debt
expense was $442,000 and $475,000 for the quarter ended March 31, 2003 and
March 31, 2002, respectively. Bad debt expense for Fuel Sales was approximately
$980,000 and $1,021,000; total bad debt expense was $1,201,000 and $1,247,000
for the nine months ended March 31, 2003 and March 31, 2002, respectively.

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Note 9  Comprehensive Income (Loss)

Comprehensive income (loss) is summarized as follows:

|                                        |  |                   |            |                    |  |      |          |      |  |   |            |   |  |   |          |  
|--------------------------------------- |  | ----------------- | ---------- | ------------------ |  | ---- | -------- | ---- |  | - | ---------- | - |  | - | -------- | -
|                                        |  | Nine Months Ended |            | Three Months Ended
|                                        |  | March 31,         |            | March 31,         
|                                        |  |                   |            |                   
|                                        |  | 2003              |            | 2002               |  | 2003 |          | 2002
|                                        |  |                   |            |                    |  |      |          |     
|Net Income (Loss)                       |  | $                 | (2,283,000 | )                  |  | $    | 377,000  |      |  | $ | (1,098,000 | ) |  | $ | (390,000 | )
|Foreign Currency
Translation
Adjustment |  |                   | (57,000    | )                  |  |      | (116,000 | )    |  |   | (12,000    | ) |  |   | (116,000 | )
|                                        |  |                   |            |                    |  |      |          |      |  |   |            |   |  |   |          |  
|Comprehensive
Income (Loss)             |  | $                 | (2,340,000 | )                  |  | $    | 261,000  |      |  | $ | (1,110,000 | ) |  | $ | (506,000 | )
|                                        |  |                   |            |                    |  |      |          |      |  |   |            |   |  |   |          |  

Note 10  Related Party Transactions

CFK Partners, LLC is a partnership 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. In addition, CFK Partners, LLC
also owns approximately 30% of the Companys outstanding common 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 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 2002, 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.

CFK Realty financed the purchase of the headquarters through a $3.2
million loan. CFK Realty was formed by the same partners who formed CFK
Partners. See Note 1 under Restatement regarding the
restatement of the financial statements.

The Company and its Chairman (the Members) each own a 50% interest in
MercMed, LLC (MercMed). MercMed was formed to own and operate a corporate
aircraft. In early April 2002, the Members agreed to sell the aircraft. As part
of this decision, the Members also agreed that the Company would fund the
monthly partner contributions to allow MercMed to meet its monthly financial
requirements as detailed in the Operating Agreement and that the Company would
be reimbursed for the amount of contributions above its proportional share with
the net proceeds, after repayment of the outstanding note, from the sale of the
aircraft. From the period of April 1, 2002 through March 31, 2003 the Company
has contributed $369,000 to MercMed to meet its financial obligations. These
contributions will be reflected in the Companys Capital Account and will be
collected upon the sale of the aircraft. On March 27, 2003, MercMed secured new
financing for the aircraft with a 15-year note with the effective interest rate
being fixed for a 36-month period. At the end of the initial 36-month period
until maturity, 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. Both the Company and its Chairman are guarantors of this note. As of
March 31, 2003, the principal amount of the note outstanding was $703,000.

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, LLC. For the three and nine-month periods ended
March 31, 2003, the Company paid the Firm $179,000 and $541,000, respectively,
for legal services rendered.




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

Results of Operations Comparison of the Three and Nine Month Periods
Ended March 31, 2003 and March 31, 2002.

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.

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|                             |  |                             |       |                              |  |                    |       |                    |  |        |       |          |  |        |       |          |  |       |       |   |  |  |       |       |  |   |      |  |  |  |       |  
|---------------------------- |  | --------------------------- | ----- | ---------------------------- |  | ------------------ | ----- | ------------------ |  | ------ | ----- | -------- |  | ------ | ----- | -------- |  | ----- | ----- | - |  |  | ----- | ----- |  | - | ---- |  |  |  | ----- | -
|                             |  | Nine Months Ended March 31, |       | Three Months Ended March 31,
|                             |  |                             |       |                             
|                             |  | 2003
(Restated(1))          |       | 2002
(Restated(1))           |  | 2003
(Restated(1)) |       | 2002
(Restated(1))
|                             |  |                             |       |                              |  |                    |       |                   
|                             |  |                             |       |                              |  | % of               |       |                    |  |        |       | % of     |  |        |       |          |  | % of  |       |   |  |  |       | % of 
|                             |  |                             |       |                              |  | Total              |       |                    |  |        |       | Total    |  |        |       |          |  | Total |       |   |  |  |       | Total
|                             |  | Amount                      |       | Revenues                     |  | Amount             |       | Revenues           |  | Amount |       | Revenues |  | Amount |       | Revenues
|                             |  |                             |       |                              |  |                    |       |                    |  |        |       |          |  |        |       |         
|                             |  | ($ in million)             
|Revenues:                    |  |                             |       |                              |  |                    |       |                    |  |        |       |          |  |        |       |          |  |       |       |   |  |  |       |       |  |   |      |  |  |  |       |  
|Fuel sales                   |  | $                           | 218.1 |                              |  |                    | 65.5  | %                  |  | $      | 171.4 |          |  |        | 60.4  | %        |  | $     | 72.5  |   |  |  | 65.3  | %     |  | $ | 52.2 |  |  |  | 59.4  | %
|FBOs                         |  |                             | 72.2  |                              |  |                    | 21.7  |                    |  |        | 69.6  |          |  |        | 24.5  |          |  |       | 24.4  |   |  |  | 22.0  |       |  |   | 22.5 |  |  |  | 25.6  |  
|Cargo operations             |  |                             | 24.8  |                              |  |                    | 7.5   |                    |  |        | 21.1  |          |  |        | 7.4   |          |  |       | 8.4   |   |  |  | 7.6   |       |  |   | 6.4  |  |  |  | 7.3   |  
|Government contract
services |  |                             | 18.5  |                              |  |                    | 5.5   |                    |  |        | 21.7  |          |  |        | 7.7   |          |  |       | 6.0   |   |  |  | 5.4   |       |  |   | 6.8  |  |  |  | 7.7   |  
|Intercompany
Eliminations(2) |  |                             | (0.7  | )                            |  |                    | (0.2  | )                  |  |        |       |          |  |        |       |          |  |       | (0.3  | ) |  |  | (0.3  | )     |  |   |      |  |  |  |       |  
|                             |  |                             |       |                              |  |                    |       |                    |  |        |       |          |  |        |       |          |  |       |       |   |  |  |       |       |  |   |      |  |  |  |       |  
|Total Revenue                |  | $                           | 332.9 |                              |  |                    | 100.0 | %                  |  | $      | 283.8 |          |  |        | 100.0 | %        |  | $     | 111.0 |   |  |  | 100.0 | %     |  | $ | 87.9 |  |  |  | 100.0 | %
|                             |  |                             |       |                              |  |                    |       |                    |  |        |       |          |  |        |       |          |  |       |       |   |  |  |       |       |  |   |      |  |  |  |       |  

|                             |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |      |     |  |  |  |      |      |  |   |      |   |  |  |      |  
|---------------------------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ---- | --- |  |  |  | ---- | ---- |  | - | ---- | - |  |  | ---- | -
|                             |  |        |      |          |  | % of   |      |          |  |        |      | % of     |  |        |      |          |  | % of |     |  |  |  |      | % of
|                             |  |        |      |          |  | Unit   |      |          |  |        |      | Unit     |  |        |      |          |  | Unit |     |  |  |  |      | Unit
|                             |  | Amount |      | Revenues |  | Amount |      | Revenues |  | Amount |      | Revenues |  | Amount |      | Revenues
|                             |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |         
|Gross Margin(3):             |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |      |     |  |  |  |      |      |  |   |      |   |  |  |      |  
|Fuel sales                   |  | $      | 4.7  |          |  |        | 2.2  | %        |  | $      | 5.2  |          |  |        | 3.0  | %        |  | $    | 1.7 |  |  |  | 2.3  | %    |  | $ | 1.8  |   |  |  | 3.5  | %
|FBOs                         |  |        | 8.8  |          |  |        | 12.2 |          |  |        | 10.4 |          |  |        | 15.3 |          |  |      | 2.9 |  |  |  | 11.7 |      |  |   | 3.2  |   |  |  | 14.2 |  
|Cargo operations             |  |        | 2.1  |          |  |        | 8.3  |          |  |        | 1.0  |          |  |        | 4.8  |          |  |      | 0.4 |  |  |  | 4.4  |      |  |   | (0.2 | ) |  |  | (2.4 | )
|Government contract
services |  |        | 3.4  |          |  |        | 18.2 |          |  |        | 5.4  |          |  |        | 24.9 |          |  |      | 1.2 |  |  |  | 20.2 |      |  |   | 1.7  |   |  |  | 24.7 |  
|                             |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |      |     |  |  |  |      |      |  |   |      |   |  |  |      |  
|Total Gross Margin           |  | $      | 19.0 |          |  |        | 5.7  | %        |  | $      | 22.0 |          |  |        | 7.8  | %        |  | $    | 6.1 |  |  |  | 5.5  |      |  | $ | 6.5  |   |  |  | 7.4  | %
|                             |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |      |     |  |  |  |      |      |  |   |      |   |  |  |      |  

|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|---------------------------------------------------------------------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ------ | ---- | -------- |  | ----- | ---- | - |  |  | ---- | ----- |  | - | ---- | - |  |  | ---- | --
|                                                                       |  |        |      |          |  | % of   |      |          |  |        |      | % of     |  |        |      |          |  | % of  |      |   |  |  |      | % of 
|                                                                       |  |        |      |          |  | Total  |      |          |  |        |      | Total    |  |        |      |          |  | Total |      |   |  |  |      | Total
|                                                                       |  | Amount |      | Revenues |  | Amount |      | Revenues |  | Amount |      | Revenues |  | Amount |      | Revenues
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |         
|Selling, general
and administrative                                    |  | $      | 7.9  |          |  |        | 2.4  |          |  | $      | 7.7  |          |  |        | 2.7  |          |  | $     | 2.6  |   |  |  | 2.5  | %     |  | $ | 2.9  |   |  |  | 3.3  |   
|Provision for bad
debts                                                |  |        | 1.2  |          |  |        | 0.4  |          |  |        | 1.2  |          |  |        | 0.4  |          |  |       | 0.4  |   |  |  | 0.4  |       |  |   | 0.5  |   |  |  | 0.5  |   
|Depreciation and
amortization                                          |  |        | 6.1  |          |  |        | 1.8  |          |  |        | 7.1  |          |  |        | 2.5  |          |  |       | 2.1  |   |  |  | 1.8  |       |  |   | 2.4  |   |  |  | 2.7  |   
|Interest expense
and other                                             |  |        | 5.5  |          |  |        | 1.6  |          |  |        | 4.4  |          |  |        | 1.5  |          |  |       | 2.6  |   |  |  | 2.2  |       |  |   | 1.4  |   |  |  | 1.6  |   
|Cost and expenses
of stock offering                                    |  |        |      |          |  |        |      |          |  |        | 1.0  |          |  |        | 0.4  |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|Write off of
capitalized
financing costs                               |  |        | 1.8  |          |  |        | 0.5  |          |  |        |      |          |  |        |      |          |  |       | 0.0  |   |  |  | 0.0  |       |  |   |      |   |  |  |      |   
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|Income (loss)
before income taxes                                      |  |        | (3.5 | )        |  |        | (1.0 | )        |  |        | 0.7  |          |  |        | 0.2  |          |  |       | (1.7 | ) |  |  | (1.5 | )     |  |   | (0.6 | ) |  |  | (0.7 | ) 
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|Provision for
income taxes                                             |  |        | (1.2 | )        |  |        | (0.4 | )        |  |        | 0.3  |          |  |        | 0.1  |          |  |       | (0.6 | ) |  |  | (0.5 | )     |  |   | (0.2 | ) |  |  | (0.3 | ) 
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|Income (loss) from
continuing
operations before
discontinued operation |  |        | (2.3 | )        |  |        | (0.7 | )        |  |        | 0.4  |          |  |        | 0.1  |          |  |       | (1.1 | ) |  |  | (1.0 | )     |  |   | (0.4 | ) |  |  | (0.4 | ) 
|Loss from
discontinued
operations                                      |  |        |      |          |  |        |      |          |  |        | (0.1 | )        |  |        | (0.0 | )        |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   
|Net income (loss)                                                      |  | $      | (2.3 | )        |  |        | (0.7 | )%       |  | $      | 0.4  |          |  |        | 0.1  | %        |  | $     | (1.1 | ) |  |  | (1.0 | )%    |  | $ | (0.4 | ) |  |  | (0.4 | )%
|                                                                       |  |        |      |          |  |        |      |          |  |        |      |          |  |        |      |          |  |       |      |   |  |  |      |       |  |   |      |   |  |  |      |   



---



|(1) |  | See Note 1 of notes to
consolidated financial statements under Restatement
regarding the restatement of the financial statements.                     
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Intercompany eliminations represent sales between the fuel sales division
and the FBO division.                                                         
|   
|(3) |  | Gross margin as used here and throughout Managements Discussion excludes
depreciation and amortization and selling, general and administrative
expense.

Three Months ended March 31, 2003 compared to the Three Months ended March 31, 2002

Revenue in the third quarter of fiscal year 2003 was $111.0 million,
representing an increase of 26.2% from the revenue reported for the third
quarter of fiscal year 2002 of $87.9 million. The increase in revenue is
primarily attributed to a combination of higher average sale prices for
petroleum products in the current quarter and improved performance by the
Companys cargo operations. In addition, revenue in the amount of $2.0 million
is reflected in the third quarter of fiscal year 2002 from the Companys FBO in
Bedford, Massachusetts (the Bedford FBO) which was sold in June 2002. The
gross margin in the current quarter was $6.1 million, a decrease of $0.4
million or 6.1% from the gross margin of $6.5 million reported last year which
included $0.6 million from the Companys Bedford FBO. Excluding the Bedford FBO
margin from last years results, gross margin increased $0.2 million or 3.4%.
The increase in gross margin was primarily the result of improved margins at
the Companys FBO operations, higher margins in the Cargo operation, and offset
by lower margins in the Government Contract Services business.

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Revenue from the Fuel Sales business represented 65.3% of total revenue in
the current period as compared to 59.4% of revenue a year ago. Fuel Sales
revenue totaled $72.5 million in the current period, an increase of 38.8% from
the same period last year, on volume of 63.3 million gallons. This compares
favorably to revenue during the third quarter of fiscal 2002 of $52.2 million
on sales volume of 70.1 million gallons. The increase in sales revenue is
attributed to higher average sales prices for petroleum products. The current
quarter was negatively impacted by reduced volume resulting from the cessation
of business by National Airlines, Inc. (National) effective November 6, 2002.
Excluding the impact of National, third quarter 2002 sales were $41.8 million
on a volume of 53.8 million gallons. Gross margin from fuel sales was $1.7
million in the current period, a decrease of 7.2% from last years gross margin
of $1.8 million. The average sales price for fuel in the current period was
114.3 cents per gallon, an increase of 39.9 cents per gallon from the average
price of 74.4 cents per gallon last year while the average cost of fuel rose
39.0 cents per gallon to 109.9 cents per gallon as compared to 70.9 cents per
gallon last year. There were many factors that contributed to the sharp
increase in the cost of fuel, including uncertainties associated with war with
Iraq and the effect the war would have on oil supplies and the oil workers
strike in Venezuela that temporarily halted oil production in that country
leading to a temporary decline in oil supply to the United States. Since the
end of the quarter, fuel costs have declined from the high point incurred
during the most recent quarter as the war in Iraq winds down without resulting
in an oil supply disruption and the oil workers strike in Venezuela has ended
with that countrys oil production and exports returned to their more normal
levels.

National, a customer of the Companys MercFuel, Inc. (MercFuel)
subsidiary, ceased operations on November 6, 2002. The Company had been
providing fuel to National since May 1999. In December 2000, National filed for
Chapter 11 bankruptcy protection and the Company continued to sell fuel to
National on a secured basis under the auspices of the bankruptcy court. Sales
to National during the third quarter of fiscal year 2002 were $10.4 million or
19.9% of third quarter revenue for fiscal 2002.

Revenue from the FBO business segment for the third quarter of fiscal year
2003 was $24.4 million on sales volume of 8.0 million gallons. This compares to
revenue of $22.5 million on sales volume of 8.0 million gallons last year.
Excluding the contribution of the Bedford FBO from last years results, revenue
increased $3.9 million or 19.0% with a 10.5% increase in sales volume. The
increase in revenue, after adjusting last years results to exclude the Bedford
FBO, was primarily due to higher average sales price of aviation fuel. The
FBOs gross margin was $2.9 million in the current period as compared to $3.2
million last year, which included $0.6 million from the Bedford FBO. The gross
margin adjusted for the effects of the Bedford FBO improved 8.7% from the prior
year.

The Cargo business segment had revenue of $8.4 million in the third
quarter of fiscal year 2003, an increase of $2.0 million, or 31.2%, from last
years revenue of $6.4 million. The increase in revenue is primarily attributed
to higher import and export activity in the cargo handling operation. Gross
margin from the Cargo business segment in the current period was $0.4 million,
an increase of $0.5 million from last years results, primarily due to higher
margins in the cargo handling operations partially offset by higher start-up
expenses for the Mercury World Cargo operations.

Revenue from the Government Contract Services segment was $6.0 million, a
decrease of $0.8 million, or 11.7%, from last years third quarter revenue of
$6.8 million. The decline in revenue is primarily due to the loss of two
refueling contracts. Gross margin for the second quarter of fiscal year 2003
was $1.2 million, a decrease of $0.5 million from last years gross margin of
$1.7 million. The decrease in gross margin is primarily attributed to reduced
margin on the base operations services contracts.

Selling, general and administrative expenses in the third quarter were
$2.6 million a decrease of 10.0% from expenses of $2.9 million in 2002, due to
impact of severance related expenses paid in the third quarter of fiscal 2002.

Provision for bad debts of $0.4 million decreased slightly from the prior
years provision of $0.5 million.

Depreciation and amortization expense was $2.1 million in the current
period as compared to $2.4 million last year. The reduction is primarily due to
the sale of the Bedford FBO in June 2002. The current period reduction also
reflects the non-amortization of goodwill for fiscal year 2003 which resulted
in a $0.1 million decrease from the three months ended March 31, 2002.

Interest expense and other in the current period was $2.6 million, an
increase of $1.2 million or 89% from interest of $1.4 million in the third
quarter of 2002. The increase is due primarily to the accrual of a premium
relating to the subordinated note, which would be realized in the event the
note is not prepaid in full prior to December 31, 2003.

Income tax benefit approximated 34.5% and 38.5% of pre-tax loss for the
third quarter of fiscal 2003 and fiscal 2002, respectively, reflecting the
expected effective annual tax rate.

Nine Months ended March 31, 2003 compared to Nine Months ended March 31, 2002

Revenue for the first nine months of fiscal year 2003 was $332.9 million,
representing an increase of 17.3% from the revenue reported for the same period
a year ago of $283.8 million. The increase in revenue is primarily attributed
to higher average sale prices for petroleum

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products and due to the adverse
effect last year of the tragic events of September 11, 2001. Gross margin in
the current period was $19.0
million, a decrease of $3.1 million or 14.0% from the gross margin of
$22.0 million reported last year. The decline in gross margin was primarily the
result of the sale of the Bedford FBO in June 2002 and lower margins in the
Government Contract Services business partially offset by higher margins in the
Cargo operations.

Revenue from the Fuel Sales business represented 65.5% of total revenue in
the current period as compared to 60.4% of revenue a year ago. Fuel sales
revenue totaled $218.1 million in the current period, an increase of 27.3% from
the same period last year, on volume of 221.5 million gallons. This compares
favorably to revenue during the first nine months of fiscal year 2002, of
$171.4 million on a sales volume of 213.3 million gallons. The increase in
sales revenue and volume is attributed to higher average sales prices for
petroleum products during the current year and the adverse effect on last
years sales volume due to September 11, 2001. Gross margin from fuel sales was
$4.7 million in the current period, down 8.2% from last years gross margin of
$5.2 million. The average sales price for fuel in the current period was 98.4
cents per gallon, an increase of 18.3 cents per gallon from the average price
of 80.1 cents per gallon last year while the average cost of fuel rose 18.1
cents per gallon to 94.6 cents per gallon as compared to 76.5 cents per gallon
last year. There were many factors that contributed to the sharp increase in
the cost of fuel, including uncertainties associated with war with Iraq and the
effect the war would have on oil supplies and the oil workers strike in
Venezuela that temporarily halted oil production in that country leading to a
temporary decline in oil supply to the United States. Since the end of the
quarter, fuel costs have declined from the high point incurred during the most
recent quarter as the war in Iraq winds down without resulting in an oil supply
disruption and the oil workers strike in Venezuela has ended with that
countrys oil production and exports

National, a customer of the Companys MercFuel, Inc. (MercFuel)
subsidiary, ceased operations on November 6, 2002. The Company had been
providing fuel to National since May 1999. In December 2000, National filed for
Chapter 11 bankruptcy protection and the Company continued to sell fuel to
National on a secured basis under the auspices of the bankruptcy court. Sales
to National for the first nine months of fiscal year 2003 were $24.7 million on
a volume of 29.0 million gallons as compared to $35.5 million on a volume of
49.9 million gallons for the first nine months of 2002. As a result of the
secured nature of the transactions, the amount of loss on the cessation of
business was negligible. Excluding the sales volume to National for both
periods, the Fuels Sales businesss sales volume was 192.5 million gallons for
the first nine months of fiscal year 2003 as compared to 163.4 million gallons
for the same period last year.

Revenue from the FBO business segment for the first nine months of fiscal
year 2003 was $72.2 million on a sales volume of 25.0 million gallons. This
compares to revenue of $69.6 million on a sales volume of 26.3 million gallons
last year. Excluding the contribution of the Bedford FBO from last years
results, revenue increased $7.9 million or 12.3% with essentially no change in
sales volume. The increase in revenue, after adjusting last years results to
exclude the Bedford FBO, was primarily due to higher average sales price of
aviation fuel. The FBOs gross margin was $8.8 million in the current period as
compared to $10.4 million last year, which included $1.3 million from the
Bedford FBO. Excluding the margin contribution from the Bedford FBO from last
years results, gross margin for the FBO business segment decreased $0.3
million, or 3.4%, from last year primarily due to higher insurance costs.

The Cargo business segment had revenue of $24.8 million during the first
nine months of fiscal year 2003, an increase of $3.7 million, or 17.8%, from
last years revenue of $21.1 million. The increase in revenue is primarily
attributed to higher revenue in the cargo handling operation, which had
increased handling volume due to the West Coast dockworkers strike and due to
improved import/export activity. Gross margin from the Cargo business segment
in the current period was $2.1 million, an increase of $1.1 million from last
years results, primarily due to the subleasing of the Cargo businesss Atlanta
warehouse facility to Lufthansa Handling starting in March 2002 and higher
margins at its Los Angeles warehouse operations partially offset by higher
start-up expenses for the Mercury World Cargo operations and lower margins in
the Cargo Management operations.

Revenue from the government contract services segment was $18.5 million, a
decrease of $3.2 million, or 14.8%, from last years revenue of $21.7 million.
The decline in revenue is primarily due to the loss of the Yokota, Japan
contract, which expired in September 2001 and two refueling contracts. The
Yokota contract provided $1.4 million, or 6.5%, of the government contract
services segment revenue during the first nine months of fiscal year 2002.
Gross margin for the first nine months of fiscal year 2003 was $3.4 million, a
decrease of $2.0 million from last years gross margin of $5.4 million. The
decrease in gross margin is primarily attributed to the loss of the Yokota,
Japan contract, lower margin on the Kuwait Air Terminal contract and a reserve
for a legal settlement of $0.3 million in fiscal year 2003.

The Companys selling, general and administrative expenses for the current
period were $7.9 million, an increase of $0.2 from last years expense of $7.7
million. The increased expense was primarily due to expenses associated with
the extension of certain stock options and the establishment of an
environmental reserve of $0.3 million for a previously sold site.

Provision for bad debts of $1.2 million is essentially unchanged from last
year.

Depreciation and amortization expense was $6.1 million in the current
period as compared to $7.1 million last year. The reduction is primarily due to
the sale of the Bedford FBO in June 2002. The current period also reflects the
non-amortization of goodwill for fiscal year 2003 which resulted in a $0.3
million decrease in amortization from the prior year.

20



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Interest expense and other in the current period was $5.5 million, an
increase of $1.1 million from last years interest expense of $4.4 million. The
increase is due primarily to the accrual of a premium relating to the
subordinated note, which would be realized in the event the note is not paid
down prior to December 31, 2003.

As a result of the restructuring of the Companys long term debt in the
current period, the Company wrote off capitalized financing costs of $1.7
million. This is comprised of the unamortized portion of the deferred debt
issuance costs associated with the previous senior secured credit facility and
the subordinated note at the time of early debt extinguishment and note
amendment and expenses incurred associated with other refinancing options that
were not completed.

In fiscal year 2002, the Company wrote-off the deferred stock offering
costs of $1.0 million associated with the planned public and private offering
of MercFuel common stock. The Company decided not to undertake the offering due
to market uncertainties and general economic conditions at the time.

Income tax (benefit) expense approximated 34.5% and 38.5% of pre-tax
(loss) income for the first nine months of fiscal 2003 and fiscal 2002,
respectively, reflecting the expected effective annual tax rate.

Liquidity and Capital Resources:

As of March 31, 2003, the Companys cash and cash equivalents were $6.0
million, an increase of $0.4 million for the nine month period then ended. Cash
generated from operating activities for the nine month period ended March 31,
2003 was $3.2 million comprised of cash generated of $8.1 million from
earnings, adjusted for non-cash items, less $4.9 million for an increase in net
working capital. The increase in working capital was primarily due to an
increase in Mercfuels trade receivables from higher petroleum prices and a
reduction in the current income tax liability.

During the first nine months of fiscal year 2003, the Company used $1.0
million in investing activities. The company made additions of $3.9 million to
property, plant and equipment primarily for hangar and tank farm projects for
the fixed base operations. In addition, the Company used $1.0 million for the
purchase of fuel sales contracts for the fuel sales division. These outlays
were offset by a decrease in restricted cash of $3.8 million generated by the
sale of the Bedford FBO and used to reduce long-term debt.

The Companys financing activities used $1.8 million in cash primarily due
to a net draw down on the revolving credit facility. In addition the Company
generated $0.3 million and $0.1 million from the issuance of preferred stock
and exercise of stock options, respectively. The issuance of the preferred
stock occurred after the Company was unable to draw-down on the previous
revolving credit facility.

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

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
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
requires that the Company maintain a minimum availability on the revolving line
of credit of $2.5 million. As of March 31, 2003, the Company had $3.8 million
of availability on the revolving line of credit. The amount of 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.

The Facility may be terminated on December 23, 2005, if the Whitney Note
is not paid in full or refinanced, on terms acceptable to Foothill, prior to
October 31, 2005. The Facility is secured by substantially all of the assets of
the Company and its subsidiaries. The Facility contains provisions that require
the maintenance of certain financial ratios including minimum EBITDA levels,
minimum fixed charge coverage ratios, and maximum annual capital expenditure
levels. In addition, under the Facility, the Company is prohibited from paying
non-intercompany cash dividends.

The revised Whitney Note is in the form of a $24.0 million Senior
Subordinated 12% Note (the Note) with detachable warrants to purchase 503,126
shares of the Companys common stock exercisable at $3.742 per share through
September 9, 2006. The warrant exercise

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price was reduced from $5.50 per share.
The Note is secured 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, will be issued if the principal amount of the Note is
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 $5,000,000, will also be
issued if the outstanding principal amount of the Note is greater than
$12,000,000 after December 31, 2003. In addition, beginning January 2004 and
continuing through June 2004, the interest rate will increase by 1% per annum
each month up to a maximum rate of 18%. The Company is currently assessing
various options that will enable it to prepay the principal portion of the Note
to avoid the necessity of having to issue the additional warrants and incur the
additional note obligation. At such time when the Company determines that it is
probable that the Note, or a portion of the Note, will be prepaid, the
estimated amount of the prepayment may be classified as a current portion of
long term debt on the Companys balance sheet. Until the Company determines
that it is not probable that the Note, or any portion of the Note, will be
prepaid, the Company is accruing the additional cost of the new warrants and
the additional note obligation over the remaining term of the Note. The Company
is also required to prepay all outstanding principal of the Note and any
additional note on December 31, 2004, but the failure by the Company to make
such prepayment will not entitle the holder to accelerate the balance on the
outstanding Note or outstanding additional note. The revised Whitney facility
contains similar covenants as in the original Note, including covenants that,
among other matters, limit senior indebtedness, the payment of dividends, and
the disposition of assets. The revised covenants also include minimum EBITDA
requirements and capital expenditure limitations.

While the Note is subordinate to the Facility, the loan and security
agreement does allow for the prepayment of principal on both the Note and the
Facility under certain conditions. Under the terms of loan and security
agreement, the first $15.0 million of principal prepayment is to be applied
equally to the outstanding principal of the Facilitys term loan and the Note.
The next $4.5 million of principal prepayment is to be applied entirely to the
outstanding principal of the Note. The next principal prepayments will then
either be applied equally to the outstanding principal of the Facility and to
the Note or entirely to the outstanding principal of the Note, depending on
certain conditions, until the entire $24.0 million of the Note has been repaid
in full.

As of March 31, 2003, the Company was in compliance with all of the
covenants contained in the Facility and the Note; however, based on
managements judgement, the Company may exceed the Facilitys maximum capital
expenditure covenant and the Notes maximum professional fees covenant for the
period ending June 30, 2003. The Company will be holding discussions with its
Lenders to address these issues and attempt to obtain waivers for these
financial covenants.

As required by the Whitney Note, the Company has formed committees
consisting of its independent directors to seek opportunities for asset sales
and other financing transactions, with a view to reducing the Companys total
debt.

Critical Accounting Policies

Managements beliefs regarding significant accounting policies have not
changed significantly from those discussed in Item 7 of the Companys Annual
Report on Form 10-K for the year ended June 30, 2002.




Item 3.Quantitative and Qualitative Disclosure About Market Risk

The Company does not currently utilize material derivative financial
instruments which expose the Company to significant market risk. However, the
Companys cash flow, earnings, and the fair value of its debt, may be adversely
affected due to changes in interest rates with respect to its long-term debt.
The table below presents principal cash flows and related weighted average
interest rates of the Companys long-term debt at March 31, 2003 by expected
maturity dates. Weighted average variable rates are based on rates in effect at
March 31, 2003. These rates should not be considered a predictor of actual
future interest rates.

Expected Maturity Date

|                                  |  |         |           |         |  |         |           |         |  |         |           |            |  |       |            |            |  |   |           |   |  |   |            |   |  |   |            |   |  |   |            | 
|--------------------------------- |  | ------- | --------- | ------- |  | ------- | --------- | ------- |  | ------- | --------- | ---------- |  | ----- | ---------- | ---------- |  | - | --------- | - |  | - | ---------- | - |  | - | ---------- | - |  | - | ---------- | 
|                                  |  | June-03 |           | June-04 |  | June-05 |           | June-06 |  | June-07 |           | Thereafter |  | Total |            | Fair Value
|                                  |  |         |           |         |  |         |           |         |  |         |           |            |  |       |            |           
|Fixed Rate
Subordinated Note      |  |         | 0         |         |  |         | 0         |         |  |         | 0         |            |  | $     | 23,401,000 |            |  |   | 0         |   |  |   | 0          |   |  | $ | 23,401,000 |   |  | $ | 24,000,000 | 
|Average Interest
Rate(3)          |  |         | 29.3      | %       |  |         | 29.3      | %       |  |         | 29.3      | %          |  |       | 29.3       | %          |  |   | 0         |   |  |   | 0          |   |  |   | 29.3       | % |  |   |            | 
|Fixed Rate Other
Debt             |  | $       | 122,000   |         |  | $       | 26,000    |         |  | $       | 26,000    |            |  | $     | 26,000     |            |  | $ | 26,000    |   |  | $ | 143,000    |   |  | $ | 369,000    |   |  | $ | 369,000    | 
|Average Interest
Rate             |  |         | 8.50      | %       |  |         | 8.58      | %       |  |         | 9.14      | %          |  |       | 9.14       | %          |  |   | 9.14      | % |  |   | 9.14       | % |  |   | 8.80       | % |  |   |            | 
|Variable Rate Tax
Exempt Bonds(1) |  | $       | 500,000   |         |  | $       | 1,000,000 |         |  | $       | 1,000,000 |            |  | $     | 1,000,000  |            |  | $ | 1,000,000 |   |  | $ | 10,000,000 |   |  | $ | 14,500,000 |   |  | $ | 14,500,000 | 
|Average Interest
Rate             |  |         | 1.61      | %       |  |         | 1.61      | %       |  |         | 1.61      | %          |  |       | 1.61       | %          |  |   | 1.61      | % |  |   | 1.61       | % |  |   | 1.61       | % |  |   |            | 
|Variable Rate Other
Debt(2)       |  | $       | 1,000,000 |         |  | $       | 3,000,000 |         |  | $       | 3,000,000 |            |  | $     | 3,000,000  |            |  | $ | 2,500,000 |   |  | $ | 3,336,000  |   |  | $ | 15,836,000 |   |  | $ | 15,836,000 | 
|Average Interest
Rate             |  |         | 5.00      | %       |  |         | 5.00      | %       |  |         | 5.00      | %          |  |       | 5.00       | %          |  |   | 5.00      | % |  |   | 5.00       | % |  |   | 5.00       | % |  |   |            | 

22



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##### Table of Contents





|(1) |  | The interest rate is based upon a weekly remarketing of the bonds.                                                                                                     
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Consists of debt under which interest rates will fluctuate based upon
changes in the prime rate or LIBOR.                                                              
|   
|(3) |  | The interest rate reflects an effective rate derived from the notes
stated rate of 12% and the amortization effect of stock warrants, loan
premium and financing cost.

In making its determination as to the balance of fixed and variable rate
debt, the Company considers the interest rate environment (including interest
rate trends), borrowing alternatives and relative pricing. The Company
periodically monitors the balance of fixed and variable rate debt, and can make
appropriate corrections either pursuant to the terms of debt agreements or
through the use of swaps and other financial instruments.




Item 4.Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on evaluations as of a date within 90 days of the filing date of
this report, 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-14 (c) and 15d-14
(c) 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.

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

In September 2001, the Company filed a motion for declaratory judgment to
determine its liability as a result of a fuel spill on April 8, 2001 at the
Ontario, CA. Airport. On November 30, 2001, the Company received notice of a
counter-complaint filed by UPS against the Company and a third party seeking
indemnification and reimbursement in the amount of $470,000 for the costs
incurred as a result of the fuel spill. The parties have reached a tentative
settlement through mediation. Trial has been continued until October 2003,
pending the outcome of the proposed settlement.

On May 1, 2002, Mercury received a Notice of Violation (NOV) for its
Fort Wayne, Indiana facility alleging that Mercurys Spill Prevention, Control
and Countermeasure Plan (SPCC) did not meet certain federal regulatory
guidelines. Specifically, the Environmental Protection Agency (EPA) alleged
that Mercurys SPCC failed to provide for proper parking, secondary
containment, and proper drainage of its refueler trucks. Mercury entered into
discussions with the EPA and responded to the NOV. On January 29, 2003, the EPA
again notified the Company of some deficiencies in its latest SPCC and
requested that Mercury submit a written response to its allegations within 30
days. On March 14, 2003, Mercury received a Notice of Violation from the United
States Environmental Protection Agency, Region 5 (EPA) alleging certain
deficiencies in the SPCC for its Fort Wayne, Indiana facility, submitted to EPA
in November 2002. Mercury believes that it has resolved all deficiencies except
for alleged deficiencies related to: 1) secondary containment for refueler
trucks, and 2) secondary containment for discrete fuel loading areas. Pursuant
to an agreement detailed in a letter submitted to EPA on April 16, 2003,

23



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##### Table of Contents



Mercury has been permitted to suspend modifications to its SPCC regarding
the installation of secondary containment for its refueler trucks, pending
resolution of federal regulatory issues associated with secondary containment
for such trucks. EPA has also extended national compliance with regulations
related to discrete loading areas until August 17, 2004.

On October 31, 2002 a complaint was filed before the National Labor
Relations Board Region 12 on behalf of the Transport Workers Union of America,
Local 525, AFL-CIO alleging that Maytag Aircraft Corporation has been engaging
in unfair labor practices as set forth in the National Labor Relations Act at
its Patrick Air Force Base location. On April 11, 2003, a settlement agreement
was fully executed. The Company agreed to pay approximately $170,000 plus
applicable payroll taxes.

On November 18, 2002, Investorwatch LLC filed an action in the Superior
Court of the State of California for the County of Los Angeles, Central
District alleging derivative and direct claims against Mercury and certain of
its affiliates based upon alleged wrongful conduct in connection with certain
transactions entered into by Mercury, including certain related party
transactions, which transactions were previously disclosed by Mercury. On
February 18, 2003, the plaintiff filed a dismissal without prejudice with the
court.

On November 27, 2002, Andrew J. Chitiea filed a shareholder verified
derivative complaint in the Superior Court of the State of California, County
of San Diego, North County Division alleging that certain directors of the
Company breached their fiduciary duty to the Company. On February 13, 2003, the
plaintiff files a dismissal without prejudice with the court to dismiss the
complaint and the entire action of all parties and causes of action.

On February 26, 2003, Robert Bosch, filed an action in the United States
District Court, Eastern District of New York against Excel Cargo, Inc. and
others, seeking $1.5 million in damages for damaged cargo. The Company is in
the process of responding to the complaint. Mercury does not believe the
outcome of this claim will have a significant impact on its financial position
or operating results.

On April 16,2003, the Plan Committee of Shuttle America Corp filed a
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s
answer is due on May 16, 2003. Mercury does not believe this matter will have a
significant impact on its financial position or operating results.

The Company is also a defendant in certain litigation arising in the
normal course of business. In the opinion of management, the ultimate
resolution of such litigation will not have a significant effect on its
financial position or operating results. Reference is made to the SEC Form 10-Q
for the quarterly period ended December 31, 2002 for additional litigation with
respect to which no material developments have occurred in the current quarter.




Item 2.Change in Securities

None




Item 3.Default Upon Senior Securities

None




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

None




Item 5.Other Information

None




Item 6.Exhibits and Reports on Form 8-K

(a)  Exhibits.

|        |     |             |  |                                                                                                        | 
|------- | --- | ----------- |  | ------------------------------------------------------------------------------------------------------ | 
|Exhibit
|No.     |     | Description
|        |     |            
|        | 2.1 |             |  | Agreement and Plan of Merger adopted January 9, 2001.(17)                                             
|        |     |            
|        | 2.2 |             |  | Certificate of Merger.(17)                                                                            
|        |     |            
|        | 3.1 |             |  | Certificate of Incorporation.(17)                                                                     
|        |     |            
|        | 3.2 |             |  | Amended and Restated Bylaws of Mercury Air Group, Inc. adopted December 7, 2002.(25)                  
|        |     |            
|        | 4.1 |             |  | Loan Agreement between California Economic Development Financing Authority and Mercury Air Group, Inc.

24



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##### Table of Contents



|        |       |             |  |  |                                                                                                                                                                                                                        
|------- | ----- | ----------- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|No.     |       | Description
|        |       |            
|        |       |             |  |  | 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. Barrant 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.                                            
|        |       |            
|        | 10.1  |             |  |  | Companys 1990 Long-Term Incentive Plan.(4)*                                                                                                                                                                           
|        |       |            
|        | 10.2  |             |  |  | Companys 1990 Directors Stock Option Plan.(1)*                                                                                                                                                                        
|        |       |            
|        | 10.3  |             |  |  | Lease for 6851 West Imperial Highway, Los Angeles, California.(3)                                                                                                                                                      
|        |       |            
|        | 10.4  |             |  |  | Memorandum Dated September 15, 1997 regarding Summary of Officer Life Insurance Policies with Benefits
Payable to Officers or Their Designated Beneficiaries.(8)*                                                      
|        |       |            
|        | 10.5  |             |  |  | Non-Qualified Stock Option Agreement dated March 21, 1996, by and between Frederick H. Kopko and Mercury Air
Group, Inc.(6)*                                                                                           
|        |       |            
|        | 10.6  |             |  |  | Companys 1998 Long-Term Incentive Plan.(10)*                                                                                                                                                                          
|        |       |            
|        | 10.7  |             |  |  | Companys 1998 Directors Stock Option Plan.(10)*                                                                                                                                                                       
|        |       |            
|        | 10.8  |             |  |  | 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)     
|        |       |            
|        | 10.9  |             |  |  | First Amendment to Revolving Credit and Term Loan Agreement dated as of September 10, 1999.(14)                                                                                                                        
|        |       |            
|        | 10.10 |             |  |  | Second Amendment to Revolving Credit and Term Loan Agreement dated as of March 31, 2000.(14)                                                                                                                           
|        |       |            
|        | 10.11 |             |  |  | Third Amendment, Waiver and Consent to Revolving Credit and Term Loan Agreement dated as of August 11,
2000.(14)                                                                                                       
|        |       |            
|        | 10.12 |             |  |  | The Companys 401(k) Plan consisting of CNA Trust Corporation. Regional Prototype Defined Contribution Plan
and Trust and Adoption Agreement.(14)*                                                                     
|        |       |            
|        | 10.13 |             |  |  | Employment Agreement dated July 31, 2000 between the Company and Dr. Philip J. Fagan.(15)*                                                                                                                             
|        |       |            
|        | 10.14 |             |  |  | Fourth Amendment to Revolving Credit and Term Loan Agreement dated as of November 14, 2000.(16)                                                                                                                        
|        |       |            
|        | 10.15 |             |  |  | Amendment No. 1 to Mercury Air Group, Inc. 1998 Long-Term Incentive Option Plan as of August 22, 2000.(16)*                                                                                                            
|        |       |            
|        | 10.16 |             |  |  | Amendment No. 1 to Mercury Air Group, Inc. 1998 Directors Stock Option Plan as of August 22, 2000.(16)*                                                                                                                
|        |       |            
|        | 10.17 |             |  |  | Limited Waiver letter Agreement to Revolving Credit and Term Loan Agreement dated as of September 21,
2001.(18)                                                                                                        
|        |       |            
|        | 10.18 |             |  |  | Fifth Amendment to Revolving Credit and Term loan Agreement dated as of September 21, 2001.(18)                                                                                                                        
|        |       |            
|        | 10.19 |             |  |  | Limited Consent letter Agreement to Revolving Credit and Term Loan Agreement dated as of September 30,
2001.(19)                                                                                                       
|        |       |            
|        | 10.20 |             |  |  | 2001 Mercury Air Group, Inc. Stock Incentive Plan.(20)                                                                                                                                                                 
|        |       |            
|        | 10.21 |             |  |  | Limited waiver and Consent to Revolving Credit and Term Loan Agreement dated as of December 31, 2001.(21)                                                                                                              
|        |       |            
|        | 10.22 |             |  |  | 2002 Management Stock Purchase Plan.(22)                                                                                                                                                                               
|        |       |            
|        | 10.23 |             |  |  | Amended and Restated Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Joseph A
Czyzyk.(22)*                                                                                                 
|        |       |            
|        | 10.24 |             |  |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Wayne J. Lovett(22)*                                                                                                                       

25



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##### Table of Contents



|        |       |             |  |  |                                                                                                                                                      
|------- | ----- | ----------- |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
|No.     |       | Description
|        |       |            
|        |       |            
|        | 10.25 |             |  |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and John Enticknap(22)*                                                      
|        |       |            
|        | 10.26 |             |  |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Mark Coleman(22)*                                                        
|        |       |            
|        | 10.27 |             |  |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Steven S. Antonoff(22)*                                                  
|        |       |            
|        | 10.28 |             |  |  | Employment Agreement dated May 22, 2002 between Mercury Air Group, Inc. and Robert Schlax(22)*                                                       
|        |       |            
|        | 10.29 |             |  |  | Limited waiver and Consent to Revolving Credit and Term Loan Agreement dated as of June 27, 2002.(24)                                                
|        |       |            
|        | 10.30 |             |  |  | Sale-Leaseback agreement made by and between CFK Realty Partners, LLC and Mercury air Group, Inc. dated
December 15, 2001.(24)                       
|        |       |            
|        | 10.31 |             |  |  | Amendment to Sale-Leaseback agreement made by and between CFK Realty Partners, LLC and Mercury Air Group,
Inc.(24)                                   
|        |       |            
|        | 10.32 |             |  |  | Promissory Note by CFK Partners, LLC in favor of Mercury Air Group, Inc.(24)                                                                         
|        |       |            
|        | 10.33 |             |  |  | Limited Waiver and Consent to Revolving Credit and Term Loan Agreement dated as June 27, 2002.(24)                                                   
|        |       |            
|        | 10.34 |             |  |  | Amendment to No. 1 made to Amended and Restated Employment Agreement dated May 22, 2002 between
Mercury Air Group, Inc. and Joseph A. Czyzyk.*(24)   
|        |       |            
|        | 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 Shareholders 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 Shareholders.                                         
|    
|(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 is
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 Shareholders and
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
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 is
incorporated herein by reference.       
|    
|(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.                           

26



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##### Table of Contents





|(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
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
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
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 is
incorporated herein by reference.        
|    
|(19) |  | All such documents were previously filed as an Exhibit to the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and
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 Shareholders and
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
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 is
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.                          
|    
|     |  | (b)  Reports on Form 8-K:                                                                                                                                                           
|    
|     |  | None.                                                                                                                                                                               

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##### Table of Contents






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 Czyzyk                     
| |  | Chief Executive Officer           
| |  |                                   
| |  | /s/ ROBERT SCHLAX                 
| |  | Robert Schlax                     
| |  | Chief Financial Officer           
| |  | (Principal Financial Officer)     

Date: January 9, 2004

28