<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-Q


              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


For the Quarter Ended March 31, 1997             Commission File Number 0-18858



                              KAISER VENTURES INC.
                              --------------------
             (Exact name of registrant as specified in its charter)

          DELAWARE                                               94-0594733
--------------------------------                           ---------------------
(State or other jurisdiction of                               (I.R.S. Employer
incorporation or organization)                               Identification No.)
 
 
                   3633 East Inland Empire Blvd., Suite 850
                          Ontario, California  91764
                   ----------------------------------------
             (Address of principal executive offices and zip code)


Registrant's telephone number, including area code: (909) 483-8500


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                  Yes [X] No

Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
                                  Yes [x] No

On April 30, 1997, the Company had 10,542,548 shares of Common Stock, $.03 par
value, outstanding (including 136,919 shares deemed outstanding and held in
reserve by the Company for issuance to the former general unsecured creditors of
Kaiser Steel Corporation pursuant to its Plan of Reorganization).
<PAGE>
 
                        TABLE OF CONTENTS TO FORM 10-Q

                                                                        PAGE
                                                                        ----
 
INTRODUCTION
 
  BUSINESS UPDATE.....................................................    1
 
PART I
 
  Item 1.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                   CONDITION AND RESULTS OF OPERATIONS................    6
 
  Item 2.         FINANCIAL STATEMENTS................................   14
 
                  CONSOLIDATED BALANCE SHEETS.........................   14
 
                  CONSOLIDATED STATEMENTS OF OPERATIONS...............   16
 
                  CONSOLIDATED STATEMENTS OF CASH FLOWS...............   17
 
                  CONSOLIDATED STATEMENT OF CHANGES IN
                   STOCKHOLDERS' EQUITY...............................   18
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS..........   19
 
PART II
 
  Item 1.         LEGAL PROCEEDINGS...................................   21
 
  Item 2.         CHANGES IN SECURITIES...............................   21
 
  Item 3.         DEFAULTS UPON SENIOR SECURITIES.....................   21
 
  Item 4.         SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS...   21
 
  Item 5.         OTHER INFORMATION...................................   21
 
  Item 6.         EXHIBITS AND REPORTS ON FORM 8-K....................   21
 
SIGNATURES............................................................   22

                                       i
<PAGE>
 
                       AVAILABILITY OF PREVIOUS REPORTS
                       --------------------------------

     The Company will furnish without charge, to each stockholder, upon written
request of any such person, a copy of the Company's annual report on Form 10-k
for the year ended December 31, 1996 (the "10-K Report") as filed with the
Securities Exchange and Commission, including the financial statement schedules
thereto.  Those requesting a copy of the 10-K Report that are not currently
stockholders of the Company may also obtain a copy directly from the Company.
Requests for a copy of the 10-K Report should be directed to Vice President-
Corporate Relations, at 3633 East Inland Empire Boulevard, Suite 850, Ontario,
California 91764.

     The reader is encouraged to read this Form 10-Q Report in conjunction with
the 10-K Report since the information contained herein is often an update of the
information in such report.

                                      ii
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

                          FORWARD-LOOKING STATEMENTS

  EXCEPT FOR THE HISTORICAL STATEMENTS AND DISCUSSIONS CONTAINED HEREIN,
STATEMENTS CONTAINED IN THIS 10-Q REPORT CONSTITUTE "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.  ANY 10-K,
ANNUAL REPORT TO STOCKHOLDERS, 10-Q OR 8-K REPORT OF THE COMPANY MAY INCLUDE
FORWARD-LOOKING STATEMENTS.  IN ADDITION, OTHER WRITTEN OR ORAL STATEMENTS WHICH
CONSTITUTE FORWARD-LOOKING STATEMENTS HAVE BEEN MADE AND MAY BE MADE IN THE
FUTURE BY THE COMPANY.  WHEN USED OR INCORPORATED BY REFERENCE IN THIS 10-Q
REPORT OR IN OTHER WRITTEN OR ORAL STATEMENTS, THE WORDS "ANTICIPATE,"
"ESTIMATE," "PROJECT" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-
LOOKING STATEMENTS.  SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES
AND ASSUMPTIONS.  SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS
MAY VARY MATERIALLY FROM THOSE ANTICIPATED, ESTIMATED, EXPECTED OR PROJECTED.
FOR EXAMPLE, ACTUAL RESULTS COULD MATERIALLY DIFFER FROM THOSE PROJECTED AS A
RESULT OF FACTORS SUCH AS, BUT NOT LIMITED TO, GENERAL ECONOMIC CONDITIONS IN
THE UNITED STATES AND SOUTHERN CALIFORNIA; THE IMPACT OF FEDERAL, STATE, AND
LOCAL LAWS AND REGULATIONS ON THE COMPANY'S DEVELOPMENT ACTIVITIES; THE IMPACT
OF WEATHER ON THE COMPANY'S CONSTRUCTION RELATED ACTIVITIES; THE DISCOVERY OF
UNANTICIPATED ENVIRONMENTAL CONDITIONS ON ANY OF THE COMPANY'S PROPERTIES; OR
THE FAILURE OF THE BANKRUPTCY DISCHARGE GRANTED TO THE COMPANY TO ADDRESS CLAIMS
AND LITIGATION THAT RELATE TO THE PRE-BANKRUPTCY ACTIVITIES OF KAISER STEEL
CORPORATION.  READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING
STATEMENTS.  THE COMPANY DISCLAIMS ANY INTENTION TO UPDATE OR REVISE ANY 
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.


                                  INTRODUCTION

BUSINESS UPDATE

GENERAL

  Kaiser Ventures Inc. ("Kaiser" or the "Company" which shall be deemed to
include its wholly-owned subsidiaries unless otherwise provided herein)
continues to work on the development of its principal assets: (i) a 50.88%
interest in Fontana Union Water Company ("Fontana Union"), a mutual water
company which is leased to Cucamonga County Water District ("Cucamonga")
pursuant to a 102-year take-or-pay lease; (ii) a 12.29% interest in Penske
Motorsports, Inc. ("PMI"), a publicly traded motorsports company; (iii)
approximately 668 acres (gross) of the former Kaiser Steel Corporation ("KSC")
steel mill site (the "Mill Site Property"); (iv) an approximate 73% interest in
Mine Reclamation Corporation ("MRC"), the Company seeking to permit a rail-haul
municipal solid waste landfill (the "Landfill Project"); and (v) the 11,350 acre
idle iron ore mine in the California desert (the "Eagle Mountain Site"), which
includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain
Townsite") and the land leased to MRC for the Landfill Project. The Company also
has approximately $107,000,000 of federal net operating loss tax carryforwards
as of December 31, 1996, which arose as a result of the bankruptcy
reorganization of KSC. The Company is the reorganized successor of KSC.

  Since the filing of the 1996 Form 10-K Report, there have been significant
developments with regard to the continued redevelopment of the Mill Site
Property and with respect to the Landfill Project.  See, "Introduction -
Business Update - Property Redevelopment and "Introduction - Business Update -
Waste Management - Eagle Mountain Landfill Project."  In addition, a reader of
this Form 10-Q Report is strongly encouraged to read the entire report, together
with the Company's 1996 Form 10-K Report for background information and a
complete understanding as to material developments concerning the Company.

                                       1
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

INVESTMENT IN FONTANA UNION WATER COMPANY

  The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga pursuant to a 102-year take-or-pay lease expiring in
2092 (the "Cucamonga Lease").  Under the terms of the Cucamonga Lease,
Cucamonga's payments to the Company are based upon established fixed quantities
of water for most of the applicable sources, multiplied by a fixed percentage of
the rate for untreated and non-interruptible water from the Metropolitan Water
District of Southern California ("MWD") as available through the Chino Basin
Municipal Water District as it may change from time-to-time (the "Lease Rate").

  During the first quarter of 1997 the Company continued its litigation with
Cucamonga in San Bernardino County Superior Court to resolve a dispute over the
interpretation of the Cucamonga Lease and the Lease Rate.  Discovery is ongoing
with a trial on the matter currently anticipated by year-end or in early 1998.

INVESTMENT IN PENSKE MOTORSPORTS, INC.

  The Company owns 1,627,923 shares, or approximately 12.29% of the common stock
of PMI.  The Company's ownership interest in PMI was acquired as a result of:
(i) its contribution in November, 1995, to PMI of approximately 480 acres, as
adjusted, of the Central Mill Site Property on which the California Speedway
("TCS") has been built; and (ii) the subsequent sale of the Speedway Business
Park, totaling approximately 54 acres to PMI in December, 1996.  PMI is traded
on the NASDAQ National Market under the symbol "SPWY".

  PMI is a leading promoter and marketer of professional motorsports in the
United States as well as an owner and operator of speedway facilities.  PMI
currently owns:  (i) Michigan International Speedway, Inc. which owns and
operates the Michigan Speedway, in Brooklyn, Michigan; (ii) The California
Speedway Corporation, the developer of TCS near Los Angeles, California; (iii)
Pennsylvania International Raceway, Inc. which owns and operates the Nazareth
Motor Speedway in Nazareth, Pennsylvania; (iv) Motorsports International Corp.,
a motorsports apparel and memorabilia company; (v) Competition Tire West, Inc.
and Competition Tire South, Inc., distributors of Goodyear racing tires in the
mid-west and southern regions of the United States; and (vi) approximately four
(4) percent of the stock of North Carolina Motor Speedway, Inc. which owns and
operates the North Carolina Motor Speedway, Rockingham, North Carolina.

  During the first quarter of 1997, PMI announced that it had entered into an
option to acquire an additional sixty five percent (65%) of the stock in North
Carolina Motor Speedway, Inc.  PMI has also offered to acquire the balance of
the stock in North Carolina Motor Speedway, Inc. North Carolina Motor Speedway
is a 1.017 mile oval track which hosts two NASCAR Winston Cup Series races, two
NASCAR Busch Grand National races and the annual Unocal 76/Rockingham Pit Crew
Championship.

  Except for minor items, the construction of TCS has been completed with its
inaugural races scheduled for the weekend of June 21, 1997.  PMI paid to the
Company a quarterly fee of $162,500 in the first quarter.  The agreement to pay
such quarterly fees expired at the end of the first quarter of 1997.  For the
first quarter of 1997, PMI announced gross revenues of $5.4 million and a
net loss of $1.5 million or $.11 per share for the first quarter of 1997. Due to
the seasonal nature of racing, losses are anticipated in the first and fourth
quarter of the year and profits in the second and third quarters. As a result,
the Company's reported share of PMI's net income/loss will reflect the seasonal
nature of PMI's business. In addition, PMI incurrred significant expenses in the
first quarter related to the start-up of TCS. The Company began accounting for
its share of PMI's net income as of April 1, 1996. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

                                       2
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

  The following table sets forth the range of the low and high reported bid
price of PMI's common stock for the first quarter of 1997, as reported on the
NASDAQ National Market System.
<TABLE>
<CAPTION>
 
1997:              LOW       HIGH
                   ---       ----
<S>                <C>       <C>
 
First Quarter      $25.00    $30.75
</TABLE>
  On May 9, 1997, the range of the reported bid price of PMI's common stock were
$31.318 and $32.125, respectively.

PROPERTY REDEVELOPMENT

  Mill Site Redevelopment Plan.  The Company is continuing to move forward with
its plans to redevelop the balance of the Mill Site Property.  After completion
of the transactions with PMI, and taking into account the land to be used for
the Mill Site materials recovery facility and transfer station ("Mill Site
MRF"), the Company now owns approximately 668 acres (gross).  However, depending
upon the final redevelopment plan and after taking into account slope loss, rail
road easements, the San Sevaine flood control channel, proposed streets and
highway improvements, the sewer treatment facility, and other similar items, the
Company anticipates having approximately 535 useable acres available for
development.  Following is a summary of the progress of the Company's
redevelopment plans during the first quarter.

  The Napa Lots, which constitute a 31 acre portion of the Central Mill Site
Property, and the MRF site, as discussed below, have already received all of the
entitlements and permits necessary for their development.  However, the balance
of the Mill Site Property, owned by the Company, requires various entitlements
and permits from San Bernardino County prior to redevelopment.  The first formal
step in the entitlement and permitting process was commenced on April 9, 1997,
when the Company filed an application for a Specific Plan with San Bernardino
County for all of its property except for approximately 26 acres within the City
of Rancho Cucamonga and the approximately 135 acres of the East Slag Pile
property.

  The Specific Plan application identified a wide variety of potential uses for
the property.  Potential uses include a rail-served distribution and commercial
park, an inter-modal rail-truck distribution center, warehousing, a commercial
truck stop, as well as other commercial and recreational uses. Of course, the
final use for any specific parcel of the Mill Site Property will be dependent
upon the real estate market and the needs of potential tenants, buyers and users
of a particular parcel and subject to the general limitations imposed by the
final Specific Plan.

  Separately and in addition to the permitting and entitlement process with the
County, the Company continued its work during the first quarter with the
California Department of Transportation and San Bernardino County to design and
obtain approval for an improved interchange at Etiwanda and the I-10 Freeway.
Such freeway improvements near the Mill Site Property would also involve the
realignment of at least one existing street and the construction of other street
improvements.

  The entire entitlement and permitting process which formally commenced April 
9, 1997, is anticipated to take ten to fourteen months and involve an
expenditure of approximately $1.5 million.  In addition, the Company will
continue to evaluate and undertake the required environmental remediation of
portions of the Mill Site Property.

  Significant capital funds will be required to implement the infrastructure and
access improvements.  The Company will seek to minimize its capital investments
for these improvements by seeking public or 

                                       3
<PAGE>
 
                      KAISER VENTURES INC. AND SUBSIDIARIES

private financing sources; by structuring joint ventures and leases; or by
contributing portions of the land for an ownership interest in operating
companies seeking to develop the land. See Management's Discussion and
Analysis of Financial Condition and Results of Operations" for additional
information.

WEST VALLEY MATERIALS RECOVERY FACILITY

  The Company and Burrtec Waste Industries, Inc. ("Burrtec"), a privately-held
company, are equal joint venture partners in the development of the West Valley
Materials Recovery Facility (the "Joint Venture"), a proposed rail-served
municipal solid waste transfer and recovery facility that, at full build out,
will be located on three parcels totaling approximately 30 acres of the Mill
Site Property .  The Mill Site MRF has, other than the necessary construction
and ancillary permits, received all required permits.  During the first quarter,
the Company and Burrtec continued to undertake those preliminary steps necessary
to construct Phase 1 of the Mill Site MRF which is currently expected to include
a 62,000 square foot building, sorting equipment, and related facilities for
waste transfer and recycling services.  Offsite improvements and the grading of
the site were completed in the first quarter. Trenching for utilities and
foundation work has commenced. The total estimated cost for Phase 1 of the Mill
Site MRF, including all equipment, is approximately $10,300,000. It is
anticipated that the Company and Burrtec will be required to guarantee any third
party financing obtained by the West Valley MRF, LLC.

  The Company is responsible for the environmental remediation of the property
for the Mill Site MRF and is currently in the process of remediating a portion
of the site.  The remediation required has been more extensive than originally
anticipated.  However, final regulatory approval of the nature and extent of the
required remediation has been obtained and the required remediation is nearing
completion.

  The Company and Burrtec have reached agreement, in principle, on the terms of
restructuring the Joint Venture as a limited liability company (the West Valley
MRF, LLC, a California limited liability company), subject to obtaining
acceptable third-party financing and the finalization of the legal documentation
between the Company and Burrtec.  It is currently anticipated that the legal
documentation and financing will be completed in the second quarter of the year.

NAPA LOTS

  On April 9, 1997, the Company and Budway Enterprises, Inc. ("Budway"), a
distributor of steel and other products, entered into an agreement for the sale
of one of the Napa Lots of approximately 15.5 acres for approximately
$2,869,515, or $4.25 a square foot.  The sales price, subject to normal closing
adjustments, will be paid by a minimum of a $1,000,000 cash down payment at the
close of the transaction with the balance of the purchase price being paid by
Budway's promissory note.  The Company will subordinate the Budway note to the
construction and permanent financing for the improvements to be built by Budway
on the lot.  This lot sale, which is subject to several contingencies including
Budway obtaining appropriate construction financing, is anticipated to close on
or before July 31, 1997.  The Company currently estimates the gain to be 
approximately $200,000, which will be recorded when the transaction is 
consummated.

WASTE MANAGEMENT

EAGLE MOUNTAIN LANDFILL PROJECT

  In 1988, the Company entered into a 100-year lease agreement (the "MRC Lease")
with MRC.  MRC is seeking to develop the Company's former iron ore mine near
Eagle Mountain, California into a large, regional rail-haul, municipal solid
waste landfill.  MRC became a subsidiary of the Company when the Company's
subsidiary, Eagle Mountain Reclamation, Inc., acquired a 70% interest in MRC
during the first quarter of 1995 in exchange for the elimination of the minimum
monthly rent due the Company under the 

                                       4
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

MRC Lease. The elimination of the minimum monthly rent did not change the future
royalty payments due the Company once the landfill commences operations.

  Financing.  Since its initial acquisition of an equity interest in MRC, the
Company, through its wholly-owned subsidiary, Eagle Mountain Reclamation, Inc.,
has made additional equity investments in MRC through a series of private
placements with other MRC shareholders.  Currently, the Company's ownership
interest in MRC is approximately 73%.  Because additional funding was needed to 
continue permitting activities, MRC completed a private placement of $2.5 
million during the first quarter 1997.  The Company is expected to invest 
approximately $1.9 million for its portion of this $2.5 million placement by the
end of the second quarter 1997.  The Company also agreed to provide MRC with 
up to an additional $1.8 million in equity during 1997.  It is anticipated that 
additional equity contributions of approximately $1.9 million by the Company may
be required in 1998.  Financing in addition to that noted above will be required
to complete the permitting of the Landfill Project, to fund anticipated
litigation costs and to ultimately construct the Landfill Project.

  Permitting.  During the first quarter of 1997, MRC continued to pursue the
activities necessary to re-permit the Landfill Project.  The final environmental
impact report/environmental impact statement ("EIR/EIS") prepared by Riverside
County's and the U.S. Bureau of Land Management's ("BLM") independent consultant
was released to the public in January, 1997.  The EIR/EIS examines the Landfill
Project's potential impacts to such items as air quality, water, traffic, noise,
and natural resources and also identifies measures to mitigate potential
impacts.

  After the release of the final EIR/EIS, the Riverside Planning Commission held
a total of seven public meetings on the Landfill Project.  Extensive public
comment on the Landfill Project was received and considered by the Planning
Commission.  After a complete and thorough review of the Landfill Project by the
Riverside County Planning Commission, on May 7, 1997 the Planning Commission by
a 4 to 1 vote recommended to the Riverside County Board of Supervisors approval
of the Landfill Project.  The Landfill Project must now be considered by the
Riverside County Board of Supervisors.  It is currently anticipated that the
Riverside County Board of Supervisors will schedule hearings on the Landfill
Project within the next 90 days.  However, the Board has not, to date,
established a hearing schedule.  Furthermore, as discussed in more detail in the
Company's 1996 10-K Report, it is unknown if the Board will delay the hearing of
the Landfill Project until the conclusion of the investigation by the Federal
Bureau of Investigation of Western Waste, Inc. which is proposing a major
expansion of its El Sobrante landfill in Western Riverside County. MRC and the
Landfill Project have no affiliation with Western Waste, Inc. and the El
Sobrante project, but the Riverside County Board of Supervisors put at least a
six month moratorium on the consideration of new or expanded landfills in
October, 1996. Once the EIR and EIS is approved, assuming the EIR and EIS
receive the necessary approvals, it will probably take up to an additional year
to secure the necessary technical permits for the Landfill Project.

  As is discussed in more detail in the Company's 1996 Form 10-K Report, there
are numerous risks associated with MRC and the Landfill Project which must be
overcome to achieve the financing, permitting, construction and operation of the
Landfill Project. There have been and will continue to be opponents to the
Landfill Project. Given the legal challenges that have occurred to date and the
controversies that generally surround landfill projects, future legal challenges
are likely. The current anticipated time schedule for the Landfill Project is
based on forward-looking information and as a result, the time schedule may not
be achieved, because of the risks associated with the Project as well as delays
inherent in the process.

                                       5
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                                     PART I

ITEM 1.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

                         SECTION 1:  OPERATING RESULTS

GENERAL

  Kaiser Ventures Inc. ("Kaiser" or the "Company") is an emerging asset
development company pursuing project opportunities and investments in activities
related to water resources, motorsports, property redevelopment and solid waste
management.  The Company's long-term emphasis is on the further development of
its principal assets:  (i) a 50.88% interest in Fontana Union Water Company
("Fontana Union"), a mutual water company; (ii) a 12.29% interest in Penske
Motorsports, Inc. ("PMI"), a publicly-traded professional motorsports company
that has developed the California Speedway ("TCS") on land acquired from the
Company; (iii) approximately a 73% interest in Mine Reclamation Corporation
("MRC"), the developer of the Eagle Mountain Landfill Project (the "Landfill
Project"); (iv) approximately 668 acres of the former Kaiser Steel Corporation
("KSC") steel mill site (the "Mill Site Property"); and (v) the 11,350 acre idle
iron ore mine in the California desert (the "Eagle Mountain Site"), which
includes the associated 460 acre town of Eagle Mountain ("Eagle Mountain
Townsite") and the land leased to MRC for the Landfill Project.  The Company is
also pursuing other related longer-term growth opportunities on the balance of
its Mill Site Property, including the development of a transfer station and
materials recovery facility ("Mill Site MRF") and the redevelopment of
industrial and commercial parcels of land near TCS and the Mill Site MRF.

PRIMARY REVENUE SOURCES

ONGOING OPERATIONS

  The Company's revenues from ongoing operations are generally derived from the
development of the Company's long-term projects.  Revenues from water resources
represent payments under the lease of the Company's interest in Fontana Union to
Cucamonga County Water District ("Cucamonga").  Property redevelopment revenues
primarily reflect revenues from long-term redevelopment activities at the Mill
Site property; housing rental income, aggregate rock sales and lease payments
for the minimum security prison at the Eagle Mountain Townsite; and royalty
revenues from iron ore shipments from the Company's iron ore mine in California
(the "Silver Lake Mine").  Income from equity method investments reflect
Kaiser's share of income related to those equity investments (primarily PMI) and
joint ventures which the Company accounts for under the equity method.

INTERIM ACTIVITIES

  Revenues from interim activities are generated from various sources primarily
related to the Mill Site Property.  Significant components of interim activities
include rentals under short-term tenant lease arrangements, royalty revenues
from the sale of slag to outside contractors, water and wastewater treatment
service revenues (through 1996), revenues from the sale of recyclable materials
and other miscellaneous short-term activities.

                                       6
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

SUMMARY OF REVENUE SOURCES

  Due to the development nature of certain Company projects and the Company's
recognition of revenues from bankruptcy-related and other non-recurring items,
historical period-to-period comparisons of total revenues may not be meaningful
for developing an overall understanding of the Company.  Therefore, the Company
believes it is important to evaluate the trends in the components of its
revenues as well as the recent developments regarding its long-term ongoing and
interim revenue sources.  See "Introduction. Business Update." for a discussion
of recent material events affecting the Company's revenue sources.

  In addition, due to the concentration of motorsport racing events between
April and September, PMI's operations have been, and will continue to be, highly
seasonal. PMI has no current plans to host any major racing events in the first
quarter and only one major racing event in the fourth quarter at its existing
facilities.  As a result, the Company's reported share of undistributed equity
in the earnings of PMI will likely be positive (income) in the second and third
quarters and negative (loss) in the first and fourth quarters.

RESULTS OF OPERATIONS

ANALYSIS OF RESULTS FOR THE QUARTERS ENDED MARCH 31, 1997 AND 1996

  An analysis of the significant components of the Company's resource revenues
for the Quarters ended March 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
 
                                               1997           1996       % INC. (DEC)
                                           ------------   ------------   -------------
<S>                                        <C>            <C>            <C>
ONGOING OPERATIONS
 Water resource.........................    $1,133,000     $1,116,000              2%
 Property redevelopment.................       342,000        263,000             30%
 Income (Loss) from equity method
   investments..........................       (23,000)       163,000           (114%)
                                            ----------     ----------
 
   TOTAL ONGOING OPERATIONS.............     1,452,000      1,542,000             (6%)
 
INTERIM ACTIVITIES
 Lease, service and other...............       385,000        475,000            (19%)
                                            ----------     ----------
 
   TOTAL RESOURCE REVENUES..............    $1,837,000     $2,017,000             (9%)
                                            ==========     ==========
 
REVENUES AS A PERCENTAGE OF TOTAL
RESOURCE REVENUES:
 Ongoing operations.....................            79%            76%
 Interim activities.....................            21%            24%
                                            ----------     ----------
 
  TOTAL RESOURCE REVENUES...............           100%           100%
                                            ==========     ==========
</TABLE>

  Resource Revenues.  Total resource revenues for the first quarter of 1997 were
$1,837,000, compared to $2,017,000 for 1996.  Revenues from ongoing operations
decreased 6% during the quarter to $1,452,000 from $1,542,000 in 1996, while
revenues from interim activities declined 19% to $385,000 from $475,000 in 1996.
Revenues from ongoing operations as a percentage of total revenues increased to
79% in 1997 from 76% in 1996.

  Ongoing Operations. Water lease revenues under the Company's take-or-pay lease
with Cucamonga, which terminates in the year 2092, were $1,133,000 during the
first quarter of 1997 compared to 

                                       7
<PAGE>
 
                      KAISER VENTURES INC. AND SUSIDIARIES

$1,116,000 for 1996. The 2% increase in water revenues during the quarter
reflects an increase, effective February 1, 1997, in the rate, from $346 per
acre foot to $351 per acre foot, that Cucamonga is paying the Company for water
under the lease with Cucamonga. As previously disclosed, Metropolitan Water
District of Southern California ("MWD"), effective July 1, 1995, implemented
changed rates and a changed rate structure which resulted in the continuing
lease interpretation dispute with Cucamonga regarding the extent of the MWD rate
increases. Although the Company is continuing to bill Cucamonga at what it
believes is the correct MWD rate under the lease with Cucamonga, the Company has
elected to reserve the full amount in dispute and report revenues on the basis
of amounts actually received from Cucamonga. The total amount of lease payments
in dispute as of March 31, 1997 is approximately $872,000. In addition, MWD has
stated that it may further refine its rate structure in the near future.

  Property redevelopment revenues were $342,000 for 1997 compared to $263,000
for 1996.  The 30% increase from 1996 is primarily a result of:  (a) the
classification, in 1997, as ongoing operations-property redevelopment, the
revenue related to the Mill Site sewer treatment plant as a result of the
Company's renewed commitment to provide sewer services to PMI and future Mill
Site tenants ($56,000); and (b) higher iron ore sales from the Company's
California mines ($18,000).

  Income (loss) from equity method investments decreased to a loss of $23,000
for the first quarter of 1997 compared to $163,000 for 1996 as a result of the
Company's 12.29% share of PMI's reported net loss during the first quarter of
1997 which amounted to $185,000 offsetting the $163,000 quarterly project
service fee due from PMI. The Company is recording its investment in PMI on the
equity method and began recording its share of PMI's net income concurrent with
conversion of the Company's preferred stock into common stock at the end of the
first quarter of 1996.  As previously disclosed, the quarterly project service
fee agreement terminated as of March 31, 1997.

  Interim Activities.  Revenues from interim activities for the first quarter of
1997 were $385,000 compared to $475,000 for 1996. The 19% decrease in revenues
from interim activities in 1997 is primarily attributable to lower scrap
revenues ($138,000) and the classification of the sewer treatment plant revenues
from interim activities commencing in 1997 ($53,000) being partially offset by
increases in tenant rental and related revenue ($88,000) and slag revenue
($13,000).

  Resource Operating Costs.  Resource operating costs are those costs directly
related to the resource revenue sources.  Total resource operating costs for the
first quarter of 1997 increased to $833,000 from $724,000 in 1996.  Operations
and maintenance costs for 1997 were $305,000 compared to $248,000 for 1996.  The
23% increase in 1997 operations and maintenance costs was primarily due to
higher property tax expense associated with the land improvements recently
completed at the Mill Site ($30,000) and increased building and equipment
maintenance ($16,000).  Administrative support expenses for the first quarter of
1997 increased 11% to $528,000 from $476,000 for 1996.  The increase was
primarily due to increases in insurance expense because of the addition of third
party environmental pollution coverage insurance for the Mill Site ($29,000),
outside professional costs ($16,000) and depreciation expense on the recently
completed railroad improvements at the Mill Site ($9,000).

  Corporate General and Administrative Expenses.  Corporate general and
administrative expenses for the first quarter of 1997 increased 16% to
$1,116,000 from $958,000 for 1996.  The increase is due to higher professional,
legal and outside consulting expenses ($178,000).

  Net Interest Expense.  Net interest expense for the first quarter of 1997 was
$183,000 compared to $111,000 in 1996.  The increase was due primarily to
interest expense associated with increased borrowings under the Union Bank of
California ("Union Bank") credit facility.

                                       8
<PAGE>
 
                    KAISER VENTURES INC. AND SUBSIDIARIES  

  Pretax Income (Loss) and Income Tax Provision.  The Company recorded a loss
before income tax provision of $295,000 for the first quarter of 1997 versus
pretax income of $224,000 recorded in 1996.  An income tax benefit of $121,000
was recorded in the first quarter of 1997 as compared with an income tax
provision $97,000 in 1996.  Historically over 90% of the tax provisions are not
currently payable due primarily to utilization of the Company's net operating
loss carryforwards ("NOL's").  Consequently, pretax income is an important
indicator of the Company's performance.

  Net Income (Loss).  For first quarter of 1997, the Company reported a net loss
of $174,000, or $.02 per share versus net income of $127,000, or $.01 per share,
reported for 1996.

COMPREHENSIVE INCOME

  The Financial Accounting Standards Board ("FASB") proposed, in 1996, a new
accounting statement concerning the reporting of comprehensive income.
Comprehensive income is defined as the aggregate of all changes in shareholder's
equity that occurred during the reporting periods other than changes resulting
from equity investments by or dividends and distributions to shareholders.  The
purpose of the FASB proposal, which has not been adopted by the FASB and is,
therefore, not considered a generally accepted accounting principle, is to
highlight and disclose all transactions that impact shareholders equity
regardless of whether or not they flow through the consolidated income
statement.  Comprehensive income, which should not be used as a replacement for
net income, is a very meaningful performance measure for Kaiser because of the
amount of deferred tax expense credited directly to equity caused by the
Company's NOL carryforwards and because of the impact of other transactions such
as the increase in equity due to the 1996 PMI public offering.  Comprehensive
income and comprehensive income per share for the first quarter ended March 31,
1997, and 1996 are as follows:
<TABLE>
<CAPTION>
 
                                              1997          1996
                                           -----------   ----------
 
<S>                                        <C>           <C>
Net Income (Loss).......................    $(174,000)   $  127,000
Deferred tax expense credited to equity.          ---        90,000
Increase in investment in Penske               
 Motorsports, Inc.......................          ---     6,116,000
                                            ---------    ----------
Comprehensive (loss) income.............     (174,000)    6,333,000
                                            =========    ==========

Comprehensive (loss) income per share...    $    (.02)   $      .59
                                            =========    ==========
 
Earnings (Loss) per Share...............    $    (.02)   $      .01
                                            =========    ==========
</TABLE>

                         SECTION 2:  FINANCIAL POSITION

  Cash and Cash Equivalents.  The Company defines cash equivalents as highly
liquid debt instruments with original maturities of 90 days or less.  Cash and
cash equivalents decreased $2,883,000 to $5,599,000 at March 31, 1997 from
$8,482,000 at December 31, 1996. Included in cash and cash equivalents is
$1,932,000 and $1,766,000 held solely for the benefit of MRC at March 31, 1997
and December 31, 1996, respectively.  The decrease in cash and cash equivalents
is due primarily to the $2,570,000 in capital expenditures and $924,000 in
environmental remediation.

  Working Capital.  During the first quarter of 1997, current assets decreased
$2,891,000 to $8,927,000 while current liabilities decreased $208,000 to
$12,850,000. The decrease in current assets resulted primarily from the
$2,883,000 decrease in cash and cash equivalents, discussed above. The decrease
in current liabilities resulted primarily from payments of yearend accruals.
Included in current liabilities at March 31, 

                                       9
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES

1997 and December 31, 1996 is $6,286,000 and $5,757,000, respectively, for
environmental remediation expenditures expected to be incurred over the next 12
months. Current liabilities at March 31, 1997, and December 31, 1996 also
include $1,443,000 and $1,616,000, respectively, in accounts payable and accrued
liabilities relating to MRC. As a result, working capital decreased during the
first quarter of 1997 by $2,683,000 to a negative $3,923,000 at March 31, 1997.

  Real Estate.  Real Estate increased $696,000 during the first quarter of 1997
due to capital expenditures related to redevelopment of the Mill Site
properties.

  Investments.  The decrease in investment in PMI is related to the Company's
recording of its share of equity in PMI's undistributed loss during the first
quarter of 1997, which amounted to $185,000.

  Other Assets.  The increase in other assets is primarily related to
approximately $1.2 million of capitalized landfill permitting and development
costs for MRC.

  Environmental Remediation.  As is discussed extensively in the Company's 1996
Form 10-K Report, the Company estimates, based upon current information, that
its future remediation and other environmental costs for the balance of its land
and related matters, including groundwater and other possible third party
claims, will be between approximately $20 million and $32 million, depending
both upon the ultimate extent of the environmental remediation and clean-up
effort involved and which approved remediation alternatives are eventually
selected.  In addition, the Company elected, in 1996, to restate its balance
sheets to show the amount of future environmental related costs as a separate
liability in its financial statements.  The restatement reflects the original
$34.7 million remediation adjustment to land; and the $6.6 million groundwater
remediation reserve recorded in 1988 when the Company emerged from bankruptcy as
the reorganized successor of KSC; and the net $12.5 million in environmental
insurance litigation settlement proceeds received in 1995 being offset by
approximately $22.3 million in total remediation and other environmental costs
expended through March 31, 1997.

  As of March 31, 1997, the total short-term and long-term environmental
liabilities including remediation reflected on the Company's balance sheet was
approximately $31.5 million, the high end of the probable range of future
remediation and other environmental costs, which declined from the $32.2 million
as of December 31, 1996.  The decrease is a result, primarily, of the $721,000
in remediation and other environmental costs incurred in the first quarter of
1997 on the Mill Site property.

  Although ongoing environmental investigations are being conducted on the Mill
Site Property and management believes it is currently in a position to estimate
with some reasonable certainty future investigation and remediation costs, there
can be no assurance that the actual amount of environmental remediation
expenditures to be incurred will not substantially exceed those currently
anticipated or that additional areas of contamination may not be identified.
Accordingly, future facts and circumstances could cause these estimates to
change significantly.

  Long-term Debt.  As of March 31, 1997, the Company had $8,042,000 in long-term
debt comprised of $5,042,000 of debt issued as part of the purchase of
properties from the Lusk Joint Ventures in July 1994 and $3,000,000 borrowed
under the $30,000,000 revolving-to-term credit facility with Union Bank.

  Long-term Liabilities.  The decrease in other long-term liabilities is
primarily due to the $721,000 in environmental remediation undertaken during the
first quarter of 1997, and an increase of $529,000 in the current portion of
environmental remediation.

  Minority Interest and Other Liabilities.  As of March 31, 1997, the Company
has recorded $2,016,000 of minority interest relating to MRC in which the
Company had approximately a 73% equity interest.

                                       10
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


  Contingent Liabilities.  The Company has contingent liabilities more fully
described in the notes to the financial statements.

                          SECTION 3:  BUSINESS OUTLOOK

  The statements contained in this Business Outlook are based upon current
expectations.  In addition to the forward-looking statements and information
contained elsewhere in this Report and the Company's 1996 Form 10-K Report,
these statements are forward-looking and, therefore, actual results may differ
materially.

  On-Going Operations.  As noted above, the Company's revenues from ongoing
operations are generally derived from the development of the Company's major
long-term projects and investments.  The development of a number of these
projects and investments, such as the take-or-pay lease with Cucamonga and the
12.29% equity ownership in PMI, are essentially complete and the Company is
recognizing significant revenues and income from these investments.  The Company
expects revenues from these projects and investments to increase moderately over
time as certain key economic factors impacting these projects and investments
increase.

  In regard to the lease with Cucamonga, the most significant economic factor
affecting future water lease revenues is likely to be adjustments in the MWD
rate for untreated and non-interruptible water as available through the Chino
Basin Municipal Water District (the "Lease Rate") upon which the lease payments
are calculated.  The MWD rate established for untreated, non-interruptible water
is based on a number of factors, including MWD's need for funds to finance
capital improvements and to cover large fixed overhead costs.  After  increasing
at an average of over 9.0% per year during the past 35 years, MWD is projecting
that the MWD rate for untreated, non-interruptible water, including all of the
changed rates and charges implemented by MWD since July 1, 1995, will likely
increase at less than 5.0% per year for the next 3-5 years.  This reduction is
due to a reduced capital budget, lower overhead, lower borrowing costs and
reduced levels of inflation.  Also affecting the Company's future water lease
revenues is the dispute with Cucamonga regarding the calculation of the Lease
Rate.  A ruling in favor of the Company would result in the receipt of all or a
portion of the $872,000 of lease payments in dispute as of March 31, 1997, which
the Company has fully reserved.

  In regard to the Company's 12.29% investment in PMI, the most significant
factors affecting the Company's future equity income from PMI will be the
increased revenues and net income generated by PMI from the expansion of its
professional motorsports operations.  Critical to this expansion is the
successful startup of the TCS that is on land acquired from the Company.
Construction of TCS is virtually completed and it will hold its first major
races, the International Race of Champions and a NASCAR Winston West series race
on June 21, 1997, followed by the "NAPA 500" NASCAR Winston Cup race, on June
22, 1997.  Three other major events, the "Marlboro 500" CART PPG World Series
Event on September 28, 1997 and a NASCAR Busch Series race on October 17, 1997,
and a Sears Craftsman Truck Series on October 18, 1997, are also scheduled.  The
success of these events, coupled with the results of the other ten major racing
events schedule for PMI's MIS and Nazareth speedways and PMI's other motorsports
related operations, will determine the amount of income from equity method
investments the Company reports in the future.

  The Company is also spending a significant amount of capital in the continued
development of its two other major project and investment opportunities: the
redevelopment of the remaining approximately 668 acres (gross) of the Company's
Mill Site Property and the re-permitting of the Eagle Mountain Landfill by MRC,
the Company's 73% owned subsidiary.  If it is successful in completing the
development of these 

                                       11
<PAGE>
 
                     KAISER VENTURES INC. AND SUBIDIARIES

two projects as planned, the Company expects to generate significant future
revenues and net income from them. However, as is noted elsewhere in this
Report, there are also numerous risks associated with completing the re-
permitting of the Eagle Mountain Landfill and the redevelopment of the remaining
Mill Site Property that could materially impact the Company's future revenues
and net income from these projects.

  In regard to the redevelopment of the remaining approximately 668 acres
(gross) of the Mill Site Property, the Company is currently undertaking efforts
to obtain the entitlement and permits necessary to develop the remaining 668
acres for a variety of possible commercial, industrial and recreational uses.
These efforts, which will continue throughout 1997 and into 1998, include the
approval of possible changes that would alter and improve the existing access to
portions of the Mill Site Property.  In support of these efforts, the Company
expects to spend, in 1997, up to approximately $7.0 million for required
environmental remediation and approximately $3.5 million for real estate
entitlement and improvement expenditures.  The $7.0 million to be spent in 1997
for required environmental remediation is a component of the $20-32 million
estimate to complete all remaining required remediation for the Mill Site
Property.  In addition, substantial capital expenditures beyond the $3.5 million
projected for 1997 will be required to complete the necessary on-site and off-
site improvements for the redevelopment of remaining Mill Site property.

  In regard to the Eagle Mountain Landfill, MRC continues to pursue the
activities necessary to re-permit the Landfill Project.  The final EIR/EIS was
completed and released in January 1997 and on May 7, 1997 the Riverside County
Planning Commission voted to approve the EIR and forward its recommendations to
the Riverside County Board of Supervisors.  The Company expects that the
Supervisors will act on the Landfill Project during the middle of 1997; however,
there are a number of issues and actions that could delay such action.  In
addition, even if the Supervisors approve the Landfill Project, the Company
anticipates further litigation by the opponents to the Landfill Project in state
and federal court in an effort to block the Landfill Project.  The Company
expects to contribute approximately $3.7 million in equity to support MRC's
landfill re-permitting efforts in 1997 plus approximately $1.9 million in 1998.

  Capital Resources.  The Company expects that its current cash balances and
short-term investments together with:  (a) cash provided from operating
activities; (b) amounts available under its revolving-to-term credit facility
with Union Bank (less, at March 31, 1997, $2,832,000 in reductions in the
borrowing base and $5,510,000 reserved for financial assurances required by the
DTSC and relating to environmental remediation on the Mill Site Property) will
be sufficient to satisfy both the Company's near-term operating cash
requirements and to enable the Company to continue to fund the development of
its long-term projects and investments.  As was discussed in more detail above,
the Company expects to commit, in 1997, a total of approximately $14.2 million
for capital projects and investments.  To the extent that additional capital
resources are required, such capital will be raised through bank borrowings,
partnerships, joint venture arrangements, additional equity or the sales or
monetization of assets.

  Improved Cash Flow from Use of Net Operating Loss Tax Carryforwards.  Due to
the Company's status as successor to KSC and its use of KSC-related NOLs, income
taxes actually paid by the Company are substantially less than the income tax
provision reported in its financial statements.  The tax benefit associated with
the utilization of these NOLs is reflected as an increase to stockholders'
equity rather than as an increase to net income.  The Company expects that its
use of these NOLs will substantially reduce the cash paid for income taxes until
these NOLs are fully utilized.  The total NOLs at March 31, 1997, are estimated
to be approximately $107,000,000 for federal purposes and $11,000,000 for
California purposes.  The federal NOLs expire in varying amounts over a period
from year 2000 to 2010 while the California NOLs expire in year 1997 and 2000.

                                       12
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


  It should be noted that if, within a three-year period, 50% or more of the
stock of the Company changes ownership, the future annual use of NOLs may be
limited.  The annual limitation would be calculated as the product of:  (i) the
highest long-term tax-exempt rate for a designated period prior to the ownership
change; and (ii) the market value of the Company at such time.

                 [Remainder of Page Intentionally Left Blank]

                                       13
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES



                          CONSOLIDATED BALANCE SHEETS
                                     AS OF

<TABLE>
<CAPTION>
 
 
                                             MARCH 31,     DECEMBER 31,
                                               1997            1996
                                           -------------   -------------
                                            (Unaudited)
ASSETS
 
Current Assets
<S>                                        <C>             <C>
  Cash and cash equivalents............     $  5,599,000    $  8,482,000
  Accounts receivable and other, net of
   allowance for doubtful accounts of
   $1,168,000 and $1,034,000 
   respectively.........................       3,209,000       3,217,000
   Insurance Settlement receivable......         119,000         119,000
                                            ------------    ------------
 
                                               8,927,000      11,818,000
                                            ------------    ------------
 
Investment in common stock of Penske
 Motorsports, Inc.
  (Fair market value of 1,627,923       
  shares equal to $45,989,000 as of    
  March 31, 1997).......................      38,678,000      38,863,000
                                            ------------    ------------
    
 
Investment in Fontana Union Water             
 Company................................      16,108,000      16,108,000    
                                            ------------    ------------
 
Real Estate
   Land and improvements................      52,635,000      52,274,000
   Real estate under development........       6,728,000       6,393,000
                                            ------------    ------------
 
                                              59,363,000      58,667,000
                                            ------------    ------------
 
Other Assets
   Landfill permitting and development..       6,804,000       5,645,000
   Buildings and equipment (net)........       2,152,000       2,210,000
   Other assets and investments.........         969,000         756,000
                                            ------------    ------------
 
                                               9,925,000       8,611,000
                                            ------------    ------------
 
Total Assets............................    $133,001,000    $134,067,000
                                            ============    ============
 
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.

                                       14
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                          CONSOLIDATED BALANCE SHEETS
                                     AS OF

<TABLE>
<CAPTION>
 
 
                                             MARCH 31,     DECEMBER 31,
                                               1997            1996
                                           -------------   -------------
                                            (Unaudited) 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Current Liabilities
<S>                                        <C>             <C>
   Accounts payable.....................    $  2,100,000    $  2,936,000
   Accrued liabilities..................       4,224,000       4,125,000
   Current portion of long-term debt....         240,000         240,000
   Environmental remediation............       6,286,000       5,757,000
                                            ------------    ------------
 
                                              12,850,000      13,058,000
                                            ------------    ------------
 
Long-term Liabilities
   Accrued liabilities..................       1,424,000       1,417,000
   Deferred tax liabilities.............       1,958,000       1,958,000
   Long-term debt.......................       8,042,000       8,102,000
   Environmental remediation............      25,216,000      26,466,000
                                            ------------    ------------
 
                                              36,640,000      37,943,000
                                            ------------    ------------
 
Total Liabilities.......................      49,490,000      51,001,000
                                            ------------    ------------
 
Minority Interest.......................       2,016,000       1,618,000
                                            ------------    ------------
 
Commitments and Contingencies
 
Stockholders' Equity
   Common stock, par value $.03 per share, 
    authorized 13,333,333 shares; issued 
    and outstanding 10,511,790 and            
    10,488,114 respectively.............         316,000         315,000
   Capital in excess of par value.......      70,657,000      70,437,000
   Retained earnings since November 15,       
    1988................................      10,522,000      10,696,000
                                            ------------    ------------
 
Total Stockholders' Equity..............      81,495,000      81,448,000
                                            ------------    ------------
 
Total Liabilities and Stockholders'         
 Equity.................................    $133,001,000    $134,067,000
                                            ============    ============
 
 
</TABLE>




The accompanying notes are an integral part of the consolidated financial
statements.

                                       15
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES



                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      FOR THE THREE MONTHS ENDED MARCH 31
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                               1997          1996
                                           ------------   -----------
<S>                                        <C>            <C>
RESOURCE REVENUES
 Ongoing Operations
  Water resource........................   $ 1,133,000    $ 1,116,000
  Property redevelopment................       342,000        263,000
  Income (loss) from equity method             
   investments..........................       (23,000)       163,000
                                           -----------    -----------
 
     Total ongoing operations...........     1,452,000      1,542,000
                                           -----------    -----------
 
 Interim Activities
  Lease, service and other..............       385,000        475,000
                                           -----------    -----------
 
     Total resource revenues............     1,837,000      2,017,000
                                           -----------    -----------
 
RESOURCE OPERATING COSTS
 Operations and maintenance.............       305,000        248,000
 Administrative support expenses........       528,000        476,000
                                           -----------    -----------
 
     Total resource operating costs.....       833,000        724,000
                                           -----------    -----------
 
INCOME FROM RESOURCES...................     1,004,000      1,293,000
 
 Corporate general and administrative        
  expenses..............................     1,116,000        958,000
                                           -----------    -----------
 
INCOME (LOSS) FROM OPERATIONS...........      (112,000)       335,000
 
 Net interest expense...................       183,000        111,000
                                           -----------    -----------
 
INCOME (LOSS) BEFORE INCOME TAX               
 PROVISION..............................      (295,000)       224,000
 
 Income tax provision
  Currently payable.....................         7,000          7,000
  Deferred tax expense (benefit)........      (128,000)           ---
  Deferred tax expense credited to            
   equity...............................           ---         90,000
                                           -----------    -----------
 
 
NET INCOME (LOSS).......................   $  (174,000)   $   127,000
                                           ===========    ===========
 
EARNINGS (LOSS) PER SHARE...............         $(.02)          $.01
                                           ===========    ===========
 
WEIGHTED AVERAGE NUMBER OF SHARES           
 OUTSTANDING............................    10,732,000     10,748,000
 
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.

                                       16
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDARIES


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      FOR THE THREE MONTHS ENDED MARCH 31
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                               1997           1996
                                           ------------   ------------
<S>                                        <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
 Net income (loss)......................   $  (174,000)   $   127,000
 Provision for income tax which is     
  credited to equity....................           ---         90,000
 Equity (loss) income in Penske         
  Motorsports, Inc. ....................       185,000            ---
 Deferred tax (benefit) expense.........      (128,000)          ,000
 Depreciation and amortization..........       213,000        136,000
 Allowance for doubtful accounts........       134,000         44,000
 Changes in assets:
   Receivable and other.................      (126,000)       475,000
 Changes in liabilities:
   Current liabilities..................       347,000       (463,000)
   Long-term accrued liabilities........         7,000         (3,000)
                                           -----------    -----------
 
 Net cash flows from operating          
  activities............................       458,000        406,000
                                           -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Minority interest and other liabilities       398,000        105,000
 Capital expenditures...................    (2,570,000)    (1,985,000)
 Environmental remediation expenditures.      (924,000)    (3,181,000)
 Investment in Penske Motorsports, Inc..           ---        264,000
 Other investments......................       (85,000)      (103,000)
                                           -----------    -----------
 
 Net cash flows from investing            
  activities............................    (3,181,000)    (4,900,000)
                                           -----------    ----------- 
CASH FLOWS FROM FINANCING ACTIVITIES
 Issuance of common stock...............           ---         64,000
 Principal payments on note payable.....       (60,000)       (60,000)
 Payment of loan fees...................      (100,000)           ---
                                           -----------    -----------
 
 Net cash flows from financing          
  activities............................      (160,000)         4,000
                                           -----------    -----------
NET CHANGES IN CASH AND CASH EQUIVALENTS    (2,883,000)    (4,490,000)
 
CASH AND CASH EQUIVALENTS AT BEGINNING   
 OF YEAR................................     8,482,000     10,863,000
                                           -----------    -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR   $ 5,599,000    $ 6,373,000
                                           ===========    ===========
 
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.

                                       17
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                   FOR THE THREE MONTHS ENDED MARCH 31, 1997
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                                        
                                       COMMON STOCK         CAPITAL IN
                               -------------------------    EXCESS OF       RETAINED
                                    SHARES      AMOUNT      PAR VALUE       EARNINGS          TOTAL
                               -----------------------------------------------------------------------
 
<S>                               <C>          <C>         <C>            <C>             <C>
Balance at December 31, 1996...   10,488,114    $315,000    $70,437,000    $10,696,000     $81,448,000
 
   Issuance of shares of
       common stock............       23,676       1,000        220,000            ---         221,000
 
   Net Income..................          ---         ---            ---       (174,000)       (174,000)
                                  ----------    --------    -----------    -----------     -----------
 
Balance at March 31, 1997......   10,511,790    $316,000    $70,657,000    $10,522,000     $81,495,000
                                  ==========    ========    ===========    ===========     ===========
 
</TABLE>



The accompanying notes are an integral part of the consolidated financial
statements.

                                       18
<PAGE>
 
                     KAISER VENTURES INC. AND SUBSIDIARIES


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)


NOTE 1.   BASIS OF PRESENTATION

  The unaudited, consolidated financial statements as of March 31, 1997, and for
the three month period ended March 31, 1997 and 1996, as well as related notes
should be read in conjunction with the audited consolidated financial statements
and related notes as of and for the year ended December 31, 1996.  In the
opinion of management, the accompanying unaudited financial statements contain
all adjustments necessary (all of which are normal and/or recurring in nature)
to present fairly the Company's financial position at March 31, 1997, and
results of operations and cash flows for the three month periods ended March 31,
1997 and 1996.

  The Company has reclassified certain 1996 quarterly information to conform
with the 1997 presentation.


NOTE 2.   CUCAMONGA LEASE

  The Company, through a wholly-owned subsidiary, Fontana Water Resources, Inc.,
leases its 50.88% ownership of the capital stock of Fontana Union, a mutual
water company, to Cucamonga County Water District ("Cucamonga") pursuant to a
take-or-pay lease (the "Cucamonga Lease") that terminates in the year 2092.  The
Company continues its litigation with Cucamonga in San Bernardino County
Superior Court to resolve a dispute over the interpretation of the Cucamonga
Lease.  The dispute centers upon whether or not the Lease Rate in the Cucamonga
Lease should be interpreted as the Company asserts to include all the changed
rates and items implemented by Metropolitan Water District of Southern
California ("MWD") since July 1, 1995.  Cucamonga continues to pay under the
terms of the Cucamonga Lease, but at a rate substantially less than the Lease
Rate that the Company maintains it is entitled to receive pursuant to the
Cucamonga Lease.  Although the Company is continuing to bill Cucamonga at what
it believes is the correct Lease Rate, the Company has elected to reserve the
full amount in dispute and report revenues on the basis of amounts received.
The total amount of lease payments in dispute as of March 31, 1997 is
approximately $872,000.


NOTE 3.   SUPPLEMENTAL CASH FLOW INFORMATION

  During the first quarter of 1997 the Company issued $221,000 of common stock
for payment of 1996 bonuses and 1997 compensation.


NOTE 4.   COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL CONTINGENCIES

  The Company estimates, based upon current information, that its future
remediation and other environmental costs, including groundwater and other
possible third party claims, will be between approximately $20 million AND $32
million, depending both upon the ultimate extent of the environmental

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                     KAISER VENTURES INC. AND SUBSIDIARIES


remediation and the cleanup effort involved and which approved remediation
alternatives are eventually selected.

  Although ongoing environmental investigations are being conducted on the
Company's property and the Company has recorded a $31.5 million environmental
remediation liability that it believes is a reasonable estimate of future
remediation and other environmental costs, there can be no assurance that the
actual amount of environmental remediation expenditures incurred will not
substantially exceed those currently recorded or that additional areas of
contamination may not be identified.  Accordingly, future facts and
circumstances could cause these estimated liabilities to change significantly.

  The Company anticipates recovery of the remediation costs incurred through
redevelopment of the property, primarily in connection with specific
redevelopment projects or joint ventures.  Further, the Company has provided
certain financial assurances to the DTSC in connection with the anticipated
remediation activities, the primary one being the dedication of approximately
$5.5 million of Kaiser's Union Bank Credit facility.

  Finally, as disclosed in the Company's 1996 Form 10-K Report, the City of
Ontario, California commenced litigation against the Company alleging that the
Company has contaminated one of its municipal wells.  The Company believes
sufficient amounts have been accrued for this contingency.

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                     KAISER VENTURES INC. AND SUBSIDIARIES


                                    PART II


ITEM 1.  LEGAL PROCEEDINGS

  As discussed in the Company's Form 10-K Report for 1996, the Company is
engaged in certain claims and litigation, which if resolved adverse to the
Company or the Company's interests, would have a material adverse impact on the
Company.  There were no material developments in any legal proceeding in the
first quarter of 1997.


ITEM 2.  CHANGES IN SECURITIES

      None.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

      Not applicable.


ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

      None.


ITEM 5.  OTHER INFORMATION

      See the "Introduction" Section of this Form 10-Q Report.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      A.  Exhibits
          --------

          Exhibit 10.1 - Purchase Agreement and Escrow Instructions dated April
          9, 1997, between the Company and Budway Enterprises, Inc.

          Exhibit 27 - Financial Data Schedule for first quarter 10-Q.

      B.  Reports on Form 8-K.
          --------------------

          None.

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                     KAISER VENTURES INC. AND SUBSIDIARIES

                                   SIGNATURES

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

                                       KAISER VENTURES INC.



Dated:  May 13, 1997                   /s/ James F. Verhey
                                       -------------------
                                       James F. Verhey
                                       Principal Financial Officer

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