AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2001

REGISTRATION NO. 333-60992
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------

MERCFUEL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<Table>

DELAWARE 5172 95-4831828
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NUMBER)
</Table>

5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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

JOSEPH A. CZYZYK
MERCFUEL, INC.
5456 MCCONNELL AVENUE
LOS ANGELES, CALIFORNIA 90066
(310) 827-2737

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

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

COPIES TO:

<Table>

FREDERICK H. KOPKO, JR., ESQ. THOMAS J. POLETTI, ESQ.
JAMES R. STERN, ESQ. PETER V. HOGAN, ESQ.
MCBREEN & KOPKO KIRKPATRICK & LOCKHART LLP
20 NORTH WACKER DRIVE 10100 SANTA MONICA BLVD.,
SUITE 2520 SEVENTH FLOOR
CHICAGO, ILLINOIS 60606 LOS ANGELES, CALIFORNIA 90067
TELEPHONE: (312) 332-6405 TELEPHONE: (310) 552-5000
FACSIMILE: (312) 332-2059 FACSIMILE: (310) 552-5001
</Table>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVENESS UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

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- --------------------------------------------------------------------------------
2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.

SUBJECT TO COMPLETION AUGUST 31, 2001

1,200,000 SHARES

MERCFUEL, INC.

COMMON STOCK

We are offering 1,200,000 shares of our common stock. Prior to this offering,
there has been no public market for our common stock. We anticipate that the
initial public offering price will be between $6.00 and $8.00 per share.

Our common stock has been approved for listing on the American Stock Exchange
under the symbol "MQ", subject to official notice of listing.

INVESTING IN OUR COMMON STOCK INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 6.

<Table>
<Caption>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS MERCFUEL
--------------- ------------- -----------

Per Share............................................ $ $ $
Total................................................ $ $ $
</Table>

In connection with this offering we will grant to the representative of the
underwriters a warrant to purchase 120,000 shares of our common stock
exercisable one year after the effective date of this offering at a price equal
to 140% of the initial public offering price. We have granted the underwriters
an option to purchase 180,000 additional shares to cover over-allotments, if
any. Delivery of the shares of common stock will be made on or about
, 2001.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

VMR CAPITAL MARKETS, U.S.

The date of this prospectus is , 2001
3

TABLE OF CONTENTS

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and are seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted.

<Table>
<Caption>
PAGE
----

Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Determination of Offering Price............................. 14
Special Note Regarding Forward-Looking Statements........... 15
Our Separation from Mercury Air Group....................... 15
Use of Proceeds............................................. 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Dilution.................................................... 19
Selected Financial Data..................................... 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 28
Management.................................................. 38
Certain Relationships and Related Transactions.............. 43
Principal Stockholder....................................... 50
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find More Information......................... 57
Index to Financial Statements............................... F-1
</Table>

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4

PROSPECTUS SUMMARY

You should read the following summary together with the more detailed
information regarding our company and our common stock being sold in this
offering and our historical financial statements and notes to those statements
included elsewhere in this prospectus.

MERCFUEL

We are an independent provider of fuel sales and services to the aviation
industry. Our customers include passenger, cargo and charter airlines as well as
business aviation customers. Our primary customers are small to medium sized
commercial carriers and business fleet managers not directly served by major oil
companies and other fuel suppliers. We plan to expand our sales efforts to
capture additional larger carriers.

We believe that we add value for our customers and are able to attract
business by providing high quality service and by offering a combination of
favorable pricing and credit terms. We believe that we also add value for our
suppliers, which are principally major oil companies, by facilitating the
management and distribution of aviation fuel for air carriers which the oil
companies typically do not service. By serving as a reseller from the major oil
companies to the air carriers, we afford major oil companies access to these
carriers without their assumption of the credit risk for these fuel purchases.
We believe that we add value for our suppliers by facilitating the management
and distribution of aviation fuel for our customers which the major suppliers
typically do not service. We plan to initiate a fuel management system which we
believe will provide us with more efficient operations and improved customer
service. We provide 24-hour, single source, coordinated supply and delivery on a
worldwide basis as well as providing related support services. Further, we
believe our scale of operations and creditworthiness allow for the purchase of
fuel on more favorable price and credit terms than would be available to most of
our customers on an individual basis.

We are a leading reseller of aviation fuel and services to the commercial
and business aviation markets. The key elements of our strategy to achieve our
objective are as follows.

- Attract Additional Commercial and Business Clients. Our goal is to
continue to add value for the major oil companies and other fuel
suppliers by providing and administering fuel to small and medium size
carriers and business fleet managers and by alleviating the credit risk
which would otherwise be incurred by these end users. Our goal is to also
expand sales to larger carriers both domestically and internationally.

- Expand International Presence. We intend to expand our international
operations through relationships in strategically located countries and
regions throughout the world.

- Enhance Technology Offerings. Our proposed fuel management system is
designed to automate the purchase, delivery and settlement transaction
process which we intend to offer as a point-of-sale system to oil
companies, air carriers and refueling companies to better manage their
billing and supply process.

- Consummate Strategic Acquisitions. We intend to pursue the acquisition
of, or investment in complementary businesses, technologies, services or
products to expand our operations.

We face several risks associated with the achievement of our strategic
objectives. We need to recruit and retain qualified employees, have access to
sufficient capital, acquire technologies which we cannot develop internally, and
overcome any resistance by suppliers and customers to the introduction of new
technology and procedural changes. Competitive factors may also hinder our
efforts to increase market share and profitability. If we are unable to meet our
strategic objectives, our growth will be impaired and the market price of our
common stock may decline.

Our principal executive offices are located at 5456 McConnell Avenue, Los
Angeles, California 90066. Our telephone number is (310) 827-2737. We maintain a
website at www.mercfuel.com. Information on our website does not constitute part
of this prospectus.

1
5

OUR RELATIONSHIP WITH MERCURY AIR GROUP

We have operated as a division of Mercury Air Group, Inc. since 1979, and a
wholly-owned subsidiary, organized in Delaware, since October 27, 2000. On
January 1, 2001 Mercury Air Group contributed the assets and liabilities of its
fuel sales and services division to us. References to us prior to January 1,
2001, reflect the historic operating activities of Mercury Air Group's fuel
sales and services division.

We are currently a wholly-owned subsidiary of Mercury Air Group. After the
completion of this offering, Mercury Air Group will own 82.0% of the outstanding
shares of our common stock or 80.2% if the underwriters fully exercise their
option to purchase additional shares in full. Mercury Air Group currently plans
to divest our shares following this offering, but in no event earlier than six
months following this offering, by distributing all of the shares of our common
stock owned by Mercury Air Group to the holders of Mercury Air Group's common
stock. However, Mercury Air Group is not obligated to complete the distribution,
and the distribution may not occur by the anticipated time or at all. This
distribution is contingent upon approval of Mercury Air Group and its lenders
and our obtaining adequate financing.

We intend to enter into agreements with Mercury Air Group related to the
separation of our business operations from Mercury Air Group and various interim
and ongoing relationships between us and Mercury Air Group.

The agreements regarding the separation of our business operations from
Mercury Air Group are described more fully in the section entitled "Certain
Relationships and Related Transactions" included elsewhere in this prospectus.
The terms of these agreements, which will be negotiated in the context of a
parent-subsidiary relationship, may be more or less favorable to us than if they
had been negotiated with unaffiliated third parties. See "Risk Factors -- Risks
Related to Our Relationship with Mercury Air Group". The assets and liabilities
which were transferred to us on January 1, 2001 are described more fully in our
financial statements and notes to those statements that are also included
elsewhere in this prospectus.

2
6

THE OFFERING

Common stock offered.......... 1,200,000 shares

Common stock to be outstanding
immediately after this
offering.................... 8,016,622 shares

Use of proceeds............... Repayment of our intercompany payable to
Mercury Air Group, which amount was $2.7
million as of June 30, 2001, expenditures of
approximately $1.5 million to support our fuel
management strategy and the remainder for
working capital and general corporate purposes

Proposed AMEX symbol.......... MQ
- ---------------
The total number of shares of our common stock to be outstanding
immediately after this offering:

- is based on the actual number of shares of common stock outstanding as of
June 30, 2001;

- reflects the issuance of 239,942 shares of our common stock in a private
placement at a per share price of $4.35, which is to be consummated at
such time as Mercury Air Group's lenders consent to that offering and the
initial public offering;

- excludes 125,000 shares of common stock issuable upon conversion of a
$750,000 convertible promissory note which may be issued to Management &
Report Technologies, Inc., pursuant to an agreement we entered into in
August 2001;

- excludes 1,000,000 shares of common stock reserved for future issuance
under our 2001 Stock Option Plan.

Unless otherwise specifically stated, all information in this prospectus:

- gives effect to an amendment to our certificate of incorporation in May
2001 effecting a 6,546.43 for-one stock split and increasing the number
of authorized shares of our common stock to 50,000,000 and our preferred
stock to 8,000,000;

- gives effect to a 1.0046208 for-one stock split effected in August 2001;

- assumes the underwriters have not exercised their over-allotment option;
and

- assumes that the underwriters' representative has not exercised the
representative's warrant, which is a five-year warrant to purchase
120,000 shares of our common stock at an exercise price equal to 140% of
the initial public offering price, issuable to the representative upon
the closing of this offering.

In this prospectus, "MercFuel", "Company", "we", "us" and "our" each refers
to MercFuel, Inc., a Delaware corporation.

3
7

SUMMARY FINANCIAL DATA

The following tables present our summary financial data. The data presented
in these tables are from "Selected Financial Data" and our historical financial
statements included elsewhere herein. You should read those sections for a
further explanation of the financial data summarized here.

The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.

<Table>
<Caption>
YEAR ENDED JUNE 30,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS DATA:
Fuel sales............................................... $111,638 $203,412 $319,657
Cost of sales............................................ 99,823 192,399 307,558
-------- -------- --------
Gross profit............................................. 11,815 11,013 12,099
-------- -------- --------
Operating expenses:
Selling, general and administrative...................... 4,418 4,506 5,581
Provision for bad debts.................................. 1,377 5,000 3,025
Depreciation............................................. 57 58 62
-------- -------- --------
Total operating expenses................................. 5,852 9,564 8,668
-------- -------- --------
Operating income......................................... 5,963 1,449 3,431
Interest expense......................................... 1,016 1,187 587
-------- -------- --------
Income before income taxes............................... 4,947 262 2,844
Provision for income taxes............................... 1,929 102 1,109
-------- -------- --------
Net income............................................... $ 3,018 $ 160 $ 1,735
======== ======== ========
Basic and diluted net income per share................... $ 0.46 $ 0.02 $ 0.26
======== ======== ========
Shares used in computing basic and diluted net income per
share.................................................. 6,577 6,577 6,577
======== ======== ========
Unaudited pro forma basic and diluted net income per
share(1)............................................... $ 0.26
========
Shares used in computing unaudited pro forma basic and
diluted net income per share(1)........................ 7,142
========
</Table>

<Table>
<Caption>
AS OF JUNE 30, 2001
-------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
(IN THOUSANDS)

BALANCE SHEET DATA:
Working capital............................................. $ 6,448 $11,434
Total assets................................................ 36,066 41,052
Due to Mercury Air Group.................................... 2,718 --
Stockholder's equity........................................ 4,000 11,704
</Table>

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

(1) Pro forma basic and diluted net income per share amounts are calculated
using the 6,576,680 shares outstanding at June 30, 2001. We have also
assumed for purposes of computing pro forma basic and diluted net income per
share that the $2,718,000 amount due to Mercury Air Group will be paid from
(a) the sale of 239,942 shares of common stock in a private offering at
$4.35 per share, the net proceeds of which are $860,000 and (b) the sale of
approximately 326,000 shares of common stock, the net proceeds of which are
calculated to be $1,858,000, based on an assumed initial public offering
price of $7.00 per share, reduced by the estimated per share offering costs.
In computing pro forma net income per share, net income was increased
$133,000 for the year ended June 30, 2001. The increase in net

4
8

income resulted from an assumed reduction of allocated interest expense due
to the reduction in the amount due to Mercury Air Group.

We intend to enter into a transitional services agreement with Mercury Air
Group pursuant to which Mercury Air Group will provide us with transitional
services, systems and operational support operations, including data
processing and telecommunications services (such as voice telecommunications
and data transmission and information technology support services) for
functions including accounting, financial management, tax, payroll,
stockholder and public relations, legal, procurement, human resources and
other administrative functions. Mercury Air Group services provided to us
will be fixed at $70,000 per month. The agreement will become effective upon
the distribution of our common stock. Charges for these transitional
services have not been included in the computation of pro forma basic and
diluted net income per share as costs for such services have been allocated
to us in the historical financial statements and, therefore, would represent
duplicative charges in the pro forma computations.

(2) As adjusted amounts give effect to the following actions as though these
actions had been taken as of June 30, 2001:

- our agreement to sell 239,942 shares of our common stock at a per
share price of $4.35, the net proceeds of which are $860,000. The sale
will be consummated at such time as Mercury Air Group's lenders
consent to that offering and the initial public offering;

- our sale of 1,200,000 shares of common stock in this offering at an
assumed initial public offering price of $7.00 per share, the net
proceeds of which are estimated to be $6.8 million after deducting
assumed underwriting discounts and estimated offering expenses payable
by us; and

- repayment of an intercompany payable to Mercury Air Group from a
portion of the net proceeds of this offering, which amount owed was
$2.7 million at June 30, 2001.

5
9

RISK FACTORS

This offering and an investment in our common stock involve a high degree
of risk. The following risk factors should be considered carefully, in addition
to other information contained in this prospectus, in evaluating our business
prospects.

RISKS RELATED TO OUR FINANCIAL CONDITION AND BUSINESS MODEL

WE HAVE NO HISTORY AS AN INDEPENDENT COMPANY. THIS FACTOR MAY MAKE OUR BUSINESS
MORE DIFFICULT TO EVALUATE.

We have historically operated as a division of Mercury Air Group. In
October 2000, we were incorporated in Delaware and are currently a wholly owned
subsidiary of Mercury Air Group. Upon completion of this offering, we will
become a public company. Therefore, we have no history as an independent
company. Our lack of independence may limit your ability to evaluate our
prospects due to:

- Our lack of historical financial data as an independent company and

- Our limited experience as an independent company in addressing emerging
trends that may affect our business.

OUR ABILITY TO CONSUMMATE FUEL SALES WOULD BE ADVERSELY AFFECTED BY A
SIGNIFICANT DECREASE IN THE AVAILABILITY, OR INCREASE IN THE PRICE, OF AVIATION
FUEL.

In fiscal 2001, average per gallon fuel cost rose 21% compared to average
fuel cost in 2000. In fiscal 2000, average per gallon fuel cost rose 58%
compared to average fuel cost in fiscal 1999. Events outside our control have in
the past resulted and could in the future result in spot shortages or further
rapid increases in fuel costs. Extended periods of high fuel costs could
adversely affect our ability to purchase fuel in sufficient quantities because
of credit limits placed on us by our fuel suppliers. In addition, if we are
unable to supply fuel to our customers, our customers would purchase fuel from
other suppliers, which could significantly harm our business by decreasing our
market share.

OUR CUSTOMERS' OPERATIONS AND THEIR ABILITY TO PAY US WOULD BE ADVERSELY
AFFECTED SHOULD THE PRICE OF FUEL CONTINUE TO RISE.

Fuel costs historically have been one of the largest areas of expense for
airlines. Therefore, when the price of fuel rises, even by a relatively small
per gallon amount, the airlines operating expenses may increase significantly.
If airlines are unable to offset these increased costs by raising their ticket
prices or otherwise increasing their revenue, which in many instances they
cannot do because of competitive pressures, their profitability will decrease.
This may result in an airline delaying or being unable to make payments to us or
in an airline being unable to continue its business. This would harm our
business by rendering many of our accounts receivable as uncollectible or by our
losing one or more customers.

OUR FUEL SALES COULD BE ADVERSELY AFFECTED BY DETERIORATING ECONOMIC CONDITIONS.

The air transportation industry is highly sensitive to general economic
conditions. Our fuel sales could be adversely affected by a sustained economic
recession either in the United States or globally. In addition, financial
problems incurred by our commercial customers could affect the volume of
purchases these customers make from us or their ability to pay us for fuel
purchased. Significantly higher fuel prices for an extended period of time have
a negative impact on the aviation industry as it increases the operating
expenses of our airline customers.

6
10

BECAUSE A SUBSTANTIAL PORTION OF OUR ACCOUNTS RECEIVABLE ARE DUE FROM SMALLER
AND GENERALLY LESS WELL-ESTABLISHED OR WELL-CAPITALIZED AIRLINES, OUR BUSINESS
MAY BE HARMED IF THESE AIRLINES CANNOT MEET THEIR OBLIGATIONS TO US.

We typically sell aviation fuel on an unsecured basis with extended credit
terms. In addition, a substantial portion of our accounts receivable are due
from smaller and generally less well-established or well-capitalized airlines,
including certain foreign, regional, commuter and recently formed airlines,
which may be less creditworthy than larger, well-established and
well-capitalized airlines. These customers are more affected by fluctuations in
the economy in general and in the aviation industry specifically. To the extent
that our airline customers were not able to immediately adjust their business
operations to reflect increased operating costs or decreased demand for their
services, they could take relatively longer to pay our accounts receivable. Such
payment delays would further increase our working capital demands. In some
cases, the impact of such economic fluctuations could materially impair the
financial stability of an airline customer such that it would be unable to pay
amounts owed to us and could result in such airline customer filing for
bankruptcy protection. In that event, we could incur significant losses related
to the uncollectibility of our receivables. We have incurred in the past and are
likely to continue to incur losses as the result of the business failure of a
customer. In this regard, it should be noted that we continue to supply jet fuel
to National Airlines which filed for bankruptcy protection on December 6, 2000.
Sales to National Airlines accounted for approximately 22% of our fuel sales in
fiscal 2001. The liquidation of National Airlines, or the failure of another
relatively large customer or a number of smaller customers would impact our
earnings and could cause our stock price to decline.

OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.

Approximately 18% of our fuel sales for fiscal 2001 were generated from
foreign-based customers headquartered in Asia, Europe, Latin America and the
Caribbean. We frequently grant foreign customers extended credit terms, which
may result in proportionately larger receivable balances for a given quantity of
fuel sales. To the extent such customers are also large fuel purchasers, our
credit exposure to a single customer may be relatively large. Also, foreign
customers may have difficulty in paying for fuel that is not invoiced in U.S.
Dollars in the event of the devaluation of their national currency. In addition,
if a foreign customer fails to abide by its contractual commitments, our legal
remedies may not be as effective as they would be in collecting from domestic
customers. Finally, operations in certain foreign countries may subject us to
the risk of social or economic unrest, possibly jeopardizing our operations in
such countries.

WE WILL NEED ADDITIONAL WORKING CAPITAL IF WE CONTINUE TO SELL MORE FUEL OR IF
THE PRICE OF FUEL CONTINUES TO INCREASE.

We require substantial working capital to finance accounts receivable
generated from fuel sales operations. The amount of working capital consumed by
these accounts receivable has depended and will depend primarily on the quantity
of fuel sold, the price of the fuel, our extension of credit and customer
compliance with credit terms. Any increase in fuel quantity or price or in
credit extended, or any substantial customer noncompliance with credit terms,
will result in a corresponding increase in the aggregate accounts receivable
balance, thereby requiring us to employ additional working capital. The quantity
and price of fuel we have sold has increased substantially in the last 18
months. At the current level of fuel sales, if the price of aviation fuel were
to further materially increase for a sustained period, we might have to
reallocate funds from business expansion to meet working capital demand, or
alternatively, we could be forced to curtail fuel sales or change the credit
terms granted to our customers, which could reduce our earnings and jeopardize
established customer relationships.

CONSOLIDATION IN THE AVIATION FUEL AND AVIATION INDUSTRY MAY IMPACT THE
AVAILABILITY OF FUEL AND OUR CREDIT AVAILABILITY.

We could be adversely affected by industry consolidation, on the customer
side, because of increased merger activity in the airline industry and, on the
supply side, because of increased competition from the larger

7
11

oil companies who would choose to directly market to smaller and medium-sized
airlines or to provide less advantageous credit and price terms to us.

WE MAY BE SUBJECT TO EXPOSURE DUE TO POSSIBLE ENVIRONMENTAL CLAIMS.

We utilize subcontractors which provide various services to customers,
including into-plane fueling at airports and transportation and storage of fuel.
We are subject to possible claims by customers, regulators and others who may be
injured by a spill or other accident. An uninsured claim arising out of our
activities, if successful and of sufficient magnitude, will hurt our business.
In addition, we may be held liable for damages to natural resources arising out
of such events. Our liability insurance policy may not cover the acts or
omissions of our subcontractors. If we are held responsible for any liability
caused by our subcontractors, and such liability is not adequately covered by
the subcontractor's insurance and is of sufficient magnitude, we would suffer
damages. In addition, our domestic and international fueling activities also
subjects us to the risks of significant potential liability under state, federal
and international statutes, common law and indemnification agreements.

IF WE ARE UNABLE TO COMPETE EFFECTIVELY, OUR RESULTING LOSS OF COMPETITIVE
POSITION COULD RESULT IN FEWER CUSTOMER ORDERS, REDUCED MARGIN AND LOSS OF
MARKET SHARE.

Competition in the aviation fuel sale market in which we operate is
intense. We face competition from major oil companies and other independent fuel
suppliers, such as World Fuel Services Corporation, and from other aircraft
support companies which maintain their own sources of aviation fuel. Many of our
competitors are larger than we are and have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we have. As a result, these competitors are able to devote greater resources
than we can to the sale and support of aviation fuel. In addition, several of
our competitors have large market capitalizations or cash reserves, and are much
better positioned than we are to acquire other companies in order to gain new
technologies or products that may displace our proposed fuel management system.
Any of these acquisitions could give our competitors a strategic advantage.

WE DEPEND ON A LIMITED NUMBER OF SUPPLIERS, WHICH MAKES US SUSCEPTIBLE TO SUPPLY
SHORTAGES OR PRICE FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING
RESULTS.

We typically purchase our fuel through purchase orders, and in general we
have no guaranteed supply arrangements with any of our suppliers. We currently
purchase from a limited source of suppliers. For the year ended June 30, 2001,
approximately 28% of our jet fuel purchases were made from BP P.L.C., commonly
known as British Petroleum, and approximately 12% were made from each of Tosco
Corporation and ARCO. ARCO is affiliated with British Petroleum. If our
relationship with any of these key suppliers terminates, we may not be able to
obtain a sufficient quantity of fuel on favorable terms. We may experience
difficulty and delays in obtaining fuel from alternative sources of supply.
Furthermore, financial or other difficulties faced by these suppliers, fuel
shortages or significant changes in demand for fuel could limit the availability
of fuel. Any interruption or delay in the supply of fuel, or the inability to
obtain fuel from alternate sources at acceptable prices and within a reasonable
amount of time, would impair our ability to meet scheduled fuel deliveries to
our customers and could cause customers to cancel orders.

WE COULD BE ADVERSELY AFFECTED IF SOME OR OUR KEY CUSTOMERS REDUCED OR
TERMINATED THEIR PURCHASES FROM US OR DID NOT PAY THEIR OBLIGATIONS TO US.

Our largest customers for the year ended June 30, 2001 were National
Airlines, which accounted for approximately 22% of fuel sales, and AirTran
Airways which accounted for approximately 20% of fuel sales. We have no
long-term written agreements or other understandings with any of our customers
that relate to future purchases, so purchases by these customers or any others
could be reduced or terminated upon short notice at any time. A substantial
reduction or a termination of purchases by any of our largest customers would
harm us financially.

8
12

Our sales are typically made on credit, with terms that vary depending upon
the customer and other factors. Consequently, we bear the risk of the inability
of our customers to pay our receivables and of any delay in payment. A business
failure by any of our largest customers would harm us financially. As of June
30, 2001, our accounts receivable balance was $32.1 million, net of allowance
for doubtful accounts of $1.2 million, and included past due amounts of more
than 60 days of $1.5 million.

RISKS RELATED TO OUR STRATEGY AND MARKET

WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR FUEL MANAGEMENT STRATEGY.

In order to design, develop, and implement our fuel management strategy, we
will need to recruit and retain qualified individuals. We may not be able to
recruit and retain such individuals. Even if we were able to recruit and retain
such individuals, we may not be able to successfully design or develop, on an
economical basis, technology required for our fuel management strategy. In
addition, if we are unable to accurately predict the cost of development of our
fuel management strategy, the development of this strategy may exceed our
budget, resulting in an adverse impact on our earnings or financial condition.

We anticipate that we will face the following challenges to our ability to
introduce our fuel management strategy:

- inadequate development of the necessary infrastructure;

- resistance by suppliers and customers to the introduction of new
technology and procedural changes;

- problems related to the development of technology which may be necessary
for the software to work on various computer operating systems;

- problems meeting customer and supplier concerns related to accuracy,
security and auditing of data;

- competition from others' technology; or

- possible changes in governmental regulation.

IF WE NEED ADDITIONAL CAPITAL TO FUND OUR OPERATIONS, WE MAY BE REQUIRED TO
CONDUCT FUTURE EQUITY OR DEBT FINANCINGS WHICH COULD BE DILUTIVE OR PLACE
BURDENSOME RESTRICTIONS ON US.

We believe our capital requirements may vary greatly from quarter to
quarter, depending on, among other things, changes in working capital, capital
expenditures, fluctuations in our operating results, financing activities,
acquisitions and investments, and receivables management. We believe that the
proceeds from this offering, along with our future cash flow from operations,
will be sufficient to satisfy our working capital, capital expenditures, and
research and development requirements for the foreseeable future. However, we
may require or choose to obtain additional debt or equity financing in order to
finance acquisitions or other investments in our business. Future equity
financings could be dilutive to the existing holders of our common stock. Future
debt financings could involve restrictive covenants. We will likely not be able
to obtain financing with terms as favorable as those that Mercury Air Group
could obtain.

WE MAY HAVE DIFFICULTY MANAGING OUR EXPANDING OPERATIONS, WHICH MAY HARM OUR
BUSINESS.

A key part of our strategy is to grow our business; however, our growth has
placed a significant strain on our managerial and operational resources. To
manage our growth, we must continue to improve our financial and management
controls, reporting systems and procedures. We may not be able to do so
successfully.

IF WE ARE UNABLE TO FIND SUITABLE ACQUISITION CANDIDATES, WE MAY BE UNABLE TO
EFFECTUATE OUR GROWTH STRATEGY AND THE MARKET PRICE OF OUR COMMON STOCK MAY
DECLINE.

A component of our growth strategy is the acquisition of, or investment in,
complementary businesses, technologies, services or products. In pursuing
acquisition and investment opportunities, we may be in competition with other
companies having similar growth and investment strategies. Competition for these

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13

acquisitions or investment targets could also result in increased acquisition or
investment prices and a diminished pool of businesses, technologies, services or
products available for acquisition or investment.

Performance problems with an acquired business, technology, service or
product could also have a material adverse impact on our reputation as a whole.
In addition, any acquired business, technology, service or product, including
technology related to a license we intend to acquire from Management & Report
Technologies, Inc., could significantly underperform relative to our
expectations.

COMPETITION FOR EXPERIENCED PERSONNEL IS INTENSE AND OUR INABILITY TO RETAIN KEY
PERSONNEL COULD INTERRUPT OUR BUSINESS AND ADVERSELY AFFECT OUR GROWTH.

Our future success depends, in significant part, upon the continued service
and performance of our senior management and other key personnel, in particular
Eric Beelar, our President. Losing the services of Mr. Beelar may impair our
ability to effectively deliver our services and manage our company, and to carry
out our business plan. In addition, we need to recruit and retain a Chief
Executive Officer to replace Joseph Czyzyk, who intends to devote his time fully
to the business of Mercury Air Group within approximately one year of the
offering. We may not be able to find a replacement for Mr. Czyzyk. Competition
for qualified personnel in the fuel sales and services industry is intense and
we may not be successful in attracting and retaining qualified personnel. There
may be only a limited number of persons with the requisite skills to serve in
this and other management positions and it may become increasingly difficult to
hire these persons.

RISKS RELATED TO OUR RELATIONSHIP WITH MERCURY AIR GROUP

OUR STOCK PRICE MAY DECLINE AND WE WILL NOT BE ABLE TO OPERATE OUR BUSINESS
WITHOUT MERCURY AIR GROUP'S CONTROL IF MERCURY AIR GROUP DOES NOT COMPLETE ITS
DISTRIBUTION OF OUR COMMON STOCK.

Mercury Air Group has advised us that it currently intends to distribute to
its stockholders all of our common stock by the later of the receipt of approval
from Mercury Air Group's lenders or six months after this offering, although it
is not obligated to do so. There are various conditions to the completion of the
distribution and it may be substantially delayed or may not occur at all. If the
distribution does occur, we may not obtain the benefits we expect as a result of
this distribution, including direct access to capital markets, better incentives
for employees, greater strategic focus, facilitated customer relationships and
future partnerships and increased speed and responsiveness. In addition, until
this distribution occurs, the risks discussed below relating to Mercury Air
Group's control of us and the potential business conflicts of interest between
Mercury Air Group and us will continue to be relevant to our stockholders.

WE WILL BE CONTROLLED BY MERCURY AIR GROUP AS LONG AS IT OWNS A MAJORITY OF OUR
COMMON STOCK, AND OUR OTHER STOCKHOLDERS WILL BE UNABLE TO AFFECT THE OUTCOME OF
STOCKHOLDER VOTING DURING SUCH TIME.

After the completion of this offering, Mercury Air Group will own 82.0% of
our outstanding common stock or 80.2% if the underwriters exercise their option
to purchase additional shares in full. As long as Mercury Air Group owns a
majority of our outstanding common stock, Mercury Air Group will continue to be
able to elect our entire board of directors and to remove any director, with or
without cause, without calling a special meeting. Investors in this offering
will not be able to affect the outcome of any stockholder vote prior to the
planned distribution of our stock to the Mercury Air Group stockholders. As a
result, Mercury Air Group will control all matters affecting us, including:

- the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;

- the allocation of business opportunities that may be suitable for us and
Mercury Air Group;

- any determinations with respect to mergers and other business
combinations;

- our acquisition or disposition of assets;

- our financing;

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- changes to the agreements providing for our separation from Mercury Air
Group;

- the payment of dividends on our common stock; and

- determinations with respect to our tax returns.

MERCURY AIR GROUP COULD SELL A CONTROLLING INTEREST IN US TO A THIRD PARTY
PREVENTING THE PLANNED DISTRIBUTION OF OUR COMMON STOCK.

Mercury Air Group has agreed with the underwriters not to offer or sell any
shares of our common stock for a period of 180 days after the date of this
prospectus, without the prior written consent of the underwriters. After the
180-day period, however, Mercury Air Group is not prohibited from selling a
controlling interest in us to a third party. A sale of a controlling interest in
us by Mercury Air Group would prevent the distribution of our shares to Mercury
Air Group's stockholders as currently planned and could have a depressive effect
of the market price of our common stock. Moreover, because Mercury Air Group can
dispose of all or a portion of its ownership of our common stock at some future
date, it may transfer a controlling interest in us without allowing you to
participate or realize a premium.

SUBSTANTIAL SALES OF COMMON STOCK MAY OCCUR IN CONNECTION WITH THE DISTRIBUTION,
WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

Mercury Air Group currently plans to distribute to its stockholders all of
the shares of our common stock it owns after this offering, but in no event
before the later of the receipt of approval of its lenders or six months after
this offering. If Mercury Air Group completes the distribution, substantially
all of these shares would be eligible for immediate resale in the public market.
Any sales of substantial amounts of common stock in the public market, or the
perception that such sales might occur, whether as a result of this distribution
or otherwise, could harm the market price of our common stock.

UNTIL WE ESTABLISH SEPARATE CREDIT FACILITIES, WE WILL NEED TO RELY ON MERCURY
AIR GROUP'S BANK FINANCINGS TO FUND OUR FUTURE CAPITAL REQUIREMENTS. IF MERCURY
AIR GROUP OR ITS LENDERS DO NOT PROVIDE US WITH SUFFICIENT FUNDS AS REQUIRED OR
WE ARE UNABLE TO SECURE FINANCING FROM OTHER SOURCES, OUR BUSINESS WILL BE
HARMED.

Prior to the distribution, we will rely on Mercury Air Group's bank
financings to fund, in part, our operations. Since these facilities determine
the amount of available borrowings on a consolidated basis, we may not be able
to draw on the facilities if Mercury Air Group's financial condition is
adversely affected. In addition, because we are a guarantor of Mercury Air
Group's credit facilities, there could be conflict of interest between Mercury
Air Group and its other affiliates on one hand and us on the other hand with
regard to the availability of credit. Due to Mercury Air Group's control of us,
this conflict of interest may not be resolved in a manner favorable to us.
Moreover, following the distribution, Mercury Air Group will no longer provide
us access to these funds to finance our working capital or other cash
requirements. Our business will be harmed if sufficient financing from Mercury
Air Group or its lenders before the distribution, or financing from other
sources following the distribution, is not available or is only available on
unfavorable terms.

CROSS-DEFAULT OBLIGATIONS CURRENTLY EXIST BETWEEN US AND MERCURY AIR GROUP,
WHICH MAY REQUIRE US TO INDEMNIFY MERCURY AIR GROUP IN CERTAIN CIRCUMSTANCES.

We are a guarantor under Mercury Air Group's existing bank indebtedness.
Therefore, we are required to guarantee certain indebtedness incurred by Mercury
Air Group. This guarantee will, in all likelihood, not be released until the
distribution. Any demand on this guarantee could harm our business financially.

OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.

Our historical financial information included in this prospectus has been
carved out from Mercury Air Group's consolidated financial statements and may
not accurately reflect what our financial position, results of operations and
cash flows would have been had we been a separate, stand-alone entity during the
periods presented. Mercury Air Group did not account for us as, and we were not
operated as, a single, stand-alone

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entity for the periods presented. In addition, the historical information is not
necessarily indicative of what our results of operations, financial position and
cash flows will be in the future. We have not made adjustments to reflect
significant changes that may occur in our cost structure, funding and operations
as a result of our separation from Mercury Air Group, including changes in our
employee base, changes in our tax structure and increased costs associated with
being a public company.

WE HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH MERCURY AIR GROUP WITH
RESPECT TO OUR PAST AND ONGOING RELATIONSHIPS, AND BECAUSE OF MERCURY AIR
GROUP'S CONTROLLING OWNERSHIP, WE MAY NOT RESOLVE THESE CONFLICTS ON THE MOST
FAVORABLE TERMS TO US.

Conflicts of interest may arise between Mercury Air Group and us in a
number of areas relating to our past and ongoing relationships, including:

- labor, tax, employee benefits, indemnification and other matters arising
from our separation from Mercury Air Group;

- sales or distributions by Mercury Air Group of all or any portion of its
ownership interest in us; and

- the nature, quality and pricing of transitional services Mercury Air
Group has agreed to provide.

We may not be able to resolve any potential conflicts, and even if we do,
the resolution may be less favorable than if we were dealing with an
unaffiliated party. The agreements we have entered into with Mercury Air Group
may be amended upon agreement between the parties while we are controlled by
Mercury Air Group. Mercury Air Group may be able to require us to agree to
amendments to these agreements that may be less favorable to us than the current
terms of the agreements.

OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST BECAUSE OF
THEIR OWNERSHIP OF MERCURY AIR GROUP COMMON STOCK.

Many of our directors and executive officers have a substantial amount of
their personal financial portfolios in Mercury Air Group common stock and
options to purchase Mercury Air Group common stock. Their options to purchase
Mercury Air Group common stock may not convert into options to purchase our
common stock if the distribution does not occur. Ownership of Mercury Air Group
common stock by our directors and officers could create, or appear to create,
potential conflicts of interest when directors and officers are faced with
decisions that could have different implications for Mercury Air Group and us.

IF THE TRANSITIONAL SERVICES BEING PROVIDED TO US BY MERCURY AIR GROUP ARE NOT
SUFFICIENT TO MEET OUR NEEDS, OR IF WE ARE NOT ABLE TO REPLACE THESE SERVICES
AFTER OUR AGREEMENTS WITH MERCURY AIR GROUP EXPIRE, WE WILL BE UNABLE TO MANAGE
CRITICAL OPERATIONAL FUNCTIONS OF OUR BUSINESS.

Mercury Air Group is contractually obligated to provide transitional
services to us, including services for functions including accounting, financial
management, tax, payroll, stockholder and public relations, legal, procurement
and other administrative functions. However, these services may not be provided
at the same level as when we were a part of Mercury Air Group, and we may not be
able to obtain the same benefits. We will also lease and sublease office space
from Mercury Air Group. These transitional services and leasing arrangements
generally have a term of one year following the distribution of our common
stock. After the expiration of these various arrangements, we may not be able to
replace the transitional services or enter into appropriate leases in a timely
manner or on terms and conditions, including cost, as favorable as those we will
receive from Mercury Air Group.

These arrangements were made in the context of a parent-subsidiary
relationship and were negotiated in the overall context of our separation from
Mercury Air Group. The prices charged to us under these agreements may be lower
than the prices that we may be required to pay third parties for similar
services or the costs of similar services if we undertake them ourselves.

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RISKS RELATED TO THE SECURITIES MARKETS AND OWNERSHIP OF OUR COMMON STOCK

THE LEAD UNDERWRITER OF THIS OFFERING LACKS UNDERWRITING EXPERIENCE

VMR Capital Markets, U.S. has limited experience acting as lead underwriter
in underwritten public offerings. Because of the lead underwriter's limited
public offering experience, the subsequent development of a trading market may
be impaired.

OUR SECURITIES HAVE NO PRIOR MARKET, AND OUR STOCK PRICE MAY DECLINE AFTER THE
OFFERING.

Before this offering, there has not been a public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The market price of our common stock could be
subject to significant fluctuations after this offering. Among other factors
that could affect our stock price are:

- quarterly variations in our operating results;

- changes in revenue or earnings estimates or publication or research
reports by analysts;

- speculation in the press or investment community;

- strategic actions by us or our competitors, such as acquisitions or
restructurings;

- actions by institutional stockholders;

- general market conditions; and

- domestic and international economic factors unrelated to our performance.

The stock markets have experienced extreme volatility that has often been
unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the trading price of our common stock.
In particular, you may not be able to resell your shares at or above the initial
public offering price.

PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY DELAY OR PREVENT
ACQUISITION OF US, WHICH COULD DECREASE THE VALUE OF YOUR SHARES.

Our certificate of incorporation and bylaws and Delaware law contain
provisions that could make it more difficult for a third party to acquire us
without the consent of our board of directors, although these provisions have
little significance while we are controlled by Mercury Air Group. These
provisions include a classified board of directors and provisions requiring a
larger than majority vote of our directors or stockholders for certain
transactions. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be used to dilute the
stock ownership of a potential hostile acquirer. Delaware law also imposes some
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. These provisions apply
even if the offer may be considered beneficial by some stockholders, and
therefore the value of your shares may be lowered.

PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE DILUTION IN NET TANGIBLE
BOOK VALUE PER SHARE.

Purchasers of our common stock in this offering will experience immediate
dilution of $5.54 in net tangible book value per share based upon an assumed
initial public offering price of $7.00 per share.

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DETERMINATION OF OFFERING PRICE

Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
between the representative and us. The principal factors considered in
determining the initial public offering price will include:

- the information set forth in this prospectus and otherwise available;

- the history and the prospects for the industry in which we will compete;

- the ability of our management;

- the present state of our development and our current financial condition;

- the general condition of the securities markets at the time of this
offering; and

- the recent market prices of, and demand for, publicly traded stock of
generally comparable companies.

The estimated initial public offering price range set forth on the cover
page of this preliminary prospectus is subject to change as a result of market
conditions and other factors.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates", "believes", "plans",
"expects", "future", "intends", and similar expressions to identify these
forward-looking statements. Our actual results could differ materially from the
results contemplated by these forward-looking statements due to a number of
factors, including those discussed in "Risk Factors", "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus. This prospectus also contains forward-looking statements
attributed to third parties relating to their estimates regarding the growth of
our markets. Forward-looking statements are subject to known and unknown risks,
uncertainties and other factors that may cause our actual results, as well as
those of the markets we serve, levels of activity, performance, achievements and
prospects to be materially different from those expressed or implied by the
forward-looking statements. Those risks, uncertainties and other factors
include, among others, those identified in "Risk Factors" and elsewhere in this
prospectus.

OUR SEPARATION FROM MERCURY AIR GROUP

OVERVIEW

We are currently a wholly-owned subsidiary of Mercury Air Group. After the
completion of this offering, Mercury Air Group will own 82.0% of our outstanding
common stock or 80.2% if the underwriters exercise their over-allotment option
to purchase additional shares in full. Until Mercury Air Group holds less than a
majority of the voting power of our outstanding common stock, Mercury Air Group
will be able to control the vote on all matters submitted to stockholders,
including the election of directors and the approval of extraordinary corporate
transactions.

THE PLANNED DISTRIBUTION BY MERCURY AIR GROUP OF OUR COMMON STOCK

Mercury Air Group has advised us that it plans to distribute to its
stockholders all of our common stock that it owns, after this offering, but in
no event before the later of the receipt of approval of its lenders or six
months after this offering, although it is not obligated to do so. There are,
however, various conditions to the completion of the distribution and we cannot
assure you as to whether or when it will occur.

These conditions include:

- the relative market prices of our common stock and Mercury Air Group's
common stock;

- the obtaining of acceptable and sufficient financing to fund our
anticipated level of operations;

- the absence of any court orders or regulations prohibiting or restricting
the completion of the distribution; and

- other conditions affecting our business or that of Mercury Air Group.

BENEFITS OF THE SEPARATION

We believe that we will realize benefits from our complete separation from
Mercury Air Group, including the following:

Greater Strategic Focus. Our focus will be on developing our fuel sales
and services business and on structuring our fuel management initiative. This
effort will be supported by our own board of directors, management team and
employees.

Better Incentives for Employees and Greater Accountability. We expect the
motivation of our employees and the focus of our management will be strengthened
by incentive compensation programs tied to the market performance of our common
stock. The separation will enable us to offer our employees compensation
directly linked to the performance of our business, which we expect will enhance
our ability to attract and retain qualified personnel.

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More Direct Access to Capital Markets. As a separate company, we will have
more direct access to the capital markets to issue debt or equity securities and
to grow through acquisitions.

TRANSFER AND TRANSITIONAL ARRANGEMENTS

On January 1, 2001, the transfer date, Mercury Air Group transferred to us
assets, and we assumed liabilities relating to our business. In addition, we and
Mercury Air Group intend to enter into agreements, generally effective on the
date Mercury Air Group distributes our common stock to its stockholders,
providing for various interim and ongoing relationships between us and Mercury
Air Group.

All of the agreements providing for these relationships will be made in the
context of a parent-subsidiary relationship and will be negotiated in the
overall context of our complete separation from Mercury Air Group. We believe
the terms of these agreements will be fair, however, terms of these agreements
may be more or less favorable to us than if they had been negotiated with
unaffiliated third parties.

CONTINUING FINANCIAL ARRANGEMENTS WITH MERCURY AIR GROUP AND PROPOSED FINANCING

In addition, Mercury Air Group has agreed, if required, to guaranty our
obligations with our fuel suppliers for a period of up to six months from the
date Mercury Air Group distributes our common stock to its stockholders.

AFFILIATE COMMITTEE

A committee of our Board of Directors, consisting of outside independent
board members, shall approve the terms of any arrangement or agreement outside
of the ordinary course of business (as defined by such independent committee)
between us and Mercury Air Group or any of its affiliates.

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USE OF PROCEEDS

We estimate that our net proceeds from this offering will be approximately
$6.8 million, or $8.0 million if the underwriters exercise of their
over-allotment option in full, based on an assumed initial public offering price
of $7.00 per share and after deducting assumed underwriting discounts and
estimated offering expenses payable by us. We intend to use the proceeds of this
offering for:

- repayment of an intercompany payable to Mercury Air Group bearing
interest at 8.0% per annum, payable on demand. This amount, outstanding
as of June 30, 2001, was $2.7 million;

- expenditures of approximately $1.5 million over the 12 months following
the closing of this offering to support our fuel management strategy; and

- the remainder, $2.5 million, or $3.7 million if the underwriters exercise
their over-allotment option in full, for working capital and general
corporate purposes.

We may use a portion of the net proceeds allocated to working capital and
general corporate purposes to acquire businesses, products or technologies that
we could utilize in our fuel sales and services business although we have no
definitive plan to do so at this time. The amounts actually expended for these
purposes will vary significantly depending on a number of factors, including
revenue growth, if any, and planned geographic expansion into targeted markets.

Pending the use of such net proceeds for the above purposes, we intend to
invest such funds in marketable, investment-grade securities, certificates of
deposit or direct or guaranteed obligations of the U.S. Government.

DIVIDEND POLICY

Except for dividends of $531,000 paid to Mercury Air Group during the six
months ended June 30, 2001, we have never paid cash dividends on our common
stock. We currently intend to retain any future earnings to fund the development
and growth of our business. Under Mercury Air Group's existing credit
facilities, we will be prohibited from paying any dividends to our stockholders
subsequent to the offering. We do not anticipate paying any cash dividends in
the foreseeable future.

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CAPITALIZATION

The following table sets forth our capitalization as of June 30, 2001. Our
capitalization is presented:

- on an actual basis;

- on an as adjusted basis to give effect to the agreement to the sale of
239,942 shares of our common stock at a per share price of $4.35, the net
proceeds of which are $860,000. The sale will be consummated at such time
as Mercury Air Group's lenders consent to that offering and the initial
public offering;

- on an as adjusted basis to give effect to the sale of 1,200,000 shares of
common stock in this offering at an assumed initial offering price of
$7.00 per share, the net proceeds of which are estimated to be $6.8
million after deducting the assumed underwriting discounts and estimated
offering expenses payable by us; and

- on an as adjusted basis to give effect to the repayment of the amount due
to Mercury Air Group from a portion of the net proceeds of this offering,
which amount owed was $2.7 million as of June 30, 2001.

<Table>
<Caption>
AS OF JUNE 30, 2001
---------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS EXCEPT
SHARE DATA)

Due to Mercury Air Group.................................... $2,718 $ --
====== =======
Stockholder's equity:
Preferred stock, $0.01 par value, 8,000,000 shares
authorized, none issued actual, pro forma and as
adjusted............................................... -- --
Common stock, $0.01 par value, 50,000,000 shares
authorized, 6,576,680 issued actual and 8,016,622
issued as adjusted..................................... $ 66 $ 80
Additional paid-in capital................................ 3,934 11,624
------ -------
Total stockholder's equity and capitalization............... $4,000 $11,704
====== =======
</Table>

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DILUTION

Our net tangible book value at June 30, 2001, which excludes deferred
offering cost of $589,000, was approximately $3.4 million or $0.52 per share.

Dilution in as adjusted net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the private offering and the as adjusted net
tangible book value per share of our common stock immediately afterwards. After
giving effect to the following:

- our agreement to sell 239,942 shares of our common stock in a private
placement at a per share price of $4.35, the net proceeds of which are
$860,000. The sale will be consummated at such time as Mercury Air
Group's lenders consent to that offering and the initial public offering,
and

- our sale of 1,200,000 shares of common stock in this offering at an
assumed initial offering price of $7.00 per share, the net proceeds of
which are estimated at $6.8 million after deducting assumed underwriting
discounts and estimated offering expenses payable by us.

Our as adjusted net tangible book value at June 30, 2001 would have been
approximately $11.7 million, or $1.46 per share. This represents an immediate
increase in net tangible book value of $0.83 per share to our existing
stockholders and an immediate dilution in as adjusted net tangible book value of
$5.54 per share to new investors purchasing shares of common stock in this
offering. The following table illustrates this dilution per share:

<Table>

Assumed initial public offering price per share............. $7.00
Net tangible book value per share as of June 30, 2001....... $0.52
As adjusted net tangible book value per share attributable
to the sale of 239,942 shares in the private placement.... 0.11
Increase in book value per share attributable to new
investors................................................. 0.83
-----
As adjusted, net tangible book value per share after this
offering and the private placement........................ 1.46
-----
Dilution in net tangible book value per share to new
investors................................................. $5.54
=====
</Table>

The discussion and table above assumes no issuance of shares reserved for
future issuance under our 2001 Stock Option Plan. As of June 30, 2001, there
were no options outstanding to purchase shares of our common stock. To the
extent that any options are granted and exercised, there will be further
dilution to new investors.

The following table sets forth, as of June 30, 2001 on the as adjusted
basis described above, the differences between the number of shares of common
stock purchased from us, the total price paid and the average price per share
paid by our existing stockholders (which includes the shares issuable pursuant
to the private placement), and by the new investors in this offering at an
assumed initial public offering price of $7.00 per share, before deducting
estimated underwriting discounts and commissions and offering expenses payable
by us.

<Table>
<Caption>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
STOCKHOLDER NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
- ----------- --------- ---------- ----------- ---------- -------------

Existing stockholders.................. 6,816,622 85% $ 5,043,748 38% $0.74
New investors.......................... 1,200,000 15% $ 8,400,000 62% $7.00
--------- --- ----------- ---
Total........................ 8,016,622 100% $13,443,748 100%
========= === =========== ===
</Table>

If the underwriters' option to purchase additional shares is exercised in
full, the following will occur:

- the number of shares of common stock held by our existing stockholders
will decrease to 80.2% of the total number of shares of common stock
outstanding (excluding the shares sold in the Private Placement); and

- the number of shares held by new investors will be increased to 1,380,000
shares or 16.8% of the total number of shares of our common stock
outstanding after this offering.

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SELECTED FINANCIAL DATA

The following tables present our selected financial data. The information
set forth below should be read together with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our historical
financial statements included herein. Our statement of operations data set forth
below for each of the years in the three-year period ended June 30, 2001 and our
balance sheet data as of June 30, 2000 and 2001 have been derived from our
audited financial statements included herein. The statement of operations data
for the year ended June 30, 1998 and the balance sheet data as of June 30, 1999
have been derived from audited financial statements not included herein. The
statement of operations data for the year ended June 30, 1997 and the balance
sheet data as of June 30, 1997 and 1998 are derived from our unaudited financial
data that is not included herein. The historical financial information may not
be indicative of our future performance and does not reflect what our financial
position and results of operations would have been had we operated as a
separate, stand-alone entity during the periods presented.

<Table>
<Caption>
YEAR ENDED JUNE 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)

STATEMENT OF OPERATIONS DATA:
Fuel sales............................................ $201,002 $148,354 $111,638 $203,412 $319,657
Cost of sales......................................... 191,371 138,730 99,823 192,399 307,558
-------- -------- -------- -------- --------
Gross profit.......................................... 9,631 9,624 11,815 11,013 12,099
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and administrative................... 3,769 3,567 4,418 4,506 5,581
Provision for bad debts............................... 2,200 8,639 1,377 5,000 3,025
Depreciation.......................................... 12 14 57 58 62
-------- -------- -------- -------- --------
Total operating expenses.............................. 5,981 12,220 5,852 9,564 8,668
-------- -------- -------- -------- --------
Operating income...................................... 3,650 (2,596) 5,963 1,449 3,431
Interest expense...................................... 1,693 1,163 1,016 1,187 587
-------- -------- -------- -------- --------
Income (loss) before income taxes..................... 1,957 (3,759) 4,947 262 2,844
Provision (benefit) for income taxes.................. 775 (1,466) 1,929 102 1,109
-------- -------- -------- -------- --------
Net income (loss)..................................... $ 1,182 $ (2,293) $ 3,018 $ 160 $ 1,735
======== ======== ======== ======== ========
Basic and diluted net income (loss) per share......... $ 0.18 $ (0.35) $ 0.46 $ 0.02 $ 0.26
======== ======== ======== ======== ========
Shares used in computing basic and diluted net income
(loss) per share.................................... 6,577 6,577 6,577 6,577 6,577
======== ======== ======== ======== ========
Unaudited pro forma basic and diluted net income per
share(1)............................................ $ 0.26
========
Shares used in computing unaudited pro forma basic and
diluted net income per share(1)..................... 7,142
========
</Table>

<Table>
<Caption>
AS OF JUNE 30,
-----------------------------------------------
1997 1998 1999 2000 2001
------- ------- ------- ------- -------

BALANCE SHEET DATA:
Working capital............................................ $19,942 $13,946 $16,834 $10,342 $ 6,448
Total assets............................................... 32,985 25,505 31,373 29,242 36,066
Due to Mercury Air Group................................... 19,980 14,003 17,521 10,575 2,718
Stockholder's equity....................................... -- -- -- -- 4,000
</Table>

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

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which are $860,000 and 2) the sale of approximately 326,000 shares of common
stock, the net proceeds of which are calculated to be $1,858,000, based on
an assumed initial public offering price of $7.00 per share, reduced by the
estimated per share offering costs. In computing pro forma net income per
share, net income was increased $133,000 for the year ended June 30, 2001.
The increase in net income resulted from an assumed reduction of allocated
interest expense due to the reduction in the amount due to Mercury Air
Group.

We intend to enter into a transitional services agreement with Mercury Air
Group pursuant to which Mercury Air Group will provide us with transitional
services, systems and operational support operations, including data
processing and telecommunications services (such as voice
telecommunications and data transmission and information technology support
services) for functions including accounting, financial management, tax,
payroll, stockholder and public relations, legal, procurement, human
resources and other administrative functions. Mercury Air Group services
provided to us will be fixed at $70,000 per month. The agreement will
become effective upon the distribution of our common stock. Charges for
these transitional services have not been included in the computation of
pro forma basic and diluted net income per share as costs for such services
have been allocated to us in the historical financial statements and,
therefore, would represent duplicative charges in the pro forma
computations.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial
condition and results of operations together with "Selected Financial Data" and
our financial statements and related notes appearing elsewhere in this
prospectus. This discussion and analysis contains forward-looking statements
that involve risks, uncertainties and assumptions. The actual results may differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, but not limited to, those presented under
"Risk Factors" and elsewhere in this prospectus.

OVERVIEW

We are an independent provider of fuel sales and services to the aviation
industry. We have operated as a division of Mercury Air Group since 1979 and a
wholly-owned subsidiary, organized in Delaware, since October 27, 2000. Our fuel
sales consists of contract fueling and related fuel management services. We do
not currently provide fuel management services independent of fuel sales. Sales
of aviation fuel are made primarily to domestic and international airlines and
air freight companies. We also provide fuel to large corporate aircraft
operators and third parties.

Determination of Gross Profit

Gross profit consists of fuel sales less cost of sales. Our cost of sales
consists of the cost of fuel. Various factors including the price of fuel, the
volatility of the price of fuel, over-all business mix and specific major
accounts which are attracted, retained or lost during a given period will affect
our gross profit.

Availability of Fuel

In fiscal 2001, average per gallon fuel cost rose 21% compared to average
fuel cost in 2000. In fiscal 2000, average per gallon fuel cost rose 58%
compared to average fuel cost in fiscal 1999. Although we believe that there are
currently adequate aviation fuel supplies, events outside our control have in
the past resulted and could in the future result in spot shortages or further
rapid increases in fuel costs. Although we have generally been able to pass
through rising fuel costs to our customers, extended periods of high fuel costs
could adversely affect our ability to purchase fuel in sufficient quantities
because of credit limits placed on us by our fuel suppliers.

We purchase fuel at current market prices from a number of major oil
companies and certain independent and state owned oil companies based on the
expected requirements of our customers. From time-to-time, we will commit to
purchase a fixed volume of fuel, at a fixed price, over a fixed period of time,
at agreed upon locations based on selected customers' corresponding purchase
commitments. Our terms of payment generally range from 10 to 30 days for most of
our fuel purchases, except for bulk purchases, which generally are payable in
shorter time periods. We have agreements with certain suppliers under which we
purchase a minimum amount of fuel each month at prices which approximate current
market prices. We make occasional spot purchases of fuel to take advantage of
market differentials. In order to meet customer supply requirements, we carry
limited inventories at numerous locations. Due to the nature of our business,
the volume of our aviation fuel inventories will fluctuate.

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

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26

Liquidity Risk

We generally purchase fuel using credit terms which on average are shorter
than the credit terms we generally offer our customers. As a result, we require
access to sufficient credit facilities which may need to increase in the future
as we expand our operations. The amount of working capital consumed by our
accounts receivable has depended and will depend primarily on the quantity of
fuel sold, the price of fuel, our extension of credit, customer compliance with
our credit terms and credit terms provided by our suppliers. Any increase in the
quantity or price of fuel sold, any increase in credit extended, any reduction
in credit terms provided by our suppliers or any substantial customer
noncompliance with credit terms will result in a corresponding increase in our
need for working capital. Under these circumstances, our liquidity could be
adversely affected unless we are able to increase vendor credit or increase
lending limits under Mercury Air Group's revolving credit facility. We believe,
however, that Mercury Air Group's current financing arrangements (and the
availability under the terms of our proposed bank financing arrangement) and
vendor credit should provide us with sufficient liquidity in the event of a
continued major temporary surge in oil prices. However, to the extent that
credit facilities are utilized to fund working capital requirements we will
incur additional interest expense.

Credit Risk

As of June 30, 2001, approximately 67% of our accounts receivable are due
from what we define as smaller and generally less well-established or
well-capitalized airlines, including certain foreign, regional, commuter and
start-up airlines, which may be less creditworthy than larger, well-established
and well-capitalized airlines. These customers are more affected by fluctuations
in the economy in general and in the aviation industry specifically. For
example, a material rise in the price of aviation fuel tends to more adversely
impact these types of customers. To the extent that our airline customers are
not able to immediately adjust their business operations to reflect increased
operating costs, they could take relatively longer to pay our accounts
receivable. Such payment delays would further increase our working capital
demands. In some cases, the impact of such economic fluctuations could
materially impair the financial stability of an airline customer such that it
would be unable to pay amounts owed to us and could result in such airline
customer filing for bankruptcy protection. In that event, we could incur
significant losses related to the uncollectability of the receivables. We have
incurred in the past and are likely to continue to incur losses as the result of
the business failure of a customer. We assess our credit portfolio on an ongoing
basis and establish allowances which we believe are adequate to absorb potential
credit problems that can be reasonably anticipated. This assessment includes an
analysis of past due accounts as well as a review of accounts with significant
balances. Reserves are established for all or some portion of past due balances
based upon various factors including the extent of delinquency, financial
conditions of delinquent customers and amounts of insurance and collateral, if
any.

Our accounts receivable balance was $32.1 million at June 30, 2001.
Accounts receivable is comprised primarily of trade receivables from customers
and is net of an allowance for doubtful accounts. Our 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 us, and 3)
significant balances are owed by certain customers that are not adequately
capitalized.

Accounts receivable days outstanding were 37 days, 46 days and 89 days as
of June 30, 2001, 2000 and 1999, respectively. Accounts receivable days
outstanding have historically been impacted by a high volume of fuel sales to
customers with extended payment terms. However, during the current period, we
added a large customer, AirTran Airways, whose terms are prepaid. The terms of
the prepayment provide for weekly payments equal to the following weeks'
estimated sales. This prepaid customer accounted for approximately 20% of our
fuel sales for the year ended June 30, 2001. During the year, we also reduced
the maximum amount of available credit to National Airlines based on their
volume of fuel purchased. These factors significantly reduced the accounts
receivable days outstanding.

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27

Significant Customers

Our largest customers for the fiscal year ended June 30, 2001 were National
Airlines and AirTran Airways, which accounted for approximately 22% and
approximately 20% of fuel sales, respectively. In May 1999, we entered into a
three-year fuel management agreement with National Airlines. However, due to
National Airlines bankruptcy, we are now operating pursuant to a court order
which is extended and modified on approximately a bi-weekly basis. We have no
long-term written agreements or other understandings with any of our customers
that relate to future purchases, so purchases by these customers or any others
could be reduced or terminated upon short notice at any time.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consists of personnel costs
for our sales force and our executive and administrative staff, professional
fees and overhead expenses including rent, utilities, insurance, business taxes
and travel. We expect that our selling, general and administrative expenses will
increase as we expand our operations.

Basis of Presentation

Our financial statements have been carved out from the consolidated
financial statements of Mercury Air Group using the historical results of
operations and historical basis of the assets and liabilities of the fuel sales
and services division of Mercury Air Group. The financial statements also
include allocations to us of certain Mercury Air Group corporate assets,
liabilities and expenses, including centralized legal, accounting, employee
benefits, and other Mercury Air Group corporate and infrastructure costs. The
expense allocations have been determined from an analysis of Mercury Air Group's
operating and corporate departments and are generally based on the percentage of
our operating income before depreciation, indirect selling, general and
administrative expenses and certain specifically identified bad debt expenses to
Mercury Air Group's operating income before depreciation and amortization and
indirect selling, general and administrative expenses.

The financial information presented in this prospectus may not be
indicative of our financial position, results of operations or cash flows which
may occur in the future nor is it necessarily indicative of what our financial
position, results of operations or cash flows would have been had we been a
separate, stand-alone entity for the periods presented. The financial
information presented in this prospectus does not reflect the many significant
changes that will occur in our funding and operations as a result of us becoming
a stand-alone entity.

RESULTS OF OPERATIONS -- FISCAL 2001, 2000 AND 1999

The following table sets forth, for the periods indicated, our income
statement data.

<Table>
<Caption>
YEAR ENDED JUNE 30,
(DOLLARS IN MILLIONS)
--------------------------------------------------------------------
2001 2000 1999
-------------------- -------------------- --------------------
% OF TOTAL % OF TOTAL % OF TOTAL
AMOUNT FUEL SALES AMOUNT FUEL SALES AMOUNT FUEL SALES
------ ---------- ------ ---------- ------ ----------

Fuel sales..................... $319.7 100.0% $203.4 100.0% $111.6 100.0%
Cost of sales.................. 307.6 96.3 192.4 94.6 99.8 89.4
------ ----- ------ ----- ------ -----
Gross profit................... 12.1 3.7 11.0 5.4 11.8 10.6
Selling, general and
administrative............... 5.6 1.7 4.5 2.2 4.4 3.9
Provisions for bad debts....... 3.0 1.0 5.0 2.5 1.4 1.3
Interest expense and other..... .6 0.2 1.2 0.6 1.1 1.0
------ ----- ------ ----- ------ -----
Income before income taxes..... 2.8 0.9 0.3 0.1 4.9 4.4
Provision for income taxes..... 1.1 0.3 0.1 -- 1.9 1.7
------ ----- ------ ----- ------ -----
Net income..................... $ 1.7 0.5% $ 0.2 0.1% $ 3.0 2.7%
====== ===== ====== ===== ====== =====
</Table>

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Fiscal Year Ended June 30, 2001 Compared to Fiscal Year Ended June 30, 2000

Fuel sales increased 57.2% to $319.7 million in fiscal 2001 from $203.4
million in fiscal 2000. The increase in fuel sales was due to an increase of 18%
in the average price of fuel sold and an increase of 33% in the volume of fuel
sold. Volume increased in the current year due to a significant new customer
added in September 2000. Gross profit increased 10.0% to $12.1 million in fiscal
2001 from $11.0 million in fiscal 2000 due to an increase of 33% in the volume
of fuel sold, such volume increase more than offset a decline in the per gallon
margins to $0.038 in fiscal 2001 compared to $0.046 in fiscal 2000 caused by
higher fuel prices.

Selling, general and administrative expenses in fiscal 2001 increased 24.4%
to $5.6 million from $4.5 million in fiscal 2000 due primarily to higher legal
and professional fees. Selling, general and administrative expense includes an
allocation from Mercury Air Group of $1.0 million in fiscal 2001 and $1.3
million in fiscal 2000.

Provision for bad debts decreased 40.0% in fiscal 2001 to $3.0 million from
$5.0 million in fiscal 2000 due to the write off of Tower Air's receivable
balance of $2.7 million in the year ago period (as a result of its bankruptcy).
The provision in the current year includes $1.6 million which is attributable to
a legal settlement with Western Pacific Airlines, Inc. and $1.0 million which is
attributable to a legal settlement with Tower Air, Inc., both of which related
to alleged preference payments made to us prior to bankruptcy filings. These
amounts were partially offset by $1.0 million in bad debt recoveries related to
a former customer. Future periods may continue to be impacted by higher reserve
requirements.

Interest expense (net) decreased 50.0% in fiscal 2001 to $0.6 million from
$1.2 million in fiscal 2000 due to lower average outstanding amounts due to
Mercury Air Group, which is the basis on which interest expense is allocated to
us.

Income tax expense was 39.0% of pretax income in both fiscal 2001 and 2000
reflecting the expected effective annual income tax rate.

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

Fuel sales increased 82.2% to $203.4 million in fiscal 2000 from $111.6
million in fiscal 1999 due to higher fuel prices and higher volume of fuel sold.
Gross profit decreased 6.8% to $11.0 million in fiscal 2000 from $11.8 million
in fiscal 1999. The increase in fuel sales was due to an increase of 22.3% in
volume of fuel sold and an increase of 49.1% in the average price of fuel sold.
The decrease in gross profit was primarily due to lower per gallon margins
caused by rising fuel prices.

Selling, general and administrative expenses increased 2.0% to $4.5 million
in fiscal 2000 from $4.4 million in fiscal 1999. Selling, general and
administrative expenses includes an allocation from Mercury Air Group of $1.3
million in fiscal 2000 and $1.5 million in fiscal 1999.

Provision for bad debts increased 263.1% in fiscal 2000 to $5.0 million
from $1.4 million in fiscal 1999 due to the write off of Tower Air's receivable
balance of $2.7 million (as a result of its bankruptcy), significantly higher
sales in fiscal 2000 and greater exposure due to significantly higher fuel
prices during fiscal 2000 which created a greater risk of loss due to potential
bad debts related to certain airline accounts.

Interest expense (net) increased 16.8% in fiscal 2000 to $1.2 million from
$1.1 million in fiscal 1999 due to higher interest rates in fiscal 2000.
Interest expense is allocated from Mercury Air Group based upon our average
working capital requirements.

Income tax expense was 39.0% of pretax income in both fiscal 2000 and
fiscal 1999 reflecting our effective annual income tax rate.

LIQUIDITY AND CAPITAL RESOURCES

We have historically financed our operations primarily through operating
cash flow and advances from Mercury Air Group. Our cash balance at June 30, 2001
was zero. On May 15, 2001, Mercury Air Group contributed $4.0 million in the
form of cancellation of intercompany debt payable to Mercury Air Group. As

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29

of June 30, 2001, advances from Mercury Air Group were $2.7 million. Mercury Air
Group has historically financed our operations primarily through its bank
financing arrangements, the collateral for which includes our assets.

Until the date Mercury Air Group distributes our common stock to its
stockholders, we will continue to be a guarantor under Mercury Air Group's
financing arrangements. We have an executed term sheet for a $20.0 million
senior revolving credit facility in the form of a revolving loan which is
subject to final documentation. The revolving senior credit facility will be
secured by substantially all of our assets. Simultaneously, Mercury Air Group is
negotiating a new senior credit facility with two lenders to replace its
existing senior credit facility. The new facilities for both MercFuel and
Mercury Air Group are expected to close simultaneously in October 2001. Planned
uses for our credit facility include providing for increases in working capital
requirements and supporting our vendor credit lines with letters of credit to
the extent required. The revolving loan will mature in either two, three, four
or five years from the date of closing of the loan, at our option. The revolving
loan would be subject to certain financial covenants, including maintenance of a
minimum level of tangible net worth. The consummation of the revolving loan will
be subject to certain conditions precedent, including our having a minimum of
$5.0 million in the aggregate of unrestricted cash or cash equivalents on hand
and/or available credit capacity, after reserving for those amounts necessary to
maintain current liabilities reasonably within terms, and our having a minimum
of $4.0 million in equity at the time of the closing of the revolving loan. We
may not be able to obtain this financing. The distribution of our common stock
to Mercury Air Group's stockholders is subject to consent by Mercury Air Group's
subordinated debt holder.

We have agreed to sell 239,942 shares of our common stock at a per share
price of $4.35 in a private placement. Proceeds from the private placement are
expected to be $860,000. This sale is to be consummated at such time as Mercury
Air Group's lenders consent to that offering and the initial public offering.

Net cash provided by operating activities was $4.7 million during fiscal
2001. The primary sources of net cash provided by operating activities were net
income of $1.7 million, bad debt expense of $3.0 million, and an increase in
accounts payable of $5.6 million and an increase in accrued expenses of $3.5
million. The primary use of cash from operating activities was an increase in
trade accounts receivable of $9.7 million, due to higher sales.

Net cash used in financing activities was $4.7 million during fiscal 2001
due to a reduction in the advance to Mercury Air Group of $3.2 million, a
dividend to Mercury Air Group of $531,000, repayment of note payable of $321,000
and deferred offering cost of $589,000.

We plan to incur approximately $1.5 million over the 12 months following
the closing of this offering related to the design and development of our fuel
management strategy. The strategy will involve the development, marketing and
implementation of a centralized information gathering, inventory and invoicing
system for use at selected commercial airports throughout the world. The system
will be designed to provide for the efficient delivery and payment of jet fuel
deliveries to air carriers.

On March 16, 2001, the bankruptcy court approved a settlement related to
preference payments received in connection with the Chapter 7 bankruptcy filing
for Western Pacific Airlines. The settlement consists of ten quarterly payments
of $175,000, two of which were made in the fiscal 2001 with the unpaid balance
secured by a letter of credit. We have recorded a charge to bad debt expense
equal to the present value of the payments, $1.6 million. The outstanding
balance at June 30, 2001 of $1.3 million will be funded through operating cash
or borrowings under the credit facility.

In February 2001, Mercury Air Group received notice of a complaint filed by
the Chapter 7 Trustee for Tower Air in regard to a preference action. In July
2001, we and Mercury Air Group settled this matter for $1.0 million. In
accordance with the terms of the settlement, we paid $750,000 in August 2001 (an
amount

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which was advanced by Mercury Air Group) and we will pay the balance in ten
monthly installments of $25,000 each which will be funded through operating cash
or borrowings under the credit facility.

EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS

On July 1, 2000, we adopted Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which establishes accounting and reporting standards for derivative instruments
and for hedging activities. The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. There was no effect of
adoption at July 1, 2000. At June 30, 2001, there were no outstanding derivative
contracts.

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interest method. We do not believe that the adoption
of SFAS No. 141 will have a significant impact on our financial statements.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective July 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires us to
complete a transitional goodwill impairment test six months from the date of
adoption. We do not believe that the adoption of SFAS No. 142 will have a
significant impact on our financial statements.

INFLATION

We believe that inflation has not had a significant effect on our results
of operations during the past three fiscal years.

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BUSINESS

INDUSTRY BACKGROUND

Jet fuel resellers are generally independent third parties that purchase
fuel from major oil companies and independent fuel suppliers and resell fuel to
commercial airlines, business aircraft management companies and air freight
companies. Jet fuel reselling is a byproduct of the United States oil embargo
and ensuing energy crisis in 1979. At that time, the major oil companies
initiated a fuel allocation program pursuant to which many smaller and regional
domestic and international airlines were unable to access sufficient supplies of
jet fuel. Resellers took the initiative to find additional sources of fuel for
these carriers and have become the suppliers to many of those airlines which the
oil companies no longer directly serve.

We believe that the current and expected growth in commercial and business
aviation presents significant opportunities for jet fuel resellers. According to
the Federal Aviation Administration, domestic and international passenger
enplanements, which are passenger boardings, are expected to increase at an
annual rate of 3.6% between 1998 and 2010 and forecasts that through 2010 annual
growth in passenger miles will average 4.5%. In addition, emerging countries
tend to form their own airlines and most third world countries tend to establish
private airline companies to compliment their existing and national carriers.
Furthermore, air cargo carriers are expanding or being formed to address the
needs of the global economy requiring timely delivery of raw materials and
products.

As for business aviation, the popularity of business aircraft has increased
as more companies realize the efficiency and productivity of owning and
operating their own planes or having fractional ownership of business jets.
Fractional ownership is where companies or individuals own a fraction of an
aircraft and receive management and pilot services associated with the
aircraft's operations. According to the National Business Aviation Association
Fact Book, Source Av Data, Inc., the number of domestic corporate flight
departments has grown from 6,584 in 1991 to 9,317 in 2000. According to the
National Business Aviation Association Fact Book, Source Av Data, Inc., the
worldwide business jet fleet has more than doubled since 1980. In addition,
fractional aircraft ownership allows companies that have never before owned a
business aircraft to experience many of the efficiencies of business aviation
quickly and without the typical overhead considerations associated with
traditional flight departments. It also allows existing flight departments to
supplement their current aircraft when needed. According to the National
Business Aviation Association Fact Book, Source Av Data, Inc., the number of
companies and individuals using fractional ownership grew from 2,591 in 1999 to
3,694 in 2000.

INEFFICIENCIES OF JET FUEL RESALES

Commercial and general aviation jet fuel purchases and dispensement occurs
at airports and fuel terminals throughout the world. Jet fuel resellers contract
directly with the oil company or jet fuel supplier to purchase the fuel and with
third party refueling companies handling large commercial aircraft at commercial
airports and fuel terminals or with third parties known as fixed base
operations, for the actual dispensing of the fuel to the customer. Fixed base
operations are third parties that typically handle all other aircraft such as
commuter, business and private jets. Typical commercial or business jet fuel
resale transactions are as follows:

- Deliveries from Reseller Inventory. In some cases, the jet fuel reseller
has previously contracted with the fuel supplier for the delivery of fuel
to a third party refueling company or fixed base operation. These third
parties store the fuel for the jet fuel reseller as the reseller's
inventory. In these instances, the third party that delivers the fuel
into the wing of the aircraft customer forwards a paper record of the
transaction to the jet fuel reseller. The reseller then forwards an
invoice to the aircraft customer.

- Into-plane Deliveries. Into-plane deliveries are fuel sales where the
sale of fuel is made from the fuel supplier's inventory maintained at the
airport or fuel terminal. In these instances, either the fuel supplier or
a third party refueling company delivers the fuel into the wing of the
aircraft customer and the sale of fuel is consummated at that point. The
refueling company, if used, forwards the paper record of the transaction
to the fuel supplier and in either case the fuel supplier forwards the
paper record to the fuel reseller for payment. The fuel reseller then
forwards an invoice to the air carrier.

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Each of these methods is a labor intensive and time consuming process that
is subject to delays, inefficiencies and mistakes. At times customers and
resellers are inaccurately billed for the amount of fuel sold. In addition, the
use of paper documents delays the payment by the jet fuel reseller to the
supplier in the case of into-plane deliveries. Also, commercial and business
customers typically do not receive bills from the jet fuel reseller until
between 7 to 30 days after fuel is sold, which delays payments and affects the
jet fuel reseller's cash flow.

In general, the aviation industry is capital intensive and highly
leveraged. Recognizing the financial risks of the airline industry, large major
oil companies generally refrain from extending unsecured lines of credit to
smaller domestic and foreign airlines as well as charter and air-cargo airlines
and avoid doing business with those airlines directly. Consequently, most
carriers are required to post a cash collateralized letter of credit or prepay
for fuel purchases from major oil companies. This impacts the airlines' working
capital and hampers the ability of many carriers to operate efficiently. In the
alternative, many smaller carriers or business fleet managers are required to
pay spot retail prices at the terminal or airport at which they refuel. This
typically results in the carrier paying a higher price for fuel which in turn
affects the operational efficiency of the carrier or operator.

MERCFUEL BACKGROUND

We began our operations as a division of Mercury Air Group in 1979, with
operations based primarily at Los Angeles International Airport. Since October
2000, we have operated as a wholly owned subsidiary of Mercury Air Group. We
began doing business with a limited number of air carriers. As of March 31,
2001, we had over 50 air carrier clients and over 50 business carrier clients.
Our business carrier operations began in 1997 and are principally operated out
of our Houston Office.

REASONS FOR OUR SEPARATION

We and Mercury Air Group have evolved into separate businesses with
distinct strategies, financial, investment and operating characteristics. By
separating, we can each adopt strategies and pursue objectives appropriate to
our specific business. The separation will permit our management and the
management of Mercury Air Group to concentrate their attention and resources on
the challenges faced by their respective core businesses without regard to the
corporate objectives, policies and investment standards of the other.

It is anticipated that the separation should provide both companies with
better access to debt and equity markets to finance their growth. It is the
belief of management and its advisors, including the representative of the
underwriter, that we and Mercury Air Group will both have greater access to
equity markets as separate companies than as a single entity. Additional
infusions of equity will, for both companies, fuel growth and provide access to
additional credit.

Following the date Mercury Air Group distributes its common stock to our
stockholders, it is anticipated that our working capital facility will provide
adequate availability and with covenants appropriate to us as opposed to a
shared facility under the existing Mercury Air Group debt structure. Mercury Air
Group's present debt structure may restrict us from expanding our business.
Following such date, Mercury Air Group's valuation for equity purposes may more
closely resemble its actual valuation, as comparable companies for valuation of
Mercury Air Group will more appropriately be other fixed base operations and
cargo companies. Consequently, access to capital markets for both companies will
increase as a result of a focus of our respective business strategies on our
core businesses.

After the completion of this offering, Mercury Air Group will own 82.0% of
the outstanding shares of our common stock or 80.2 % if the underwriters
exercise their over-allotment option in full. No sooner than six months
subsequent to this offering Mercury Air Group plans, but is not obligated to,
distribute its shares of our common stock to the holders of Mercury Air Group's
common stock.

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CURRENT BUSINESS

We facilitate the management and distribution of aviation fuel for our
airline customers which the major suppliers typically do not service. In this
way, we serve as a reseller from the major oil companies to air carriers,
affording oil companies access to these carriers without their assumption of the
credit risk for these fuel purchases. We compete based on the quality of our
service and by offering a combination of favorable pricing and credit terms, and
a real time analysis of the availability, quantity and price of fuel in airports
and terminals worldwide. Our fuel sales and related fuel management services
offer the following services to both jet fuel suppliers and purchasers:

Services to Jet Fuel Suppliers

- Access to Larger Customer Basis. We believe that many of the major oil
companies have limited infrastructure to support small to medium sized
and emerging carriers. With over 22 years of experience in the jet fuel
reselling industry, we have established significant contacts with smaller
and medium sized commercial carriers and business fleet managers. Our
resale service provides an established distribution point for oil company
sales efforts worldwide and offers them access to markets which they do
not directly serve.

- Reduce Administrative Costs. We assume the administrative costs which
would otherwise be borne by fuel suppliers.

- Reduce Credit Risks. We typically assume the credit risks for fuel
sales. We believe our experience in the jet fuel reselling industry
allows us to assess those risks in a more efficient manner. In addition,
major oil companies typically do not wish to bear these credit risks.

Services to Commercial and Business Customers

- More Efficient Pricing. In many cases, small to medium sized commercial
carriers and business fleet managers are required to pay higher spot
retail prices for fuel at the terminals they service. We provide 24-hour
single source coordinated fuel supply and delivery on a national and
international basis. We have a network of over 400 third party locations
nationally and 1,000 locations internationally through which customers
can purchase fuel. As a result, we are able to provide our customers with
consistent fuel costs from terminal to terminal which reduces arbitrary
and opportunistic pricing characteristics associated with spot fuel
sales. Further, we believe our scale of operations and the fact that
large oil companies are willing to extend to us credit that they will not
extend to smaller airlines allows the purchase of fuel on more favorable
price and credit terms than would be available to most of our customers
on an individual basis.

- Improved Purchase Terms. We believe that the lack of available credit to
customers is a significant barrier to reselling jet fuel. In response to
this need, we offer the ability for our customers to purchase fuel on
credit through our in-house credit system. We believe the availability of
credit allows customers to better manage cash available for operations,
especially with the high cost of fuel associated with airline operations,
and represents a competitive advantage.

- Automation of Fuel Sales Process. We have automated our Internet process
to provide online pricing, fuel location and ordering information and we
intend to upgrade this system to include online invoicing ordering
capability. This operation offers our customers the ability to streamline
the fuel purchase process and reduce internal costs dedicated to fuel
logistics by providing a single source through which fuel sales can be
made and automatically released to the business jet customer.

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BUSINESS STRATEGY

Our objective is to become the leading reseller of aviation fuel and
services to the commercial and business aviation markets. The key elements of
our strategy are described below.

- Attract Additional Commercial and Business Clients. We believe that the
recent growth in commercial and business aircraft usage and sales
provides increased opportunities for our fuel sales and management
services and that we are well positioned to serve these markets. Our goal
is to continue to support the major oil companies and other fuel
suppliers by providing and administering fuel to small and medium size
carriers and business fleet managers as well as expanding sales to larger
carriers both domestically and internationally. We plan to attract
additional commercial and business clients by hiring approximately four
to five additional sales personnel in the next 12 months.

- Expand International Presence. We intend to expand our international
operations through relationships in strategically located countries and
regions throughout the world. Many of our existing customers have
international operations and we intend to leverage our domestic
relationships with them to assist them with their fuel sales and services
overseas. We believe that by expanding our international operations, we
can more rapidly expand our customer and supplier base on an
international basis. We plan to expand our international presence by
opening approximately five international fuel offices within the next 24
months.

- Enhance Technology Offerings. We plan to expand our Internet presence by
establishing an interactive, point-of-sale website by January 31, 2002.
We also plan to attract a broader base of business by advertising to
attract a larger share of fractional aircraft ownership companies
beginning on February 1, 2002. Finally, our proposed fuel management
system is designed to automate the purchase, delivery and settlement
transaction process which we intend to offer as a point-of-sale system to
oil companies, air carriers refueling companies and fixed based
operations to better manage their billing and supply process.

- Consummate Strategic Acquisitions. A component of our growth strategy is
the acquisition of, or investment in, complementary businesses,
technologies, services or products. In addition to our license of the
fuel management system from Management & Report Technologies, Inc., we
plan to consummate acquisitions as opportunities arise.

Our fuel management strategy is based on the development, marketing and
implementation of a centralized information gathering, inventory and invoicing
system for use at selected commercial airports throughout the world. The system
will be designed to provide for the efficient delivery and payment of jet fuel
deliveries to air carriers.

As currently envisioned, the system will utilize hand held data and
wireless technology to allow the air carriers to:

- notify the fuel supplier of their specific fuel requirements by flight,

- track the delivery into the aircraft and

- provide all parties to these fueling transactions with billing
information through a centralized data base.

It is our intent to develop a process and system which will be universal in its
compatibility with the data processing systems of the air carriers, fuel
suppliers, fueling companies and fuel farm management companies.

Our planned steps to develop and implement our fuel management strategy
consist of the following: Initially, we have entered into an agreement with
Management & Report Technologies, Inc., a developer and provider of hardware and
software applications for fuel storage and inventory control businesses, for the
development and exclusive use of an aviation fuel management system. The
agreement with Management & Report Technologies, Inc. grants us an exclusive
license to the hardware and software developed by Management & Report
Technologies, Inc. for use in the collection of aviation fuel delivery data and
the reconciliation of aviation fuel deliveries. This license will be effective
on the closing of this offering, at which time we will issue to Management &
Report Technologies, Inc. a non-interest bearing note in the amount of

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$750,000, payable in 24 equal monthly installments beginning in August 2002. We
are also required to pay Management & Report Technologies, Inc. $25,000 in cash
by October 1, 2001. The note will be convertible, at our option, at any time
after the distribution of our common stock to the stockholders of Mercury Air
Group, Inc., into 125,000 shares of our common stock. We are also required to
use our best efforts to register the shares of common stock. In addition, if
this offering is not completed by December 31, 2001, the agreement with
Management & Report Technologies, Inc. will be terminated.

Our procedure to adopt Management & Report Technologies, Inc.'s technology
for our fuel management strategy will consist of the following six phases. In
the first phase, we intend to modify Management & Report Technologies, Inc.'s
hardware for our specific use in the fuel aviation business. In the second and
third phases, we intend to develop the requisite software and create universal
interfaces for automated software in the aviation industry. We plan to initiate
these first three phases shortly after the closing of this offering, to complete
the first phase by December 31, 2001, and to complete the second and third
phases by June 30, 2002. We estimate that the cost to complete the first three
phases of the fuel management system will be approximately $300,000 to $400,000.

Phase four will involve beta-testing at Los Angeles International Airport.
We anticipate that this phase will commence after completion of the first three
phases, and will conclude by December 31, 2002. This phase is expected to be
relatively capital-intensive, involving the purchase and installation of
hardware at several locations within the airport. We estimate that the cost to
beta-test will be approximately $750,000 to $1.0 million.

Phase five will involve the marketing, and phase six the sales and
installation, of our fuel management system. We plan to market the system
beginning in the second half of calendar year 2002, and to sell and install it
beginning in the second half of calendar year 2003. We estimate marketing costs
at approximately $2.5 million, and sales and installation costs at approximately
$4,500 - $7,000 per unit.

At this time, the system has been partially developed to the extent that
Management & Report Technologies, Inc.'s existing hardware is compatible with
aviation fuel and management requirements and certain existing applications will
only require modifications. We plan to eventually expand the system to airports
throughout the United States, and thereafter, internationally.

We plan to derive income by licensing users of the software, selling and
installing the proprietary hardware and operating the fuel management system at
each airport directly or through third parties. Pursuant to our agreement with
Management & Report Technologies, Inc., we have the right to sub-license the
system to other parties in the aviation fuel business.

CUSTOMERS AND SUPPLIERS

Customers

Our customers include passenger, cargo and charter airlines as well as
business aviation customers. Our primary customers are small to medium sized
commercial carriers and business fleet managers not directly served by major oil
companies and other fuel suppliers. We plan to expand our sales efforts to
capture additional larger carriers.

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The following is an alphabetical list of our top 10 commercial and business
fleet customers by dollar volume of purchases from us during the year ended June
30, 2001:

AirTran Airways
China Eastern Airlines, Inc.
EGL, Inc.
Executive Jet, Inc.
Kitty Hawk, Inc.
National Airlines, Inc.
Pacific Air Cargo
STAF Airlines
Tam Linhan Aereas, S.A.
VARIG Brazilian Airlines

National Airlines represented approximately 22% and AirTran Airways
represented approximately 20%, respectively, of our fuel sales for the year
ended June 30, 2001. The 10 customers listed above represented approximately 74%
of our fuel sales for the year ended June 30, 2001. No other customer
represented 10% or more of our fuel sales for the year. We have no long-term
written agreements or other understandings with any of our customers, other than
National Airlines, that relate to future purchases, so purchases by these
customers or any others could be reduced or terminated upon short notice at any
time.

During the year ended June 30, 1999, Mercury Air Group invested $300,000 in
National Airlines, Inc., a start-up airline based in Las Vegas, Nevada. This
investment has not been allocated to us. This investment currently represents
less than a 1% ownership interest in National. In May 1999, Mercury Air Group
entered into a fuel management contract with National, pursuant to which we
began selling fuel to National and managing their fuel requirement at all
National locations. During the year ended June 30, 2001, National represented
approximately 22% of our fuel sales. On December 6, 2000, National filed for
bankruptcy protection. We continue to sell fuel to National on a secured basis,
under the auspices of the bankruptcy court.

Outside of fuel supply services and our relationships with National, we
have no business relationship with any other customers listed above. Kitty Hawk,
Inc. has also filed for bankruptcy protection and is operating as a
debtor-in-possession. Tam Linhan Aereas, S.A. has not purchased fuel from us
subsequent to the year ended June 30, 2001.

Through our offices located in the United States and England, we provide
our customers global market data and rapid access to quality and competitively
priced jet fuel, 24-hours a day, every day of the year. The cost of fuel is a
major component of a carrier's or business fleet manager's operating overhead.
Therefore, the need for cost effective and professional fueling services is
essential.

We believe our success in attracting customers has been due, in part, to
our willingness to extend credit on an unsecured basis to customers, which would
otherwise be required to prepay or post letters of credit with their suppliers
of fuel and related services. We recognize that active management of our credit
risk is essential to our success. Our sales executives and their staff meet
regularly to evaluate credit exposure, in the aggregate and by individual
credit. Our credit committees are responsible for approving credit limits above
certain amounts, and setting and maintaining credit standards and ensuring the
overall quality of the credit portfolio. We also maintain credit risk insurance
for certain qualified accounts.

Suppliers

We purchase our fuel from suppliers worldwide. For the year ended June 30,
2001, approximately 28% of our jet fuel purchases were made from British
Petroleum and approximately 12% were made from each of Tosco and ARCO. ARCO is
affiliated with British Petroleum. Our cost of fuel is generally tied to market-
based formulas. We are currently extended unsecured trade credit for our fuel
purchases.

If our relationship with any of these key suppliers terminates, we may not
be able to obtain a sufficient quantity of fuel on favorable terms. We may
experience difficulty and delays in obtaining fuel from alternative

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sources of supply. Furthermore, financial or other difficulties faced by these
suppliers, fuel shortages or significant changes in demand for fuel could limit
the availability of fuel.

Outside of the United States, we do not maintain fuel inventory and arrange
to have the fuel delivered directly into the customer's aircraft on an
into-plane basis. In the United States, sales are either made on an into-plane
basis directly into a customer's aircraft with fuel provided by our suppliers or
fuel is delivered from our inventory. Inventory is held at multiple locations in
the United States and inventory levels are kept at an operating minimum. We have
arrangements with our suppliers and other third parties for the storage and
delivery of fuel and related aviation services.

SALES AND MARKETING

We currently market our fuel sales and services through our internal sales
force. Our sales force interacts with our established commercial and business
carriers and markets our fuel sales and services to well-defined market
segments. These market segments consist of commercial aviation, which includes
domestic and international airlines, business aviation, typically owners of
business aircraft, charter aviation and air cargo aviation. We strive to
identify and target within the purchasing operations of potential customers who
are the decision-makers who choose whether to utilize our services. We believe
our level of customer service, years of experience in the industry and
reputation are significant factors in retaining existing customers and
attracting new clients.

Our sales and marketing approach is designed to create awareness of the
benefits and advantages of our fuel sales and services. We are active in
industry trade shows and other available public forums.

We intend to expand our international operations through selected targeted
marketing to international carriers.

LOGISTICS AND FUEL MANAGEMENT STRATEGY

Logistics

Our fuel sales and services are conducted from our offices in Texas,
California, Pennsylvania, Florida and London, England.

Our operations in Houston are responsible for the coordination of corporate
fuel sales and delivery domestically and internationally, as well as general
sales and marketing. Our Los Angeles office is primarily responsible for
commercial fuel sales, billing and reconciliation of fuel inventory activity.
Our offices in Pennsylvania and Florida prepare backup for billing for high fuel
volume customers. Our office in London is responsible for fuel sales in Europe
and the Middle East and for coordinating these international fuel supply
requirements.

Fuel Management Strategy

In addition to services currently provided, management has begun an
initiative to design and institute an electronic fuel management system to
provide value to fuel suppliers and additional services to air carriers by
providing an automated point-of-sale system to manage airline, supplier and
fueler information for supply inventory, billing and settlement management. This
system will allow the various non-linked components of the aircraft fueling
industry to communicate on a real time basis.

The envisioned solution will include multiple channels of access for
suppliers and customers. Once the internal processes (credit approval, service
authorization, invoice generation, and issue slip reconciliation) are completed,
suppliers will be able to receive authorization to provide service to us through
fax, e-mail, web site or electronic file transfer, based on how they do
business. They will provide proof of delivery through the interaction channel
that best suits their business.

On the customer side, it is intended that clients will be able to place
orders, designate special requirements at worldwide locations, print invoices,
receive confirmations, approve payments, review prices and contracts through
whatever channel of interaction best suits the client's business process.

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Our fuel management strategy is designed to provide flexibility to both the
suppliers and customers that interact with us. By implementing systems that
define the process, we believe that we will be able to manage larger accounts,
potentially acting as an outsourcing agent to large oil companies wishing to
focus on their core business. We believe that automating several channels of
interaction that standardize data for input and output to and from our processes
will have the following benefits:

- improve the efficiency of completing transactions;

- increase the reliability of the reconciliation, invoicing and credit
management processes; and

- offer customers flexible and customizable means for conducting business.

We believe this strategy will allow us to:

- open new revenue opportunities;

- expand in existing and new geographic markets; and

- establish additional and broaden existing strategic relationships.

COMPETITION

The market for jet fuel reselling is highly competitive. We are in direct
competition with approximately five major oil companies. We also compete with
approximately five independent fuel suppliers, of which the largest is World
Fuel Services Corporation. In addition, we compete with other aircraft support
companies which maintain their own sources of aviation fuel. We compete
primarily on the basis of price, prior relationship to the customer, and credit
terms. Many of our competitors have greater financial, technical and marketing
resources than us.

We may not be able to compete successfully against current and potential
competitors and, as a result, we may experience a loss of customers, reduced
operating margins or increased operating costs, any of which could harm our
business.

REGULATION

Our activities are subject to substantial regulation by federal, foreign,
state and local government agencies. The principal laws and regulations
affecting our business and the markets we serve are as follows:

The Comprehensive Environmental Response, Compensation and Liability Act of
1980 establishes a program for federally directed response or remedial actions
with respect to the uncontrolled discharge of hazardous substances, pollutants
or contaminants, including waste oil, into the environment. The law authorizes
the federal government either to seek a binding order directing responsible
parties to undertake such actions or authorizes the federal government to
undertake such actions and then to seek compensation for the cost of clean-up
and other damages from potentially responsible parties. Congress established a
federally managed trust fund, commonly known as the Superfund, to fund response
and remedial actions undertaken by the federal government. The trust fund is
used to fund federally conducted actions when no financially able or willing
responsible party has been found.

The Superfund Amendments and Re-Authorization Act of 1986 adopted more
detailed and stringent standards for remedial action at Superfund sites, and
clarified provisions requiring damage assessments to determine the extent and
monetary value of injury to natural resources. This legislation also provides a
separate funding mechanism for the clean up of underground storage tanks.

The Resource Conservation and Recovery Act of 1976 established a
comprehensive regulatory framework for the management of hazardous waste at
active facilities. This legislation sets up a "cradle-to-grave" system for the
management of hazardous waste, imposing upon all parties who generate,
transport, treat, store or dispose of waste, above certain minimum quantities,
requirements for performance, testing and record keeping. The Resource
Conservation and Recovery Act of 1976 also requires permits for construction,
operation and closure of facilities and requires 30 years of post-closure care
and monitoring. The legislation

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was amended in 1984 to increase the scope of the regulation of small quantity
waste generators and waste oil handlers and recyclers; require corrective action
at hazardous waste facilities (including remediation at certain previously
closed solid waste management units); phase in restrictions on disposal of
hazardous waste; and require the identification and regulation of underground
storage tanks containing petroleum and certain chemicals.

The Clean Air Act of 1970, as amended in 1977, was the first major federal
environmental law to establish National Ambient Air Quality Standards for
certain air pollutants, which are to be achieved by the individual states
through State Implementation Plans. The legislation typically attempts to meet
ambient standards by regulating the quantity and quality of emissions from
specific industrial sources. For toxic emissions, the Act authorizes the
Environmental Protection Agency to regulate emissions from industrial facilities
directly. The Environmental Protection Agency also directly establishes
emissions limits for new sources of pollution, and is responsible for ensuring
compliance with air quality standards. The Clean Air Act Amendments of 1990
place the primary responsibility for the prevention and control of air pollution
upon state and local governments. The 1990 amendments require regulated emission
sources to obtain operating permits, which could impose emission limitations,
standards, and compliance schedules.

The Clean Water Act of 1972, as amended in 1987, establishes water
pollutant discharge standards applicable to many basic types of manufacturing
plants and imposes standards on municipal sewage treatment plants. The
legislation requires states to set water quality standards for significant
bodies of water within their boundaries and to ensure attainment and/or
maintenance of those standards. Most industrial and government facilities must
apply for and obtain discharge permits, monitor pollutant discharges, and under
certain conditions reduce certain discharges.

The Safe Drinking Water Act, as amended in 1986, regulates public water
supplies by requiring the Environmental Protection Agency to establish primary
drinking water standards. These standards are likely to be further expanded
under the Environmental Protection Agency's evolving groundwater protection
strategy which is intended to set levels of protection or clean-up of the
nation's groundwater resources. These groundwater quality requirements will then
be applied to facilities subject to the Resource Conservation and Recovery Act
of 1976 and sites subject to Superfund liability, and remedial action will be
required for releases of contaminants into groundwater.

The National Pollutant Discharge Elimination System, a program promulgated
under the Clean Water Act, permits states to issue permits for the discharge of
pollutants into the waters of the United States in lieu of federal Environmental
Protection Agency regulation. State programs must be consistent with minimum
federal requirements, although they may be more stringent. Permits are required
under this legislation for, among other things, certain industrial discharges of
storm water.

The Oil Pollution Act of 1990 imposes liability for oil discharges, or
threats of discharge, into the navigable waters of the United States on the
owner or operator of the responsible vessel or facility. Oil is defined to
include oil refuse and oil mixed with wastes other than dredged spoil, but does
not include oil designated as a hazardous substance under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980. This legislation
requires the responsible party to pay all removal costs, including the costs to
prevent, minimize or mitigate oil pollution in any case in which there is a
discharge or a substantial threat of an actual discharge of oil. In addition,
the responsible party may be held liable for damages for injury to natural
resources, loss of use of natural resources and loss of revenues from the use of
such resources.

Many states have been authorized by the Environmental Protection Agency to
enforce regulations promulgated under federal programs. In addition, there are
numerous state and local authorities that regulate the environment, some of
which impose stricter environmental standards than federal laws and regulations.
Some states, including Florida, have enacted legislation which generally
provides for registration, recordkeeping, permitting, inspection, and reporting
requirements for transporters, collectors and recyclers of hazardous waste and
waste oil. The penalties for violations of state law include injunctive relief,
recovery of damages for injury to air, water or property and fines for
non-compliance. In addition, some local governments have established local
pollution control programs, which include environmental permitting, monitoring
and surveillance, data collection and local environmental studies.

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Many foreign governments impose laws and regulations relating to the
protection of the environment and the discharge of pollutants in the
environment. Such laws and regulations could impose significant liability on us
for damages, clean-up costs and penalties for discharges of pollutants in the
environment, as well as injunctive relief. In addition, some foreign government
agencies have established pollution control programs, which include
environmental permitting, monitoring and surveillance, data collection and
environmental impact assessments.

In addition to the regulations set forth above, our operations are affected
by various federal and state taxes imposed on the purchase and sale of aviation
fuel products in the United States. Federal law imposes a manufacturer's excise
tax on sales of aviation fuel. Sales to aircraft engaged in foreign trade are
exempt from this tax. These exemptions may be realized either through tax-free
or tax-reduced sales, if the seller qualifies as a producer under applicable
regulations, or, if the seller does not so qualify, through a tax-paid sale
followed by a refund to the exempt user. Several states, where we sell aviation
fuel, impose excise and sales taxes on fuel sales; certain of our sales qualify
for full or partial exemptions from these state taxes.

EMPLOYEES

As of August 15, 2001, we had 35 full-time employees. None of our employees
are represented by unions and there have not been any work stoppages at any of
our facilities. We believe that our relationship with our employees is
satisfactory.

FACILITIES

Our principal executive offices are located in approximately 5,000 square
feet of office space in Los Angeles, California, the facility in which the
offices are located is owned by Mercury Air Group. We also have an office in
Miami, Florida in a facility owned by Mercury Air Group. We sublease these
office spaces on an informal month-to-month basis from Mercury Air Group and
plan on entering into formal sublease agreements prior to this offering. We also
lease office space on an informal month-to-month basis in Houston, Texas,
Hershey, Pennsylvania and London, England from unaffiliated parties. We plan on
entering into formal lease agreements prior to this offering.

We believe that our existing facilities are adequate for our current needs
and that additional space will be available as needed.

LEGAL PROCEEDINGS

In the ordinary course of business, we may be subject to claims, lawsuits
and other legal proceedings. Except as set forth below we are not currently a
party to any material legal proceedings.

In February 2001, Mercury Air Group received notice of a complaint filed by
the Chapter 7 Trustee for Tower Air, Inc. in regard to a preference action. In
July 2001, we and Mercury Air Group settled this matter for $1 million. In
accordance with the terms of the settlement, we paid $750,000 in August 2001 and
we will pay the balance in ten monthly installments of $25,000 each. At June 30,
2001, the unpaid settlement balance was $750,000 and the unpaid note balance,
which is secured by a letter of credit, was $250,000.

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MANAGEMENT

The following table sets forth our executive officers and directors, their
ages and the positions they hold:

<Table>
<Caption>
NAME AGE POSITION
- ---- --- --------

Joseph A. Czyzyk..................... 54 Chairman of the Board and Chief
Executive Officer
Eric Beelar.......................... 36 President and Director
John Condie.......................... 44 Chief Financial Officer
Navin Vithal......................... 38 Secretary
Jeffrey R. Wescott................... 43 Director
George Grkinich, Jr.................. 31 Director
</Table>

Joseph A. Czyzyk has served as our Chairman of the Board and Chief
Executive Officer since our inception, has been President and a Director of
Mercury Air Group since November 1994 and has served as Mercury Air Group's
Chief Executive Officer since December 1998. Mr. Czyzyk also served as President
of Mercury Air Group's fuel sales and services division from August 1985 until
August 1988, and President of Mercury Air Cargo, Inc. from August 1988 until
August 1997. Mr. Czyzyk served as an Executive Vice President of Mercury Air
Group from November 1990 through November 1994. Mr. Czyzyk will devote
approximately 80% of his time to Mercury Air Group matters and approximately 20%
of his time to MercFuel matters.

Eric Beelar has served as our President and as a director since our
inception. Mr. Beelar has been employed by Mercury Air Group since 1989. He
served as manager of the fuel sales and services division of Mercury Air Group
from 1989 to 1996, at which time he was appointed to his current position as
vice president of the fuel sales and services division. At the date of this
offering, Mr. Beelar will resign from Mercury Air Group and will be employed by
us full-time.

John Condie has served as our Chief Financial Officer since our inception.
Mr. Condie has been controller for Mercury Air Group since September 1996. From
1995 to 1996, Mr. Condie was a CPA with the accounting firm Glantz & Black in
Los Angeles, California. From 1987 to 1995, Mr. Condie was controller for
Litigation Sciences, Inc. Previously, from 1983 to 1986, Mr. Condie was a CPA
with the accounting firm Deloitte Haskins and Sells. Mr. Condie will devote
approximately 80% of his time to Mercury Air Group matters and approximately 20%
of his time to MercFuel matters.

Navin Vithal has served as our Secretary since our inception. Mr. Vithal
has been employed in the legal department of Mercury Air Group since 1999. From
1998 to 1999, Mr. Vithal was an associate with the law firm American
International Immigration Services Limited in Los Angeles, California.
Previously, from 1991 to 1997, Mr. Vithal practiced law as a barrister-solicitor
in Australia, Fiji, and New Zealand. Mr. Vithal will devote approximately 80% of
his time to Mercury Air Group matters and approximately 20% of his time to
MercFuel matters.

Jeffrey R. Wescott has served as a director since our inception. Mr.
Wescott is a Senior Vice President of Bank of America in Chicago since April
2000. From January 1998 to April 2000, Mr. Wescott was employed by Bank of
America as a Vice President. From March 1995 to 1998, was with the Financial
Relations Board as a Financial Public Relations Advisor. Mr. Wescott has worked
for a number of financial institutions including Continental Illinois National
Bank, Citicorp North America and Bank of America.

George R. Grkinich, Jr. has served as a director since our inception. Mr.
Grkinich is a manager and co-founder of Worldwide Financial Management Group,
LLC, an organization which offers investment and business guidance to
professional athletes in the United States and abroad. Prior to his founding of
Worldwide Financial Management Group, LLC in 1996, Mr. Grkinich worked with Mark
J. Matsock & Associates in the insurance and banking industries.

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Within a year following the date Mercury Air Group distributes our common
stock to its stockholders, we intend to replace Mr. Czyzyk as Chief Executive
Officer but retain Mr. Czyzyk as Chairman of the Board. There can be no
assurance that we will be able to recruit and retain a qualified individual to
replace Mr. Czyzyk in that position.

CONFLICTS OF INTEREST

Conflicts of interest may arise between Mercury Air Group and us in a
number of areas relating to our past and ongoing relationships, including:

- labor, tax, employee benefits, indemnification and other matters arising
from our separation from Mercury Air Group;

- sales or distributions by Mercury Air Group of all or any portion of its
ownership interest in us; and

- the nature, quality and pricing of transitional services Mercury Air
Group has agreed to provide.

Our affiliate committee will consist of at least two independent directors
who will approve agreements and arrangements between us and Mercury Air Group
and any of its affiliates which such committee determines to be outside the
ordinary course of business. Our affiliate committee will be in place by the
effective date of this offering.

BOARD OF DIRECTORS

Our board of directors currently consists of four members. We intend to
appoint two additional directors to our board of directors by November 21, 2001.
Our board of directors is divided into three classes, each serving staggered
three-year terms. Mr. Grkinich has been designated Class I Director whose term
expire at the 2002 annual meeting of stockholders. Mr. Wescott has been
designated Class II Director, whose term expires at the 2003 annual meeting of
stockholders. Mr. Czyzyk and Mr. Beelar have been designated Class III
Directors, whose terms expire at the 2004 annual meeting of stockholders. This
classification of our board of directors may delay or prevent a change in
control of our company or our management.

Our board of directors appoints our executive officers on an annual basis
to serve until their successors have been elected and qualified. There are no
family relationships among any of our board of directors or officers.

DIRECTOR COMPENSATION

We do not currently plan on compensating our directors for attending our
board or committee meetings, but we do plan on reimbursing directors for their
reasonable travel expenses incurred in connection with attending these meetings.

AUDIT COMMITTEE

Our audit committee will consist of three independent directors who will
review our auditing, accounting, financial reporting and internal control
functions and makes recommendations to our board of directors for the selection
of independent accountants. In addition, the committee monitors the quality of
our accounting principles and financial reporting, our compliance with foreign
trade regulations as well as the independence of and the non-audit services
provided by our independent accountants. In discharging its duties, the audit
committee:

- reviews and approves the scope of the annual audit and the independent
accountant's fees;

- meets independently with our internal auditing staff, our independent
accountants and our senior management; and

- reviews the general scope of our accounting, financial reporting, annual
audit and internal audit program, matters relating to internal control
systems as well as the results of the annual audit.

Our audit committee will be in place by November 21, 2001.

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COMPENSATION COMMITTEE

Our compensation committee will consist of three independent directors who
will determine, approve and report to the board on all elements of compensation
for our elected officers including targeted total cash compensation and
long-term equity based incentives. Our compensation committee will be in place
by November 21, 2001.

SECURITY OWNERSHIP OF MERCURY AIR GROUP COMMON STOCK OF OUR PRINCIPAL
STOCKHOLDERS AND MANAGEMENT

We are a wholly-owned subsidiary of Mercury Air Group and therefore, none
of our officers, directors or director nominees own any of our common stock. To
the extent our directors and officers own shares of Mercury Air Group common
stock at the time of the distribution, they will participate in the distribution
on the same terms as other holders of Mercury Air Group common stock.

The following table sets forth certain information as of June 30, 2001,
with respect to Mercury Air Group common stock beneficially owned by: (a) each
of our directors; (b) each officer named in the Summary Compensation Table; (c)
our directors and executive officers, as a group; and (d) all persons known to
us to be the beneficial owners of more than five percent of Mercury Air Group's
outstanding common stock. The total number of shares of Mercury Air Group common
stock outstanding as of June 30, 2001 was 6,576,680.

The stock ownership information includes current stockholders and shares
with respect to which the named individual has the right to acquire beneficial
ownership under options exercisable or other securities convertible within 60
days. The stock ownership information does not include, however, options to
purchase our common stock granted or to be granted as set forth above under
"2001 Stock Option Plan", "Non-Employee Directors Stock Option Plan", or "Grants
of Stock Options".

<Table>
<Caption>
SHARES OF
COMMON STOCK PERCENT
NAME AND ADDRESS(1) BENEFICIALLY OWNED OWNERSHIP
- ------------------- ------------------ ---------

CFK Partners................................................ 2,024,955(2) 30.7%
John Condie................................................. 13,861(3) *
Joseph Czyzyk............................................... 2,024,955(4) 30.7%
Eric Beelar................................................. 115,687(5) 1.8%
Navin Vithal................................................ -- --
Philip J. Fagan, Jr., M.D. ................................. 2,024,955(6) 30.7%
1130 West Olive Avenue
Burbank, CA 9150
Frederick H. Kopko, Jr. .................................... 2,024,955(7) 30.7%
20 North Wacker Drive
Suite 2520
Chicago, IL 60606
Jeffrey R. Wescott.......................................... -- --
231 South LaSalle Street
Chicago, IL 60697
George R. Grkinich, Jr...................................... -- --
36 South Pennsylvania Avenue
Suite 290
Indianapolis, IN 46204
FMR Corp.................................................... 400,040(8) 6.1%
82 Devonshire Street
Boston, MA 02109
J.H. Whitney Mezzanine Fund, L.L.P.......................... 503,126(9) 7.6%
177 Broad Street
Stanford, CT 06901
All directors and executive officers as a group
(6 persons)............................................... 2,154,503(10) 32.7%
</Table>

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- ---------------
* Less than 1%

(1) Unless otherwise indicated in the table, the address for each of the
individuals named in the table is 5456 McConnell Avenue, Los Angeles,
California 90066.

(2) Consists of (a) 1,140,780 shares beneficially owned by CFK Partners, a
partnership consisting of Mr. Joseph A. Czyzyk, Dr. Philip J. Fagan, and
Mr. Frederick H. Kopko, Jr., (b) 91,000 shares and options to acquire
146,125 shares owned by Dr. Philip J. Fagan, (c) options to acquire 107,625
shares owned by Mr. Frederick H. Kopko, Jr., and (d) 539,425 shares owned
by Mr. Czyzyk, including options to acquire 31,460 shares and 4,262 shares
held by Mr. Czyzyk's wife as custodian for their children, as to which Mr.
Czyzyk disclaims beneficial ownership.

(3) Includes stock options to acquire 13,600 shares.

(4) Mr. Czyzyk owns 539,425 shares, including options to acquire 31,460
additional shares and 4,262 shares held by Mr. Czyzyk's wife as custodian
for their children, as to which Mr. Czyzyk disclaims beneficial ownership.
CFK Partners holds a proxy to vote all shares owned by Mr. Czyzyk. Also
includes shares held by CFK Partners (see note 2 above).

(5) Includes stock options to acquire 34,375 shares.

(6) Dr. Fagan owns 91,000 shares and options to acquire 146,125 additional
shares. CFK Partners holds a proxy to vote all shares owned by Dr. Fagan.
Also includes shares held by CFK Partners (see note 2 above).

(7) Mr. Kopko owns options to acquire 107,625 shares. CFK Partners holds a
proxy to vote all shares owned by Mr. Kopko. Also includes shares held by
CFK Partners (see note 2 above).

(8) Based on publicly available information reported on February 14, 2001,
Fidelity Management & Research Company, a wholly-owned subsidiary of FMR
Corp., is a beneficial owner of 400,040 shares as a result of acting as an
investment advisor to various investment companies. In addition, FMR Corp.
and Edward C. Johnson 3d, each has sole power to dispose of 400,040 shares
owned by the various investment companies for which FMR Corp. acts as an
investment advisor. Through their ownership of voting common stock and the
execution of stockholder's voting agreement, Abigail P. Johnson and other
members of the Johnson family may be deemed to be a controlling group with
respect to FMR Corp.

(9) Based on publicly available information reported September 10, 1999, J.H.
Whitney Mezzanine Fund, L.L.P., is the beneficial owner of 503,126 shares
which consist of 503,126 shares issuable upon exercise of warrants
exercisable within 60 days from the date hereof.

(10) Includes stock options to acquire 333,185 shares.

EXECUTIVE COMPENSATION

The following table sets forth compensation information for our chief
executive officer and our other executive officers whose salary and bonus
compensation from Mercury Air Group and its subsidiaries exceeded $100,000 for
the fiscal year ended June 30, 2001. None of these individuals held any stock
options or were granted any stock options to purchase shares of our common stock
during the year ended June 30, 2001.

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All information set forth in this table reflects compensation earned by these
individuals for services with Mercury Air Group and its subsidiaries for the
fiscal year ended June 30, 2001.

<Table>
<Caption>
LONG-TERM COMPENSATION
-------------------------
AWARDS PAYOUTS
ANNUAL ---------- ------------
COMPENSATION SECURITIES LONG-TERM
NAME AND PRINCIPAL FISCAL ----------------------- UNDERLYING COMPENSATION ALL OTHER
POSITION YEAR(1) SALARY($)(2) BONUS($) OPTIONS(#) PAYOUTS($) COMPENSATION($)
- ------------------ ------- ------------ -------- ---------- ------------ ---------------

Joseph A. Czyzyk........ 2001 554,646 130,000 -0- -0- 980(3)
Chairman of the Board 2000 278,827 150,000 -0- -0- 980(3)
and Chief Executive 1999 278,694 155,000 -0- -0- 980(3)
Officer
Eric Beelar............. 2001 200,987 200,000 -0- -0- 4,200(4)
President 2000 200,940 200,000 -0- -0- 4,200(4)
1999 200,940 124,053 -0- -0- 4,200(4)
John Condie............. 2001 106,628 26,500 -0- -0- 300(5)
Chief Financial 2000 96,593 6,500 -0- -0- 300(5)
Officer
1999 88,867 5,500 -0- -0- 300(5)
</Table>

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

(1) The period July 1, 1998 through June 30, 1999 is referred to as Fiscal Year
1999, the period July 1, 1999 through June 30, 2000 is referred to as Fiscal
Year 2000 and the period July 1, 2000 through June 30, 2001 is referred to
as Fiscal Year 2001.

(2)Salary compensation to Mr. Czyzyk was paid pursuant to an employment
agreement with Mercury Air Group. We do not anticipate entering into a
separate employment agreement with Mr. Czyzyk or an employment agreement with
any of our other current executive officers.

(3) Consists of 401(k) contributions and life insurance premiums in the amounts
of $300 and $680, respectively.

(4) Consists of a car allowance.

(5) Consists of a 401(k) contribution.

2001 STOCK OPTION PLAN

Our board of directors and our sole stockholder adopted the 2001 Stock
Option Plan in May 2001. Our 2001 Stock Option Plan provides for the grant of
incentive stock options to our employees, and for the grant of nonstatutory
stock options to our employees and non-employee directors.

Number of Shares of Common Stock Available under the 2001 Stock Option
Plan. A total of 1,000,000 shares of our common stock are reserved for issuance
pursuant to our 2001 Stock Option Plan. No options to acquire shares of our
common stock were issued and outstanding as of that date.

Administration of the 2001 Plan. Our board of directors or a committee of
our board will administer the 2001 Stock Option Plan. In the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the committee will consist of two or more "outside
directors" within the meaning of Section 162(m) of the Code. The administrator
has the power to determine the terms of the options granted, including the
exercise price, the number of shares subject to each option, the exercisability
of the options and the form of consideration payable upon exercise.

Options. The administrator determines the exercise price of options
granted under our 2001 Stock Option Plan, but with respect to nonstatutory stock
options intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Code and all incentive stock options, the
exercise price must at least be equal to the fair market value of our common
stock on the grant date. The term of an incentive stock option may not exceed
ten years, except that with respect to any participant who owns 10% of the
voting power of all classes of our outstanding capital stock, the term must not
exceed five years and the exercise price must at least equal 110% of the fair
market value on the grant date. The administrator determines the term of all
other options.

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After termination of one of our employees or directors, he or she may
exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term.

Transferability of Options. Our 2001 Stock Option Plan generally doesn't
allow for the transfer of options and only the optionee may exercise an option
during his or her lifetime.

Adjustments upon Merger or Asset Sale. Our 2001 Stock Option Plan provides
that in the event of our merger with or into another corporation or a sale of
substantially all of our assets, the successor corporation will assume or
substitute an equivalent award for each option. If following such an assumption
or substitution, the holder of an option is terminated without cause within 12
months following a change of control, then the vesting and exercisability of 50%
of the then unvested shares subject to his or her option shall accelerate. If
the outstanding options are not assumed or substituted for in connection with a
merger or sale of assets, the administrator will provide notice to the optionee
that he or she has the right to exercise the option as to all of the shares
subject to the option, including shares which would not otherwise be
exercisable, for a period of 15 days from the date of the notice. The option
will terminate upon the expiration of the 15-day period.

Amendment and Termination of our 2001 Stock Option Plan. Our 2001 Stock
Option Plan will automatically terminate in 2011, unless we terminate it sooner.
In addition, our board of directors has the authority to amend, suspend or
terminate our 2001 Stock Option Plan, provided it does not adversely affect any
option previously granted under our 2001 Stock Option Plan.

GRANTS OF STOCK OPTIONS

It is anticipated that, effective on the date Mercury Air Group distributes
our common stock to its stockholders, Joseph A. Czyzyk will be granted options
to purchase a total of 200,000 shares of our common stock, and that certain
other officers and directors will be granted options to purchase a total of
300,000 shares of our common stock, all exercisable at the market price at the
time of issuance. Of the options to purchase 300,000 shares, Mr. Beelar will be
granted options to purchase 75,000 shares, Messrs. Condie and Vithal will each
be granted options to purchase 10,000 shares, and the non-employee directors
will be granted options to purchase a total of 60,000 shares. The allocation of
the options to purchase the remaining 145,000 shares has not yet been
determined. The options will generally vest 50% one year from the date of grant,
with the remaining 50% vesting two years from the date of grant. It is intended
that all of such options will be granted under the 2001 Stock Option Plan. We
reserve the right to issue additional options pursuant to or apart from these
plans at our sole discretion.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

We have provided below a summary description of the master distribution
agreement along with the key related agreements which will be entered into
between Mercury Air Group and us, effective as of the closing day of the
offering, except for the transitional services agreement, which will be
effective at the date Mercury Air Group distributes our common stock to its
stockholders. We believe these agreements are at least as favorable to us as
terms that could have been obtained from unaffiliated third parties.

THE TRANSFER DATE

The asset transfer occurred on January 1, 2001. On that date, assets and
liabilities related to our business were transferred to us from Mercury Air
Group.

MASTER DISTRIBUTION AGREEMENT

The master distribution agreement will contain the key provisions relating
to the distribution of our shares to Mercury Air Group stockholders. The various
ancillary agreements that are exhibits to the distribution

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agreement and which detail the various interim and ongoing relationships between
Mercury Air Group and us include:

- a technology ownership and license agreements;

- an employee matters agreement;

- a tax sharing agreement;

- a transitional services agreement;

- a real estate matters agreement;

- a confidential disclosure agreement; and

- an indemnification and insurance matters agreement.

To the extent that the terms of any of these ancillary agreements conflict
with the distribution agreement, the terms of these agreements will govern.
These agreements are described more fully below.

The Distribution. Mercury Air Group intends to distribute the remaining
shares of our common stock that Mercury Air Group holds to Mercury Air Group
stockholders on a pro rata basis after this offering, but in no event before the
later of the receipt of approval of Mercury Air Group's lenders or six months
after this offering. We will prepare an information statement with Mercury Air
Group and send it to Mercury Air Group stockholders before the distribution
becomes effective. The information statement will inform the stockholders of the
distribution and its specifics. Mercury Air Group may, in its sole discretion,
change the date it distributes our common stock to its stockholders to a date
later than six months from the effective date of this offering. Mercury Air
Group intends to consummate the distribution only if the following conditions
are met, any of which may be waived by Mercury Air Group:

- acceptable bank financing must be in effect;

- all required government approvals must be in effect;

- no legal restraints must exist preventing this distribution; and

- nothing must have happened in the intervening time between this offering
and the date Mercury Air Group distributes our common stock to its
stockholders, including a future change in market or economic conditions
or in Mercury Air Group's or our business and financial condition, that
causes Mercury Air Group's board of directors to conclude that the
distribution is not in the best interest of Mercury Air Group or Mercury
Air Group's stockholders.

Covenants Between Mercury Air Group and MercFuel. In addition to signing
documents that transfer control and ownership of various assets and liabilities
of Mercury Air Group relating to our business, we have agreed with Mercury Air
Group to enter into a transitional service agreement, exchange information,
engage in auditing practices and resolve disputes in particular ways.

Transitional Service Agreement. We intend to enter into a transitional
service agreement with Mercury Air Group covering the provision of various
transitional services, including financial, legal, accounting, customer service,
human resources administration, purchasing, facilities and information
technology services by Mercury Air Group to us. These services will generally be
provided for $70,000 per month. The agreement will become effective upon the
distribution of our common stock. The transitional service agreement has a term
of one year or less from the date Mercury Air Group distributes our common stock
to its stockholders.

Information Exchange. We will agree with Mercury Air Group to share
information relating to governmental, accounting, contractual and other similar
requirements of our ongoing businesses, unless the sharing would be commercially
detrimental. In furtherance of this, both Mercury Air Group and we intend to
agree as follows:

- Each party will maintain adequate internal accounting to allow the other
party to satisfy its own reporting obligations and prepare its own
financial statements.

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- Each party will retain records beneficial to the other party for a
specified period of time. If the records are going to be destroyed, the
destroying party will give the other party an opportunity to retrieve all
relevant information from the records, unless the records are destroyed
in accordance with adopted record retention policies.

- Each party will use commercially reasonable efforts to provide the other
party with directors, officers, employees, other personnel and agents who
may be used as witnesses in and books, records and other documents which
may reasonably be required in connection with legal, administrative or
other proceedings.

Auditing Practices. So long as Mercury Air Group is required to
consolidate our results of operations and financial position, we intend to agree
to:

- not select a different independent accounting firm from that used by
Mercury Air Group without Mercury Air Group's consent;

- use reasonable commercial efforts to enable our auditors to date their
opinion on our audited financial statements on the same date as Mercury
Air Group's auditors date their opinion on Mercury Air Group's financial
statements;

- exchange all relevant information needed to prepare financial statements;

- grant each other's internal auditors access to each other's records; and

- notify each other of any change in accounting principles.

Dispute Resolution. If problems arise between us and Mercury Air Group, we
intend to agree to the following procedures:

- The parties will make a good faith effort to first resolve the dispute
through negotiation.

- If negotiations fail, the parties agree to attempt to resolve the dispute
through non-binding mediation.

- If mediation fails, the parties can resort to binding arbitration. In
addition, nothing prevents either party acting in good faith from
initiating litigation at any time if failure to do so would cause serious
and irreparable injury to one of the parties or to others.

No Representations and Warranties. Neither party has made or intends to
make any promises to the other regarding:

- the value of any asset that Mercury Air Group has transferred to us;

- whether there is a lien or encumbrance on any asset Mercury Air Group has
transferred to us; or

- the legal sufficiency of any conveyance of title to any asset Mercury Air
Group has transferred to us.

No Solicitation. Each party will agree not to directly solicit or recruit
employees of the other party without the other party's consent for two years
after date Mercury Air Group distributes our common stock to its stockholders.
However, this prohibition does not apply to general recruitment efforts carried
out through public or general solicitation or where the solicitation is
employee-initiated.

Expenses. All of the costs and expenses related to this offering as well
as the costs and expenses related to the separation and distribution will be
allocated between us and Mercury Air Group. It is anticipated that we will bear
the costs and expenses associated with this offering and Mercury Air Group will
bear the costs and expenses associated with the distribution. We will each bear
our own internal costs incurred in consummating these transactions.

ASSIGNMENT AND ASSUMPTION OF ASSETS AND LIABILITIES

Effective January 1, 2001, Mercury Air Group transferred to us all assets
and liabilities associated with our business, including:

- all assets reflected on our balance sheet as of December 31, 2000, minus
any assets disposed of after December 31, 2000,

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- all written off, expensed or fully depreciated assets that would have
appeared on our balance sheet as of December 31, 2000 if we had not
written off, expensed or fully depreciated them;

- all assets that our business primarily uses as of January 1, 2001 but are
not reflected in our balance sheet as of December 31, 2000 due to mistake
or omission;

- all supply, vendor, capital, equipment lease or other contracts that
relate primarily to our business, including contracts representing
obligations reflected on our balance sheet as of December 31, 2000;

- all computers, desks, equipment and other assets used primarily by
employees of Mercury Air Group who will become our employees due to the
separation;

- specified rights under existing insurance policies; and

- other specified assets.

The assets listed above comprise all business operations whose financial
performance is reflected in our financial statements for the period ended
December 31, 2000.

Assumption of Liabilities. Effective on January 1, 2001, we assumed
liabilities from Mercury Air Group, to the extent that these liabilities were,
prior to January 1, 2001, liabilities held by Mercury Air Group related to our
business.

Excluded Liabilities. We did not assume specified liabilities, including

- any liabilities that would otherwise have been allocated to us but which
were covered by Mercury Air Group's insurance policies, unless we were a
named insured under such policies.

Obtaining Approvals and Consents. Mercury Air Group and we will use all
reasonable efforts to obtain any required consents, substitutions or amendments
required to novate or assign all rights and obligations under any contracts that
were or will be transferred in the separation.

Expenses. We intend to pay all costs of the transfer of assets from
Mercury Air Group to us incurred on or after January 1, 2001, including:

- moving expenses;

- transfer taxes;

- expenses related to notices to customers, suppliers and other third
parties;

- fees related to the transfer or issuance of licenses, permits and
franchises;

- fees and expenses related to the assignment or transfer of contracts,
agreements and intellectual property; and

- costs related to the transfer of any employee.

We believe these costs are not material.

MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT

The master technology ownership and license agreement, or the master
technology agreement will allocate rights in technology including patents,
patent applications and invention disclosures. In the master technology
agreement, Mercury Air Group will confirm that we own all technology developed
by us and, to the extent that any such technology is registered in Mercury Air
Group's name or to the extent Mercury Air Group otherwise has any ownership
rights in that technology, Mercury Air Group will assign it to us. Mercury Air
Group will not restrict our right to use the assigned or jointly owned
technology. In the event of an acquisition of either party, the acquired party
may assign the master technology agreement to its acquirer. Nothing in the
master technology agreement limit or facilitate Mercury Air Group's right to
compete with us. However, the technology agreements will give us control over
the intellectual property needed for Mercury Air Group to compete with us, thus
requiring Mercury Air Group to independently develop technology before it
competes with us.

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EMPLOYEE MATTERS AGREEMENT

We intend to enter into an employee matters agreement with Mercury Air
Group to allocate assets, liabilities and responsibilities relating to our
current and former employees and their participation in the benefits plans,
including stock plans, that Mercury Air Group currently sponsors and maintains.

All our eligible employees will continue to participate in the Mercury Air
Group benefits plans on comparable terms and conditions to those for Mercury Air
Group employees until the date Mercury Air Group distributes our common stock to
its stockholders or until we establish benefit plans for our employees, or elect
not to establish comparable plans, if it is not legally or financially
practical. We intend to establish our own benefit program no later than such
date of distribution.

Once we establish our own benefits plans, we may modify or terminate each
plan in accordance with the terms of that plan and our policies. None of our
benefit plans will provide benefits that overlap benefits under the
corresponding Mercury Air Group benefit plan at the time of the distribution. We
expect that each of our benefit plans will provide that all service,
compensation and other benefit determinations that, as of the time of
distribution, were recognized under the corresponding Mercury Air Group benefits
plan will be taken into account under our corresponding benefit plan.

Assets relating to the employee liabilities will be transferred to us or
our related plans and trusts from trusts and other funding vehicles associated
with Mercury Air Group's benefits plans.

TAX SHARING AGREEMENT

We intend to enter into a tax sharing and indemnification agreement with
Mercury Air Group, which will allocate tax liabilities between Mercury Air Group
and us and address several other tax matters such as responsibility for filing
tax returns, control of and cooperation in tax litigation and qualification of
the distribution as a tax-free transaction. Generally, Mercury Air Group will be
responsible for taxes that are allocable to periods prior to the transfer date,
and each of Mercury Air Group and we will be responsible for its own tax
liabilities (including its allocable share of taxes shown on any consolidated,
combined or other tax return filed by Mercury Air Group) for periods after the
transfer date. The tax sharing and indemnification agreement will prohibit
Mercury Air Group and our company from taking actions that could jeopardize the
tax-free treatment of the distribution, and will require Mercury Air Group and
us to indemnify each other for any taxes or other losses that result from these
actions. In addition, other events over which we do not have control may also
give rise to our indemnification obligation.

TRANSITIONAL SERVICES AGREEMENT

The transitional services agreement will govern the provision of
transitional services by Mercury Air Group and us to each other, on an interim
basis, until one year after the distribution of our common stock, unless
extended, for specific services or otherwise indicated in the agreement. The
agreement will provides for transitional services, systems and support to our
operations, including data processing and telecommunications services (such as
voice telecommunications and data transmission and information technology
support services) for functions including accounting, financial management, tax,
payroll, stockholder and public relations, legal, procurement, human resources
and other administrative functions. Mercury Air Group services provided to us
will be fixed at $70,000 per month. The master transitional services agreement
also covers the provision of additional transitional services identified from
time to time after the distribution that were inadvertently or unintentionally
omitted from the specified services, or that are essential to effectuate an
orderly transition under the distribution agreement, so long as the provision of
such services would not significantly disrupt Mercury Air Group's operations or
significantly increase the scope of its responsibility under the agreement.

PROVISION FOR FUEL STORAGE AND FUEL DELIVERY SERVICES

Mercury Air Group provides fuel storage and fuel delivery services to us at
certain airports within the United States. Amounts paid to Mercury Air Group for
these services were $1.4 million for 2001, $809,000 for

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2000 and $602,000 for 1999. Continued provision for these services will be
outside the scope of the transitional services agreement and services will be
provided for at an arm's length basis.

REAL ESTATE MATTERS AGREEMENT

Effective January 1, 2001, Mercury Air Group either transferred to or
agreed to share with us certain leased properties relating to our business. The
real estate matters agreement will formalize real estate matters relating to the
Mercury Air Group leased properties that Mercury Air Group has transferred to or
shares with us. The agreement will describe the manner in which Mercury Air
Group has transferred to or shares with us various leased properties, including
the following types of transactions:

- assignments to us of Mercury Air Group's leases for specified leased
properties;

- subleases to us of portions of specified properties leased by Mercury Air
Group; and

- short-term licenses between Mercury Air Group and us permitting
short-term occupancy of selected leased sites.

The real estate matters agreement will includes a description of each
property transferred to or shared with us for each type of transaction. The
standard forms of the proposed transfer documents, such as lease, sublease and
license, will be contained in schedules.

The real estate matters agreement will also will require both parties to
use reasonable efforts to obtain any landlord consents required for the proposed
transfers of leased sites, including our paying commercially reasonable consent
fees, if required by the landlords, and our agreeing to provide the security
required under the applicable leases.

The real estate matters agreement will also give the parties the right to
change the allocation and terms of specified sites by mutual agreement based on
changes in the requirements of the parties. The real estate matters agreement
will provides that all reasonable costs required to effect the transfers,
including landlord consent fees and landlord attorneys' fees, will be paid by
Mercury Air Group.

MASTER CONFIDENTIAL DISCLOSURE AGREEMENT

The master confidential disclosure agreement will provide that both parties
agree not to disclose confidential information of the other party except in
specific circumstances. Mercury Air Group and us will also agree not to use this
information in violation of any use restrictions in one of the other written
agreements between us.

INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT

General Release of Pre-Transfer Claims. Effective as of the transfer date,
subject to specified exceptions, we will release Mercury Air Group and its
affiliates, agents, successors and assigns, and Mercury Air Group will release
us, and our affiliates, agents, successors and assigns, from any liabilities
arising from events occurring on or before the transfer, including events
occurring in connection with the activities to implement the transfer and the
distribution. This provision will not impair a party from enforcing the
distribution agreement, any ancillary agreement or any arrangement specified in
any of these agreements.

Indemnification. The indemnification and insurance matters agreement will
also contains provisions governing indemnification. In general, we have agreed
to indemnify Mercury Air Group and its affiliates, agents, successors and
assigns from all liabilities arising from:

- our business, any of our liabilities or any of our contracts; and

- any breach by us of the distribution agreement or any ancillary
agreement.

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Mercury Air Group has agreed to indemnify us and our affiliates, agents,
successors and assigns from all liabilities arising from:

- Mercury Air Group's business other than our business; and

- any breach by Mercury Air Group of the separation agreement or any
ancillary agreement.

These indemnification provisions do not apply to amounts collected from
insurance. The agreement will also contain provisions governing notice and
indemnification procedures.

Liability Arising form This Prospectus. We will bear any liability arising
from any untrue statement of a material fact or any omission of a material fact
in this prospectus.

Insurance Matters. The agreement will also contains provisions governing
our insurance coverage from the transfer date until the distribution. In
general, we will agree to reimburse Mercury Air Group for premium expenses
related to insurance coverage during this period. Prior to the distribution,
Mercury Air Group will maintain insurance policies on our behalf. We will work
with Mercury Air Group to secure additional insurance if desired and cost
effective.

Environmental Matters. Mercury Air Group will agree to indemnify us and
our affiliates, agents, successors and assigns from all liabilities arising from
environmental conditions existing as of the transfer date at facilities
transferred to us, or which arise out of operations occurring before the
transfer date at these facilities. Further, Mercury Air Group will agree to
indemnify us and our affiliates, agents, successors and assigns from all
liabilities arising from environmental conditions caused by operations occurring
at any time, whether before or after the transfer date, at any Mercury Air Group
facility.

We will agree to indemnify Mercury Air Group and its affiliates, agents,
successors and assigns from all liabilities arising from environmental
conditions caused by operations after the transfer date at any of the facilities
transferred to us, and from environmental conditions at our facilities arising
from an event that occurs on or after the transfer date.

Each party will be responsible for all liabilities associated with any
environmental contamination caused by that party post-transfer date.

Assignment. The indemnification and insurance matters agreement will not
be assigned by either party without prior written consent.

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PRINCIPAL STOCKHOLDER

Prior to this offering all of the outstanding shares of our common stock
are owned by Mercury Air Group. After the completion of this offering, Mercury
Air Group will own 82.0% of the outstanding shares of our common stock or 80.2%
if the underwriters fully exercise their option to purchase additional shares in
full. None of our executive officers, directors or director nominees currently
owns any shares of our common stock, but those who own shares of Mercury Air
Group common stock will be treated on the same terms as other holders of Mercury
Air Group stock in any distribution by Mercury Air Group. See "Security
Ownership of Principal Stockholders and Management" for a description of the
ownership of Mercury Air Group stock by our directors and executive officers.

DESCRIPTION OF CAPITAL STOCK

GENERAL

We are authorized to issue 50,000,000 shares of common stock, $0.01 par
value, and 8,000,000 shares of undesignated preferred stock, $0.01 par value.
The following description of our capital stock is subject to our certificate of
incorporation and bylaws, which are included as exhibits to the registration
statement of which this prospectus forms a part, and by the provision of
applicable Delaware law.

COMMON STOCK

Prior to this offering and the private placement, there are 6,576,680
shares of common stock outstanding, all of which were held of record by Mercury
Air Group.

Holders of our common stock are entitled to one vote for each share on all
matters voted on by stockholders.

All shares of our common stock to be distributed will be fully paid and
nonassessable. Holders of our common stock do not have any subscription,
redemption or conversion privileges. Subject to the preferences or other rights
of any of our preferred stock that may be issued from time to time, holders of
our common stock are entitled to participate ratably in dividends on the our
common stock as are declared by the board of directors. Holders of our common
stock are entitled to share ratably in all assets available for distribution to
stockholders in the event of our liquidation or dissolution, subject to
distribution of the preferential amount, if any, to be distributed to holders of
our preferred stock.

PREFERRED STOCK

Our board of directors has the authority, without any vote or action by the
stockholders, to issue preferred stock from time to time in one or more series.
Our board of directors is authorized to determine the number of shares and
designation of any series of our preferred stock and the dividend rights,
dividend rate, conversion rights and terms, voting rights (full or limited, if
any), redemption rights and terms, liquidation preferences and sinking fund
terms of any series of our preferred stock. Issuances of our preferred stock
would be subject to the applicable rules of the NASD or other organizations on
whose systems our stock may then be quoted or listed. Depending upon the terms
of our preferred stock established by the board of directors, any or all series
of our preferred stock could have preference over our common stock with respect
to dividends and other distributions and upon our liquidation. Issuance of any
such shares with voting powers, or issuance of additional shares of our common
stock, would dilute the voting power of our outstanding common stock.

NO PREEMPTIVE RIGHTS

No holder of any of our capital stock has any preemptive right to subscribe
for or purchase any of our securities of any class or kind.

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TRANSFER AGENT AND REGISTRAR

American Stock Transfer and Trust Company, Brooklyn, New York, is our the
transfer agent and registrar for our common stock.

ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS

Our certificate of incorporation and bylaws are designed to discourage
certain types of transactions that may involve an actual or threatened change of
control of us and to encourage any person who might seek to acquire control of
us to negotiate with the our board of directors. We believe that generally the
interests of our stockholders would be served best if any change in control
results from negotiations with our board of directors of the proposed terms,
such as the price to be paid, the form of consideration and the anticipated tax
effects of the transaction.

The provisions described herein are designed to reduce our vulnerability to
an unsolicited proposal for a takeover of us that does not contemplate the
acquisition of all our outstanding shares of capital stock at an adequate price
or is otherwise unfair to our stockholders or an unsolicited proposal for the
restructuring or sale of all or part of us. We believe that, as a general rule,
such proposals would not be in the best interests of us and our stockholders.
However, to the extent that these provisions do not discourage takeover
attempts, they could make it more difficult to accomplish transactions that are
opposed by the incumbent board of directors and could deprive stockholders of
opportunities to realize temporary takeover premiums for their shares or other
advantages that large accumulations of stock would provide.

NUMBER OF DIRECTORS; REMOVAL; VACANCIES

Our bylaws provide that the number of directors shall not be less than
three. The exact number of directors is set in accordance with the bylaws by
resolution from time to time of a majority of our entire board of directors.
Interim vacancies on our board of directors or vacancies created by an increase
in the number of directors, may be filled by a majority of the directors then in
office.

Our certificate of incorporation and bylaws also provide that the board be
divided into three classes. Class I directors serve for a term ending at the
first annual meeting after Mercury Air Group distributes our common stock to its
stockholders, Class II directors serve for a term ending at the second annual
meeting held after such date of distribution, and Class III directors serve for
a term ending at the third annual meeting after such date of distribution.
Moreover, as is permitted under Delaware corporation law only in the case of a
corporation having a classified board, the certificate of incorporation and the
bylaws provide that directors may be removed only for cause.

SUPERMAJORITY VOTING REQUIREMENTS

In order to approve our transactions involving merger, consolidation, or
sale or other transfer of all or substantially all of our assets (whether in one
transaction or a series of transactions), or to amend certain provisions of our
certificate of incorporation, including the provisions involving the classified
board of directors and the supermajority voting requirements, our certificate of
incorporation requires the approval of either:

(i) an affirmative vote of at least 75% of the members of the board of
directors and 50% of the voting stock held by our stockholders, or

(ii) an affirmative vote of at least 50% of the members of the board of
directors and at least 75% of the voting stock held by our stockholders.

STOCKHOLDER ACTION

Delaware law permits stockholder action without a meeting upon the written
consent of holders of outstanding stock having not less than the minimum number
of votes that would be necessary to authorize such action at a meeting at which
all shares entitled to vote thereon were present and voted, unless the
certificate of incorporation provides otherwise. Because our certificate of
incorporation does not prohibit

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stockholder action by consent, a small number of our stockholders will have the
ability to approve certain matters without a stockholder vote.

PREFERRED STOCK AND ADDITIONAL COMMON STOCK

Under our certificate of incorporation, our board of directors has
authority to provide by resolution for issuance of shares of one or more series
of preferred stock. Our board of directors is authorized to fix by resolution
the terms and conditions of each series. The board of directors also may issue
additional shares of authorized but unissued shares of our common stock.

We believe that the availability of our preferred stock will provide us
with increased flexibility to facilitate possible future financings and
acquisitions and will allow us to better meet other corporate needs that might
arise. The authorized shares of our preferred stock, as well as authorized but
unissued shares of our common stock, will be available for issuance without the
expense and delay of stockholder action, unless stockholder action is required
by applicable law or the rules of the NASD or other stock exchange or
organization on which any class of our stock may then be quoted or listed.

These provisions give our board of directors the power to approve the
issuance of a series of preferred stock, or additional common stock, with terms
that could either impede or facilitate the completion of a merger, tender offer
or other takeover attempt. For example, the issuance of new shares might impede
a business combination if the terms of those shares include series voting rights
that would enable a holder to block business combinations, or the issuance of
new shares might facilitate a business combination if those shares have general
voting rights sufficient to cause an applicable percentage vote required to be
satisfied. Our board of directors will make any determination regarding issuance
of additional shares based on its judgment as to the best interest of its
stockholders, customers, employees or other constituencies.

CONTROL SHARE ACQUISITION STATUTE

We are subject to Section 203 of the Delaware General Corporation Law.
Section 203 prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless (i) prior to such date, the board of directors of the
corporation approves either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owns at least 85% of the
outstanding voting stock excluding certain shares held by employee director and
employee stock plans, or (iii) on or after the consummation date, the business
combination is approved by the board of directors and by the affirmative vote of
at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder. For purposes of Section 203, a "business combination"
includes, among other things, a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is generally a person who, together with affiliates and
associates, owns (or within three years, owned) 15% or more of the corporation's
voting stock.

LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Section 145(a) of the Delaware General Corporation Law provides in relevant
part that "a corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful." With respect to
derivative actions, Section 145(b) of the Delaware General Corporation Law
provides in relevant part that "[a] corporation shall have power to indemnify
any person who was or is a party or is

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threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its
favor...[by reason of his service in one of the capacities specified in the
preceding sentence] against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation and except that
no indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was bought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper".

Our certificate of incorporation provides that to the fullest extent
permitted by the Delaware law, none of our directors shall be personally liable
to us or our stockholders for monetary damages for breach of fiduciary duty as a
director. Our certificate of incorporation also provides that no amendment or
repeal of such provision shall apply to or have any effect on the right to
indemnification permitted thereunder with respect to claims arising from acts or
omissions occurring in whole or in part before the effective date of such
amendment or repeal whether asserted before or after such amendment or repeal.

Our bylaws provide that we shall indemnify to the full extent authorized by
law each of our directors and officers against expenses incurred in connection
with any proceeding arising by reason of the fact that such person is or was an
agent of the corporation.

SHARES ELIGIBLE FOR FUTURE SALE

All of the shares of our common stock sold in this offering will be freely
tradeable without restriction under the Securities Act, except for any shares
which may be acquired by an affiliate of ours, as that term is defined in Rule
144 under the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are controlled by, or
are under common control with, us and may include our directors and officers as
well as our significant stockholders, if any.

Mercury Air Group currently plans to complete its divestiture of Mercury
Air Group by distributing all of the shares of our common stock owned by Mercury
Air Group to the holders of Mercury Air Group's common stock after this
offering, but in no event before the later of the receipt of approval by Mercury
Air Group's lenders or six months after this offering. Shares of our common
stock distributed to Mercury Air Group stockholders in the distribution
generally will be freely transferable, except for shares of common stock
received by persons who may be deemed to be affiliates. Persons who are
affiliates will be permitted to sell the shares of common stock that are issued
in this offering or that they receive in the distribution only through
registration under the Securities Act, or under an exemption from registration,
such as the one provided by Rule 144.

The shares or our common stock held by Mercury Air Group before
distribution and the shares of common stock sold in the private placement upon
consent of Mercury Air Group's lenders to that offering and the initial public
offering are deemed "restricted securities" as defined in Rule 144, and may not
be sold other than through registration under the Securities Act or under an
exemption from registration, such as the one provided by Rule 144.

Each of Mercury Air Group and our executive officers, directors and other
security holders has agreed that they will not, without the prior written
consent of the representative (which consent may be withheld in its sole
discretion) dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing to a date 180 days after such date.
Among the factors that VMR Capital Markets, U.S. may consider in consenting to
an early release of these securities are the condition of the securities markets
in general and the market price and trading activity of our common stock in
particular. VMR Capital Markets, U.S. has advised us that it has no present
intention to release any of the shares subject to the lock-up agreements prior
to the expiration of the lock-up period.

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We will grant shares of our common stock pursuant to the 2001 Stock Option
Plan subject to restrictions. See "Management -- Incentive Plans -- 2001 Stock
Option Plan". We currently expect to file a registration statement under the
Securities Act to register shares reserved for issuance under the 2001 Stock
Option Plan. Shares issued pursuant to awards after the effective date of the
registration statement, other than shares issued to affiliates, generally will
be freely tradeable without further registration under the Securities Act.
Shares issued pursuant to any vested and exercisable options of Mercury Air
Group converted into our options will also be freely tradeable without
registration under the Securities Act after the effective date of the
registration statement. See "Management -- Treatment of Mercury Air Group
Options".

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UNDERWRITING

Subject to the terms and conditions contained in the underwriting
agreement, the underwriters named below, for which VMR Capital Markets, U.S.
acting as representative, have agreed to purchase from us the respective number
of shares of common stock set forth opposite each underwriter's name:

<Table>
<Caption>
NAME OF UNDERWRITER NUMBER OF SHARES
- ------------------- ----------------

VMR Capital Markets, U.S. .................................. 1,200,000

---------
Total.................................................. 1,200,000
=========
</Table>

The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of certain legal matters by their counsel
and other conditions. The nature of the underwriters' obligations is that they
are obligated to purchase and pay for all the shares of common stock offered
hereby, if any shares are purchased. However, the underwriters are not required
to take or pay for the shares covered by the underwriters' over-allotment option
described below.

The underwriters propose initially to offer stock directly to the public at
the public offering price set forth on the cover page of this prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. Any underwriter may allow, and such dealers may re-allow, a concession of
not in excess of $ a share to other underwriters or to certain dealers.
After the initial offering of the shares, the offering price and other selling
terms may be changed by the representatives of the underwriters. The
representatives have advised us that the underwriters do not expect sales to
accounts for which any of the underwriters will exercise discretion as to such
sale to exceed 5% of the total number of shares offered hereby.

The following table summarizes the compensation and estimated expenses we
will pay.

<Table>
<Caption>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Underwriting discounts and
commissions paid by
us...................... $ $ $ $
Expenses payable by us.... $ $ $ $
</Table>

We have granted to the underwriters an option, exercisable for 45 days from
the date of this prospectus, to purchase up to 180,000 additional shares at the
initial public offering price, less the underwriting discounts, all as set forth
on the cover page of this prospectus. The underwriters may exercise such option
only to cover over-allotments made in connection with the sale of common stock
in this offering. To the extent this option is exercised, each underwriter will
become obligated, subject to limited conditions, to purchase approximately the
same percentage of additional shares of common stock as the number listed next
to the underwriter's name in the preceding table bears to the total number of
shares of common stock listed next to the names of all underwriters in the
preceding table. If the underwriters' option is exercised in full, the total
price to the public would be $9.7 million, the total underwriters' discounts and
commissions would be $0.9 million and total proceeds to us would be $8.0
million.

Our common stock has been approved for listing on the American Stock
Exchange under the symbol "MQ", subject to official notice of listing.

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to an early release of these securities are the condition of the securities
markets in general and the market price and trading activity of our common stock
in particular. VMR Capital Markets, U.S. has advised us that it has no present
intention to release any of the shares subject to the lock-up agreements prior
to the expiration of the lock-up period.

The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.

Upon completion of this offering, we will sell to the representative for
$100 a warrant to purchase 120,000 shares of common stock. The representative's
warrant will become exercisable one year after the effective date of this
offering at a per share exercise price equal to 140% of the initial public
offering price and will expire five years from the effective date of this
offering. The representative's warrant and underlying shares of common stock
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year from the date of this prospectus, except to the representatives,
underwriters, selling group members and their officers or partners. During the
exercise period, holders of the representative's warrants are entitled to
certain demand and incidental rights with respect to the shares of common stock
issuable upon exercise of the representative's warrant. The common stock
issuable on exercise of the representative's warrant is subject to adjustments
in certain events to prevent dilution. If the representative's warrant is not
exercised in whole or in part during the exercise period, we intend to
deregister the unissued shares underlying the warrant.

We will pay the representative a nonaccountable expense allowance of 3.0%
of the gross proceeds of the offering, of which an aggregate of $50,000 has been
paid to date. The nonaccountable expense allowance will include proceeds from
the over-allotment option, if exercised. The representative's expenses in excess
of these legal fees and the nonaccountable expense allowance will be borne by
the representative.

The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act. Over-allotment involves syndicate sales in excess of the
offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of the securities in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the representatives to reclaim a selling concession from a
syndicate member when the securities originally sold by such syndicate member
are purchased in a syndicate covering transaction to cover syndicate short
positions. Short sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering. Covered short
sales are sales made in an amount not greater than the underwriters' option to
purchase additional shares from the issuer in the offering. The underwriters may
close out any covered short position by either exercising their option to
purchase additional shares or purchasing shares in the open market. In
determining the source of shares to close out the covered short position, the
underwriters will consider, among other things, the price of shares available
for purchase in the open market as compared to the price at which they may
purchase shares through the over-allotment option. Naked short sales are any
sales in excess of such option. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering.
Stabilizing transactions consist of various bids for or purchases of common
stock made by the underwriters in the open market prior to the completion of the
offering. Such stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the American Stock Exchange or otherwise and, if commenced, may be
discontinued at any time.

Neither we nor the underwriters can predict the effect that the
transactions described above may have on the price of the common stock. In
addition, neither we nor the underwriters represent that the underwriters will
engage in such transactions. If commenced, such transactions may be discontinued
at any time without notice. It is anticipated that certain of the underwriters
will make a market in the common stock on

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completion of this offering, as permitted by applicable law. The underwriters
are not obligated to make a market in the common stock and if they do so may
discontinue making a market at any time. An active trading market may never
develop for the common stock.

Mercury Air Group and MercFuel have had prior financial or investment
transactions with VMR Capital Markets, U.S. In December 2000, VMR Capital
Markets, U.S. was engaged by Mercury Air Group to provide financial advisory and
investment banking services for 36 months pursuant to which Mercury Air Group
agreed to issue to VMR Capital Markets, U.S. warrants to purchase 200,000 shares
of its common stock at a per share exercise price of $5.625 per share and paid
VMR Capital Markets, U.S. aggregate cash fees of $45,000. None of such services
were related to this offering. In addition, VMR Capital Markets, U.S. acted as
the placement agent with respect to the private offering of 239,942 shares of
our common stock at a price of $4.35 per share, such sale to be consummated at
the time as Mercury Air Group's lenders consent to that offering and the initial
public offering. An affiliate of VMR Capital Markets, U.S. has agreed to
purchase 114,943 shares in this private placement. In connection with this
private placement we paid VMR Capital Markets, U.S. a sales commission of
$83,980.

LEGAL MATTERS

The validity of the common stock offered hereby and other legal matters
will be passed upon for us by McBreen & Kopko, Chicago, Illinois. Frederick H.
Kopko, Jr., a partner of McBreen & Kopko, beneficially owns 2,024,955 shares of
the common stock of Mercury Air Group. The Company paid $163,000 in legal fees
during fiscal 2001 to McBreen & Kopko. Legal matters will be passed upon for the
underwriters by Kirkpatrick & Lockhart LLP, Los Angeles, California.

EXPERTS

The financial statements included in this prospectus and the related
financial statement schedules included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the registration statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain all
of the information set forth in the registration statement and the exhibits and
schedules to the registration statement. Some items are omitted in accordance
with the rules and regulations of the SEC. For further information about
Mercfuel and its common stock, reference is made to the registration statement
and the exhibits and any schedules to the registration statement. A copy of the
registration statement, including the exhibits and schedules to the registration
statement, may be read and copied at the SEC's Public Reference Room at 450
Fifth Street, N.W., Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site at http://www.sec.gov, from which
interested persons can electronically access the registration statement,
including the exhibits and any schedules to the registration statement.

As a result of this offering, we will become subject to the full
information requirements of the Securities Exchange Act of 1934, as amended. We
will fulfill our obligations with respect to those requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain an Internet
site at http://www.mercfuel.com. Our website and the information contained
therein or connected thereto shall not be deemed to be incorporated into this
prospectus or the registration statement of which it forms a part.

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INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
PAGE
----

INDEPENDENT AUDITORS' REPORT................................ F-2
FINANCIAL STATEMENTS:
Balance Sheets as of June 30, 2001 and 2000............... F-3
Statements of Operations for the Years Ended June 30,
2001, 2000, and 1999................................... F-4
Statements of Cash Flows for the Years Ended June 30,
2001, 2000, and 1999................................... F-5
Notes to Financial Statements............................. F-6
</Table>

F-1
62

INDEPENDENT AUDITORS' REPORT

MercFuel, Inc.:

We have audited the accompanying balance sheets of MercFuel, Inc. (the
"Company") as of June 30, 2001 and 2000, and the related statements of
operations and of cash flows for each of the three years in the period ended
June 30, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of June 30, 2001 and 2000,
and the results of its operations and its cash flows for each of the three years
in the period ended June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America.

Deloitte & Touche LLP

Los Angeles, California

August 30, 2001

F-2

MERCFUEL, INC.

BALANCE SHEETS

JUNE 30, 2001 AND 2000

<Table>
<Caption>
2001 2000
----------- -----------

ASSETS
CURRENT ASSETS:
Trade accounts receivable, net of allowance for doubtful
accounts of $1,174,000 and $2,106,000 at June 30, 2001
and 2000, respectively (Notes 2, 4 and 10)............. $32,132,000 $25,462,000
Inventories (Note 2)...................................... 1,629,000 2,072,000
Prepaid expenses and other current assets (Notes 1 and
3)..................................................... 1,073,000 654,000
Deferred income taxes (Notes 2 and 7)..................... 458,000 821,000
----------- -----------
Total current assets.............................. 35,292,000 29,009,000
PROPERTY AND EQUIPMENT, Net of accumulated depreciation of
$190,000 and $128,000 at June 30, 2001 and 2000,
respectively
(Notes 2 and 5)........................................... 185,000 233,000
OTHER ASSETS................................................ 589,000
----------- -----------
TOTAL....................................................... $36,066,000 $29,242,000
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $23,227,000 $17,590,000
Notes payable -- current (Note 9)......................... 1,025,000
Accrued expenses (Notes 6 and 9).......................... 4,592,000 1,077,000
----------- -----------
Total current liabilities......................... 28,844,000 18,667,000
NOTES PAYABLE -- NONCURRENT (Note 9)........................ 504,000
DUE TO MAG (Note 1)......................................... 2,718,000 10,575,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY (Note 13):
Preferred stock, $0.01 par value; authorized 8,000,000
shares; no shares outstanding
Common stock, $0.01 par value; authorized 50,000,000
shares; outstanding 6,576,680 shares at June 30, 2001
(Note 2)............................................... 66,000
Additional paid in capital................................ 3,934,000
Retained earnings.........................................
----------- -----------
Total stockholder's equity........................ 4,000,000
----------- -----------
TOTAL............................................. $36,066,000 $29,242,000
=========== ===========
</Table>

See notes to financial statements.

F-3
64

MERCFUEL, INC.

STATEMENTS OF OPERATIONS

YEARS ENDED JUNE 30, 2001, 2000, AND 1999

<Table>
<Caption>
2001 2000 1999
------------ ------------ ------------

FUEL SALES (Notes 2 and 10)...................... $319,657,000 $203,412,000 $111,638,000
COST OF SALES (Note 11).......................... 307,558,000 192,399,000 99,823,000
------------ ------------ ------------
GROSS PROFIT..................................... 12,099,000 11,013,000 11,815,000
EXPENSES:
Selling, general, and administrative (Note
1).......................................... 5,581,000 4,506,000 4,418,000
Bad debt expense (Notes 4 and 9)............... 3,025,000 5,000,000 1,377,000
Depreciation................................... 62,000 58,000 57,000
Interest expense, net (Note 1)................. 587,000 1,187,000 1,016,000
------------ ------------ ------------
Total expenses......................... 9,255,000 10,751,000 6,868,000
INCOME BEFORE PROVISION FOR
INCOME TAXES................................... 2,844,000 262,000 4,947,000
PROVISION FOR INCOME TAXES
(Notes 2 and 7)................................ 1,109,000 102,000 1,929,000
------------ ------------ ------------
NET INCOME....................................... $ 1,735,000 $ 160,000 $ 3,018,000
============ ============ ============
BASIC AND DILUTED NET INCOME
PER SHARE (Note 2)............................. $ 0.26 $ 0.02 $ 0.46
============ ============ ============
SHARES USED IN COMPUTING BASIC
AND DILUTED NET INCOME PER SHARE............... 6,576,680 6,576,680 6,576,680
============ ============ ============
</Table>

See notes to financial statements.

F-4
65

MERCFUEL, INC.

STATEMENTS OF CASH FLOWS

YEARS ENDED JUNE 30, 2001, 2000, AND 1999

<Table>
<Caption>
2001 2000 1999
----------- ----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 1,735,000 $ 160,000 $ 3,018,000
Adjustments to derive cash flows provided by
operating activities:
Gain on sale of property....................... (44,000) --
Depreciation................................... 62,000 58,000 57,000
Provision for bad debts........................ 3,025,000 5,000,000 1,377,000
Deferred income taxes.......................... 363,000 (177,000) (10,000)
Changes in operating assets and liabilities:
Trade accounts receivable.................... (9,695,000) (2,893,000) (6,329,000)
Inventories.................................. 443,000 (1,014,000) (94,000)
Prepaid expenses and other current assets.... (419,000) 761,000 (182,000)
Accounts payable............................. 5,637,000 4,544,000 2,583,000
Accrued expenses............................. 3,515,000 271,000 (233,000)
----------- ----------- -----------
Net cash provided by operating
activities.............................. 4,666,000 6,666,000 187,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............... (14,000) (92,000) (687,000)
Proceeds from sale of property.................... 532,000 --
----------- ----------- -----------
Net cash provided by (used in) investing
activities.............................. (14,000) 440,000 (687,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (repayment of) advances from MAG......... (3,211,000) (7,106,000) 500,000
Dividends......................................... (531,000)
Other assets...................................... (589,000)
Repayment of note payable......................... (321,000)
----------- ----------- -----------
Net cash provided by (used in) financing
activities.............................. (4,652,000) (7,106,000) 500,000
----------- ----------- -----------
NET INCREASE IN CASH................................ -- -- --
CASH, BEGINNING OF YEAR............................. -- -- --
----------- ----------- -----------
CASH, END OF YEAR................................... $ -- $ -- $ --
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Contribution of capital by MAG on May 15, 2001
(Note 1)....................................... $ 4,000,000
===========
Notes payable resulting from settlement of
litigation (See Note 9)........................ $ 1,850,000
===========
</Table>

See notes to financial statements.

F-5
66

MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE THREE YEARS ENDED JUNE 30, 2001

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION -- On March 7, 2001, Mercury Air Group, Inc. ("MAG") announced
its plan to create an independent publicly-traded company, MercFuel, Inc.
("MercFuel" or the "Company"). MercFuel was organized in Delaware on October 27,
2000 as a wholly owned subsidiary of MAG. The accompanying financial statements
represent the historical operating results of MAG's fuel sales and services
division, the assets and liabilities of which were transferred to the Company by
MAG effective as of January 1, 2001 (the "Transfer Date"). It is MAG's intent to
complete an initial public offering of MercFuel, after which it will own at
least 80.1% of MercFuel's outstanding common stock. On May 15, 2001 the Company
received a $4.0 million capital contribution from MAG in the form of
cancellation of intercompany debt payable to MAG. MAG currently intends, subject
to the satisfactory resolution of certain conditions, to distribute all of the
shares of common stock that MAG owns to MAG's stockholders (the "Distribution")
no earlier than six months after MercFuel's initial public offering (See note
12).

MercFuel operates in one industry segment: the sale and delivery of
aviation fuel to commercial, air courier and commuter airlines, and to general
aviation aircraft.

BASIS OF PRESENTATION -- Assets, liabilities, revenues, and expenses are
determined on a specific identification basis, except for certain selling,
general, and administrative expenses, interest expense and prepaid insurance.

COST ALLOCATIONS TO MERCFUEL -- The following summarizes the assumptions
used by management in allocating costs to MercFuel. Management believes the
assumptions and allocations were made on a reasonable basis; however, these
costs do not necessarily reflect those which would have been or will be incurred
by the Company on a stand-alone basis. Accordingly, the accompanying financial
statements may not necessarily be indicative of the conditions that would have
existed, or the results of operations that would have occurred, if the Company
had operated as a stand-alone entity.

Selling, General, and Administrative Expenses -- Selling, general, and
administrative expenses have been determined on both a specific
identification basis and an allocation basis. Allocated amounts are
determined from an analysis of MAG's operating and corporate departments
and are generally based on the percentage of MercFuel's operating income
before depreciation, indirect selling, general and administrative expenses
and certain specifically identified bad debt expenses to MAG's operating
income before depreciation and amortization and indirect selling, general
and administrative expenses. Amounts allocated to MercFuel from MAG for
such items were $973,000, $1,284,000 and $1,495,000, for 2001, 2000, and
1999, respectively.

Interest Expense -- Interest expense is allocated based on MercFuel's
estimated working capital requirements for each year presented. Interest
expense is computed by applying MAG's incremental borrowing rate to
MercFuel's working capital requirements.

Prepaid Insurance -- Prepaid insurance is allocated using the same
allocation method used to determine selling, general, and administrative
expenses.

Due to MAG -- Prior to the contribution of $4.0 million of capital by
MAG on May 15, 2001, the operations of MercFuel were historically financed
by advances from MAG, which are classified as due to MAG in the
accompanying balance sheets. Accordingly, separate statements of divisional
equity have not been included. Note 13 summarizes changes in stockholder's
equity since the Company's incorporation on October 27, 2000.

F-6
67
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE RECOGNITION -- Revenues are recognized upon delivery of fuel.

INVENTORIES -- Inventories consist of aviation fuel and are stated at the
lower of cost (first-in, first-out method) or market.

PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost.
Depreciation is computed using the straight-line method over the estimated
useful life of the related assets, generally three-to-five years.

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

IMPAIRMENT OF LONG-LIVED ASSETS -- The Company evaluates long-lived assets
for impairment, based on undiscounted cash flows, whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable. Measurement of an impairment loss is based on the estimated fair
value of the asset.

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

FAIR VALUE OF FINANCIAL INSTRUMENTS -- The fair value of financial
instruments, principally accounts receivable and payable, closely approximates
their carrying value because of their short-term nature. The fair value of notes
payable closely approximates their carrying value because the interest rates of
these instruments were imputed based on interest rates currently available to
the Company.

RISKS AND UNCERTAINTIES -- Accounts receivable is comprised primarily of
trade receivables from customers and is net of an allowance for doubtful
accounts. MercFuel'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 MercFuel, 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. During the year ended June 30, 2001, per gallon fuel cost
increased 21%. The Company assesses its credit portfolio on an ongoing basis and
establishes allowances which it believes are adequate to absorb potential credit
losses that can be reasonably anticipated.

In the event that fuel prices increase significantly for an extended period
of time, MercFuel's liquidity may be adversely affected unless MercFuel is able
to increase vendor credit or MAG has the credit availability to advance
additional funds to MercFuel.

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.

STOCK COMPENSATION -- MAG generally issues stock options to employees with
grant prices equal to the fair value of the underlying security at the date of
grant. Compensation expense related to the stock options, if any, is recognized
in accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees."
F-7
68
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

See Note 8 for information regarding the pro forma effect on operations of
recognizing compensation cost based on the estimated fair value of the stock
options granted, as required by Statement of Financial Accounting Standards
("SFAS") No. 123, "Accounting for Stock-Based Compensation."

NET INCOME PER SHARE -- All of the outstanding common stock of MercFuel is
owned by MAG. Basic and diluted net income per share amounts are computed by
dividing the net income for the period by the common shares outstanding after
the common stock splits on May 15, 2001 and August 30, 2001. On March 15, 2001,
the Company's Board of Directors and sole stockholder approved the split of
1,000 shares of the Company's common stock held by MAG into 6,546,430 shares. On
May 15, 2001, the Company amended the Certificate of Incorporation which is
required to appropriately effect the stock split. On August 30, 2001, the
Company's Board of Directors and sole stockholder approved the split of the then
outstanding 6,546,430 shares of the Company's common stock held by MAG into
6,576,680 shares. Also on that date, the Company amended the Certificate of
Incorporation which is required to appropriately effect the stock split.

RECLASSIFICATIONS -- Certain reclassifications were made to prior year
statements to conform to the current year presentation.

OTHER ASSETS -- Other assets represents fees incurred in connection with
the initial public offering of MercFuel and the sale of 239,942 shares of common
stock in a private placement. Such fees will be offset against the proceeds of
these offerings. Other assets also includes debt issuance cost of $68,000 which
will be amortized over the useful life of the related debt once executed.

NEW ACCOUNTING PRONOUNCEMENTS

On July 1, 2000, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities" which establishes accounting and reporting standards for derivative
instruments and for hedging activities. The statement requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. There was no
effect of adoption at July 1, 2000. At June 30, 2001, there were no outstanding
derivative contracts.

In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of
accounting for business combinations initiated after June 30, 2001 and
eliminates the pooling-of-interest method. The Company does not believe that the
adoption of SFAS No. 141 will have a significant impact on the financial
statements.

In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets," which is effective July 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing recognized
intangibles as goodwill, reassessment of the useful lives of existing recognized
intangibles, reclassification of certain intangibles out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires the Company
to complete a transitional goodwill impairment test six months from the date of
adoption. The Company does not believe that the adoption of SFAS No. 142 will
have a significant impact on the financial statements.

F-8
69
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following as of
June 30:

<Table>
<Caption>
2001 2000
---------- --------

Fuel taxes........................................... $ 724,000 $260,000
Deposits............................................. 213,000 355,000
Prepaid insurance and other.......................... 136,000 39,000
---------- --------
Total...................................... $1,073,000 $654,000
========== ========
</Table>

4. LOSSES RESULTING FROM CUSTOMER BANKRUPTCY

On February 29, 2000, Tower Air, Inc. ("Tower") filed for bankruptcy
protection under Chapter 11 and as a result, the Company wrote off $2,700,000 of
accounts receivable due from Tower. Tower subsequently ceased operations in
October 2000. The amount was charged directly to bad debt expense in the
accompanying statements of operations for the year ended June 30, 2000.

5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of June 30:

<Table>
<Caption>
2001 2000
--------- ---------

Office equipment and furniture....................... $ 58,000 $ 54,000
Computer equipment................................... 236,000 226,000
Software............................................. 81,000 81,000
--------- ---------
375,000 361,000
Less accumulated depreciation........................ (190,000) (128,000)
--------- ---------
Total...................................... $ 185,000 $ 233,000
========= =========
</Table>

6. ACCRUED EXPENSES

Accrued expenses consist of the following as of June 30:

<Table>
<Caption>
2001 2000
---------- ----------

Customer deposit.................................... $1,982,000
Fuel and other related taxes........................ 1,573,000 $1,041,000
Litigation settlement............................... 750,000
Payroll and other................................... 287,000 36,000
---------- ----------
Total..................................... $4,592,000 $1,077,000
========== ==========
</Table>

F-9
70
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. INCOME TAXES

MercFuel's taxable income is included in MAG's U.S. and state income tax
returns. For financial reporting purposes, MercFuel has provided for income
taxes on a separate-company basis. Income tax expense is summarized as follows:

<Table>
<Caption>
YEAR ENDED JUNE 30,
-------------------------------------
2001 2000 1999
---------- --------- ----------

Federal, current....................... $ 593,000 $ 224,000 $1,609,000
State, current......................... 153,000 55,000 330,000
---------- --------- ----------
746,000 279,000 1,939,000
Deferred, primarily federal............ 363,000 (177,000) (10,000)
---------- --------- ----------
Provision.............................. $1,109,000 $ 102,000 $1,929,000
========== ========= ==========
</Table>

Major components of deferred income tax assets as of June 30, were as
follows:

<Table>
<Caption>
2001 2000
-------- --------

Allowance for doubtful accounts........................ $458,000 $821,000
-------- --------
$458,000 $821,000
======== ========
</Table>

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

<Table>
<Caption>
YEAR ENDED JUNE 30,
--------------------
2001 2000 1999
---- ---- ----

Computed "expected" tax rate........................... 34.0% 34.0% 34.0%
State income taxes, net of federal income tax
benefit.............................................. 5.0% 5.0% 5.0%
---- ---- ----
Effective rate......................................... 39.0% 39.0% 39.0%
==== ==== ====
</Table>

8. INCENTIVE PLAN

MAG has stock option plans under which MercFuel employees have historically
been granted options to purchase common stock. Options granted pursuant to the
plans have been made at the fair market value of such shares on the date of the
grant and generally vest over twelve months. The contractual lives of the
options are ten years.

The number of MAG shares which are held by MercFuel employees under the MAG
plans was 49,875 at June 30, 1999, 2000 and 2001, respectively. The weighted
average exercise price for all periods was $6.51.

<Table>
<Caption>
WEIGHTED
SHARES AVERAGE WEIGHTED SHARES WEIGHTED
OUTSTANDING CONTRACTUAL AVERAGE EXERCISABLE AVERAGE
AT JUNE 30, REMAINING EXERCISE AT JUNE 30, EXERCISE
EXERCISE PRICE RANGE 2001 LIFE PRICE 2001 PRICE
-------------------- ----------- ----------- -------- ----------- --------

$6.09........................ 34,375 4 $6.09 34,375 $6.09
5.60........................ 3,000 5 5.60 3,000 5.60
7.88........................ 12,500 7 7.88 12,500 7.88
</Table>

As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation,"
MercFuel has elected to follow Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations in
accounting for stock-based awards to employees. Under APB Opinion No. 25,
MercFuel recognizes no compensation expense with respect to such awards.

F-10
71
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

Pro forma information regarding net income and earnings per share is
required by SFAS 123. This information is required to be determined as if
MercFuel had accounted for stock-based awards to its employees under the fair
value method of SFAS 123.

For purposes of pro forma disclosures under SFAS 123, the estimated fair
value of the options is assumed to be amortized to expense over the options'
vesting period. Pro forma net income and income per share amounts did not differ
from actual reported amounts during the years presented.

9. COMMITMENTS AND CONTINGENCIES

On March 16, 2001, the bankruptcy court approved a settlement related to
preference payments received in connection with the Chapter 7 bankruptcy filing
of Western Pacific Airlines, Inc. ("WPAI"). The settlement consists of ten
quarterly payments of $175,000, two of which were made in the current fiscal
year with the unpaid balance secured by a letter of credit. The Company has
recorded a charge to bad debt expense equal to the present value of the
payments, $1.6 million. This was partially offset by approximately $1,000,000 in
bad debt recoveries from a former customer. The outstanding balance of
$1,279,000 at June 30, 2001 was included in notes payable in the accompanying
balance sheets.

In February 2001, MAG received notice of a complaint filed by the Chapter 7
Trustee for Tower in regard to a preference action. In July 2001, the Company
and MAG settled this matter for $1.0 million. In accordance with the terms of
the settlement, the Company paid $750,000 subsequent to June 30, 2001 and will
pay the balance in ten monthly installments of $25,000 each. At June 30, 2001,
the unpaid settlement balance of $750,000 is included in accrued expenses and
the unpaid note balance of $250,000, which is secured by a letter of credit, is
included in notes payable in the accompanying balance sheets.

The Company believes, based in part on an opinion of its tax advisors, that
although the matter is not free from doubt, the contribution by MAG of certain
assets and liabilities to MercFuel in exchange for common stock of MercFuel,
which is to be followed by the proposed Distribution, should be treated as a
reorganization within the meaning of Section 368(a)(1)(D) of the Internal
Revenue Code of 1986 (the "Code"), as amended, and the Distribution should
qualify as a tax-free distribution under Section 355 of the Code. It should be
noted that the application of Section 355 of the Code to the Distribution is
complex and may be subject to differing interpretation. If the Distribution does
not qualify as a tax-free distribution under Section 355 of the Code; then: (i)
MAG would recognize capital gain equal to the difference between the fair market
value of the MercFuel common stock on the date of the Distribution and MAG's tax
basis in such stock; and (ii) the Distribution may be taxable to individual
stockholders, depending on their individual tax basis. In addition, the Company
has agreed to indemnify MAG in the event the Distribution is not tax-free to MAG
or its stockholders because of actions taken by the Company or because of
failure to take various actions, to be set forth in a tax sharing agreement with
MAG. Certain of the events that could trigger this obligation may be beyond the
Company's control. In particular, the transaction may be taxable if the
Distribution is deemed to be part of a plan in which one or more persons acquire
directly or indirectly stock representing a 50% or greater interest in either
MAG or the Company. If such stock is acquired within the four-year period
beginning two years before and ending two years after the Distribution, the
Distribution and acquisition will be presumed to be part of the same plan.

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

On August 10, 2001, the Company entered into an agreement with a provider
of hardware and software applications ("System Provider"), for the development
and exclusive license of an aviation fuel management system. The agreement
requires the Company to pay the System Provider $25,000 by October 1, 2001, and
enter into a non-interest bearing note in the amount of $750,000, payable in 24
equal monthly payments

F-11
72
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

beginning in August 2002 (the present value of which is $640,000, assuming an
imputed interest rate of 8.0%). The note is convertible, at the Company's
option, at any time after the Distribution into 125,000 shares of common stock.
The Company is also required to attempt to register the shares. In addition, if
the Company does not complete an offering of its common shares by December 31,
2001, the agreement shall be terminated.

MAG has a credit agreement with a consortium of banks, the collateral for
which includes the assets of MercFuel. MAG's bank debt has not been allocated to
MercFuel. However, MAG's interest expense has been allocated (see Note 1 for a
discussion of the allocation method). MAG and the Company are currently
negotiating separate credit facilities in order to replace MAG's existing credit
facility. The new facilities for both the Company and MAG are expected to close
simultaneously in October 2001. The Company has an executed term sheet for a $20
million senior revolving facility ("The Revolver"), subject to final
documentation. The Revolver will be secured by substantially all of the
Company's assets and will mature in either two, three, four or five years from
the date of the closing of the loan, at the Company's option. The Revolver will
be subject to certain financial covenants, including the maintenance of a
minimal level of tangible net worth.

10. MAJOR CUSTOMERS AND FOREIGN CUSTOMERS

National Airlines, Inc. ("National") and AirTran, Inc. ("AirTran")
represented approximately 22% and 20% of total fuel sales for fiscal 2001,
respectively. National and Tower represented approximately 18% and 10% for total
fuel sales for fiscal 2000, respectively. Tower accounted for approximately 15%
of total fuel sales for fiscal 1999.

On December 6, 2000, National filed for bankruptcy protection. The Company
continues to sell fuel to National on a secured basis, under the auspices of the
bankruptcy court. The Company does not believe that an allowance for bad debts
for trade receivables from National is necessary.

The Company sells aviation fuel to a number of foreign airlines. These
sales are generally made within the United States and utilize the same assets
and personnel as are utilized to service the Company's domestic business. Fuel
sales related to these foreign airlines amounted to approximately 18%, 27%, and
35% of total fuel sales for the years ended June 30, 2001, 2000, and 1999,
respectively. Trade accounts receivable related to these foreign airlines
amounted to approximately 24% and 41% of total trade accounts receivable at June
30, 2001 and 2000.

11. RELATED PARTY TRANSACTIONS

MAG provides fuel storage and fuel delivery services to MercFuel at certain
airports within the United States. Amounts paid to MAG for these services were
$1,383,000, $809,000 and $602,000 for 2001, 2000, and 1999, respectively. These
amounts are included in cost of sales in the accompanying statements of
operations.

The Company paid $163,000 during fiscal 2001 to McBreen & Kopko related to
legal services. Frederick H. Kopko, Jr., a partner of McBreen & Kopko, is a
board member of MAG. In addition, Mr. Kopko is a partner in CFK Partners, MAG's
largest shareholder.

12. PLANNED SALE OF COMMON STOCK AND DISTRIBUTION

In connection with the decision to complete an initial public offering of
MercFuel, the Company agreed to sell 239,942 shares of common stock at a per
share price of $4.35, the net proceeds of which are $860,000. The sale will be
consummated at such time as MAG's lenders consent to the offering and to the
initial public offering. On May 15, 2001, the Company's board of directors
authorized the filing of this registration statement related to 1,500,000 shares
of the Company's common stock (includes the underwriters' over-allotment option
of 180,000 shares and the underwriters' representative's warrant to purchase
120,000 shares). In addition, the Company has agreed to grant the underwriters a
warrant to purchase 120,000 shares of common stock at an exercise price equal to
140% of the initial public offering price, issuable to the

F-12
73
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

underwriters' representative upon the closing of the initial public offering.
The life of the warrant is five years from the date of closing.

The Company has adopted a 2001 Stock Option Plan (the "Plan"). The Plan
provides for the grant of incentive stock options to employees and for the grant
of nonstatutory stock options to employees and non-employee directors. The
Company has reserved 1,000,000 shares of common stock for issuance under the
Plan. There were no options outstanding as of June 30, 2001. The Company's Board
of Directors will determine the terms of the options granted, including the
exercise price, the number of shares subject to each option, the exercisability
of the options and the form of consideration payable upon exercise.

It is anticipated that, effective on the date MAG distributes its MercFuel
common stock to its stockholders (the "Distribution Date"), MercFuel will grant
options to purchase 500,000 shares of common stock, at an exercise price equal
to the fair market price at the date of grant. In addition, it is anticipated
that the options to purchase 49,875 shares of MAG common stock currently held by
MercFuel employees will be converted into options to acquire an equivalent
number of shares of MercFuel. The exercise price is expected to be adjusted
using a conversion formula based on the relative values of MAG and MercFuel on
the Distribution Date. It is expected that the resulting MercFuel options will
maintain the original vesting provisions and option period.

For purposes of governing certain of the ongoing relationships between
MercFuel and MAG, the Company and MAG intend to enter into a Master Distribution
Agreement, along with key related agreements, which will be effective as of the
closing day of the initial public offering, except for the transitional services
agreement, which will be effective at the Distribution Date.

Master Technology Ownership and License Agreement -- Under the master
technology ownership and license agreement, the Company will own all technology
developed by the Company, and MAG will assign to the Company all technology
registered under the name MAG.

Employee Matters Agreement -- MercFuel and MAG intend to enter into an
employee matters agreement to allocate assets, liabilities, and responsibilities
relating to current and former employees of MercFuel and their participation in
the benefit plans, including stock option plans, that MAG currently sponsors and
maintains. Pursuant to the agreement, all eligible MercFuel employees will
continue to participate in the MAG benefit plans on comparable terms and
conditions to those for MAG employees until the Distribution Date or until the
Company establishes independent benefit plans.

MercFuel expects that each MercFuel benefits plan will provide that all
service, compensation, and other benefit determinations that, as of the
Distribution, were recognized under the corresponding MAG benefits plan will be
taken into account under the MercFuel benefits plan.

Tax Sharing Agreement -- MercFuel and MAG intend to enter into a tax
sharing and indemnification agreement whereby, generally, MAG will be
responsible for taxes that are allocable to periods prior to the Transfer Date,
and each of MAG and MercFuel will be responsible for their own tax liabilities
(including their allocable share of taxes shown on any consolidated, combined,
or other tax return filed by MAG) for periods after the Transfer Date. The tax
sharing and indemnification agreement will prohibit MAG and MercFuel from taking
actions that could jeopardize the tax-free treatment of the Distribution, and
will require MAG and MercFuel to indemnify each other for any taxes or other
losses that result from these actions.

Transitional Services Agreement -- The transitional services agreement will
govern the provision of transitional services by MAG and the Company to each
other, on an interim basis, until one year after the Distribution. The agreement
provides for transitional services, systems and support to the Company's
operations, including data processing and telecommunications services (such as
voice telecommunications and data transmission and information technology
support services) for functions including accounting, financial

F-13
74
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

management, tax, payroll, stockholder and public relations, legal, procurement,
human resources and other administrative functions. MAG services provided to
MercFuel will be fixed at $70,000 per month.

Real Estate Matters Agreement -- The real estate matters agreement will
formalize real estate matters relating to the MAG leased properties that MAG has
either transferred to or shared with the Company as of the Transfer Date. The
agreement includes a description of each property to be transferred to or shared
with MercFuel for each type of transaction. The agreement also provides that all
reasonable costs required to effect the transfers, including landlord consent
fees and landlord attorneys' fees, will be paid by MAG.

Master Confidential Disclosure Agreement -- The master confidential
disclosure agreement will provide that MercFuel and MAG agree not to disclose
confidential information of the other party except in specific circumstances.
MAG and MercFuel will also agree not to use this information in violation of any
use restrictions in one of the other written agreements between them.

Indemnification and Insurance Matters Agreement -- Effective as of the
Transfer Date, both MAG and MercFuel will agree to release each other from any
liabilities arising from events occurring in connection with the activities to
implement the Transfer and the Distribution. Additionally, both MercFuel and MAG
have agreed to indemnify each other from all liabilities arising from each
company's respective business and any breach of the Distribution Agreement or
ancillary agreement.

The agreement will also contain provisions governing the Company's
insurance coverage from the Transfer Date until the Distribution Date. In
general, MercFuel will reimburse MAG for premium expenses related to insurance
coverage during this period. Prior to the Distribution, MAG will maintain
insurance policies on the Company's behalf.

Additionally, MAG has agreed to indemnify the Company from all liabilities
arising from environmental conditions existing as of the Transfer Date at
facilities transferred to the Company, or which arise out of operations
occurring before the Transfer Date at these facilities, and the Company has
agreed to indemnify MAG from all liabilities arising from environmental
conditions caused by operations after the Transfer Date at any of the facilities
transferred to the Company, and from environmental conditions at the Company's
facilities arising from an event that occurs on or after the Transfer Date.
Further, MAG will agree to indemnify the Company from all liabilities arising
from environmental conditions caused by operations occurring at any time,
whether before or after the Transfer Date, at any MAG facility.

F-14
75
MERCFUEL, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

13. STOCKHOLDER'S EQUITY

The following summarizes the Company's stockholder's equity since the date
of incorporation on October 27, 2000.

<Table>
<Caption>
COMMON STOCK TOTAL
------------------- ADDITIONAL RETAINED STOCKHOLDER'S
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
--------- ------- --------------- --------- -------------

Issuance of shares upon incorporation
on October 27, 2000................ 1,000
Capital contribution from MAG...... $4,000,000 $4,000,000
Stock split effective May 15,
2001............................ 6,545,430 $65,000 (65,000)
Stock split effective August 30,
2001............................ 30,250 1,000 (1,000)
Net income for the period from
January 1, 2001 through June 30,
2001 (unaudited)................ $ 531,000 531,000
Dividend paid to MAG during the
period from January 1, 2001
through June 30, 2001........... (531,000) (531,000)
--------- ------- ---------- --------- ----------
BALANCE, JUNE 30, 2001............... 6,576,680 $66,000 $3,934,000 $ -- $4,000,000
========= ======= ========== ========= ==========
</Table>

F-15
76

MERCFUEL, INC.

UNTIL , 2001, 25 DAYS AFTER COMMENCEMENT OF THE OFFERING, ALL
DEALERS THAT BUY, SELL OR TRADE SHARES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN
ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
77

MERCFUEL, INC.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The estimated expenses payable by us in connection with the registration of
the Shares is as follows:

<Table>

SEC Registration Fee........................................ $ 4,192
NASD Filing Fee............................................. 2,018
AMEX Listing Fee............................................ 37,500
Accounting Fees and Expenses................................ 250,000
Transfer Agent Fees......................................... 10,000
Premium for Directors and Officers' Insurance............... 10,000
Legal Fees and Expenses, including Blue Sky Fees and
Expenses.................................................. 300,000
Printing Costs.............................................. 150,000
Miscellaneous Expenses...................................... 36,290
--------
Total.................................................. $800,000
========
</Table>

- ---------------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

(a) As permitted by Delaware law, our certificate of incorporation
eliminates the liability of directors to us or our stockholders for monetary
damages for breach of fiduciary duty as directors, except to the extent
otherwise required by Delaware law.

(b) Our certificate of incorporation provides that we will indemnify each
person who was or is made a party to any proceeding by reason of the fact that
such person is or was a director or officer of the company against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith to the fullest extent authorized by Delaware law. Our bylaws provide
for a similar indemnity to our directors and officers to the fullest extent
authorized by Delaware law.

(d) Our certificate of incorporation also gives us the ability to enter
into indemnification agreements with each of our directors and officers. We
intend to enter into indemnification agreements with certain of our directors
and officers, which provide for the indemnification of our directors or officers
against any and all expenses, judgments, fines, penalties and amounts paid in
settlement, to the fullest extent permitted by law.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the foregoing provisions, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by us of expenses incurred or paid by any one of our directors, officers
or controlling persons in the successful defense of any action, suit or
proceeding) is asserted against us by such director, officer or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

II-1
78

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

In connection with its incorporation and organization in October 2000, the
Registrant issued 1,000 shares of its common stock to Mercury Air Group, Inc.
for an aggregate of $10.00. In March 2001, the Registrant sold 239,942 shares of
its common stock in a private offering, subject to consent of the Registrant's
lenders. The stock was sold in the private offering at a price of $4.35 per
share, generating gross proceeds of approximately $1,044,000. Commissions on the
sale were approximately $84,000, and expenses were approximately $100,000. In
May 2001, the Registrant effected a 6,546.43-for-one stock split of its
outstanding common stock. In August 2001, the Registrant effected a 1.0046208
for-one stock split. The Registrant believes that the initial issuance was
exempt under Section 4(2) of the Securities Act as a transaction not involving
any public offering. Registrant believes that the private offering was exempt
under Section 4(2) of the Securities Act as a transaction not involving any
public offering. Registrant believes that the stock splits were not "sales" of
securities pursuant to the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

1.1+ Form of Underwriting Agreement with VMR Capital Markets,
U.S.
3.1 Second Amended and Restated Certificate of Incorporation of
MercFuel, Inc.
3.2+ Bylaws of MerFuel, Inc.
4.1+ Form of Common Stock Certificate
5.1+ Opinion of McBreen & Kopko
10.1+ 2001 Stock Option Plan.
10.2+ Form of Master Distribution Agreement
10.3+ Form of Employee Matters Agreement
10.4+ Form of Master Technology Ownership and License Agreement
10.5+ Form of Tax Sharing Agreement
10.6+ Form of Master Transitional Services Agreement
10.7+ Form of Real Estate Matters Agreement
10.8+ Form of Master Confidential Disclosure Agreement
10.9+ Form of Indemnification and Insurance Matters Agreement
10.10 Agreement with Management & Report Technologies, Inc.
23.1 Independent Auditors' Consent and Report on Schedules
23.2 Consent of McBreen & Kopko (included as part of Exhibit 5.1)
23.3+ Consent of National Business Aviation Association, Inc.
24.1 Power of Attorney (included as part of the original
signature page)
</Table>

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

+ Previously filed

(b)Schedules

Schedule II -- Valuation and Qualifying Accounts

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
the provisions described above in Item 24, or otherwise, we have been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted

II-2
79

by such director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

(I)(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a) (3) of the
Securities Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and

(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.

(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.

(II) To provide to the underwriter at the closing specified in the
underwriting agreements certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.

(III) That (1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

(IV) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as required
by the underwriter to permit prompt delivery to each purchaser.

II-3
80

SIGNATURES

Pursuant to the requirement of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Los Angeles, State of California, on the 31st day of August, 2001.

MercFuel, Inc.

By: /s/ JOSEPH A. CZYZYK

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

Joseph A. Czyzyk

Chairman, President and Chief
Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<Table>
<Caption>
SIGNATURE CAPACITY DATE
--------- -------- ----

/s/ JOSEPH A. CZYZYK Chief Executive Officer and August 31, 2001
- ------------------------------------------------ Director
Joseph A. Czyzyk (Principal Executive Officer)

* President and Director August 31, 2001
- ------------------------------------------------
Eric Beelar

* Chief Financial Officer August 31, 2001
- ------------------------------------------------ (Principal Accounting and
John Condie Financial Officer)

* Director August 31, 2001
- ------------------------------------------------
Jeffrey R. Wescott

* Director August 31, 2001
- ------------------------------------------------
George Grkinich, Jr.

*By: /s/ JOSEPH A. CZYZYK
------------------------------------------
Joseph A. Czyzyk, Attorney-in-fact
</Table>

II-4
81

MERCFUEL, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED JUNE 30, 2001, 2000, AND 1999

<Table>
<Caption>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND DEDUCTIONS AT END OF
CLASSIFICATION OF PERIOD EXPENSES (A) PERIOD
- -------------- ------------ ---------- ----------- ----------

2001
Allowance for doubtful accounts........ $2,106,000 $3,025,000 $(3,957,000) $1,174,000
========== ========== =========== ==========
2000
Allowance for doubtful accounts........ $1,652,000 $5,000,000 $(4,546,000) $2,106,000
========== ========== =========== ==========
1999
Allowance for doubtful accounts........ $1,625,000 $1,377,000 $(1,350,000) $1,652,000
========== ========== =========== ==========
</Table>

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

(a)Accounts receivable write-off

EXHIBIT INDEX

<Table>
<Caption>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------

Form of Underwriting Agreement with VMR Capital Markets,
1.1+ U.S.
Second Amended and Restated Certificate of Incorporation of
3.1 MercFuel, Inc.
3.2+ Bylaws of MerFuel, Inc.
4.1+ Form of Common Stock Certificate
5.1+ Opinion of McBreen & Kopko
10.1+ 2001 Stock Option Plan.
10.2+ Form of Master Distribution Agreement
10.3+ Form of Employee Matters Agreement
10.4+ Form of Master Technology Ownership and License Agreement
10.5+ Form of Tax Sharing Agreement
10.6+ Form of Master Transitional Services Agreement
10.7+ Form of Real Estate Matters Agreement
10.8+ Form of Master Confidential Disclosure Agreement
10.9+ Form of Indemnification and Insurance Matters Agreement
10.10 Agreement with Management & Report Technologies, Inc.
23.1 Independent Auditors' Consent and Report on Schedules
23.2 Consent of McBreen & Kopko (included as part of Exhibit 5.1)
23.3+ Consent of National Business Aviation Association, Inc.
Power of Attorney (included as part of the original
24.1 signature page)
</Table>

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

+ Previously filed